Proof of Cash: The Four-Column Bank Reconciliation

A normal bank reconciliation checks one number: the closing balance. A proof of cash reconciles four: the opening balance, receipts, payments and the closing balance. That makes it a stronger test, because two errors that cancel out at year end still show up in the receipts and payments columns.

Auditors use it when cash is a higher risk: weak controls, signs of unrecorded transactions, or a client where money could go in and out without being recorded.

The four columns

	Opening balance	Receipts	Payments	Closing balance
Per bank	50,000	400,000	380,000	70,000
Deposits in transit, opening	5,000	(5,000)
Deposits in transit, closing		8,000		8,000
Outstanding cheques, opening	(7,000)		(7,000)
Outstanding cheques, closing			10,000	(10,000)
Per books	48,000	403,000	383,000	68,000

Each row adds across: opening + receipts − payments = closing. Each column adds down from the bank figure to the books figure.

How the adjustments work:

• Opening deposits in transit were recorded in the books last year but reached the bank this year. Add them to the opening balance, and take them out of this year's receipts.
• Closing deposits in transit were recorded in the books this year but haven't reached the bank. Add them to receipts and to the closing balance.
• Opening outstanding cheques were recorded last year but cleared the bank this year. Deduct them from the opening balance, and take them out of this year's payments.
• Closing outstanding cheques were recorded this year but haven't cleared. Add them to payments and deduct them from the closing balance.

Comparing with the general ledger

The "per books" line is what the general ledger should show. Agree each figure to the GL cash account:

• Opening balance to last year's audited closing balance
• Receipts to total debits to cash
• Payments to total credits to cash
• Closing balance to the trial balance

Say the GL shows receipts of $410,000 instead of $403,000. The closing balance could still agree if payments in the GL were also $7,000 higher, so a normal bank reconciliation would pass. The proof of cash shows $7,000 of receipts and $7,000 of payments in the books that never went through the bank. That could be a transfer recorded twice, or entries made to hide something.

What it can find

• Receipts recorded in the books that were never deposited
• Payments that went through the bank but were never recorded
• Transfers between accounts recorded in the wrong period, including kiting
• Cash taken and hidden by matching false entries on both sides

Where Warp Accounting fits

Warp Accounting's test of details vouches sampled receipts and payments to the invoices and other supporting documents the firm uploads, and links each result to the page it came from. It does not prepare the proof of cash itself. See test of details, and our guides to vouching vs tracing and audit evidence.