The most important part of accounting (data analysis) is to scrutinizes Ledger accounts of Sundry Creditors and Debtors. It's been observed that most of premature accountants ignore this important aspect.
So I am throwing this questions to discuss in this forum as to why is it important to Scrutinize Party Ledgers?
Consideration of important points while vendors ledger scrutiny.
A) Creditors having opening debit / credit balance and no transaction during the period.
a) Date since the balance is outstanding (Debit / Credit) is to be analyzed
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 – 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 debit note 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 to be 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. 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.
Discussion on this topic in R-Office.
There may be chances that some other account may have been credited or debited, which can be detected easily on ledger scrutiny. To find wrong entry in ledger, look for any unusual entry / bill series / cheque no / Bill amount / Items names etc.
When we scrutinize party ledger, we could also check for bills against which payment is not done or payment not received.
If we scrutinize parties ledges closely, we would be in a position to find certain discrepancies like Creditors ledger generally shows Cr. balance, but if it shows Dr. balance it might be that certain bill of purchase / exp, might not had been entered. We can ask client for that bill. :)