Vouching of Cash Book Every Thing You Need to Know

Vouching of Cash Book; Cash book is an important financial book for a business concern. Mostly errors and frauds arise in connection with receipts and payments of cash by making misappropriation. Therefore auditor has to ensure that no receipt or payment of cash is unrecorded in the cash book and no fictitious payment has been entered in it.

Objects of Cash Book

• To ensure that all receipts are accounted for.
• To ensure that all receipts and payments have been properly entered in the cash book.
• To ensure that no fraudulent payments have been made.
• To ensure that payment has been made to right person.
• To ensure that payments made are true payment.
• To verify the cash in hand.
• To verify the cash at bank.

Vouching of receipt side of cash book

1. Cash sales

According to Lancaster, “Vouching of sale is more difficult than that of purchases.” There are many chances of fraud under this head and so much care should be taken. To avoid the chances of fraud the auditor must check all the available evidence exhaustively. The following point should be considered while vouching cash sales.

• To check cash memo and daily sale summary.
• To check the daily totals of receiving cashier’s cash book.
• To check the number of cash memo.
• If cash register is used in the concern the auditor should check the daily totals recorded in the cash book with the till rolls. (Vouchers Carbon Duplicates of Cash Memo, Cashier’s – Summaries and Salesmen’s Abstracts)

2. Receipts from debtors

Cash received from debtors is to be verified with counterfoils of receipts issued to them. There are possibilities to show less cash than actual receipts, concealment of receipts and issue of receipts from unused counterfoils. Hence the auditor has to examine the internal check system with regard to sales system of credit control. The auditor should ascertain the basis for settling credit limits and the terms and the persons authorized to sanction credit.

While vouching receipts from debtors the auditor should consider the following points:

• Receipts issued

The auditor should vouch the counterfoil of receipts with entries in the cash book.

• Outstanding balance

The auditor should check the debtor’s ledger to find out any outstanding debts.

• Corresponding with debtors

The auditor should correspond with the debtors and obtain a copy of their record and ascertain the correct balance.

• Discount allowed

Special attention should be given to the discount given and allowances for bad debts.

• Enquire the discrepancy

Any discrepancy revealed should be thoroughly enquired

• Salesmen collection

Cash allotted through sale of goods by the salesmen may not be allowed to keep with themselves. The cash must be collected by à responsible officer and deposited with cashier.

• Salesmen commission

The salesmen commission is deducted from cash collected by them and commission should be paid on monthly basis.

• Sales return

Sale return must be deducted from debtors which may cause to reduce the balance of account receivable.

• Bad debts recovered

The auditor should vouch the bad debts recovered. The amount collected should be checked with cash book entry and it should be checked with cash book entry and it should be transferred to profit and loss account.

3. Interests and dividends

The auditor should consider the following points while vouching the income received from interest and dividend:

• Check the interest account

He should check the cash book, interest account and personal account.

• Check the investment ledger

He should check the investment ledger usually maintained in the business concern.

• Interest and dividend received

He should examine that all the interests and dividend have been received at due dates and they have been duly accounted for

• Rate of interest

In case the rate of interests and dividends are fixed he should calculate and check them.

• Collection through bank

If the collection of interest or dividend is made through bank the bank statement should be checked.

• Accrued interest

The auditor should check the advance and accrued interest very carefully. (Vouchers (a) for interest bank statement, agreement, schedule, counterfoils. (b) For dividend counterfoils, dividend warrants pass book)

4. Bill receivable

All detail about bill receivable should be available in the bill receivable book. The receipt for bill receivable can be in two ways.

• Receipts from bill discounted

The bill receivable which have been discounted and have not matured at the date of balance sheet. The cash so received should be properly entered in the cash book. The amount deducted for discount on such bills should be separately debited in the discount account. Contingent liability in respect of such bill should be shown on the balance sheet.

• Receipts from bill matured

The cash receipt from bills available in respect of which the amount has been received on maturity dates should be checked by comparing the bill receivable book with the cash book and pass book. Special inquiry should be made about bills which have matured but the amount in respect thereof has not been received. Such bills might have been retired or dishonoured.

It is possible that such bill might have been paid but their proceeds might have been misappropriated by the cashier. The auditor should consider the following points while vouching bill receivable:

Vouching of amount received: He should compare cash book and pass book with bill receivable to verify that the amount has been received on the due date.

Bill matured but not collected: The auditor must make enquiries about bills which have matured but the amount has not been received for them.

Discount allowed: The auditor should see that the record have been properly made in the book related to discount, dishonor or retirement of bill – Vouchers Bill Receivable Book, Cash Book, Pass Book.

5. Rent receivables

The auditor should consider the following points while vouching rent receivables:

• Rent register

They should ask to his client to prepare rent register or maintain rent rolls in which the amount of every tenant is maintained.

• Lease agreement

The auditor should examine the lease agreement with the tenants, to note the rent receivable the due date and provision for repairs or other allowances.

• Counterfoils of receipts

The auditor should examine the counterfoils of rent receipts with the cashbook.

• Arrears if any

He should enquire into the arrears of rent if any.

• Agents statement

Rent received through the collecting agents shall be vouched with statement of summaries prepared by the collecting agents.

• Outstanding rent

If rent is outstanding for a long period the explanation should be sought for to find out whether it is genuine. (Voucher-Lease deeds, and agreements, rent rolls, account received from the agent’s counterfoils correspondences etc.)

6. Commission received

While vouching commission received, the auditor should consider the following points:

• Commission account

He should check the commission account with the accounts of the parties from whom commission has been received.

• Rate of commission

He should examine the agreement with the parties for the rate of commission.

• Counterfoils of receipts

He should examine the counterfoils of the receipts with the amount in the cash book.

• Accuracy of amount

He should make calculation to check the accuracy of the amount. Vouchers- Agreement, Counterfoil of receipts etc.

7. Sale of investments

While vouching the sale of investment the auditor should consider the following:

• Broker’s sold note

He should consider the Broker’s sold notes to vouch the proceeds from the sale of investments.

• Bank invoices

If they have been sold through the bank the auditor should examine the bank invoices.

• Capital and revenue

If the investment has been sold out cum-dividend, the auditor should see that the proceeds have been properly apportioned between capital and revenue receipts.

8. Insurance claim

While vouching the insurance claims the following points should be considered:

• Insurance policies

The auditor should examine the insurance policies carefully ascertain the terms of claims.

• Claim register

He should check the claim register.

• Receipts against claims

He should examine the insurance money received from an insurance company against the claim of the firm with the help of correspondence. (Vouchers Accounts & Correspondence)

9. Subscription received

The following points should be taken into account while vouching subscription received.

• Counterfoil of receipts

The auditor should check the subscription received with the counterfoils or carbon copies of the receipts issued to the members.

• Compare with member register

He should compare a reasonable number of entries with the register of subscribers or members.

• Outstanding subscription

Care should be taken to see subscription due but outstanding and the same should be brought into account. (Voucher Register of subscriptions, counterfoils)

10. Receipts from hire purchase

While vouching receipts from purchase the following points should be cared for:

• Hire purchase agreement

The hire purchase agreement should be examined in detail so as to ascertain the duration of the agreement, the amount of installments and the total number of installments payable by the close of the period the account of which are under audit.

• Amount of interest

The auditor has to keep in mind that the installment includes interest amount.

• Apportionment of interest

He should note that the whole amount of an installment is not credited to sale account and it has been properly apportioned between sale and interest. (Vouchers Hire Purchase Agreement, Counterfoils of Receipts)

11. Proceeds from sale of fixed assets

Whenever fixed assets such as land building machinery, furniture etc. is sold correspondence is made with the parties who are willing to purchase them. Usually, fixed assets are sold through a broker or an auctioneer. For vouching sale of fixed assets the auditor should take the following points into mind:

• Fixed asset account

He should vouch fixed assets sales with correspondence other account, sale contract, minute of Board of Director or other evidence available.

• Auctioneer’s account

If sold through auctioneer’s account should be examined by the auditor. (Vouchers -Auctioneer’s Note Book or Broker’s Sold Note, Sale Deed, Correspondence)

12. BAD DEBTS DIVIDENDS

The auditor should take the following points into consideration while vouching the bad debts dividends.

• Counterfoils of dividend warrants

The auditor should vouch them by examining counterfoils of the dividend warrants.

• Rate of dividend

He should ascertain the amount of debt and rate of dividend from it.

• Properly recorded

He should also see the accurate amount has been received and entered in the books.

(Vouchers-Counterfoils)

13. Share capital

While vouching the share capital, the auditor should consider the following points:

• Partnership deed

For partnership firm it should be seen that the amount shared by each partner is according to the partnership deed.

• Share issue for cash

He should carry out audit of shares issued for cash taking the important points into consideration.

• Issuance of shares other than cash

The auditor should adopt the special procedures regarding the shares issued for consideration other than cash.

• Issuance of share warrants

The auditor should examine that the share warrants have been issued in accordance with the provisions of companies ordinance.

• Redemption of share capital

He should see that proper note has been given in the balance sheet under the head share capital with regard to various terms and conditions for the redemption of preference share. (Vouchers Partnership deed, Memorandum of Association and Articles of Association)

Vouching of payment (credit) side of cash book

After having dealt the debit side of cash book, the auditor being satisfied moves towards credit side of the cash book. The auditor should vouch the payment (credit) side of the cash book very cautiously. He should pay special attention to the following points:

• The payments are concerning the transactions relating to the business.
• The payments are relating to the period under audit.
• If all payments are authorized.
• The payments have been duly received by the payee alone.
• The correct records have been made in cash book.

The various cash payments should be vouched as follows:

1. Cash purchases

The auditor should consider the following points while vouching cash purchases:

• Goods purchased

The auditor should see that goods paid for have actually been received.

• Entry in cash book

He should examine the entries in the Cash Book with the help of Cash Memos or receipted invoices issued by suppliers and also the Goods Inward book or stock ledger.

• Examine the genuineness

For cash purchases, he has especially to examine the genuineness of purchases, receipts of goods and also the relevant vouchers.

• Net amount paid

It is to be seen that only net amount (ie, purchase minus trade discount) has to be carried to the books of account. (Vouchers-Cash Memos, Goods Inward Book.)

2. Payments to creditors for goods purchased

While vouching payments to creditors for goods purchased, the auditor should consider the following points:

• Duly authorized

He should see that purchases are duly authorized and vouch them with Cash Memos.

• Check the invoices

He should see that the invoices are duly checked.

• Check the receipts from auditors

For vouching the payments to creditors for credit purchases the receipts from creditors acknowledging the amounts received by them should be checked by the auditor.

• Periodical statement

He should enquire if periodical statements are sent by creditors. (Vouchers-Receipts, Statement of Accounts, Minutes, Contracts)

3. WAGES

The auditor has to find out whether any mechanical devices are adopted in the preparation of Wage Sheets. The vouching of this item largely depends upon the system of internal check in existence. The auditor can develop a standardized internal questionnaire and obtain the information regarding internal control in existence.

Generally, the questionnaire throws light on the factors relating to employment of staff, fixing of pay, preparation of wage sheets, method of payment of wage, recording of the attendance of the workers, payment of incentive and bonus, control of leave, deductions from wages and distribution of pay packets.

After satisfying the system of internal check the auditor has to proceed with vouching of wages. Where there is an effective system in existence it is sufficient for the auditor to satisfy himself that the wage sheets are prepared and checked properly and independently by the office staff. The auditor should see that the amount of wage drawn for each month tallies with the total wage sheet and corresponding payments.

Generally, the auditor has to do the following while vouching wages:

• Internal check

He has to depend upon the system of internal check for wages to a great extent. If he is not satisfied with the method adopted he must suggest the concern to follow the correct method.

• Examine the system of wages

He must check the wages sheet which include entries from piece-work cards, lime work cards, records of casual labor, overtime payments, advance payments, or fines if imposed.

• Examine the wages sheet

He should examine that wages sheets which includes duly initialed by those who prepare them and countersigned by the officials.

• Agree with cash book

He should also tally the totals with cash book.

• Adjustment of advances

He should check that the deduction for firms, advances etc. have been duly adjusted and recorded in the book. (Vouchers-Wages Records, Job Cards, Wage Sheets, etc.)

4. Salaries

For vouching salaries the auditor should consider the following points:

• Salary book

He should vouch salaries with salary book.

• Countersigned by officer

He should examine that it has been duly signed by each employee and countersigned by the responsible official.

• Minute book

He should examine the Board’s Minute Book for the salaries of Secretary, Manager or other senior officials.

• Insurance register

The Employees’ State Insurance Register should be tallied for salaries and contribution.

Vouchers-Salary Book, Agreements, Appointment Letters, Minutes, Counterfoils of cheques).

5. Commissions

The following points should be taken into account while vouching commissions:

• Check the agreement

The auditor should examine that the commission is calculated on the basis of agreements.

• Rate of commission

He should check the calculations with the rate.

• Record of commission

He should see the records of commission if it is based on percentage of sales. (Vouchers-Agreements, Statement of Accounts.)

6. Travelling expenses

For vouching travelling expenses the auditor should take the following points into account:

• Condition for grant

He should see the rules and conditions for granting travelling allowance.

• Connected with business

He should check that these expenses are connected with the business alone and have not been paid in advance.

• Traveling expense voucher

He should examine the vouchers for travelling expenses,

• Authorized by article

He should see that directors are not entitled to travelling allowance unless authorized by Articles of Association. (Vouchers-Bills, Receipt etc.)

7. Bill payable

In case of bills payable the auditor should vouch the following points:

• They should be checked with the bills returned by the payees.
• If paid through bank, pass book should be seen. (Vouchers Bills Payable Book, Pass Book, Receipts, Bills Payable Returned.)

8. Partners drawings

To vouch the partner’s drawings the auditor should see the following points:

• He should vouch partners drawings the Memorandum. Drawing Book or Partners’ Drawing Book.
• He should see that it is duly initialed by the partners.
• He should also examine the Partnership Deed to ascertain the rules of drawings by partners.
• He should examine that the rules of drawing have been followed. (Vouchers Memorandum Drawing Book, Partners’ Drawing Book, Partnership Deed.)

9. Capital expenditure

Payments made for the purchase of fixed assets are of the nature of capital expenditure. Such expenditures should be carefully recorded in the books of accounts and treated whether as revenue or capital.

We can refer to some of the relevant items pertaining to capital expenditure.

Freehold and leasehold property

To vouch freehold and leasehold property the auditor should examine the following points:

• Title of property

He should examine the document of title of property purchased.

• Statement of account

If purchased through a broker, his statement of account should be referred to.

• Auctioneer account

If purchased through auction, the auditor should vouch the accounts of auctioneer.

• Commission paid

Various expenditures incurred, such as, brokerage, commission of auctioneer, legal charges etc. should be vouched by their respective accounts. (Vouchers Title Deed, Lease, Auctioneer’s Note, Broker’s Note, Contract)

Purchase of building

In case of purchase of buildings, the auditor should examine the following points!

• Agreement of sale

In case any building has been purchased the auditor should vouch it with agreement for sale. Title Deeds or receipt for the money paid.

• Contract with builder

In the case building has been constructed under a contract, the auditor should examine the actual contract.

• Construction expenditure

If the buildings have been constructed by engaging labor, he should properly examine the expenditure incurred on building material purchased, cartage paid, wages paid to the workers. (Vouchers Title Deed, Lease, Auctioneer’s Note, Broker’s Note, Receipts, Contract, Certificate of Architect.)

Plant and machinery

The auditor should vouch the following points in case of plant and machinery:

• Receipt from vendor

He should examine the receipts from the vendors.

• Invoice from vendor

He should examine the invoice from the vendors.

• Hire purchase agreement

If purchased from auction, the auditor should examine the auctioneer’s accounts.

If purchased under the ‘Hire purchase agreement’ the auditor should carefully examine the agreement and the related vouchers. (Vouchers – Receipts, Invoice, Auctioneer’s Account, Hire Purchase Agreement)

Patents and copyrights

In case of patents and copyrights the auditor should vouch the following points:

• Actual patents

He should examine the actual patents.

• Fee paid to agent

He should examine the agent’s accounts to verify the fees paid to him.

• Capitalization of fee

The fees paid to him should also be capitalized.

• Renewal fee

He should also examine the renewal fees paid and see that renewal fees are not capitalized. (Vouchers – Agreement, Receipts, Agent’s Account.)

Investments

The auditor should vouch the following points in case of investments:

• Broker’s bought note

He should examine the Broker’s Bought. Note and receipts.

• Securities mold

He should examine the securities themselves wherever it is possible.

• Share certificate

In case the investment has been made in old shares, share certificate should be examined.

• Payment through bank

He should examine the Pass Book, if payments have been made through the bank.

• Property authorized

If it is a case of new issue letters of allotment, share certificates, etc. may be examined. It is needless to say that the purchase of investments should be properly authorized.

• Certificate from bank

If the investments consist of inscribed stocks, the certificate from the bank should be obtained. (Vouchers-Broker’s Bought Note, Pass Book, Letters of Allotment, Share Certificates, etc.)

Loans

In order to vouch loans, the auditor should consider the following points:

• Authority for loan

He should examine the authority to make loans, etc.

• Agreement of loan

He should examine the loan agreement to ascertain the terms of loan.

• Title deed

He should also examine the Title Deeds of the security.

• Approval for loan

If loans have been given to the directors, he should examine that the approval has been obtained. (Vouchers-Agreement, Title Deed etc.)

10. DIRECTORS’ FEES

In case of Directors’ fees the auditor should vouch the following points:

• Remuneration

He is to check if the Articles of Association prescribe for him the remuneration.

• Check the minute book

He should examine the Attendance Register of the Board of Directors or Minute Book or Resolutions passed to that effect in the general meeting.

• Agreement for commission

For the payment of commission to the Directors, the auditor should check the agreement to find out the calculation of profits.

• Shown in profit loss account

He should see that the fees or remunerations paid to Directors are shown in the Profit and Loss Account separately.

• No misappropriation

If a Director has not taken or forgone his fee, the minute book should be referred by the auditor so that no misappropriation is done. (Vouchers Minute Book, Attendance Register, Articles of Association, Resolution of shareholders.)

11. Dividends

The payment of dividends can be examined with the help of dividend warrants returned. If the payment is made through the bank Dividend Warrants and Pass Book may be compared. The amount of unclaimed dividend should tally with the balance given in the Pass Book on this account. (Vouchers-Dividend Warrants, Pass Book, etc.)

12. Insurance

For payment made on account of insurance premiums, the receipts from the insurance company and the policy itself may be examined. In case of renewal, the renewal receipt for the premium should be referred to.

The auditor should call for a schedule of all the policies if their number is large and check them accordingly. (Vouchers-Insurance Policy, Receipts.)

13. Petty cash book

For vouching Petty Cash Book, the auditor should examine the following points:

• Internal check system

He should see the system of internal check existing for petty cash.

• Responsibility for inadequacy

He should disown any responsibility to the client if the system of internal check for the petty cash is inadequate.

• cheque drawn

The cheques drawn for petty cash should be vouched from the credit side of Cash Book to debit side of Petty Cash Book.

• Validity of voucher

The auditor should be cautious about the validity of vouchers presented to him.

• Imprest system

The auditor should examine that the Petty Cash Book has been maintained on Imprest System properly.

• Postage stamp book

The auditor should consult the Postage Book for purchases of stamps.

• Cross cost

The auditor should examine cross casts and balances of Petty Cash Book.

• Balance of petty cash

He should also check the balance of Petty Cash in hand.

• Test checking

He may apply test checking in examining the petty cash vouchers at random since there may be innumerable small transactions.

14. Bank pass book

The auditor should vouch the following points while examining Bank Pass Book:

• Deposit and withdrawals

He should vouch carefully the deposits into or withdrawals from the Bank are recorded in the bank column of the Cash-Book.

• Counterfoils of pay-in-slip

He should vouch the deposits into Bank (which may be in the form of fixed, current or Saving Bank Deposits) with the counterfoils of pay in-slip book.

• Date of dispatch

He should examine that the dates of deposits entered into the Pass Book and Cash Book do not differ.

• Deposit prior to closing

He should be very much careful about the deposits made into the Bank prior to the date of closing of accounts.

• Counterfoils of withdrawals

He should vouch the withdrawals with the counterfoils of the cheque book.

• Cheque dishonoured

He should examine that the cheques dishonoured have been properly recorded in the Cash Book.

• Bank cheques

He should examine the Bank Pass Book for bank charges, interests, discounts or other incidental charges.

• Entries in cash book

He should be vigilant regarding contra entries in Cash Book.

• Obtain balances

He should obtain opening and closing balances from the bank.

• Bank reconciliation statement

He should check carefully the copy of Reconciliation Statement prepared by the client’s staff.

• Fictitious

He should guard against fictitious pass books being presented to him.

This is all about vouching of cash book.