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    Bad Debts Recovery

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    Thilaga Senthilmurugan
    The document discusses the definition and verification of outstanding expenses. Outstanding expenses are expenses that are due but not yet paid, such as wages or rent for the current month that will be paid in the following month. To verify outstanding expenses, the auditor obtains a list from the client, examines supporting documents, checks for accurate estimation methods, compares to previous year amounts, and ensures expenses are properly reported as current liabilities. Verifying outstanding expenses is important for the auditor to confirm the accuracy and completeness of expenses belonging to the reporting period.

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    Bad Debts Recovery

    Uploaded by

    Thilaga Senthilmurugan
    1K views6 pages
    The document discusses the definition and verification of outstanding expenses. Outstanding expenses are expenses that are due but not yet paid, such as wages or rent for the current month that will be paid in the following month. To verify outstanding expenses, the auditor obtains a list from the client, examines supporting documents, checks for accurate estimation methods, compares to previous year amounts, and ensures expenses are properly reported as current liabilities. Verifying outstanding expenses is important for the auditor to confirm the accuracy and completeness of expenses belonging to the reporting period.

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    The document discusses the definition and verification of outstanding expenses. Outstanding expenses are expenses that are due but not yet paid, such as wages or rent for the current month that will be paid in the following month. To verify outstanding expenses, the auditor obtains a list from the client, examines supporting documents, checks for accurate estimation methods, compares to previous year amounts, and ensures expenses are properly reported as current liabilities. Verifying outstanding expenses is important for the auditor to confirm the accuracy and completeness of expenses belonging to the reporting period.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views6 pages

    Bad Debts Recovery

    Uploaded by

    Thilaga Senthilmurugan
    The document discusses the definition and verification of outstanding expenses. Outstanding expenses are expenses that are due but not yet paid, such as wages or rent for the current month that will be paid in the following month. To verify outstanding expenses, the auditor obtains a list from the client, examines supporting documents, checks for accurate estimation methods, compares to previous year amounts, and ensures expenses are properly reported as current liabilities. Verifying outstanding expenses is important for the auditor to confirm the accuracy and completeness of expenses belonging to the reporting period.

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    of 6

    Definition of Vouching:

    Ronald A. Irish has defined vouching as a technical term which refers to the inspection by the auditor of documentary evidence supporting and substantiating a transaction.

    Meaning of Vouching:
    The exercise of establishing and verifying the accuracy and authenticity of the accounting entries passed in the books of accounts with reliable evidences are technically called vouching. Thus, vouching means testing the truth of all the entries made in the books of accounts.

    Definition of Bad debts:


    Accounts receivable that will likely remain uncollectable and will be written off. Bad debts appear as an expense on the companys income statement, thus reducing net income. Most companies make a bad debt allowance. Since it is unlikely that all of their debtors will pay them in full companies whose sole business is lending money are more vulnerable to bad debts although most make provisions in their balance sheet for bad and doubtful debts. The only certain way to avoid bad debts is never to lend money, give credit or sell any goods and services.

    Meaning of Bad Debts Recovery:


    A debt from a loan, credit line or accounts receivable is recovered either in whole or in part after it has been written off or classified as a bad debt. Because it generally generates a loss when it is written off, a bad debt recovery usually produces income. In accounting, the bad debt recovery would credit the allowance for bad debts or bad debt reserve categories and reduce the accounts receivable category in the books. Not all bad debt recoveries are like-kind recoveries. For example a collateralized loan that has been written off may be partially recovered through sale of the collateral or a bank may receive equity in exchange for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profits.

    Contents of Auditing of Recovery of Bad Debts:


    The auditor should check the following points: 1) Supporting documentsThe bad debts recovered should be supported by

    i) ii)

    iii)

    Pay-in-slips for deposit in bank The debt might have been written off because the debtor had become bankrupt (insolvent).Subsequently the liquidator or official receiver managing the debtors property may give some amount to the creditors. Such amount is called dividend from the estate of the bankrupt person. In such case, dividend warrant from the official receiver will be the supporting document. The debt might be recovered in some cases by obtaining an order from the court.

    2) DateDate in the pay-in-slip, in the bank book and in the supporting document should tally and pertain to the current year. 3) Sr.No.Serial numbers on the bank receipt vouchers should be continuous and tally with those in the bank book. 4) AmountAmount in figures and words on the bank receipt vouchers should be the same and tally with the amounts in the bank book and the supporting documents. 5) ErrorsAuditor shall ensure that there are no errors of commission and omission, while recording the transaction. 6) ReconciliationThe bad debts recovered should be conciled with the debtors account and the entry passed in the earlier years for writing off the debt. 7) Proper accountingThe auditor should check whether the entry is correct according to the basic principles of accounting. E.g., Recovery should be credited to the Profit and Loss account or to the reserve for bad debts account etc. 8) Disclosure Vide Schedule VIIf the amount recovered is material, it should be disclosed separately.

    9) Proof of collectionAmount received directly from debtors should be verified by checking carbon copy of the receipt issued. Examine the court degree notice from Bankruptcy Trustee, letter from collecting agency, etc. 9) Proper entrySee that the entry is properly recorded as chances of defalcation are many if such debts were already written off as bad in the earlier year. 10) Order of official receiverWhere the amount is received from the official receiver, examine the correspondence and copy of the order of official receiver. 12) DisclosureSee that it is separately shown on the credit side of the profit and loss account. It should not be credited to the account of the debtor. It should be disclosed separately if it is material. 13) CorrespondenceCheck correspondence regarding the amount paid, number of installments and the balance due. 14) Amount written offSee that the amount not recoverable has been written off. 15) Competent authoritySee that these debts were originally written off by a competent authority. 16) Entry in the cash bookSee that full amount received is recorded in the cash book. 17) Bank statementConfirm that the cheque received from debtor is honoured.

    Conclusion:
    From the above definitions we can conclude that vouching is a method of examination to not only substantiate an entry in the books of account with documentary evidences, but also see to that these evidences are adequate, really connected with the business. For this, the auditor should go beyond the books of account i.e., he should go to the very source of the transaction to see that it is related to the business and is properly authorized.

    Vivek College Of Commerce


    SY(A&F)-Sem III(2011-12) Faculty: Vandana Ladha Audit Project Rajavati R Nadar Deepti jadav 28 14

    Verification of outstanding expenses

    Definition of Verification According to Spicer and Pegler, The verification of assets implies an enquiry into the value, ownership and title, existence and possession, the presence of any change on the assets. Meaning of verification Verification usually indicates verification of assets of any concern, which can be done by the examination of value, ownership, existence and possession of any asset. The verification of liabilities is equally important as that of an asset. The auditor has to satisfy himself that all liabilities whether existing or contingent have been properly determined and disclosed in the balance sheet Meaning of outstanding expenses Expenses due but not yet paid are known as outstanding expenses. Wages, salaries, rent, commission etc payable in the current month are paid in following month. If the final accounts are prepared for the year ending 31st Mar. Then the expenses payable in March will be paid in April of next accounting year. The extend to which the expenses belong to the current year but payable in the next accounting year is called outstanding expenses Verification of outstanding expenses:  The auditor should ask for the list of outstanding expenses from the client classified on the basis of nature of expenses.  He should verify the supporting documents evidencing the outstanding expenses. Eg. Electricity bill  He should also verify the basis of estimation of outstanding expenses, if they are provided on an estimated basis.  He should check the cash book of the previous year in order to see that the usual outstanding expenses have been paid off by the time of audit.  He should also ensure that no outstanding expenses have been paid which have not been provided in the account .if paid, he should check the adjustment entries passed for this purpose.  He should compare the list of outstanding expenses of the current year with that of the previous year to identify any major deviations.  The auditor should also ensure that no usual outstanding expenses have been left out to be provided.

     He should also confirm that outstanding expenses have been shown under current liabilities in the balance sheet. Conclusion: Verification means the proof of existence or confirmation of assets and liabilities on the date of balance sheet. Therefore, it is compulsory that a firm does the verification of its assets and liabilities through its auditor.

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