Mohammad and Selina own a neighbourhood milk bar.

Most of the milk bars sales involve small amounts of cash, except for some regular customers who have monthly accounts. They have a cash register through which they record all cash sales, including the monthly accounts. Any cash removed from the cash register for personal drawings, refunds, minor purchases, etc., is noted in a separate record used for this purpose.

The milk bar makes its trade purchases through a small number of established distributors. These operate on monthly invoice arrangements. They provide a delivery docket with each delivery and Selina reconciles this with the items delivered. Mohammad and Selina pay the invoices once a month by cheque after they have reconciled them with the relevant delivery docket.

At the end of each business day, Selina reconciles the contents of the cash register with the cash register tape, taking into consideration any cash removed from the cash register for personal drawings, refunds, minor purchases, etc. After the reconciliation, Selina tears off the 'Z-totals' at the bottom of the cash register tape and glues them into a book in chronological order, noting any discrepancies between the 'Z-total' and the cash contained in the register. She then banks the cash.

Once a month, Selina receives a statement from the bank containing details of her cash deposits. She reconciles this statement with the 'Z-totals' and other records which she has kept. Selina retains the rolls of tape produced by the cash register for one month after she has reconciled the bank statement with the 'Z-totals' and other records. She then disposes of the rolls of tape. However, Selina retains the 'Z-totals', bank statements and other records for the statutory period.

At the end of each month, Selina also reconciles the newsagency's sales, purchases and other expenses for that month, e.g., rent, wages, motor vehicle costs, etc., to determine whether the newsagency made a profit or a loss during that month. She summarises this information on a personal computer. This forms the basis of the information used to prepare the newsagency's income tax return at the end of the year of income.

You work as the accountant for Mohammad and Selina and you have been contacted by the tax office to assist them with an auditing requirement.

a. What would be classified as appropriate evidence of all cash transactions?

b. How would you verify that the Z-totals are an accurate record of the cash sales made by the business?

c. What would be classified as appropriate evidence of all purchases?

d. What other documentation may be provided to support any auditing requests?