- This topic has 2 replies, 2 voices, and was last updated 7 years ago by
.
- Posts
Dear Tutor, would you please help me about this question?
…..date of…….GRN……..Supply’s…….Invoice… On purchase ledger…In purchase accruals
…..GRN………Number…Invoice No….value………before year end…………at year end
(1) 28.10.x6….1324………6254…………4642………..yes…………………………..no
(2)29.10.x6…..1327………1372…………5164………..yes…………………………..yes
(3)30.10.x6……1331……..9515………..7893…………no…………………………….yes
(4)31.10.x6……1335……..4763………..9624…………no…………………………….no
(5)1.11.x6………1340…….5624………..8243…………yes……………………………no
(6)4.11.x6………1345…….9695………..6389…………no……………………………..yes
(7)5.11.x6………1350…….2865………..7124…………no………………………………no
you audit procedures on purchases cut-ff, which started from the goods received note(GRN),have revealed the above results.
Assume that goods received before the year-end are in inventories at the year-end, and goods received after the year-end are not in inventories at the year-end.
A purchase accrual is included in payables at the year-end for goods received before the year-end when the purchase invoice has not been posted to the trade payables ledger before the year-end.
Identify the cut-off errors and produce a schedule of the adjustments which should be made to the reported profit, purchases and payable in the financial statements to correct the errors.In purchases, if an item is in closing inventory you must also record that it has been purchased. To introduce the item into purchases, the normal double entry is:
Dr Pruchases Cr Payables (purchase ledger).
Sometimes the item might have arrived and be in closing inventory, yet the invoice is not received until after year end. Then the double entry would be:
Dr Purchases Cr Purchase accruals.
When the invoice arrives the amount is moved form accruals to the payables ledger.
In the question above, if the GRN is dated before year end (ie 31/10 or earlier) the assumption is that the item has beenr eceived before year end and is in closing inventory. If the GRN is dated after year end the item will not be in closing inventory. Therefore treatment of the items is:
1 In inventory (GRN 28/10); is in payables and purchases. So, OK
2 In inventory; is in payables and purchases but they have also accrued. So, error
3 In inventory; not in payables ledger, but they have made an accrual. So, OK
4 In inventory; not in payables or accruals, but should be in accruals. So, error.
5 Not in inventory, but they have put it into purchases and payables. So, error.
6 Not in inventory, but they have put it into purchases and accruals. So, error.
7 Not in inventory and it is not in purchases, payables or accruals. So, OK.
- You must be logged in to reply to this topic.