Vouching of Trading Transactions

Trading transactions include, purchases, sales, purchase return,

sales return, on the basis of consignment, hire purchase, sale or
return, etc. Before commencing vouching and verification of the
trading transactions, the auditor has to examine the effectiveness of
the internal control systems in book keeping, compliance of
accounting principles; and maintenance of stock records.

The internal control system in book-keeping shall ensure, that sales

and closing stock are not overstated and purchases and opening
stock are not understated. That discounts allowed/received are duly
recorded. Adequate provisions are made for losses, depreciation and
bad debts.

The internal control system should ensure that expenses of capital

and revenue nature are correctly identified. Expenses pertaining to
the accounting period are debited to the profit and loss account on
accrual basis and outstanding expenses are disclosed in the
liabilities side of the balance sheet. The prepaid expenses are duly
disclosed in the assets side of the balance sheet. That the closing
stock is shown at the correct value and there is no discrepancy in
valuing the closing stock and a uniform method of valuation of
closing stock is followed consistently.

The efficient system of internal checks ensures that all goods

received and delivered are entered in the stock register and the
chances of discrepancies are few and far between. Purchase
department should be an independent unit, free from the task of
receiving, storing and dispatching of goods. Purchase department
should function in constant consultation with the sales departments,
regarding the nature of demand, the quantity and quality of goods
demanded, etc. purchase department should also be aware of the
availability of various goods and their prevailing rates.
Vouching of Cash Transactions

Voucher is a piece of paper or a document that confirms the truth of

a happening in the field of accountancy; it confirms either the
payment or receipt of money. The voucher is an evidence of
occurrence of a transaction that is entered in the books of accounts.
It is the authority on the basis of which entries made. Vouching
clearly shows the nature of the transaction.

Vouching is extensive examination of documents carried out for the

purpose of established the authenticity of the transactions recorded
in the books of accounts. Vouching also involves evaluation of
internal checks and examination of internal controls relating to
recording of transactions. Only on the basis of the conclusions
drawn while vouching, auditors determine the nature and extent of
their work subsequent to vouching. Therefore, extreme care should
be taken while vouching. Important facts obtained from vouchers
are date of transaction, name of the party, adherence, nature of
the transactions, the amount mentioned in the voucher, and
authority.