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Hello mam, can I confirm completeness by Selecting a sample of purchase invoices and then agreeing that to inclusion in Purchase Days Book and to inclusion in GL and F/S
Or does it always have to be inventory listing to be used as Starting point source document here??
Short answer – neither.
See 4. on page 77 – although there are obvious overlaps between the sales and purchases systems (on the previous pages) – they do not record inventory which, for the preparation of the financial statements, “is its own Dr and Cr” – as I have explained here – https://opentuition.com/topic/purchases-cut-off
As at the reporting date the inventory to be recognised in the financial statements is the valuation of physical inventory i.e. quantities x prices.
Are quantities complete? You can’t answer this by starting with the list of quantities recorded – because you are looking for what has NOT been recorded. Therefore:
From list (or “book”) to physical is a test for EXISTENCE
From physical to book is a test for COMPLETENESSWhen you start looking at related purchase invoices matched to GRNs at the year end that concerns cut-off.
Thank you mam, that makes sense now.
Also what got me ask you is the following procedure from the ques Pineapple Beach Hotel- June 2012:
”Substantive procedures For Y/e inventory completeness”
Obtain a copy of the inventory listing and agree the total to the general ledger
and the financial statements.It must be wrong then?
My misunderstanding – I thought as you were asking about purchases and listing that you were looking at “transaction” level of testing and were going to check list to physical items. Agreeing the total to the financial statements is indeed completeness – and a continuation of what I wrote above ….
Book (physical) quantities ….. are recorded on list (list is complete)
Then: Quantities on list are costed up (e.g. to purchase invoices/standard costs) …. (costing is accurate)
Then: Allowance is made for damaged/slow-moving items …. (valuation/measurement)
Then; That total agrees to the G/L and financial statements …. (completeness/accuracy and valuation)I apologize for troubling you with so many questions on this, I’m kind of confused…. so what I understand is that technically we shouldnt be comparing handpicked sample of invoices to G/L or F/S because the starting point is the list of Quantities and agreeing the ‘Total’ is a better and more appropriate procedure..?
How transactions are recorded is assumed knowledge e.g.
Individual purchase invoice -> purchase day book (is totaled every day/week/month)
For purchase day book totals:
Dr Purchases/Cr PayablesThen at the end of the year the G/L balances are are “extracted” into the trial balance – a list of Drs and Crs (totals must be equal) which provides the basis for the financial statements – along with the year-end adjustments for accruals/prepayments, depreciation, bad debts, inventory, etc.
It is simply not possible to agree a hand-picked individual invoice to the G/L – it can only be traced VIA the day book – i.e. confirming that it is in a total that is posted to the G/L.
An exception would be an item of plant and equipment because each asset will be recorded separated (e.g. in an asset register). But for purchases of goods/services (i.e. “expenses”) there will be so many individual transactions that they will be listed along the way in a day book.
Thank you so much mam for repeating and reinforcing the principals, can never thank you and OT enough.
I get it now, Thanks.
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