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Proof of Cash

Overall Purpose: Test cash transactions for a given period to verify the following existence and completeness assertions, as it relates to transactions, when internal controls over cash transactions are not effective in design or performance and an audit of the ending cash balance is not enough because of corollary misstatements to other accounts that result from unrecorded cash transactions or fictitious transactions.

All recorded (on the client's books) cash receipts were actually deposited. (existence) All receipts deposited in the bank were recorded on the client's books. (completeness) All recorded cash disbursements were processed by the bank. (existence) All disbursements processed by the bank were recorded. (completeness)

The standard column proof of cash reconciles client books and records with !rd party bank records for beginning (column ") and ending (column #) balances, as well as cash receipts$deposits (column #) and cash disbursements$charges (column !) for a given period. %sually one starts with amounts from the bank statement(s) and reconciles to what is reflected in the client's general ledger and$or cash receipts and disbursements &ournal, as explained below' Reconciling Item (eginning )*T Column Affected " # ,nding )*T # Explanation +ou must add this amount to the beginning cash balance per bank because the bank did not receive the deposits before the prior month cut off. +ou must subtract this amount from the deposits shown by the bank for the period because these were recorded on the client's books in prior period. +ou must add this amount to the deposits shown by the bank for the period because these were recorded on the client's books this period, but will not be received by the bank until next period. +ou must add this amount to the ending balance per the bank because the bank did not received them until after the end of the period, but they were recorded on the client's books this period. +ou must subtract this amount from the beginning cash balance per bank because the bank did not receive the checks for processing before the prior month cut off. +ou must subtract this amount from the disbursements$charges shown by the bank for the period because they were recorded on the client's books in the prior period.

(eginning -utstanding .hecks

"

Reconciling Item ,nding -utstanding .hecks

Column Affected !

.ustomer /01 .hecks redeposited by client in same period

# !

.ustomer /01 .hecks redeposited by client in the following period

Explanation +ou must add this amount to the disbursements$charges shown by the bank for the period because they were recorded on the client's books in this period, but will not be received by the bank for processing until next period. +ou must subtract this amount from the ending cash balance per bank because the bank did not receive the checks for processing until after this month's cut off, but have been recorded on the client's books. +ou must subtract this amount from deposits per bank because the client did not record the second deposit as an additional receipt. +ou must subtract this amount from disbursements$charges per bank because the return of the /01 check was not recorded on the client's books as a cash disbursement. +ou must subtract this amount from disbursements$charges per bank because the return of the /01 check was not recorded on the client's books as a cash disbursement. +ou must add this amount to the ending balance per the bank because the bank reduced the balance when the check was returned /01 by the customer's bank and the client did not record it as an additional disbursement and it is basically a )*T at period's end.

Helpful Hint: 1or the more difficult items, try laying out what's recorded on the client's books (.ash in (ank) and compare to what's recorded on the bank's books ()emand )eposit), for the period covered by the 2roof of .ash, using two 3T3 accounts to identify the differences easier.