Auditing Vouching of Ledger – tryspring

By | August 14, 2019

Auditing – Vouching of Ledger

We will start by discussing the types of ledger accounts and
proceed to their verification and also the verification of other

Personal Ledger Accounts

All personal accounts are opened under this category. In big
organizations where the number of transactions is quite high, a
personal ledger may further be split up into two more ledgers −

  • Purchase ledger
  • Sales ledger

Purchase ledger

Purchase ledger is verified from the following −

  • Creditor balances of last year
  • Cash Book and Bank Book
  • Purchase register
  • Purchase return book
  • Bills payable book
  • Journal and other relevant books

An Auditor should carefully verify the following −

  • Posting of all vouchers in ledger account should be done
    without any omission.

  • Verification of all opening balances should be properly
    checked with last year’s balance sheet.

  • If the creditor balance shows debit balance it may be due to
    advance payment made to him, the Auditor should confirm
    whether the material against advance is received or not.

  • Periodical statements of creditor should be reconciled.

  • Examination of internal control system.

Sales ledger

Sales ledger will be verified from the following −

  • Debtors’ balances of last year
  • Cash book and bank book
  • Sales register
  • Sales return book
  • Bills Receivable book
  • Journal and other relevant books

Auditor should carefully verify the following −

  • Posting of all vouchers in ledger account from cash and bank
    book, sales register, bills receivable register, sales return
    register and journal should be verified.

  • Verification of opening balances, castings, balances carried
    forward should be carefully examined.

  • Credit balance of the debtors’ account may represent the
    advance received against the supply of goods; the Auditor
    should examine and confirm whether any material is supplied
    against it or not.

  • Periodical reconciliation of account from debtors should be
    done without any fail.

  • Provision for doubtful debts and bad debts should be done.

  • Review and examination of credit policy should be made from
    time to time.

  • Checking of posting in ledger account from subsidiary book.

  • Checking of calculations.

  • Reviewing truthfulness of debtor balances in customer

  • Reviewing of Internal Control System.

Impersonal Ledger Accounts

All the nominal account, real account and capital account fall
under impersonal ledger accounts. Income and expenditure account
(nominal accounts) transferred to profit and loss account.

Capital account, real accounts, debtors and creditors account are
transferred to balance sheet. Following steps are involved in the
audit of impersonal ledger account −

  • Opening balances should be verified from last year’s Balance

  • Timely posting of balances of subsidiary books (Sales Book,
    Purchase Book, Sales Return Book, Purchase Return Book) to
    ledger accounts.

  • Checking of totals and castings.

  • Checking of balances transferred to trial balances, debit and
    credit side of trial balance should be tallied.

  • Checking of adequacy of internal control system in

Outstanding Assets

It is necessary to include some expenses and income in current
year though passing adjustment entries to show the correct profit
or loss of the company. Therefore it is must for an Auditor to
check each and every outstanding entries. Following are
outstanding assets −

Prepaid Expenses

These expenses are paid in advance for next coming year(s), hence
should not be debited to profit and loss account of current year
to arrive at true financial results.

For example; Insurance of Fixed assets is normally paid on annual
basis and if we paid insurance premium in the month of October
for one year, then insurance for this current year will be
calculated from October to March and from April to September it
will be treated as prepaid insurance. Prepaid insurance will be
shown as prepaid expenses under the head of current assets in the
balance sheet.

Auditor should vouch every nominal account to confirm whether
correct amount of expenses is debited to profit and loss account
or not. Other examples of prepaid expenses are −

  • Rent Rates and Taxes
  • Subscription
  • Annual maintenance Contract, etc

Income Receivable

Following are the examples of Income Receivable −

  • Interest accrued but not due or received
  • Taxation claims
  • Commission
  • Declared dividend by company yet to receive

All the above income should be included in the Profit & Loss
account of the year to arrive at a correct figure.

Deferred Revenue Expenditure

The examples of deferred revenue expenditure have been described
below −

Preliminary Expenditure

Preliminary expenditure is incurred at the time of incorporation
of a new company. These expenses are of heavy amount and are
incurred mainly for promotional reasons. Nature of these expenses
are capital but not actually represent any asset, hence should be
written off from profit and loss account over a period of 3 to 10
years in equal installments.

Advertising and Sales Promotion

These expenses are incurred at the time of establishing new
business or at the time of introduction of any new product in the
market. These expenses are shown as assets in Balance sheet and
should be written off in profit and Loss account over a numbers
of accounting periods.

Heavy Repairs

Expenses of heavy repairs of fixed assets shall not be debited to
profit and loss account of year in which these expenses incurred
but it should be spread to number of years like other deferred
revenue expenses. Heavy amount of expenses is incurred on repair
of Plant & Machinery due to increased production capacity of
the plant or to maintain current production capacity of machine
which is very old and need some heavy overhauling or repairing to
increase it life.

Other examples of deferred revenue expenses are −

  • Discount allowed on debentures
  • Experimental expenditure
  • Research & development expenses
  • Development expenses on mines

Outstanding Liabilities

There are some expenses and liabilities that come up in due
course of business; these are due for payment but not paid till
the end of accounting period in question. The Auditor should see
all those expenses and liabilities and all these expenses should
be included in profit and loss of the current year to arrive at
the true profit or loss of the firm.

Following are the main examples of outstanding expenses and
liabilities −

Audit Fees

Audit fees are debited to profit and loss account of the same
year for which audit is conducted. No doubt main audit work start
after the close of financial year and finalization of financial
statements are done in next financial year but it is a widely
accepted practice to do so. It is also argued that audit fee
should be debited to the profit and loss account in the next year
in which the audit work is actually performed. In the first case,
audit fees will be debited and the audit fees payable will be


In case where the purchased goods are received in the current
financial year and invoices for the same are received in next
year, purchase should be debited and outstanding liabilities
should be credited.


Rent on factory premises, office building, godown, etc. is
payable on monthly basis. The Auditor should confirm that any
unpaid amount of rent for the last month of the financial year or
any other month of financial year in question should be added to
rent of the current year and the rent payable should be shown as
current liabilities.

Commission on Sale

Commission on sale is payable to agent, director or salesmen on
the basis of sales. Auditor should check the following −

  • Sale agreement

  • Rate of commission

  • Calculation of commission

  • Agent account to know advance payment to agent, commission
    due and commission payable.

  • Applicability of TDS on it and to check whether TDS is
    deducted at due rate before making payment or not. Whether
    TDS is deposited in time or not.

  • After adjusting all the above, if there is any amount that is
    payable to the agent, it will be shown in current liabilities
    as commission payable and if any excess amount is paid that
    will be shown as current asset representing the amount
    recoverable from the agent.


The Auditor should carefully examine the interest on loan from
bank, loan from outsider parties, unsecured loan, financial
institutions, term loan and interest on debentures. He should see
that the provision for interest payable should be duly provided
in the books of accounts according to the applicable rate of

Salary and wages

Salary and wages for the last month of the accounting year is
normally paid in the next financial year. The Auditor should
confirm that the salary and wages for last month should be
debited to salary and wages account and credited to salary &
wages payable account.

Cartage and Freight

Transporters normally provide bills for transportation charges
after closing of financial year. It is a duty of an Auditor to
take these expenses in the current financial year creating
liabilities for the same.

Contingent Liabilities

Contingent liability may be payable in future or may not be
payable in future it depends on the event. For example, if any
person filed a suit against company, possibilities are there, it
may be in favor of company or it may be against the company, in
case it will decide against the company, company has to pay such
amount of suit as the court decides. Therefore, contingent
liabilities are said to be possible liabilities.

In case of above, no actual provision is made in the books of
account but as a footnote of Balance sheet, it is compulsory to
show the probable amount of liabilities.

Contingent Assets

Contingent assets are not shown as footnote of the balance sheet.
Following are the examples of Contingent Assets −

  • Claim for the refund of the Income Tax, Sales Tax, Excise
    Duty, etc.
  • Uncalled share capital of the company.
  • Claim for infringement of a copy right.

‘; (vitag.displayInit = window.vitag.displayInit ||
[]).push(function () { viAPItag.display(ad_id); }); }())