The purchase accounting department receive the purchase invoice, check them to the purchase order and goods received note and post them to the purchase ledger. At the end of each month, payments are made to suppliers. The purchase ledger is maintained on a microcomputer. The main sundry creditors and accruals at the year-end include: a) Wages accruals and PAYE; b) VAT; c) Interest on loans overdrafts, telephone and electricity. Most employees‘ wages are paid weekly in arrears. You are required to describe in detail the audit work you will carry out to; Verify that purchases cut-off has been correctly carried out at the year end

The best place to start purchases cut-off test is from goods received notes issued immediately before and after the year- end. Generally, the test should cover a sample of items during the period of two weeks before to two weeks after the year -end.

At the stock take, I should have recorded the last goods received note number issued before the year-end. This will assist in confirming that all items purchased before the year-end are included in the stock and the liability disclosed. I will select a sample of goods received notes issued before the year- end, and follow through to the purchase invoice. For these goods I will check that:

•  Either the purchase invoice has been posted to the purchase ledger before the year end or a purchase accrual has been made;
   If there are book stock records, I will check that the goods have been included in the records before the year -end.

There will be a purchases cut off error where either:

• The purchase invoice has not been posted to the purchase ledger before the year end and there is no purchase accrual; or
•  The purchase invoice has been posted to the purchase ledger before the year end and there is a purchase accrual at the year end.

For goods received after the year- end, I will select a sample of goods received notes issued after the year-end, and follow through to the purchase invoice. For these goods I will check that:

•  Neither the purchase invoice has been posted to the purchase ledger before the year end nor a purchase accrual been made;

If there are perpetual stock records, I will check that the items received have not been included in the stock records before the year- end.

There will be cut off error where either:

• The purchase invoice has been posted to the purchase ledger before the year end,; or;
•  There is a purchase accrual made.