NAME :

STD :
DIV :
ROLL NO. :
SUBJECT :
TOPIC :
NAME OF COLLEGE :

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 ACKNOWLEDGMENT

It gives me immense pleasure to present in front of you my project on Creditors ledger and

debtors ledger ledgers accounts aspect has been considered while making this report to

ensure a smooth flow of the Advance Auditing for better understanding of the whole concept.

With this thought I would like to sincerely thank all the people who helped me in every

possible way during the period of my project. Firstly I would like to express my sincere thanks

and deep sense of gratitude to PROF. Alka Golani for his suggestion guidance and help in the

project. I would also like to thanks all teaching, non-teaching staff and my friends for their help

in the completion of the project.

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 Project Guide Certificate
I, prof. R BAWEJA hereby certify that NIDITA
RAISINGHANI of second year masters of commerce
(semester-III) of R.K Talreja college , Ulhasnagar
421003 has completed the project on SCRUTINY
OF DEBTORS AND CREDITORS LEDGER in the
academic year 2015-16 under my guidance.

Prof
R BAWEJA
(project guide)

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 INDEX
SR. TOPICS
NO
1. What is ledger scrutiny
2. Scrutiny of Creditors ledger
3. Scrutiny of Debtors ledger
4. Interpretation of ledger A/Cs

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Q1

What is Ledger Scrutiny

Ledger scrutiny is the overall assessment of accounts of a concern. It is a process
initiated with a view to ensure true and fair concept. Any irregularity (Whether itmay be error or a
statutorial noncompliance) may be bought into light.

Just by scrolling down the transaction that has occured in an account with adequate narrations,
could be very helpful in the process of scrutiny for identifying whether the accounts reflect a true
and fair view. Before resorting to ledger scrutiny, the auditor should ascertain the extent to which
it can be adopted. It can be detailed or restricted to some class of accounts.

Ledger scrutiny is done for overall assessment of the accounts made and it depends upon
the approach and decision of each individual in the given circumstances. Accounts are
scrutinized considering all legal and accounting aspects including accounting standards and
other applicable situations.

Ledger Scrutiny is done to check the ledger from all point of view i.e. Whether Entry is
Recorded on a proper Date with Proper Amount, Proper Bill No. , Proper Taxes etc.

Ledger scrutiny involves the careful scrutiny and examination of every entry of every ledger
account of the client be it capital account, loan account, debtors, creditors, expenses or
whatever.

Opening every ledger and examining every entry in it to find the trail for various various
business transactions.

In respect of expenses, It involves diving into every account affected by the expense
including seeing the trend of the monthly expenses of a particular account and to find the
reasons for the abnormal or exceptionally high expense at any particular date or month not to
say considering the materiality concept in mind.

There are no standardized, procedures for a ledger scrutiny however summarized steps are
as follows :

Reconciliation of Opening and Closing Balance:

The opening and closing balance in a particular ledger account should be reconciled to find
out thatthe balance includes only entries pertain to the said account and each and a very
amount in thebalance is identifiable with the said account.
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The Drs. Ledger of a particular customer shows opening & closing bal. with outstanding
ascertainable against specific sales invoice, debt or credit note. The balance outstanding is
on thecorrect side of the account for which the same is maintained.

All the entries in the opening and closing balances, which are not identifiable as above,
must belooked after and an audit query is to be raised.

Journal Entries in the Account:

The journal entries, in the account, including the transfers to and fro from the account to be
tracedand the reasons for passing a journal voucher to be ascertained. The transaction
flow of the journalentries to the various accounts should be ascertained and verified for a
particular account. Thenecessity for passing the journal voucher for particular transaction
is also to be verified.

Amounts & Transactions in the account follows a specific characteristics of the said account:

This can be explained by an example of say The ledger account of Electricity Expenses.
There are monthly bills to be posted and the payment if paid against the particular bill
both the entries aretwelve in number including provision for the last month. The opening
provisions to be paid orreversed as the case may be. The charters tics of the said
accounts are:

1. Number of entries twelve for due.

2. Average amount of bill has some range say between Rs. 4000 to Rs.5000

3. This account has opening as well as closing provision.

4. Payment entries may vary.

5. If payment entries vary it must contain interest and or penalty for delayed payment.

6. There are same number of entries for each location.

It is necessary to write down and understand all the specific characteristics of a

particular accountbefore starting the scrutiny of the said account as all the ledger
account has specific characteristics.

If an amount of say Rs.15000 is debited to account, it may be a deposit or on account of

repairs andnot electricity charges. A deviation with the specific charters tic of account
will be an audit query.

Transactions in the Account are nearest with the Head of the Account:

Repairs and maintained account has feature of repairs with major repairs and minor repairs.
Major repairs which does not increase the life of the asset still be a part of the repairs and

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maintainedaccount however, where the life of the asset increases due to major repairs, the
the account headnearest for the particular Fixed Asset Account.

Combo ledger accounts have different characteristics for different type of transactions:

Repairs and maintained account has regularity for maintained charges as we observed in
electricity charges above, while repair transaction has no such regularity and entered as
and when occurred orentered in to.

In the combo account head ledger accounts we have to ascertain the specific charters tics
of the type of transaction then the ledger account.

Period of Transactions in the Ledger:

There are three basic periodicity of the transactions. The transactions as on Opening
date of the books or ledger that is as on 01st April, the transaction as on the closing
date of the financial year i.e. 31st March, and the rest of the transactions which are
entered in to and squared up in the same financial year between 01st April, and 31st
March, they are incurred and paid and show no tendency of carried forward, and
brought down.

The peculiarity of the transaction w.r.t. period will also help in understanding the
transactions in a particular ledger account and form part of the ledger Scrutiny.

Transactions in the ledger having arithmetic calculation:

For such transactions in the ledger, the calculation part form the basics in scrutinizing
the said ledger. The Depreciation, Interest of loans, Capital, ledgeraccounts form the
part of such transaction.

Cross Verification for the Gross check:

This Step in the ledger scrutiny will help in verifying the arithmetic accuracy as well as
gross correctness of a particular ledger account.
The examples are Interest on unsecured loan paid account will be exactly propionate to
the Unsecured Loans Account. If the Loans are increased the interest on loans will also
increasedproportionately. A micro scrutiny will also undertaken w.r.t. charges in the rates
of borrowings in comparison to the previous year.

Checking of Corresponding Account or Related Account:

The ledger of taxes direct as well as indirect will generally form in this type of
corresponding or related account. If We calculate the Service tax of professional fees
account both these account will reflect matching results. Sales Account with VAT
Account and Input Credit account. Salary and TDS deducted on Salary. The variation if
any can be reconciled w.r.t where the TDS is not deducted.
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 These steps as a tool will serve a vital part in the ledger scrutiny.

Scrutiny of Creditors Ledger

Scrutiny of Creditors Ledger refers to going through the individual Ledger account of a Creditor
to check whether the Account is free from Material Misstatements .

Why Creditors Ledger Scrutiny is done :

Creditors Ledger Scrutiny is done so that Auditor is satisfied that Account is free from Material
Misstatement that could influence the economic decision of users of Financial Statements .The
brief reasons of ledger scrutiny are as follows :

1). Existence :

The Balances due shown in the Books of Accounts are Actually due and payable i.e. liability
towards creditor does exist.

2). Complete :

The Balances of all Creditors are included in the Financial Statements i.e. no amount is omitted
to be recorded.

3). Valuation :

The balances due shown in the Books of Accounts are proper i.e. neither more nor less.

4). Disclosure :

The Balances of Creditors shown as per Creditors Ledger are properly classified and
disclosed in the Balance Sheet.

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How Scrutiny of Creditors Ledger is done :

Scrutiny of Creditors ledger involves the following basicsteps :

(i). Checking Opening Balances of Creditors.

(ii). Checkingposting fromCreditors registers, books and journals.

(iii). Checkingcastings and totals of the creditor ledger account.

(iv). Scanning of ledger accounts.

(v). Checking summary and groupings.

Other Detailed steps involved are :

1). In the Creditors have to see that what are the possible reasons, which increase the
Creditorsbalance, and what are the reasons for decrease in Creditors balance.

2).After analyzing the Creditors account you can easily understand the above mentioned
reason.

The reasons for increase and decrease are as follows:

The reasons for increase in Creditors balance are:

a. Credit purchase
b. Dishonored of any cheque etc.

Now the reasons for the decrease in Creditors balance are:

a. Cheque payment
b. Cash Payments
c. Return outward
d. Bills endorsed
e. Bills accepted etc.

3). Whether or not TDS have been deducted while making Payment of Creditors

4). Whether or not Discount have been Availed from the Creditors
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5). Whether or not payment have been made at Regular Interval & of not Why?

Following Important points are also required to be considered while

scrutinizing Creditors Ledger :

Following important points should be considered whilecreditors ledger scrutiny :

A) Creditors having opening debit / credit balance and notransaction during the period.

a). Date since the balance is outstanding (Debit /Credit) is to beanalyzed.

b). It is to be checked that whether the Debit Balance is due to Advance payment for
supply of Material or due to excess payment to the party or due to debit note raised for
shortage of material / quality defect or any other reason.

c) If the debit balance is due to advance payment for Supply of Material then to check
whether material is not received or material is received but invoice is yet to be booked.

d) If the debit balance is due to excess payment made / or due to debitnote raised, the
reason for non-realization of the said amount.

B) REGULAR VENDORS

a) Uniform General Ledger (GL) head is to be debited based on the nature of expenses
purchases.

b) Proper deductions of TDS/PT/PF/WCT etc are made as applicable.

c) Aforesaid deductions are to be accounted (credited) to correct account head.

d) Possibility of double booking of invoices is to be kept in mind. The same can be test
checked by keeping in mind the invoice no. / equal amount for 2 or more invoices etc.

e) Possibility of Double payment is also to be kept in mind e.g. advance

payment is made to the party and subsequently full payment is also made to the party
or payment is made to the party and debited directly to the expenses account and
another payment is released by debiting to
party account.

f) Excess payment are also to be noticed i.e. payment made without deducting the TDS
etc. or without deducting the debit note amount etc.

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g) Any Transfer entry from one vendor to another vendor is to be supported with the
confirmation letter from the party.

h) Any Advance payment made during the year but bill for the same is not yet booked
are to be analyzed in order to ascertain whether Material is yet to be received or
invoices are yet to be booked.

i) In case of Vendors to whom monthly fixed payments are made for

Rent / Maintenance / Consultancy services etc., their agreement is to be
verified. If any sudden increase is noticed in the account, the documentary evidence for
the same is to be verified.

j) Payment made for regular bills but payment put on hold for old bills
reasons for the same is to be evaluated whether any quality problem or any other
reason.

k) Any substantial amount(debit / credit) written off during the year

document / approval to be checked specially in case of debit balances written off.

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Scrutiny of Debtors Ledger
Scrutiny of Debtors Ledger refers to going through the individual Ledger account of a Debtor to
check whether the Account reflects a true and fair view.

Why Debtors Ledger Scrutiny is done :

Debtors Ledger Scrutiny is done so that Auditor is satisfied that Account is free from Material
Misstatement that could influence the economic decision of users of Financial Statements .The
brief reasons of ledger scrutiny are as follows :

1). Existence :

The Balances due shown in the Books of Accounts are Actually due and payable i.e. recievable
towards debtorreally does exist.

2). Complete :

The Balances of all Debtors are included in the Financial Statements i.e. no amount is
omitted to be recorded.

3). Valuation :

The balances due shown in the Books of Accounts are proper i.e. neither more nor less.

4). Disclosure :

The Balances of Debtors shown as per Debtors Ledger are properly classified and disclosed
in the Balance Sheet.

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How Scrutiny of Debtors Ledger is done :

Scrutiny of Debtors ledger involves the following basic steps :

(i). Checking Opening Balances of Debtors.

(ii). Checking posting from Debtors registers, books and journals.

(iii). Checkingcastings and totals of the creditor ledger account.

(iv). Scanning of ledger accounts.

(v). Checking summary and groupings.

Other Detailed steps involved are :

1).Check the amount are entered in the proper debtor account.

2). Analyze Debtors Ageing i.e. 3months, 6 months , 1 year, 2 year or greater dependsupon
the requirement.

3).Check for the payment modes whether cash or cheque.

4).Payment is being made regularly or not.

5).Any special agreement or say any sister concern in the debtor list. If debtor includes
sister concern whether documents are properly.

6). Analyze the special agreements for discounts based on volume or payment basis made
or not.

7). Check the arithmetical accuracy of the accounts.

8). Also, check the Major Customer Balance Confirmation at the year end or half yearly
based upon Organisations requirements and policies.

Also most of the concepts are applied above can be used for Creditors.Regarding ledger
of advances, apart from above points. Following can also be checkedwhile scrutinizing
ledger :

1). Need and condition of advances.

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2). In case of big advances, evaluate the specific need and utility of such amount.

3). Check periodic confirmation given or received with the concerned party.

Following Important points are also required to be considered while

scrutinizingDebtors Ledger :

Following important points should be considered while Debtors ledger scrutiny :

A) Debtors having opening debit / credit balance and notransaction during the period.

a). Date since the balance is outstanding (Debit /Credit) is to beanalyzed.

b). It is to be checked that whether the Credit Balance is due to Advance payment
received for supply of Material or due to excess payment received from the party or due
to credit note raised for shortage of material / quality defect or any other reason.

c) If the credit balance is due to advance receipt for Supply of Material then to check
whether material is not sent or material is sent but invoice is yet to be booked.

d) If the credit balance is due to excess payment received / or due to creditnote raised,
the reason for non-realization of the said amount.

B) REGULAR CUSTOMERS

a) Uniform General Ledger (GL) head is to be credited.

b) Possibility of double booking of invoices is to be kept in mind. The same can be test
checked by keeping in mind the invoice no. / equal amount for 2 or more invoices etc.

c) Possibility of Double Receipt is also to be kept in mind e.g. advancepayment is

received from the party and subsequently full payment is also received from the party or
payment is received from the party and credited directly to the Income account and
another payment received iscredited against same bill against which advance payment
was received.

d) Any Transfer entry from one customer to another customer is to be supported with
the confirmation letter from the party.

e) Any Advance payment received during the year but bill for the same is not yet booked
are to be analyzed in order to ascertain whether Material is yet to be delivered or
invoices are yet to be booked.

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f) In case of Customers fromwhom monthly fixed payments are received forRent /
Maintenance / Consultancy services etc., their agreement is to beverified. If any sudden
increase/decrease is noticed in the account, the documentary evidence for the same is
to be verified.

g) Payment received for regular bills but payment put on hold for old bills reasons for
the same is to be evaluated whether any quality problem or any other reason.

h) Check whether payment received from 1 Debtor is credited to same Debtors Account
and not to any other Debtors Account.

Page 15 of 18
Q2
In the given question Shah A/c is prepared for the period 1 st January 2014 to 31st December
2014, while Bills Receivable A/c is prepared for the period 1 st April 2014 to 30th June 2014. Thus,
initially we will find out the balance in Shah A/c as on 1 st April, 2014.

Shah Account

Period-1st January, 2014 to 31st March, 2014

Date Particulars Amount Date Particulars Amount
1st Jan To Balance b/d 6000.00 12th Jan By Bills Receivable 4000.00
12th Jan By Sales Returns 1000.00
12th Jan By Bank 950.00
12th Jan By Discount 50.00

6000.00 6000.00
.

Thus as on 1st April,2014 Bills Receivable of Shah that are receivable are Rs.4000/-.

Now if we look at Bills Receivable Account given in the question, then on 30 th April, 2014
amount of Rs.2000 is received. So it is assumed that this Rs.2000 received is the amount due
from Mr. Shah as on 1st April,2014 (i.e.Rs.4000/-).

Again on 12th May, 2014 Rs.5850/- is received. It is assumed that balance Rs.2000/- receivable
from Mr. Shah is included in the above amount.

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If we see Shah A/c then Bills Receivable Account is debited on 8 th September,2014 and 12th
December,2014. Also Interest is debited to above Account on the same date. So this is nothing
but Bills Receivable Dishonored. Bills Receivable credited to Shah A/c on 5 th June,2014 of
Rs.2500/- is dishonored on 8th September,2014. Bills Receivable credited to Shah A/c on 8 th
September, 2014 of Rs.8000/- is dishonored on 12 th December, 2014. Interest is levied on both
the Bills Dishonored which is debited to Shah Account.

By looking at Bills Receivable Account Payment is received for certain bills. Also Bills Amounting
to Rs.10,000/- are sent to Bank for Collection. Also a discount of Rs.150/- is given and finally
making the Balance of Rs.6000 as on 30th June, 2014.

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Page 18 of 18