A separate day book and ledger are to be maintained for the details of goods sent out on consignment The auditor should verify the following.
1. The price of the goods sent out by checking the proforma invoices.
2. Expenses incurred relating to sales such as transport, insurance, etc.
3. The Account sales sent by the consignee for the purpose of examining the sale price of goods sold and related expenses.
4. In the case of stock sent out on invoice price, that the ‘load’ that is included in the closing stock is duly reversed.
Vouching of Hire Purchase sales
The auditor has to make sure that the profit is taken into account only after realizing the installment of sales price i.e., the profit arising out of an hire purchase sale is to be distributed proportionately over the period of hire purchase sales.
If the entire profit is credited fully in the years of sale, the auditor should ensure that a provision is created that is equal to the amount of unaccrued profit and the same is adjusted against the hire debtors.
Vouching of Sales Returns
When the goods sold are returned by the customers, the organization issues a credit note to the customers. On the basis of the credit note, accounting entries are passed in the books. When the goods are received back from the customers, the entries are made in the Goods Inward Book kept at the factory gate.
Role of an Auditor in vouching Sales Returns
While verifying the sales returns, the auditor should examine the following aspects—
1. That the goods returned are in fact defective or damaged and damage of goods has not occurred after the despatch of goods to the customer.
2. That there is no long time gap between the date of sale and date of return and the customer has not returned the goods to take advantages of fall in price.
3. That the goods returned entry is not a bogus entry made to reverse fictitious sales accounted earlier. There is a possibility of misappropriation of amount collected and crediting the customer’s account with allowances, rebates and sales returns. Therefore, the auditor should verify that each credit to customer in the form of allowance/ rebate and sales returns are duly authorized by a responsible officer.