CASH ON HAND AND IN BANK

1. Compare deposits shown in the bank statement against entries in the cash receipts book and official receipts. Note down any unrecorded or unreceipted deposit and investigate the source.
2. Test check cash sales with the cash receipts book if they have been correctly recorded.
3. Investigate entries in the general ledger cash account. Look for unusual items which do not originate from cash receipts or disbursements journals.
4. Review cash receipts journal for items not identified with ordinary business sales, being alert to such items as sale of assets, miscellaneous income, sale of scrap, income received in advance, proceeds from issuance of capital stock and other taxable transactions.
5. Review cash on hand and cash in bank accounts to determine if there are any credit balances during the period under examination.
6. Review cash disbursements journal for a representative period. Note any missing check numbers, checks payable to cash, large or unusual items and determine propriety thereof through a comparison with vouchers, journal entries and other related accounting records.
7. If the taxpayer is on cash basis, ascertain if checks were written and recorded at the close of the period under audit but were issued thereafter.
8. Give special consideration to checks issued for cashier’s checks, sight drafts and other similar bank instruments where the payees and nature of the disbursements are clearly shown.
9. Obtain bank statements and cancelled checks for each bank account for one or more months, including the last month of the period under examination.
10. Note year-end bank overdrafts. This may indicate expenses which are fictitious or unallowable since funds were not available for payment.
11. Determine if there are checks which have remained outstanding for an unreasonable period of time. This may indicate improper, fictitious or duplication of disbursements. Old outstanding checks could possibly be restored to income.
12. Determine whether voided checks have been properly adjusted in the books and credited to the appropriate expense accounts, if applicable.
13. For a test period, check endorsements to verify if they are the same as that of the payees’, noting any endorsements by the owner, or any questionable endorsement.
14. If records appear unreliable or have not been subjected to a competent independent audit, tests of footings and postings should be made for a representative period.
15. Test check disbursements from petty cash to determine if there are any unallowable items included.
16. Scrutinize cash overages and shortages, being alert to occurrence of irregularities.
17. Tally debits and credits to the cash accounts per month against sales credit, debts to purchases and expense accounts and other sources and application of cash based on the worksheet of real and nominal accounts submitted by the taxpayer. Note down discrepancies and substantial accumulation of cash without reasonable credits.

Reference: RAMO 1-2000