Question

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be able to detect:

1) An unrecorded deposit made at the bank at the end of the month.
2) A second payment of an account payable which had already been paid in full two months earlier.
3) An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into the bank.
4) A receivable collected that had previously been written off as uncollectible.

Answer 1

A four-column bank reconciliation, or 'proof of cash,' helps auditors detect errors or irregularities in a company's cash balance. It can identify unrecorded deposits, duplicate payments, embezzlement of cash receipts, and receivables collected that were previously written off.

Step-by-step explanation:

A four-column bank reconciliation, also known as a 'proof of cash,' is a process used by auditors to compare a company's cash balance as recorded in their books with the cash balance reported by the bank. By performing this reconciliation at year-end, an auditor can detect several types of errors or irregularities. These include:

1. An unrecorded deposit made at the bank at the end of the month. This can happen if a deposit slip is lost or not properly recorded in the company's cash receipts journal.
2. A second payment of an account payable which had already been paid in full two months earlier. This could be an indication of duplicate payments or fraudulent activity.
3. An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into the bank. This could involve an employee diverting cash for personal use without documenting the transaction in the company's records.
4. A receivable collected that had previously been written off as uncollectible. This can occur if a customer unexpectedly pays off a debt that was considered to be uncollectible and had been written off as a loss.