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 4 column proof of cash reconciles client books and records with 3rd party bank
records for beginning (column 1) and ending (column 2) balances, as well as cash
receipts/deposits (column 2) and cash disbursements/charges (column 3) for a given period.
Usually 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 journal, as explained below:

Column
Reconciling Item Affected Explanation
Beginning DIT 1 You 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.
2 You 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.
Ending DIT 2 You 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.
4 You 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.
Beginning Outstanding Checks 1 You 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.
3 You 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.

Reconciling Item
Ending Outstanding Checks
Customer NSF Checks
redeposited by client in same
period
Customer NSF Checks
redeposited by client in the
following period
Helpful Hint: For the more difficult items, try laying out what's recorded on the client's books
(Cash in Bank) and compare to what's recorded on the bank's books (Demand Deposit), for the
period covered by the Proof of Cash, using two "T" accounts to identify the differences easier.
Column
Affected Explanation
3 You 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.
4 You 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.
2 You must subtract this amount from deposits per
bank because the client did not record the second
deposit as an additional receipt.
3 You must subtract this amount from
disbursements/charges per bank because the return
of the NSF check was not recorded on the client's
books as a cash disbursement.
3 You must subtract this amount from
disbursements/charges per bank because the return
of the NSF check was not recorded on the client's
books as a cash disbursement.
4 You must add this amount to the ending balance
per the bank because
the bank reduced the balance when the check
was returned NSF by the customer's bank and
the client did not record it as an additional
disbursement and
it is basically a DIT at period's end.