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Vouching of the cash book: receipts, payments, credit sales and deferred revenue expenditure

Principles and Practice of Auditing · Unit III · Topic 8 of 15 · 6 min read

How the auditor vouches each item set in the papers: cash sales, receipts from debtors, sale of investments and other debit-side items; cash purchases, payments to creditors, wages and other credit-side items; credit sales; and deferred revenue expenditure.

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On this page
  1. 1. Debit side of the cash book (receipts)
  2. 2. Credit side of the cash book (payments)
  3. 3. Credit sales
  4. 4. Deferred revenue expenditure
  5. How this is examined
Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. The papers ask “How do you vouch the following?” with three or four items: cash sales, payment to creditors and sale of investments (2019, 2023, January 2026); cash purchase, receipts from debtors and deferred revenue expenditure (2021); credit sales and payment to creditors (June 2025). For each item give: the vouchers, the checks on them, the frauds to watch, and the cross-check with another record.

1. Debit side of the cash book (receipts)

Receipts are harder to vouch than payments, because there is usually no external voucher: the payer keeps the receipt. The auditor must rely on internal check and on cross-checks with other records. The risk is omission (cash received but not recorded).

(a) Cash sales

  1. Study the internal check on cash sales (pre-numbered cash memos, payment at a separate counter, cash register or point-of-sale system).
  2. Compare the carbon copies of cash memos with the cash book, in serial order; account for every missing or cancelled memo.
  3. Compare the daily totals of memos with the cash register or POS summary and with the bank deposit slips, to see that the takings were banked intact.
  4. Check prices on a sample of memos with the price list, and discounts with the approved policy.
  5. Compare cash sales with the stock records (goods out) and test the gross profit ratio against previous years; a fall may indicate unrecorded sales.
  6. Check sales near the year end for cut-off.

(b) Receipts from debtors

  1. Vouch from the counterfoils of the pre-numbered receipt book; check that counterfoils are in serial order and cancelled receipts are retained.
  2. Agree the receipts with the rough cash book or list of remittances prepared on opening the mail, and with the bank statement.
  3. Check the discount allowed with the terms of credit and its approval.
  4. Look for teeming and lading: compare the dates on which cheques were received (remittance list) with the dates of credit in the debtor’s account and of deposit in the bank; delays are a sign.
  5. Send confirmation of balances to selected debtors (SA 505).

(c) Sale of investments

  1. Examine the authority for the sale: Board resolution, and for a company the limits of sections 179 and 186.
  2. Vouch with the broker’s contract note (sold note), which shows the number of securities, price, brokerage and date; for dematerialised securities, check the demat statement showing the debit.
  3. Agree the net amount with the bank statement.
  4. See that the accrued interest or dividend (cum-interest or ex-dividend) is treated correctly, and that the profit or loss on sale is computed and shown separately.
  5. For an investment company, the sale is revenue; for others, a capital receipt.

(d) Other receipts: sale of fixed assets (Board approval, sale agreement, removal from the fixed asset register, profit or loss computed); loans received (loan agreement, borrowing powers under section 180(1)(c), charge registered); interest and dividends received (bank statement, dividend warrants or credit advice, TDS certificate); capital introduced by partners (partnership deed, bank statement); rent received (rent agreement, counterfoils).

2. Credit side of the cash book (payments)

(a) Cash purchases

  1. Vouch with the supplier’s cash memo, which should be addressed to the client and dated.
  2. Check that the goods were received: compare with the goods received note and stock records.
  3. See that the purchase was authorised by the purchase officer and that the price is reasonable.
  4. Check that cash purchases above the limits allowed under the income-tax law were paid by account-payee cheque or electronic means; large cash purchases need enquiry.
  5. Be alert to personal purchases of employees or directors charged to the business.

(b) Payment to creditors

  1. Vouch with the receipt issued by the creditor and the bank statement; for electronic payments, the bank advice.
  2. Compare the payment with the invoice and the creditor’s account; check that the invoice is stamped paid so that it cannot be paid twice.
  3. Check discount received with the terms; see that it is credited.
  4. Obtain statements of account from major creditors and reconcile them with the ledger; this exposes fictitious creditors and unrecorded liabilities.
  5. Check that payment was authorised by the proper officer.

(c) Wages: test the wage sheet with attendance and job cards, rates with personnel records and calculations; compare the cheque drawn with the net total; examine the unclaimed wages register; check statutory deductions and their deposit; compare wages with the previous period.

(d) Other payments: purchase of fixed assets (Board resolution, supplier’s invoice, title deeds or registration, capitalisation of installation costs); expenses such as rent, insurance, rates and salaries (agreements, premium receipts, demand notices, payroll); payments to directors (approval under sections 188 and 197, minutes); petty cash (imprest vouchers, surprise count).

3. Credit sales

  1. Vouch entries in the sales book with the carbon copies of sales invoices, in serial order.
  2. Compare invoices with customer orders, the credit approval and the delivery notes or dispatch register (goods actually sent); check gate passes.
  3. Check prices with the price list and the arithmetic and taxes (GST) on the invoices.
  4. Check postings to the customer’s account.
  5. Examine sales of the last and first few days of the year for cut-off: goods sent after the year end must not be included to inflate sales.
  6. Check that goods sent on approval or on consignment are not treated as sales.
  7. Check returns inwards after the year end; heavy returns may mean sales were inflated.

4. Deferred revenue expenditure

This is revenue expenditure whose benefit is expected over more than one year, such as heavy advertising for a new product or preliminary expenses. Under current accounting standards (AS 26 and Ind AS 38) most such expenditure must be charged to the profit and loss account in the year it is incurred; it cannot be carried forward as an asset unless it meets the definition of an intangible asset. The auditor should vouch the expenditure with bills and contracts, check the authority, and see that it is not improperly carried forward in the balance sheet to inflate profit. Where it is allowed to be spread (for example certain items under tax law), check the period and the amount written off this year.

Problem. A creditor’s receipt for Rs. 2,40,000 is missing; the accountant shows a photocopy and says the original was lost. The auditor should not accept the photocopy as sufficient. He should check the bank statement for the payment, ask the creditor to confirm the balance and the payment directly, check that the invoice was not paid twice, and note the matter in the audit note book. If the payment was in cash, the risk of fraud is higher and he should obtain a duplicate receipt from the creditor.

How this is examined

“What is vouching? How do you vouch (i) cash sales, (ii) payment to creditors, (iii) sale of investments?” (2019, October 2023, January 2026, 16 marks): one paragraph on vouching, then each item in numbered points. April 2021 asked cash sales, receipts from debtors, cash purchase and payment to creditors; November 2021 asked cash purchase, receipts from debtors and deferred revenue expenditure; June 2025 asked credit sales and payment to creditors, and deferred revenue expenditure as a short note. “Debit side of cash book” (2022) and “credit side of cash book” (April 2023) take sections 1 and 2 respectively.

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