The How to Audit Cash course describes the characteristics of cash from an auditing perspective, and then goes on to describe the activities required to audit a client’s cash accounts. The course contains extensive material about cash-related controls, fraud issues, and the construction of a bank reconciliation and a proof of cash.

Every business needs to maintain a certain amount of cash to use in settlement of its current liabilities. In addition, some firms sell goods and services primarily in cash, so they may have significant cash balances on hand from cash receipts. These cash balances may be aggregated into a number of bank accounts, including the following:

• Checking account. This is the general account into which customer payments flow, and from which payables payments are disbursed.
• Branch account. A company may operate a separate bank account for each of its branch locations, which is intended to take in and disburse funds related to local operations.
• Payroll account. This account receives funding for each successive payroll, which is drawn down as employees cash their paychecks.
• Petty cash. This account is maintained internally (it is not a bank account), and contains a small amount of cash for incidental cash purchases.
• Savings account. A client may have a separate bank account that is only used for earning interest on excess funds.

 

The largest amount of transaction volume usually runs through the checking account. The payroll account usually involves a lesser, though still substantial, number of transactions. The total amount of petty cash held within a business at any given time is likely to be immaterial, though the total amount of expenditures paid for by this means could be material. A client may have no savings account at all, if it instead puts excess cash into marketable securities and other investments.

In this course, we examine the characteristics of cash from an auditing perspective, and then note the auditing activities that can be applied to the cash area, with particular attention to the bank reconciliation, proof of cash, and bank transfer schedule.