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written by | August 10, 2022

What Is Vouching in Accounting?

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Vouching in accounting is a technique used by an auditor to establish the authenticity of transactions mentioned in the primary books of account. It does not take note of non-business transactions. This helps the auditors ensure that all business-related transactions are recorded in the books of accounts. The auditors check and verify if all the transaction amounts are genuine and confirm the nature of a transaction. The article will provide information regarding accounting vouchers in-depth.  

The Concept of Vouching in Accounting

Cash memos, payslips, receipts, and counterfoils are vouchers that document the transactions in the books of accounts. These transactions are recorded if substantial evidence is available, and accountants need several documents to prepare a voucher, used as an evidentiary document. 

The following documents should be available to prepare the voucher in order to record a purchase transaction:

  • Invoice 
  • Quotation
  • Purchase order
  • Requisition slip
  • Entry gate pass (when receiving the goods)

Also read: What is the Difference Between Auditing and Accounting? - Learn Auditing and Accounting

Types of Vouching in Auditing

There are two types of vouchers:

  • Primary Vouchers:

Documents and bills present in the original form are referred to as primary vouchers. 

  • Collateral Vouchers:

The bills that are available as duplicates are known as collateral vouchers. 

Sources of Vouchers

The sources of the voucher are:

  • Internal Vouchers

A company makes the internal vouchers—for example, a sales invoice.

  • External Vouchers

External vouchers like a bank statement are prepared outside the organisation. 

Examples of Vouching in Accounting

Some vouching examples are: 

  • Cash Payments
  • Cash Receipts 
  • Sales
  • Purchases

Cash Payments

Vouchers relating to cash payments include - Invoices, demand notes, bills, wage sheets, salary registers, counterfoils, agreements and others. 

Cash Receipts

The cash receipt vouchers include - carbon copies of contracts, receipts, correspondences, minutes, and counterfoils.

Sales

The sales vouchers include copies of the invoice, goods outward book, orders received, and correspondence.  

Purchases

Examples of purchase vouchers are invoices, copies of orders placed, goods inward book, and correspondence. 

Also read: What is Fair Value Accounting? Fair Value Meaning, Calculation & Advantages

The Objectives of Vouching in Auditing

Auditors vouch to ensure the authenticity of transactions recorded in the statement. The procedure followed during vouching and the accuracy adopted are important as they will decide whether the audit is successful or otherwise. The objectives of vouching are:

  • To ascertain all the transactions mentioned in the books (during a financial year) were carried out for a business purpose and not for individual requirements. Also, they are truthfully recorded with genuine and relevant documented evidence. 
  • To make sure the totalling and carrying forward amount recorded in the statement have no discrepancies. 
  • To see if the records of the business are verified.
  • To remove any traces of malpractices from the financial statements.
  • To ensure the financial records are prepared lawfully. 

Importance of Vouching in Accounting

An audit is based on the documents made available to an auditor by the business owner or an authorised person. The documents provided must be related to the organisation's business activity for the financial year. If any bills related to purchasing, sales, telephone, electricity, and others not associated with the business are not attached, they indicate that vouching is done accurately. Vouching must be performed efficiently and effectively to detect frauds (if any).

It is the auditor's responsibility to ensure the records are accurate with accurate calculations. Vouching should be done accurately and strictly while preparing the balance sheet and profit and loss statement. If the primary documents contain discrepancies, the final records will display a wrong result, and the audit will not be successful.

Characteristics of Vouching Accounting

Following are the characteristics of vouching:

  • Imperative Aspect of Auditing

 Vouching is a necessary part of auditing, and it makes the auditor's job simpler, and detected discrepancies (if any) come to light. 

  • The Basis of Auditing

Vouching is the base of the auditing process. Correct vouching of the provided documents is necessary to ascertain the accuracy of further accounts maintained by the auditor. 

  • Documented Evidence

Vouchers are documented evidence showing that transactions occurred during the company's business activities. 

  • Disclosure of Extortion

Vouchers also aid in disclosing any fraud recorded in the books of account. 

  • Report on Business Activities Only

Vouchers provide information that makes it easy to differentiate between personal and business transactions. The auditor only considers the business transaction vouchers while preparing the profit and loss statement. 

  • No Secret Transactions

An auditor can identify any transaction besides business transactions and eliminate them.

  • Course of Voucher

The date mentioned in the voucher shows the timeline of a transaction. 

Also read: What Are Different Types of Accounting Explained With Examples & Importance

Procedures for Vouching Accounting 

The steps involved in vouching procedure are given below: 

Step 1 - Reading Out

During the auditing process, the junior auditor can read aloud the voucher number, amount and other details, which will speed up the process, making it easier and quicker.

Step 2 - Comparison

Comparison is a part of the vouching process. The senior auditor tallies the items mentioned in the voucher with the entries mentioned in the books of account. 

Step 3 - Ticking 

Ticking is used to mark the items which have already been checked. They can be in the form of abbreviations or symbols. 

Step 4 - Stamping

Instead of signatures or initials to check the vouchers, the senior auditor can use rubber stamps mentioning the words checking, cancelled and other instructions. 

Step 5 - Signatures

 The entries can be vouched for by the senior auditor signing the vouchers. The signed vouchers cannot be presented or used again for another entry. 

Step 6 - Query

When a voucher is missing, or the entries in a voucher raise a question due to overwriting, the audit team can mark each entry with a “q”. This is recorded in the working papers.

Step 7 - Management

The team hands over doubtful entries to the management. The management can examine the record in detail and clear the objections.  

Step 8 - Reply

The management may take a couple of days to reply. The auditor can then decide if the explanation is valid. 

Step 9 - Clearance

In case the answer is satisfactory, the query is cleared. If the auditor is dissatisfied with the answer, they can inform the management about the same.

Step 10 – Unsatisfactory Explanation 

The auditor can reject an explanation and try further to find out the truth. The query is noted in the working papers as poor clarification. 

Step 11 - Objections

After the audit is completed, any objections mentioned in the working papers are discussed with the management. The auditor can form his opinion based on this and submit his audit report. 

Also read: What Is Branch Accounting? Learn About Branch Accounting Types & Examples

Conclusion

We hope this article has helped provide information about vouching for accounting. Vouching is an important part of accounting. The auditor inspects vouchers or documented information to verify the credibility of transactions. The accuracy of the audit report depends on the accuracy of vouching.

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: What are the objectives of vouching?

Ans:

The main objectives of vouching are to detect transaction regularities and irregularities, errors and frauds.

Q: What are the sources of vouching?

Ans:

The two sources of vouchers are:

  • Internal vouchers 
  • External vouchers

Q: What are the types of vouchers?

Ans:

The two types of vouchers are :

  • Primary vouchers
  • Collateral vouchers

Q: What is vouching?

Ans:

Vouching is the technique used by auditors to ensure the accuracy of transactions mentioned in the company's books of accounts. Since the audit accuracy depends on the vouchers' accuracy, vouching is called the backbone of auditing.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.