Vouching of Cash book - Vouching, Auditing & Secretarial practice | Auditing and Secretarial Practice - B Com PDF Download

Vouching of cash book or cash transactions.

Cash transactions take place almost every day in business. An auditor should give care and attention to the vouching of cash transactions.

The main objectives of vouching of cash transactions are,

1. To ensure that all receipts of cash are duly accounted for.
2. To ensure that no improper payments are made.
3. To see that all receipts and payments of cash are actually and properly recorded.
4. To see that all payments have been made to proper persons and the payments are true payments.
5. To see that cash and bank balance correct and really exist.

Vouching of cash book or cash transaction covers the vouching of receipt side and vouching of payment side.

Vouching of receipt side or debit side of cashbook or cash receipt transactions:- 

Vouching of cash receipt transactions is more difficult than that of cash payment transactions, since there is greater chance of manipulation in regard to cash receipt.

The auditor should bear in mind the following points, while vouching the cash receipt transactions.

1. The auditor should carefully examine the system of internal check in operation with regard to cash receipt transactions.
2. An auditor can resort to test checking only if he has satisfied himself that there is an efficient system of internal check.
3. He should ascertain whether a diary of cash receipt or rough cash book has been in use. If a rough cash book has been in use, he should examine the entries in the rough cash book and compare with the entries in the ash book.
4. He should examine the methods of depositing daily receipts into the bank.
5. He should check the bank pass book with the entries in the cash book.
6. He should vouch cash receipts by reference to documentary evidences.
7. He should enquire into the system of allowing documents, the rate of discount allowed etc.
8. He should enquire into the bad debts written off. He should satisfy himself the bad debt written off are authorized by a responsible person.

 He should ensure whether there is a proper control over use of receipt book. In this context, he should keep in mind the following points:

1. All receipts are on printed forms.
2. See that receipt book should be consecutively numbered.
3. The receipts have to be signed by a responsible officer.
4. The unused receipt book should be kept in safe custody.
5. All spoilt receipts should remain attached to the counter foils.

Vouching of the important items on the debit side of the cashbook or cash receipt transactions. 

1) Opening balance:- The opening balance of the cash book should be vouched by comparing it with the closing balance of cash book as shown in the audited copy of the balance sheet of the previous year,

2) Cash sales:- The vouching procedure in regard to cash sales should be on the following lines:

1. He should examine the system of internal check in operation in regard to cash sales.
2. After ascertaining the efficiency of the internal check system as regards cash sales, auditor should vouch the cash sales as follows:

a) Cash memos written by the salesman should be checked with the summery sales prepared at the end of the day.

b) He should examine the rough cash book, if any.

c) He should check up the rough cash book with the main cash book.

d) The summaries of daily sales should be checked with the entries in the stock register.

e) He should verify the daily deposit of cash received into the bank, pay-inslip also should be vouched.

3) Receipts from debtors:-

While vouching the receipts from debtors, an auditor should bear in mind the following points:

1. He should enquire into the system of internal check in operation in regard to the receipt from debtors.
2. After satisfying himself about the efficiency of internal check in operation in regard to the receipt from the debtors, the auditor should conduct the vouching of receipts on the debtors on the following lines:

a) He should check the total cash received from the debtors by verifying the rough cash book with the counter foils of the receipts issued to customers.

b) He should check the cash book with the rough cash book.

c) He should check the details of cash and cheques paid into the bank.

d) He should enquire into whether bad debts are written off by a competent authority.

e) He should verify the balances due as per the schedule of debtors with letters of confirmation received.

f) He should be alert to the possibility of teeming and lading.

4). Receipts from bills receivable:-

Bills receivable include bills of exchange, promissory notes, and I.O.U’s received from debtors. The receipts from bills receivable can be in two ways:

1). Receipts from bills discounted

The vouching of receipts from bills discounted should be as follows:

a) The amount of cash received from bills discounted should be checked by comparing the bills discounted book with the cash book, pass book, B/R book.

b) See that proper records have been made in the books for discount on bills discounted.

c) He should determine the contingent liability in respect of bills discounted but not matured on the date of the balance sheet.

2). Receipts from bills matured

a) The auditor should check the cash received from bills matured by comparing the bills receivable book with the cash book and the pass book.

b) Special attention should be given to bills which have matured but remain unpaid.

5). Receipts from sale of investment

Vouching of receipts from the sale of investment should be on the following lines:

1. Investments are usually sold through brokers, as such, broker’s sold notes or contract notes should be examined to vouch the amount from the sale of investments. If the sale of investment has been effected through the bank, then, the bank advice should be examines to vouch the amount received from the sale of investments.
2. The sale proceeds of the investments should also be checked with the related investment account with the stock market quotations.
3. If the investment has been sold cum-dividend, the auditor should see that the sale proceeds are properly apportioned between capital and revenue receipt.
4. If the investment has been sold ex dividend, the auditor should see that the dividend is received and recorded.
5. He should see that the profit or loss on the sale of investment is properly adjusted.
6. If the investments are pertain to some ear marked funds, the auditor should see that the profit or loss on the sale is transferred to the ear marked fund a/c.

6). Receipt from the sale of fixed assets

Vouching of receipts from the sale of fixed assets should be on the following lines:

1. The auditor should see that the sale of fixed asset is properly sanctioned.
2. If the sale of fixed assets is through a broker, the proceeds of the fixed assets sold should be vouched with the help of sold notes. In the case of sale of fixed assets is through an auctioneer, the sale proceeds should be vouched with the help of the auctioneer’s note. He can verify the cash receipt in the cash book with the counter foil or carbon copy of the receipt issued to the party. He may also vouch the sale proceeds of fixed assets with the correspondence with the parties and the sale contracts and the fixed asset a/c.
3. He should see that proper fixed asset a/c has been credited with the sale proceeds.
4. If there is any profit, the auditor should see that it is credited to capital reserve.
5. In the case of certain prepaid expenses in respect of fixed assets, the auditor should check whether suitable adjustments are made in the expenses accounts.

7). Loan received

Vouching of loan received should be on the following lines:

1. He should ascertain that whether client is empowered to borrow money.
2. In the case of a joint stock company, he should verify whether the legal provisions have been complied with.
3. He should verify the loan agreement to ascertain the terms and conditions on which the loan has been received.
4. If the loan is secured, he should ascertain what security has been offered and the value of security offered.
5. He should ensure that the loan amount received is recorded in the books of account.
6. If the interest on loan is unpaid, the auditor should see that it is properly adjusted.

8). Dividend on investment

1. The auditor should verify the dividend received is recorded in the cash book with the counter foils of the dividend warrants.
2. To see that dividends have been received in the dates.
3. If the dividend is sold ex-dividend, see that dividends are subsequently received are entered in the cash book and credited to dividend account.

9). Subscription received

10). Insurance claim received

11). Commission received

12). Rent received

13). Royalty received 

Vouching of cash payments or credit side of the cash book.

While vouching cash payments, an auditor should pay attention to the following points.

1) All vouchers relating to cash payments should be serially numbered and properly arranged.

2) He should insist that the vouchers are properly dated.

3) He should evaluate the system of internal check in operation with regard to cash payments and satisfy himself as to the efficiency of the internal check.

4) He should see that:

1. The cash payments are for the purpose of the business.
2. Payments are related to the period under audit.
3. The payments is properly sanctioned or authorized.
4. The payments are made to the right person.
5. The payments are supported by proper vouchers.
6. The payments are properly recorded in the cash book.

5) Examine the rough cash book items and compare it with the main cash book.

6) See that the payments made are posted to the concerned accounts.

7) See that the amount appears in the vouchers both in words and figures and it agrees with the amount in the cash book.

8) Ensure that the payments have been passed as correct by a responsible official.

Vouching of different items on the payment side or credit side of the cash book

1) Opening credit balance The opening credit balance in the bank column can be verified from the previous year’s audited balance sheet.

2) Cash purchases The vouching of the cash purchases should be on the following lines.

1. The auditor should examine entries in the cash book with the help of cash memos or invoices issued by the supplier and also goods inward book.
2. Special attention should be paid to trade discount, which should be deducted from purchase.
3. See that the cash paid for the goods have actually received.
4. He should see that the purchases are duly authorised.
5. He should see that the amount paid is debited to the appropriate account.
6. To ascertain whether payment made for cash purchases relates to the business

3). Payments to creditors Vouching of payment to creditors should be on the following lines

1. Payments to creditors may be vouched with the receipts issued by the creditors.
2. He should check the amount due to the creditors with the accounts of the creditors.
3. Examine the goods inward book and see that goods have actually been received.
4. The auditor should verify the periodical statement of accounts.
5. In the case of purchase made before the close of the year, see that goods not actually received are kept out of the closing stock of the year.

4). Payment of bills payable Payment of bills payable on their maturity should be vouched on the following lines.

1. The payment of bills payable, as recorded in the cash book, should be vouched with the bills payable book and also with the bills payable returned by the payees.
2. If the bills payable are through the bank, the auditor should examine the bank pass book for the payment.
3. He should see that bills payable paid and returned by the payees are cancelled.

5). Vouching of loans advanced  Loans advanced should be vouched by the auditor on the following lines.

1. He should see that loans advanced are properly authorised.
2. He should examine the loan agreement.
3. He should vouch the loan advanced as recorded in the cash book with the loan agreement also with the receipt given by the borrower.
4. If the loan is advanced against any security, the auditor should examine the security and its title deeds.
5. Examine the mortgage deed, if the loan is advanced against mortgage.
6. See that the provisions of the companies Act as regards the granting of loans to directors and officers of the company are complied with.

6). Purchase of investment Vouching of purchase of investment should be on the following lines.

1. The auditor should see that the purchase of investment is properly authorised.
2. If the investments are purchased through a broker, he should vouch the investments purchased with the broker’s note.
3. If the investments are purchased through the bank, he should examine the bank pass book to check the payment.
4. He should make a physical verification of the investment purchased.
5. If the investments are purchased cum interest, he should see that the payment made is properly allocated between capital and revenue.
6. See that investments purchased are registered in the name of the client.
7. In the case of accompany, the auditor should see that investments have been purchased in accordance with the provisions of the companies Act.

7). Payment of capital expenditure The payment of capital expenditure refers to the payment made for the acquisition of the fixed assets such as land & building, plant & machinery, patent, copy right, furniture etc.

Vouching of payment of capital expenditure should be on the following lines.

1. The auditor should see that the payment of capital expenditure is properly authorised.
2. He should examine the document pertaining to the purchase and ownership of the fixed assets.
3. He should examine the invoices and the receipts obtained from the suppliers to ensure that payments have been made.
4. He should see that all expenses incurred for the acquisition are capitalised.
5. He should see that repairs and maintenance expenses incurred are charged to revenue account.
6. He should physically examine the fixed assets purchased.
7. He should vouch the cash boom entries for the payment of capital expenditure with the concerned ledger account.
8. See that property purchased is registered in the name of the client.

Vouching of payment made for the acquisition of patents

Vouching of payments made for the acquisition of patents should be on the following lines.

1. If the patent has been purchased, the auditor should vouch the payment made for the patent with the help of the contract for sale and the receipts for the payment obtained from the seller.
2. If the patent has been purchased through an agent, the auditor should vouch the agent commission with the help of agents account and receipt given by the agent. He should see that the agent’s commission is capitalized.
3. He should see that expenses incurred on the purchase of the patent are capitalized.
4. Where the patent is acquired through research, the auditor should see that all the expenses incurred on the experiments and the research connected with patents are capitalized.
5. He should see that payments made towards the renewal fee are charged to revenue account.
6. He should actually see the patent.