VOUCHING

DR.G.PHILOMINE JOAN OF ARC,

ASSISTANT PROFESSOR OF COMMERCE,
JAMAL MOHAMED COLLEGE,
TRICHY.
 VOUCHING MEANING
• Vouching is a technical term, which refers to the
inspection of documentary evidence supporting and
substantiating a transaction, by an auditor. It is the
essence of Auditing.
• It is the practice followed in an audit, with the
objective of establishing the authenticity of the
transactions recorded in the primary books of
account.
 VOUCHING DEFINITION
• Vouching is defined as the "verification of entries
in the books of account by examination of
documentary evidence or vouchers, such as
invoices, debit and credit notes, statements,
receipts, etc.
 IMPORTANCE OF VOUCHING

1. Vouching Is The Backbone Of Auditing

2. Vouching Is The Essence Of Auditing
3. Vouching Is Important To See Whether Evidences
Are Correct Or Not
 Vouching Is The Backbone Of Auditing

• Main aim of auditing is to detect errors and frauds

for proving the true and fairness of results
presented by income statement and balance
sheet. Vouching is only the way of detecting all
sorts of errors and planned frauds. So, it is the
backbone of auditing.
 Vouching Is The Essence Of Auditing
• Auditing not only checks the accuracy of books of
accounts but also checks whether the transactions
are related to business or not. All the transactions
are performed after the prior approval of
concerned authority or not, transactions are real
or not because an accountant may include
fictitious transactions to commit frauds. All these
facts can be found with the help of vouching. So,
vouching is essential for auditing.
 Vouching Is Important To See Whether
Evidences Are Correct Or Not
• An auditor checks the books of accounts to detect
errors and frauds. Frauds may be committed
presenting duplicate vouchers. All the small and
big amounts of frauds can be detected with the
help of vouching. So, all the evidential documents
and records are to be checked carefully and in
detail by an auditor which is the scope of
vouching.
 VOUCHING OF CASH TRANSACTIONS

I. Vouching of Cash Receipts (Debit Side of Cash

Book)
II. Vouching of Cash Payments (Credit Side of Cash
Book)
 I. Vouching of Cash Receipts (Debit
Side of Cash Book)
• Opening Balance of Cash Book
• Cash Received from Debtors
• Repayment of Loan by Others
• Rent Received
• Sale of Investments
• Subscription
• Sale of Fixed Assets
• Interest and Dividend Received
• Commission Received
• Installments Received on Hire-Purchase Sale
 Opening Balance of Cash Book

• Opening balance of cash book represents cash in

hand at the start of the year and should verified
from the balance sheet of last financial year.
 Cash Received from Debtors
Consider the following points for verification of cash received from debtors −
• The carbon copies or counterfoils of cash receipt book should be verified.
• Cash receipt should be serially numbered.
• Cash received should be entered on the same date when the cash is actually
received.
• The discount allowed to customers should be properly authorized by a
responsible officer.
• Correspondence with customer and ledger account should be tallied.
Following are the different ways used for misappropriation of cash −
• Cash received from customer not recorded in books and no cash receipt may be
issued.
• Issuance of receipt for lesser amounts than amount actually received.
• Using teeming and lading method; it is a very common method to
misappropriate the money, in which the cash received from any customer not
recorded in the books and the cash received from same customer at a later
instance or another customer recorded in the books and so on.
 Repayment of Loan by Others
Repayment of loan by others may be verified in the
following ways −
• Calculation of interest received and interest should be
credited to interest received account.
• Verification from bank statement if directly deposited
by party into bank.
• Checking of carbon copies or counterfoils of cash
receipts.
• To ensure that there should be no violation of Income
Tax rules as payment of loan exceeding Rs. 20,000/-
cannot be repaid in cash. It should be through Cheques,
Demand Draft, NEFT, RTGS or any other available
banking channels.
 Rent Received
• To check rental agreement or lease deed.
• In case where the rental income is received from
more than one property, separate account for each
property should be maintained.
• The Auditor should verify that the rent for all the
twelve month is received or not.
• The amount of rent should be verified from the
rent deed or the lease deed.
• If TDS (Tax Deducted at Source) is deducted by the
party, there should be proper accounting of TDS.
 Sale of Investments
• To check bank statement if the sales proceeds
have reached the bank account.
• To verify broker commission, note or debit note,
if investments are sold through broker.
• To ensure separate accounting is being done for
capital receipts and revenue receipts. Dividend or
profit or loss on sale of investment is a revenue
receipt and the sales proceeds of the investment
cost should be booked as capital receipt.
 Subscription
• Subscriptions are received from the members
of a club and the following points need to be
considered by the Auditor while vouching
subscription −
• Subscription register should be verified.
• Verification of subscription received during
the year and the subscription receivable.
• Counterfoil of cash receipt should be verified.
 Sale of Fixed Assets

• To check minutes of the meetings of the Board of

Directors.
• Sale agreement or sale contract.
• Verification of agent account if sale is made through
an agent.
• Profit or Loss on sale of fixed assets should be
booked to revenue account.
• Authorization of sale of fixed assets.
• Sale proceed of fixed assets should be credited to
fixed assets account after deducting expenses on
sale of fixed assets if any.
 Interest and Dividend Received
• Verification of the dividend warrant letter along with the
covering letter for verification of dividends in case of dividends
received through cheque.
• Verification of bank statement, if the dividend is directly
credited to the bank account.
• Interest on security can be vouched from the securities
schedule.
• Interest on fixed deposit can be verified from bank statement
and TDS certificates.
• Interest received from outsiders to whom company has
granted loan could be verified from statement of account of
party along with TDS certificates.
• Provision should be made for interest accrued but not due.
• All interest received and accrued should be properly accounted
for in the books of accounts.
 Commission Received

• Verification of agreement on the basis of which

the commission is received.
• Calculation of the commission receivable.
• The commission received should be verified from
counterfoils, bank statements, cash receipts, etc.
and the provision for commission receivable
should be rightly accounted for in the books of
accounts.
• Commission receivable on “sale of goods sent on
consignment” should be verified from sale
account.
 Installments Received on Hire-
Purchase Sale
• Study of the Hire-Purchase agreement for hire-
purchase-sale price, number of installment, rate
of interest etc.
• Segregation of principle amount and interest
amount should be done and both should
separately account for.
• Profit on sale on hire-purchase should be duly
calculated on the basis of installment received
during the year.
 II. Vouching of Cash Payments (Credit
Side of Cash Book)
• Opening Balance
• Payment to Creditors
• Payment of Salaries
• Payment of Wages
• Purchase of Plant and Machinery
• Rent Paid
• Insurance Premium
• Income Tax
• Excise Duty
• Commission on Sale
• Director’s Fees
• Internal Control System for Cash Transactions
 Opening Balance

• The opening balance of cash book can never be

credited because cash of company cannot be in
negative but the credit bank balance represents
the overdraft account from bank or utilization of
cash credit limit as sanctioned from bank.
 Payment to Creditors

Payment to creditors may be examined by the

following −
• Receipt issued by the creditors.
• If the creditor is paid amount as full and final
settlement, the balance amount, if any stands in
the ledger account of the creditor; this amount
should be credited to discount received.
• If any advance payment is made to creditor that
should be clearly mention.
• Statement of account of creditor.
 Payment of Salaries
Depending upon the adequacy of internal control
system in an organization Auditor will decide his
audit Program. It is very important for Auditor to
check the following −
• Attendance record of employee and salary register.
• Appointment letter of new employees.
• Comparison of current month salary with last
month’s salary and if there is any abnormal change
in amount, Auditor should verify the same.
• Alteration in amount of deductions on account of
advance, loan, fine, funds, insurance, TDS, etc.
 Payment of Wages
• Adequacy of Internal Control System.
• Payment of wages at higher rate than allowed.
• Payment shown to ex-workers in the current month.
• Lower or non-deduction of advance or other deductions due.
• Payment to fictitious workers.
• Payment to workers who were absent from duty.
• Wages sheet should compare with wages register.
• Comparison of current month wages with last month’s wages
and proper verification should be there for extra ordinary
changes.
• Detailed verification for payment to casual workers.
• Vouching and verification of treatment accounting treatment
for unpaid wages.
 Purchase of Plant and Machinery

The Auditor should pay attention to the following −

• Purchase invoice of machinery.
• Freight inward charges, installation charges,
erection and commissioning charges should be
capitalized.
• Treatment of Excise duty according to the excise
rules.
 Purchase of Land & Building
Purchase of Land and Building can be vouched as
follows
• Study of Lease hold agreement, if land is purchased
on lease hold basis.
• Payment should be as per lease term.
• All the expenses incurred to acquire lease hold
property should be debited to respective property
account.
• Auditor should study the conveyance deeds in case
property is purchased under free hold basis.
• For verification of payment, the Auditor can check
the payment receipt and the conveyance deed.
 Rent Paid
Consider the following points for the verification of
rent by the auditor −
• Rent Deed.
• Rent receipt from Land lord.
• Provision for un-paid rent at the end of the year.
 Insurance Premium
Consider the following points for the verification of
Insurance Premium −
• Insurance policy issued by the Insurance
Company.
• Insurance premium receipt
• Insurance premium should not be related to any
official of the company.
 Income Tax
Consider the following for the verification of
Income −
• Advance Tax Challan
• Self-Assessment Tax challan
• Income Tax demand notice
• Assessment order
 Excise Duty

• Consider the following for the verification of

Excise Duty −
• Rate of Excise Duty
• Excise records and sale invoice for verification of
excise duty
 Commission on Sale
Consider the following for the verification of
Commission on Sale −
• Agreement of sale.
• Rate of commission on sale.
• Calculation of commission on the basis of sale.
• Cash receipt issued by agent.
• Provision for commission payable
 Director’s Fees
Consider the following for the verification of
Director’s Fees −
• Directors receive fees for attending the Board
meetings.
• Verification of attendance register.
• Verification of payment receipt duly
acknowledged by the directors.
 Internal Control System for Cash
Transactions
Following are the main features of a good internal control system −
• All cash received should be accounted for immediately.
• All received cheques should be crossed immediately on receipt.
• Cash receipt should be issued to debtors and daily reconciliation
of account should be done where the debtors pay cash on daily
basis.
• All cash receipts should be deposited in bank on a daily basis.
• Bank reconciliation account should be prepared on a regular
basis.
• Payments other than petty payments should be done through
crossed cheques.
• Cash receipt should be obtained for every cash payment to
creditors.
• Cash expenses should be duly supported by proper and genuine
bills or vouchers.
THANK YOU