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Unformatted text preview: 23-8Auditors are usually less concerned about the client's cash receipts cutoff than the cutoff for sales, because the cutoff of cash receipts affects only cash and accounts receivable and not the income statement, whereas a misstatement in the cutoff of sales affects accounts receivable and the income statement.For the purpose of detecting a cash receipt cutoff misstatement, there are two useful audit procedures. The first is to trace the deposits in transit to the cutoff bank statement to determine the date they were deposited in the bank account. Because the recorded cash will have to be included as deposits in transit on the bank reconciliation, the auditor can test for the number of days it took for the in-transit items to be deposited. If there is more than a two or three day delay between the balance sheet date and the subsequent deposit of all deposits in transit, there is an indication of a cutoff misstatement. The second audit procedure requires being on the premises at the balance sheet date and counting all cash and checks on hand and recording the amount in the audit files. When the bank reconciliation is tested, the auditor can then check whether the deposits in transit equal the amount recorded.23-9An imprest bank account for a branch operation is one in which a fixed balance is maintained. After authorized branch personnel use the funds for proper disbursements, they make an accounting to the home office. After the expenditures have been approved by the home office, a reimbursement is made to the branch account from the home office's general account for the total of the cash disbursements. The purpose of using this type of account is to provide controls over cash receipts and cash disburse-ments by preventing the branch operators from disbursing their cash receipts directly, and by providing review and approval of cash disbursements before more cash is made available.23-123-10The purpose of the four-column proof of cash is to verify:Whether all recorded cash receipts were deposited.Whether all deposits in the bank were recorded in the accounting records.Whether all recorded cash disbursements were paid by the bank....
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This note was uploaded on 02/19/2011 for the course ACCT 509 taught by Professor Co during the Spring '11 term at Winthrop.
- Spring '11
- Income Statement