Which of the following would detect an understatement of a purchase discount?
A. Compare approved purchase orders to receiving reports.
B. Compare purchase invoice terms with disbursement records and checks.
C. Verify footings and cross footings of purchases and disbursement records.
D. Verify the receipt of items ordered and invoiced.
Answer:B
B is correct because by comparing the purchase order with disbursement records and checks, any differences will be detected. The purchase order serves as evidence of the amount payable, and the disbursement records and checks provide evidence of amounts actually paid. Therefore, a comparison will lead to the identification of any understated or unrecorded purchase discounts.
A is incorrect because a comparison of purchase orders to receiving reports does not relate to purchase discounts. The discount terms would appear only on the vendor’s invoice.
C is incorrect because verification of purchases and disbursement records would not indicate unrecorded purchase discounts or discounts not taken.
D is incorrect because verification of items received and the related invoice ignores the payment portion of the transaction where the relevant purchase discount would appear.