Executive Summary: Audit On Purchases and Income Statement

EXECUTIVE SUMMARY
Scope of Audit
A financial audit was conducted on the operations of the GGNNAMAN Sand and Gravel for
the year ended December 31, 2020 which focused on the evaluation on their financial statements.
The audit consists of the review of the operating procedures and verification of accounts.
AUDIT ON PURCHASES AND INCOME STATEMENT

We were task to give an audit opinion on the income statement and the journal entries of purchases of the
GGNNAMAN Sand and Gravel. Management is responsible for preparing the statement, related notes,
and supplemental information in accordance with the generally accepted accounting principles
(“GAAP”). The statement and other needed information are given under GGNNAMAN Sand and Gravel.
Our responsibility is to express an opinion on the statement based on out audit. The objectives of the
audit were to determine whether controls over purchasing activities were adequate and precise and the
presentation of the income statement. The scope of the audit included a review of the income statement
and purchases from the started date of operation until December 31, 2020. Our audit procedures included,
but were not limited to:
● Determining the purchasing activity by adequate and documented records and entries;
● Assessing the validity, and justification of purchases and the needed information thereto.
This audit was conducted in accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit objectives.
FINDINGS AND RECOMMENDATIONS

During our audit we noted that there were errors in the journals that should correspond the amount stated
in the purchase’s official receipts. Some references were recorded incorrectly in terms of the OR numbers
and dates of the specified amount of purchase transaction. EWT was recorded in the purchase journal
which is not prescribed by the Philippines VAT accounting policy. In the income statement, amounts were
recorded incorrectly. Balances on the debit and credit sides of the cash account were not perfectly
balanced and were not equal. Purchases on the General Ledger and Income Statement was wrongly
computed. Official receipts for the purchases was summed up and it did not match the amount on the
general ledger and income statement. Expenses stated in general ledger does not match the amount
declared in the income statement.
To present the audited errors properly, we have prepared a summary below for reference to give a concise
evidence and reasonable basis for our findings.
Date OR #/ Account Title/Books Findings
December 26 #769 Input tax was computed

erroneously. Right amount should
be 4,914 (40, 950 * 12%)
General Ledger - Cash Balances on the debit and credit
sides of the cash account were
not perfectly balanced and were

not equal.
Purchases Purchases on the General Ledger

and Income Statement was
wrongly computed. Official
receipts for the purchases was
summed up and it did not match
the amount on the general ledger
and income statement.
General Ledger Account nos. Amounts of the supplies

120, 490 (Office Supplies, expense and office supplies in
Office Supplies Expense) the general ledger did not
coincide. Thus, amount on the
Income Statement - Supplies income statement for supplies
Expense expense was wrongly stated.
General Ledger - Insurance Amounts of the Insurance

Expense Acc no. 500 Expense in the general ledger,
worksheet and income
Income Statement, Worksheet - statement did not also match.
Insurance Expense Thus, amount on the income
statement for Insurance
Expense was wrongly stated.
Income Statement - Fuel Account title for Fuel Expense in

Expense the Income Statement was not
stated properly. Correct account
title should be Fuel Expense.
Income Statement - Total Selling The amount on the Total Selling

Expense Expense is not correct since errors
were found on the amounts of the
Office Supplies Expense and
Insurance Expense.
General Ledger, Income There was a missing amount in

Statement - Utilities Expense the Utilities Expense on the
General Ledger. Ending balance
was not derived properly and
correctly due to missing amount.
In addition, the amount in the
ledger and
income statement did not

match. Utilities Expense amount
was erroneously stated.
Source documents, General Amounts on the general ledger
Ledger - Repairs and did not match with the amounts
Maintenance on the source documents for
Repairs.
General Ledger - Salaries Ending balance for Salaries

Expense Account no. 550 Expense on the general ledger
should be 222,720, not 22,720.
General Ledger - SSS Missing month/date on the

Contribution expense general ledger for the SSS
Contribution Expense thus
resulted to erroneous ending
balance. The balances for the
SSS Contribution Expense in
the Source Documents, General
Ledger and Income Statement
did not coincide.
General Journal - Income There is no respective account
Tax Expense title and number for Income Tax
Expense on the General Ledger.
Date Purchase Number Description
04-Jan-20 601 Wrong amounts were

reflected in the purchases journal.
18-Jan-20 658 Wrong official receipt

number was reflected in purchase
journal.
25-Jan-20 665 The total of amount of the
debit side is not equal to the
total amount of the credit side.
There is an excess of
.05
4-Feb-20 462 Different date was reflected

in the journal
15-Feb-20 684 The total of amount of the

.05
22-Feb-20 301 The total of amount of the

There is a shortage of
.04
14-Mar-20 701 The total of amount of the

.05
21-Mar-20 315 The total of amount of the

.04
04-Apr-20 710 The total of amount of the

.05

.04

total amount of the credit
side. There is a shortage of
.04
16-May-20 737 Wrong amounts were

reflected in the purchases
journal
16-May-20 529 Wrong amount was reflected

in the journal.

in the journal.
30-May-20 753 The total of amount of the

.05

in the purchases journal.
20-Jun-20 360 The total amount of the debit

side is not equal to the total
amount of credit side. There is
an excess of .04
18-Jul-20 383 Official receipt number is not

indicated in the journal.
25-Jul-20 390 The total amount of the

total amount of credit side.
There is an excess of .04
01-Aug-20 803 The total amount of the

There is an excess of .05.
15-Aug-20 411 The total of amount of the

.04
05-Sep-20 628 Wrong amount was reflected

in the purchases journal
05-Sep-20 425 The total of amount of the
.04
12-Sep-20 832 The total amount of the debit

an excess of .05

an excess of .05
12-Sep-20 432 The total amount of the

19-Sep-20 839 Wrong amount was reflected

in the journal

an excess of .05

an excess of .05

an excess of .05
10-Oct-20 656 The total amount of the debit

an excess of .05
10-Oct-20 453 The total amount of the debit

an excess of .05
17-Oct-20 663 The total amount of the
07-Nov-20 481 The total amount of the
14-Nov-20 488 Wrong amount was reflected
in the journal
05-Dec-20 759 The total amount of the
19-Dec-20 765 Wrong amount was reflected
in the journal
19-Dec-20 360 The total amount of the debit
amount of credit side. There
is an excess of .05
Audit of Official Receipt in

Purchases
4-Jan-20 448 Vat amount and vatable sales

if added is insufficient and
does not result in 23,400
11-Jan-20 458 Vat amount and Vatable

sales if added exceeds the
amount of 15930
18-Jan-20 462 Vat amount and vatable
sales if added is insufficient
and does not result in 19980
4-Feb-20 462 Vat amount and vatable

and does not result in 16200.
Same receipt number in
January 18 receipt

7-Mar-20 490 Vat amount and vatable
amount of 15930
28-Mar-20 501 Vat amount and Vatable
amount of 18180
4-April-20 503 Vat amount and vatable

11-Apr-20 510 Vat amount and vatable
18-Apr-20 514 Vat amount and vatable
25-Apr-20 518 Vat amount and Vatable
amount of 18180
9-May-20 522 Vat amount and vatable
16-May-20 529 Vat amount and Vatable

amount of 18180
amount of 18180
amount of 18180
6-June-20 549 Vat amount and Vatable

amount of 18180
amount of 18180
amount of 18180
amount of 18180
4-July-20 572 Vat amount and vatable

11-July-20 572 Vat amount and Vatable
amount of 15930. Same OR
number in July 4
18-July-20 586 Vat amount and vatable
1-Aug-20 600 Vat amount and vatable


5-Sept-20 628 Vat amount and Vatable
amount of 15930
amount of 18975
amount of 3625
amount of 18975
19-Sept-20 439 Vat amount and vatable

amount of 19765
amount of 3625
10-Oct-20 656 Vat amount and Vatable
amount of 18975
17-Oct-20 663 Vat amount and vatable
amount of 7250

amount of 18975
amount of 3625
amount of 21190

amount of 4640
7-Nov-20 481 Vat amount and Vatable
amount of 3625
amount of 21190
amount of 21190

amount of 5800
28-Nov-20 705 Vat amount and vatable
28-Nov-20 349 Vat amount and vatable
5-Dec-20 549 Vat amount and Vatable
amount of 26325
amount of 21190
12-Dec-20 356 Vat amount and vatable

19-Dec-20 565 Vat amount and vatable
amount of 21190

amount of 7250
RECOMMENDATIONS:
We recommend that :
(1) The Purchasing Department should routinely review purchases to ensure the
declared quotations are precise and accurate with the other corresponding records.
(2) All Purchases approved by a department head with written justification be reviewed by the
manager for accountability and to make sure that everything is properly recorded.
(3) Guidance and/or training be provided to staff to help ensure that purchases are
properly controlled and recorded in the book correctly.
(4) The duties of the inventory control clerk be segregated. If this is not practical due to staffing
limitations, then compensating controls should be implemented. They should participate in
key functions such as receiving purchases and performing inventory counts, or supervisory
reviews should be performed and documented to make sure that all purchases has been
received in a good condition and to counter check with the recorded purchases that
everything is properly and correctly recorded.
(5) Expenses and other accounts affecting the income statement should be thoroughly reviewed
to check and to ensure its reliability and to present the amounts correctly and honestly.
Auditor's Opinion on the Financial Statements

We were tasked to audit the Accounting Records of the GGNNAMAN Sand and Gravel
as of December 31, 2020 and the related financial statements, value-added tax, and income tax
return for the year ended. These financial statements are the responsibility of the management. In
our opinion, the income statement is not presented fairly and does not conform with the
provisions of the generally accepted accounting principles. Also, the statement of financial
position was not faithfully represented since it is not free from error.
Significant Findings and Recommendations

The following as the significant findings and the corresponding recommendations:
1. Official Receipts (OR's) in the sales transactions were not issued in strict numerical
sequence, were not filled up properly and incomplete information.
Example:
Some OR lacks name, date and item description.
The OR for the month of June is doubled and the outcome makes the OR number
not in chronological order according to their respective dates.
We recommend that the collectors/cashier issue in chronological order the prenumbered

official receipts in strict numerical sequence. In preparing the ORS, all copies shall be
exact copies or carbon reproductions in all respects of the original. All ORS shall be
prepared with a date, number, and the amount together with the purpose for which the
payment has been received. The address of the payor shall also be indicated on the
official receipt to facilitate communication with him if necessary.
2. The company failed to check the initial balances on hand, receipts, issues and the ending
balances on hand of the inventories. Consequentially, ORs in Sales Transactions were
issued continuously without looking after the inventories on hand as of the date. This
resulted to an excess in the sales quantity over purchases quantity.
Example:
Date Items Stocks on Hand Sales Deficient

Sand 116 120 4
Gravel:
Jan 25- Feb 7
Grade 2 14 32 18
Cement 25 50 25
Sand 38 80 42
Feb 8-14 Gravel:
Grade 1 31 36 5
Gravel:
Feb 22-28
Grade 2 25 30 5
Gravel:
Apr 25- May 8 Grade 1 46 66 20
Grade 2 34 60 26
Sand 119 127 8
Gravel:
June 27- July 3 Grade 1 74 134 60
Grade 2 68 113 45
Cement 80 99 19
July 4-10 Sand 30 35 5
July 11-17 Sand 32 48 16
Sept 19-25 Sand 38 44 6
Sand 38 71 33
Gravel:
Sept 26- Oct 9 Grade 1 36 72 36
Grade 2 36 55 19
Cement 65 69 4
Sand 40 43 3
Oct 10-16
Cement 35 41 6
We recommend that the company shall check the inventories from time to time by
conducting a physical count to determine the remaining stocks on hand. GGNNAMAN
Sand and Gravel sales and purchases transactions show false information because they
continue to engage in sales activities despite insufficient stocks on hand which has
resulted in a deficiency. It is a clear evidence that some of their sales were made out of
lies, given the fact that they benefited without giving something in return.
3. Journal entries in the sales and purchase transactions were not journalized correctly. They
included accounts such as Creditable withholding tax and Expanded withholding tax
which is contrary to the prescribed accounting for VAT in the Philippines.
We recommend that for purposes of accounting for VAT in the Philippines, the company
should note the following accounting entries as to:
Sales:
Debit: Cash/ Accounts Receivable
Credit: Sales
Credit: Output VAT
Purchases:
Debit: Purchases/ Asset Account
Debit: Input VAT
Credit: Cash/Accounts Payable
The GGNNAMAN Sand and Gravel should bear in mind that without the creditable
withholding certificate or BIR form no. 2307, they shall not be allowed to claim the same
as a tax credit.
4. The stated amount in the ORs is different from the amount recorded in the sales journal
and some ORs were not recorded on time.
Example:
Official receipt no. 401, the stated amount is 4,960. However, when they
journalized it the amount is only 4,610.
OR no. 401 was issued on June 21 but was recorded on July 19.
We recommend that in making journal entries, the accountant must make sure that the
amount stated in OR is the same as with the amount in journal entries to ensure true and
reliable information. Upon issuing official receipts, record it right away to ensure that the
actual monthly income will match with the accounting records.
5. The way how the company presented its income statement does not conform with the
Generally Accepted Accounting Principle (GAAP), this will lead to confusion among
external users. Some line items in the GGNNAMAN Sand and Gravel's Income
Statement, such as sales return and allowances, were not part of its whole operations, but
was stated in the income statement, as a result, it will lead to misconception to the
investors who will evaluate later on.
Due to some sales made even if there is insufficient inventory and the company does not
control their inventories, the net sales were overstated while the ending inventory was
understated. Their expenses are unrealistic, like utility and rentals; the amount of which is
too small considering that hardware companies need more expenses for spaces and
machines.
We recommend that for a clear and understandable income statement, the company
should formalize it through the guidance of the Generally Accepted Accounting Principle
(GAAP) format. The company must only include accounts that are being used by the
company and disregard not relevant accounts to achieve completeness and accuracy.
Moreover, the sales should be based on the number of stocks on hand and not on monthly
basis to avoid deficiency. Lastly, the expenses should be more realistic to correlate to the
nature of the company.
6. Some items in the statement of financial position of GGNNAMAN Sand and Gravel were
classified, characterized, and presented unclear and unconcise that makes it not
understandable. The total liabilities stated in its financial position is erroneously
computed. As a result, the amounts in the worksheet will also be affected and will show
the wrong findings in the total amounts.
Example:
- Input taxes is an asset but recorded as a liability in the balance sheet;
furthermore, Input VAT account must be Debit;
- Output taxes is a liability and not a deduction to the total liabilities;
- Creditable withholding tax is accounted for as an asset because they are
prepayments of income tax and are deductible from income tax due to its
quarterly or annual income tax return. The company, however, recorded it as a
liability that resulted in the wrong amount in the computation of total
liabilities.
We recommend that the company must strictly observe the fundamental and enhancing
qualitative characteristics in making financial statements to make the information useful
to others and not confusing. Proper classification of accounts in the balance sheet is a
critical issue that should not be mislook because it will affect the total amounts in the
adjusted statement of financial position in the worksheet. The accountant in-charge must
also ensure that the amount presented in the financial statements are all free from error to
avoid subsequent falsities in all aspect of accounting records.
7. The Quarterly income tax returns designates appropriately but the fact that lacking of
Annual Income Tax Returns is strictly unacceptable because it is the obligation of the
company to surrender it to the Bureau of Internal Revenue to check the Annual Revenue
that the Business gets over the year. Due to the lacking information, we are not able to
deform the constant measurement of the Tax Payable of the business. Aside from the
form of Annual Income Tax Returns, there is no Source documents of Quarterly Income
Tax Returns, Value Added Tax Returns and Annual Income Tax Returns. These
documents are very important because these are the basis of your filing the form to B.I.R
(Bureau of Internal Revenue).
We recommend that the company must check thoroughly their respective information to
avoid deficiencies and conflicts between them and Bureau of Internal Revenue without
misleading anything. The source of information must be concise and clear so that we can
achieve the goal of success in recording the necessary entries and amounts.

Executive Summary: Audit On Purchases and Income Statement

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EXECUTIVE SUMMARY

AUDIT ON PURCHASES AND INCOME STATEMENT

FINDINGS AND RECOMMENDATIONS

Date OR #/ Account Title/Books Findings

December 26 #769 Input tax was computed

sides of the cash account were

not perfectly balanced and were

Purchases Purchases on the General Ledger

General Ledger Account nos. Amounts of the supplies

General Ledger - Insurance Amounts of the Insurance

Income Statement - Fuel Account title for Fuel Expense in

Income Statement - Total Selling The amount on the Total Selling

General Ledger, Income There was a missing amount in

income statement did not

General Ledger - Salaries Ending balance for Salaries

General Ledger - SSS Missing month/date on the

Date Purchase Number Description

04-Jan-20 601 Wrong amounts were

18-Jan-20 658 Wrong official receipt

4-Feb-20 462 Different date was reflected

15-Feb-20 684 The total of amount of the

22-Feb-20 301 The total of amount of the

14-Mar-20 701 The total of amount of the

21-Mar-20 315 The total of amount of the

04-Apr-20 710 The total of amount of the

11-Apr-20 324 The total of amount of the

18-Apr-20 329 The total of amount of the

debit side is not equal to the

16-May-20 737 Wrong amounts were

16-May-20 529 Wrong amount was reflected

23-May-20 536 Wrong amount was reflected

30-May-20 753 The total of amount of the

30-May-20 543 Wrong amount was reflected

20-Jun-20 360 The total amount of the debit

18-Jul-20 383 Official receipt number is not

25-Jul-20 390 The total amount of the

01-Aug-20 803 The total amount of the

15-Aug-20 411 The total of amount of the

05-Sep-20 628 Wrong amount was reflected

12-Sep-20 832 The total amount of the debit

12-Sep-20 635 The total amount of the debit

12-Sep-20 432 The total amount of the

19-Sep-20 839 Wrong amount was reflected

19-Sep-20 642 The total amount of the debit

26-Sep-20 649 The total amount of the debit

26-Sep-20 446 The total amount of the debit

10-Oct-20 656 The total amount of the debit

10-Oct-20 453 The total amount of the debit

Audit of Official Receipt in

4-Jan-20 448 Vat amount and vatable sales

11-Jan-20 458 Vat amount and Vatable

4-Feb-20 462 Vat amount and vatable

22-Feb-20 480 Vat amount and vatable

4-April-20 503 Vat amount and vatable

16-May-20 529 Vat amount and Vatable

6-June-20 549 Vat amount and Vatable

4-July-20 572 Vat amount and vatable

1-Aug-20 600 Vat amount and vatable

22-Aug-20 621 Vat amount and vatable

26-Sept-20 649 Vat amount and Vatable

24-Oct-20 670 Vat amount and Vatable

31-Oct-20 474 Vat amount and Vatable

21-Nov-20 495 Vat amount and Vatable