Purchase of Goods

Cash purchases should be verified by reference to cash memos or receipted invoices by suppliers. Payments made against credit purchases should be vouched with the receipts issued by the suppliers and the credit to their accounts on the basis of invoices entered in the Purchases Day book. There must be also evidence of the goods having been received through an entry in the Goods Inward Books or stock ledger. It is necessary, however, to make a distinction between a payment for goods and an advance against supplies to be made in future; the latter should be classified as advance recoverable in cash or in kind or for value to be received. Since the amount shown as an advance paid against goods may be only a camouflage for an assistance to a party, it is necessary for the auditor to confirm that the advance was paid pursuant to a normal trade practice and supplies were, subsequently, received with a reasonable period of the advance. Certain concerns issue invoices in duplicate. In such a case, there can be a possibility of an invoice being paid twice; first by its being entered in the Purchase Day Book and the account of the supplier being credited and the second time by the duplicate copy of the invoice being paid as a cash purchase.

On this account, on noticing a receipted invoice, the auditor should verify that neither the original nor then duplicate thereof has been already entered in the Purchase Day Book. In the case of goods purchased at the end of year, it should be further verified that even though not received or entered in stock before the close of the year, they have been included in the closing stock. To confirm that all the goods, payment for which have been made, have been received and entered in stock, all invoices for purchases made during one week preceding the close of the year should be traced into the Goods Received Book maintained by the Receiving Section, also it should be verified that every purchase invoice is stamped with the date of receipt of goods in stock and the ledger folio at which invoice has been entered. For a more detailed discussion on vouching of credit purchases, students may refer to Audit of Trading Transactions.

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