Question

The audit working paper known as a "proof of cash" is a means of proving that checks paid by the bank during the test period were not in excess of authorized cash receipts during that same test period. True or False?

Answer 1

The statement that a proof of cash only verifies that checks paid by the bank during the test period were not in excess of authorized cash receipts is False. A proof of cash is an audit procedure ensuring the integrity of all cash transactions, which includes receipts and disbursements, within a company.

Step-by-step explanation:

The statement is False. A "proof of cash" is an audit procedure that reconciles the cash balances in the company's cash books with the bank statements directly for a specific period. This procedure is used to verify that all cash that has been documented as received by the company has indeed been deposited in the bank and that all payments made by the bank have been properly authorized and recorded in the company's cash books. The main purpose of the proof of cash is to detect any discrepancies or irregularities in cash transactions that may indicate errors, fraud, or lack of internal controls over cash receipts and disbursements.

The proof of cash goes beyond checking that checks paid by the bank were not in excess of authorized cash receipts and includes a comprehensive analysis of cash handling to ensure the integrity of the company's cash transactions during the test period. Balancing your checkbook regularly is a similar practice undertaken by individuals to manage money and ensure that all transactions are accounted for, avoiding overdraft fees and ensuring accurate cash flow management.