Definition
A proof of cash, also called a four-column reconciliation, reconciles four things at once for a period: the opening balance, receipts, disbursements and the closing balance. Bank and book columns each carry deposits in transit, outstanding checks and other reconciling items at both ends of the period. The columns must cross-foot and agree.
Why it matters in an audit or review
A standard bank reconciliation proves one date. A proof of cash covers a whole period, which makes it a stronger test for kiting, lapping, unrecorded disbursements and receipts diverted before being deposited. Auditors use it where cash fraud risk is high or controls are weak, and often only for selected months.
Example
For December (illustrative), bank receipts are $812,000 and book receipts $818,500. Adding the $10,500 deposit in transit at December 31 and removing the $4,000 one carried from November reconciles the two. On disbursements, the same arithmetic leaves $3,000 unexplained, and the auditor follows it up as a possible unrecorded disbursement.
Common mistakes
- Plugging the unexplained difference.
- Not agreeing deposits in transit to January bank activity.
- Doing only the closing balance column.
FAQ
Is a proof of cash required?
No. It is a judgmental procedure chosen for higher-risk situations.
Sources
- A proof of cash is a practice technique and is not defined in the auditing standards.
- AICPA, AU-C Section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained
- AICPA, AU-C Section 240, Consideration of Fraud in a Financial Statement Audit
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error