Chapter 3: Proof of Cash

Question 1

Accounting Standards:

Answer 1

Proof of cash is not directly addressed by a specific PFRS or PAS. However, it is essential for ensuring that financial statements comply with standards related to cash and cash equivalents, such as PAS 1 (Presentation of Financial Statements) and PAS 7 (Statement of Cash Flows).

Question 2

Scope of the Applicable Standard

Answer 2

• PAS 1: Ensures the proper presentation of financial statements.
  
  • PAS 7: Governs the reporting of cash flows, which would include reconciliations to ensure accuracy.

Question 3

A reconciliation that involves comparing the beginning and ending balances of cash and cash equivalents on the balance sheet with the cash receipts and disbursements recorded during the period.

Answer 3

Proof of Cash

Question 4

Cash and Cash Equivalents

Answer 4

Short-term, highly liquid investments readily convertible to known amounts of cash, subject to an insignificant risk of changes in value.

Question 5

Recognition: Initial and Subsequent:

Answer 5

• Initial Recognition: When transactions involving cash or cash equivalents occur, they are recorded in the company’s accounting system as per PAS 1.
  
  • Subsequent Recognition: Regular proofs of cash are performed to ensure that recorded cash transactions align with the actual cash movements, adjusting for any discrepancies.

Question 6

Measurement: Initial and Subsequent:

Answer 6

• Initial Measurement: Cash and cash equivalents are measured at their nominal value at the time of the transaction.
  
  • Subsequent Measurement: Adjustments are made during the proof of cash to reflect the accurate cash position, considering any errors or omissions in recording cash transactions.

Question 7

Journal Entries:
- Adjusting entries are made to correct discrepancies identified during the proof of cash process:

Answer 7

• To record unrecorded cash receipts:
  Dr. Cash in Bank
  Cr. Revenue (or relevant account)
• To correct an error in recording a disbursement:
  Dr. Expense Account (or relevant account)
  Cr. Cash in Bank

Question 8

Presentation

Answer 8

• In financial statements, reconciled cash balances are presented as cash and cash equivalents on the balance sheet, as required by PAS 1 and PAS 7.

Question 9

Disclosure

Answer 9

• Disclosures related to cash and cash equivalents should be made in the notes to the financial statements. This may include:
  
  • The policy for determining cash and cash equivalents.
  • Any significant cash management arrangements.
  • Details of any restrictions on cash balances (PAS 7).