Vouching of Receipt Side or Debit Side of Cash Book | Vouchers to be vouched

Vouching of Receipt side or Debit side of Cash book

The receipt side or the debit side of the cash book contains items such as opening balance, cash sales, receipts from debtors, receipts from bills discounted and bills matured, income from investments, sale of investments, sale of fixed assets, loan received, and miscellaneous receipts, etc.

We shall now discuss the vouching of items, which appear in the debit side of the cash book briefly as below:

1. Opening Balance:

First of all, the opening balance on the debit side of the cash book should be compared with the balance shown in the last audited Balance Sheet to ensure that actual balance has been brought down.

Voucher to be Vouched – Last Audited Balance Sheet.

2. Cash Sales:

There are greater chances of fraud under this head and so much care should be taken. There is a possibility that salesmen sell goods and do not make entries in the cash book and misappropriate the money. In order to avoid this type or fraud, it is suggested that the following system should be adopted:

1. Salesman should not be allowed to receive cash from customers and a person other than the salesmen should be asked to deliver the goods.

2. He should be directed to prepare four copies of the memo of the goods sold, of which three copies are to be handed over to customer; and he has to keep one copy with him.

3. The customer goes to the counter with three copies. The cashier receives the payment and retains one copy with him and the other two copies of the cash memos are returned to the customer with “Cash Received” or “Cash Paid” seal.

4. The gatekeeper collects and retains the fourth copy with him who hands over the goods to the customers.

5. At the end of the day the salesman, cashier, and the gatekeeper prepare summaries and send them to the General Manager.

In vouching the cash sales, cash register should be fully checked with carbon copies of cash memos. Then, the auditor should verify the daily deposits of cash received in the bank. Dates of cash memos and date on which the receipts are recorded in cash book must be same.

Where the cash memos are cancelled, all copies including the original copy duly cancelled, should be kept in the book. Where the company has a discount policy, if more discount is allowed in a transaction, a responsible officer must approve it.

Vouchers to be Vouched — Duplicate Cash Memo, Salesman’s Abstracts, and Cashier Summaries.

3. Cash Received from Debtors:

When cash is received from customers, a cash memo is issued; the receiving clerk retains a counterfoil or carbon copy of such cash memo. The counterfoil is the only proper documentary evidence available for vouching. So the cash received from debtors can be vouched with reference to the counterfoils of the receipts issued to them. However, this is not a reliable voucher as frauds are usually committed in the following ways:

1. Entering loss amount in the counterfoil than what is actually received from a debtor.

2. Recording less amount on the debit side of the cash book.

3. Issuing a receipt from the unused books. This is possible when they are not kept in safe custody.

4. “Teeming and Lading” or “Lapping”.

Teaming and Lading or Lapping

In the words of Prof. Meigs,

“Lapping may be defined as concealment of a shortage by delaying the recording of cash receipts”.

It involves misappropriation of cash received from customers. Under this method when cash is received from a customer, say “A” the cashier makes no entry in the cash book, and he misappropriates this money. Later on when cash is received from “B” the amount is recorded on the debit side of the cash book by crediting the account of “A”. Again when money is received from “C”, the amount is credited to “B”s account and so on. By delaying in recording and replacing of amount the cashier misuses business money.

This practice of replacing of money and delaying in recording receipts continues and it will be a never-ending process. It is possible that he may not be able to replace the amount and force to do bigger frauds.

Such practices are common and auditor can check them by examining the rough cash book, counterfoils of the pay in slips and confirmation certificate, and remittance statement received from customers.

Vouchers to be Vouched — Counterfoils, Correspondence, etc.

4. Receipts from Bills Receivable:

All particulars regarding bills receivable can be obtained from Bills Receivable Book. The receipts from bills receivable are of two types such as

Receipts from Bills Discounted:

In case of the bills receivable, which have been discounted but have not matured at the date of the Balance Sheet, the cash received by discounting 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 bills should be shown on the Balance Sheet.

The auditor should verify cash received for bill discounted with cash book and also verify Bill Receivable Book and pass book. The auditor should ensure that the amount deducted for discount on such bill, is shown separately by debiting in the discount account.

Receipts from Bills Matured:

The auditor should check the cash receipts from bills matured. He should compare it with Bill Receivable Book, cash book, and pass book. Special enquiry should be conducted, as to the bills, which have matured but the amount in respect of which have not been received. Such bills have been dishonored or returned. It is possible that such bills might have been paid but the cashier might have misappropriated these proceeds. In order to discover this kind of fraud the auditor should examine the bill.

Vouchers to be Vouched — Bills Receivable Book, Cash Book, and Pass Book.

5. Rent Receivables:

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

1. If the client has a large number of properties given out on rent, the auditor should ask his client to prepare Rent Register, which maintains account of every tenant.

2. The auditor should examine the Lease Agreements entered into with the tenants in order to note down the rent receivable, the due date and provision for repairs or other allowances, etc.

3. The auditor should examine the counterfoils of rent receipts issued to tenants with the cash book.

4. He should enquire into the arrears of rent, if any. He should confirm it with the tenants with the previous consent of the client.

5. If rent is collected through the collecting agents, it shall be vouched with statement or summaries prepared by the collecting agents.

6. In case of long outstanding rent, the explanation should be sought for to find out the genuineness of the outstanding.

Vouchers to be Vouched — Lease Deeds and Agreement, Rent Rolls, Accounts received from the Agents, Counterfoils, and Correspondence, etc.

6. Commission Received:

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

1. He should examine the agreements for receiving commission as to the rate of commission.

2. He should check the commission account with the accounts of the parties from whom the client receives the commission.

3. He should verify the counterfoils of the receipt with the amount in the cash book.

4. He should do the calculations of commissions as per the terms of agreement to check the accuracy of the amount.

Vouchers to be Vouched — Agreement, and Counterfoils.

7. Income from Interest:

Interest received on the securities can be vouched from covering letters received along with the cheques/D.Ds and Schedule of securities. If interest is received on fixed deposits, it can be verified from the bank pass book.

If the interest is received on the loan granted to a party, it can be checked from the agreement entered into and counterfoil of receipt issued.

The auditor should ensure that all interest received and accrued have been accounted for ‘in the books and properly shown in the Balance Sheet.

Vouchers to be Vouched — Pass book, Agreement, and Counterfoils.

8. Income from Dividend:

While vouching dividends received for the shares held by the client, the auditor should check dividend warrant, counterfoil and covering letter received along with the cheques. In case the dividend is collected through bank, amount should be verified with the bank statement. Where the dividend warrant has been received and is not yet collected by the bank it should be shown as cheque yet to be collected.

Vouchers to be Vouched — Counterfoils, Dividend Warrants, and Pass Book.

9. Loans:

In case, the company obtained any loan, its receipt should be vouched with the agreement entered into with the lender. The auditor should see whether his client is entitled to raise loan. He should examine the rate of interest payable, the terms of repayment, and the security offered, etc. The auditor should see whether security offered is indicated in the Balance Sheet and the interest due but not paid at the Balance Sheet date is adjusted in the accounts.

Vouchers to be Vouched — Legal Provisions, Agreement, and Value of Security Offered.

10. Sale of Investments:

The amount received due to the sale of investments should be vouched with the broker’s sold note. If they have been sold through bank, bank advice should be examined. In case they have been sold “Cum-dividend”, he should see whether the dividend is received later and that the sale proceeds are apportioned properly between capital and revenue.

Vouchers to be Vouched — Bank Advice, and Broker’s Sold Note.

11. Bad Debts Dividends:

The auditor should vouch the amount received from the debtors who have become bankrupt by examining the counterfoil of the dividend warrants or other related documents. He should ascertain the amount of debt and the rate of dividend from it. He should also see that the accurate amount has been received and entered in the book.

Vouchers to be Vouched — Counterfoils

12. Subscriptions Received:

Subscriptions received.by a club or school, etc. should be checked with the Register of subscribers and the counterfoils of the receipts. Care should be taken to see subscription due but outstanding and the same is brought into account.

Vouchers to be Vouched — Register of Subscriptions, and Counterfoils.

13. Insurance Claim Money:

In case of insurance money received against a claim from an insurance company the auditor should examine the insurance policies carefully to ascertain the terms of claims. He should also check the claims register. He should examine the insurance money received from an insurance company against the claim made by the client with the help of correspondence.

Vouchers to be Vouched — Accounts, and Correspondence.

14. Share Capital:

In case of firms, the Partnership Deed should be examined to find out the amount of capital contributed by each partner.

15. Sale of Fixed Assets:

In case of sale of fixed assets, the auditor should vouch fixed assets sold out with correspondence, sale contract, Minute of Board of Directors or other evidence available. If sold through auction, the auditor should examine the auctioneer’s account.

Vouchers to be Vouched — Auctioneer’s Note or Broker’s Sold Note, Sale Deed, and Correspondence.

16. Income from Hire Purchase Agreement:

Where money is received on account of installment relating to goods on hire purchase system, the auditor should examine the hire purchase agreement 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 auditor has to keep in mind that the installment includes interest also. He should note that the whole amount of an installment is not credited to sales account and it has been properly apportioned between sales and interest.

Vouchers to be Vouched — Hire Purchase Agreement, and Counterfoils of Receipts.

17. Miscellaneous Receipts:

Receipts other than specifically dealt with above, should be vouched with the help of related documents, agreements or correspondence.

Vouchers to be Vouched — Related Documents, Agreements, or Correspondence.