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6. Vendor Invoices: These invoices will list the parts prices at retail and wholesale. This allows an examiner to compute the discount provided to the auto body shop for inventory and income probe purposes. Since many body shops can purchase parts on credit, individual invoices may be collectively paid in one lump sum at the end of the month and may be accompanied by a summary statement. Information which may prove useful is that these invoices will often list the model and year of the vehicle which is associated with the parts purchased. 7. Canceled Checks: A scan of endorsements can prove interesting for any expense account. Purchases - Audit Procedures Standard testing
procedures provided by the Internal Revenue Manual sections
4231 to 5(10)(2) for cost of sales should provide sufficient audit coverage.
However, the taxpayer's method of filing their records may require modification
of the examiner's transaction selection process. Because these situations have
consistently arisen, they warrant mention here. 1. Source documents maintained by customers. – In
this situation, the taxpayer will maintain all source documents -- estimates,
repair orders, vendor invoices, and sales invoices by customer. This type of
arrangement makes transaction selection from the general ledger or
disbursements journals difficult since vendor invoices which may comprise a
single transaction in the General Ledger may be separated if pertaining to
several customers. If this type of arrangement is encountered, the transaction
selection process may need to be made from the sales journals in conjunction
with the income test work. It should be noted however, that this type of
arrangement makes the inventory test work easier. 2.
Purchase invoices
maintained by vendors. – This is the "standard" situation
encountered. This arrangement allows the examiner to trace entries made into
the purchases account directly to specific source documents. However, repair
orders and estimates may well be filed by customers. In contrast to the
preceding situation, inventory test work is more difficult. 3. Source documentation filed by month. – This
situation is commonly encountered with smaller businesses. The estimates,
repair orders, vendor 6-3 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Glossary |