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The cash basis balance sheet includes three parts: assets, liabilities, and equity. The balance sheet does not track or record accounts payable, accounts receivable, or inventory with this method. So, your balance sheet does not include any unpaid invoices or expenses.
Answer and Explanation: A cash audit is necessary to ensure the accuracy of the transactions done on a cash basis. It is done by checking the opening balances of cash and the transactions done during the year. It enables to know the closing balance of cash in hand or cash at the bank.
Auditing cash tends to be straightforward. We usually just obtain the bank reconciliations and test them. We send confirmations and vouch the outstanding reconciling items to the subsequent months bank statement.
Key Takeaways. There are two accounting methods practiced by companies: the accrual accounting method and the cash accounting method. Only the accrual accounting method is allowed by generally accepted accounting principles (GAAP).
Verification of Cash Balances The auditor should carry out physical verification of cash at the date of the balance sheet. However, if this is not feasible, physical verification may be carried out, on a surprise basis, at any time shortly before or after the date of the balance sheet.
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To ascertain that all records reflect the expenditure in the financial statements, an auditor may examine cash receipts and disbursement records for a period before the balance sheet date. This prevents deliberate misstatement of fact and establishes errors committed by the person handling the records.
In cash-basis bookkeeping, those transactions reflect only the payments that have actually been made and cash physically received, so there is no audit of outstanding transactions. During the review, you may identify potential errors or improper accounting procedures.
Auditors are often concerned with the overstated cash because there might be an intention of overstating it to cover the misappropriation or theft of the money. Cash is the asset most prone to misstatements because it is the most liquid and can be transferred easily.
You should compare the total amount of cash in the fund with the total amount of expenses recorded in the log, and identify and resolve any differences. You should also prepare a petty cash voucher, which is a document that summarizes the expenses and requests a reimbursement from your main bank account.
Financial statements prepared under the cash basis provide readers with information about the sources of cash raised during the period, the purposes for which cash was used and the cash balances at the reporting date. The measurement focus in the financial statements is balances of cash and changes therein.

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