52 BULLETIN 381, IT. S. DEPARTMENT OF AGRICULTURE. 
AUDIT OF RESOURCES AND LIABUJTIES. 
Because the solvency or insolvency of any business depends on the 
relation between the resources and liabilities, it is of the utmost 
importance that the truth of the Balance Sheet be shown. The 
method of determining this can be stated best by an example. Sup- 
pose the balance sheet of a cooperative store is as follows: 
LIABILITIES. 
Capital Stock S10, 000. 00 
Bills Payable 1, 000. 00 
Accounts Payable 2, 000. 00 
Surplus. 2, 000. 00 
RESOURCES. 
Cash 
$100. 00 
Merchandise 
Accounts Receivable 
Bills Receivable 
. . . . 8, 000. 00 
. . . . 3, 000. 00 
1, 500. 00 
Real Estate 
1, 400. 00 
Subscribed Stock 
1, 000. 00 
15, 000. 00 
15, 000. 00 
It is evident that if the resources are understated or the liabilities 
overstated, or both, the surplus is larger than $2,000; and the reverse 
is true if there are more liabilities and less resources than appear on 
the statement. 
The auditor must constantly take into account the weakness of 
human nature in the manager's disposition to show the business in 
the brightest light, and he must use every means at his disposal to 
verify the Balance Sheet. If satisfactory evidence of the statement 
does not exist, he should say so frankly in his report. The following 
are the several items of the Balance Sheet in their order: 
Cash. — The method of verifying the cash has been given (page 51). 
Merchandise. — It is usually impracticable for the auditor to 
exandne every entry and every total of the inventory, but he should 
require that a proper classification be made under the various accounts 
found in the ledger, and he should appoint a responsible stockholder 
or assistant to be present at stocktaking who should also review 
prices, extensions, footings, etc. Every schedule should bear the 
O. K. of this assistant. 
Accounts receivable. — The balance of the Customers' Ledger or 
Account File with the controlling account in the General Ledger is 
only partial evidence of the correctness of these accounts. Errors in 
prices, omissions of charges, and the like are not shown by this 
balance. The only satisfactory method of checking against such 
errors is a regular review of the triplicates by the bookkeeper, and 
also a check by the auditor of several sales slips of each day, week, 
or month, taken at random. If mistakes are very infrequent, and 
the total of the Customers' Ledger equals the controlling account, 
the Balance Sheet may be regarded as reasonably correct. 
Bills receivable. — The balance shown in the General Ledger must 
equal the total of notes on hand. This should also be verified by 
