- This topic has 1 reply, 2 voices, and was last updated 11 years ago by
.
- Posts
this is question number 82 from bpp kit i am not able to understand part c they have given two assumptions in the question please explain them and how the cut off errors have been identified using the table given
also put some light on part b why cut off is an important issue in audit of inventory
If a GRN is dated before year end the assumption is that inventory was received before year end and therefore included in the closing inventory. If this is the case it must also be in purchases and there has to be a liability set up to pay the supplier – whether or not an invoice was received.
If the GRN is after year end, the items were not in stock at year end and the item should not be in purchases or a liability set up (might happen if an invoice was received before the goods were).
Similarly, if a despatch note is dated before year end the goods would not be included in the inventory count and they should be in sales and receivables. IF the despatch notes was after year end, the goods would be in inventory at year end, but should not also be in sales and receivables. You can’t have it both ways.
The nature of cut-off tests is essentially to make sure that inventory, sales, receivables, payables and purchases are all consistent with one another.
- You must be logged in to reply to this topic.