Cash

Question 1

What is the formula for determining ending cash on the balance sheet? (bank balance)

Answer 1

Balance per bank
+ Deposits in transit
- Outstanding checks
= Adjusted balance

Question 2

What is the formula for determining ending cash on the balance sheet (book side)

Answer 2

Balance per books
+ Add interest and other direct deposits
- Service charges and other withdrawals
= Adjusted balance

Question 3

How do you test the pieces of the bank reconciliation?

Answer 3

1) Confirm the balance per the bank statement
- Identify bank statement
- Send confirmation (from client to the bank)

Question 4

How do you determine deposits in transit?

Answer 4

• Look at next statement to make sure they have come through
• Cut-off bank statement (approximately 10 days after year-end with customary documentation of all transactions)- Client requests the bank to prepare a cut-off bank statement.

Question 5

How do you test outstanding checks?

Answer 5

• Evaluate cut off bank statement to the extent possible. Look at the check that were processed

Question 6

What is “Kiting?” How do you test kiting?

Answer 6

overstatement in the cash position as of year-end.

Inter-company transfers close to year-end may not be captured because of timing.

Test: Request client to prepare all intracompany transfers a few days before year end and after year end. Review to see if both pieces were recorded in the proper period and for both accounts.