HMASCR3500 - Predictive Analysis: What is the principle behind cash reconciliation?
Ideally, a trader’s spending should equal the money received. By calculating the spending, the declared takings can be verified at visits:
| Gross takings | + | Other income paid into the business | = | Money spent. |
The sales figure is calculated by adding the cash banked to
any pre-banking cash expenditure, on items such as wages, drawings,
stock purchases, expenses, capital equipment etc. The accuracy of
the exercise depends on the accuracy of the information provided by
the trader. A potential problem occurs if cash is withdrawn from
the bank and spent on these items, or even re-banked. This money
would be double-counted, thus inflating the sales value. Cash
withdrawn is, therefore, deducted to ensure that money spent is
only the “first use”.
Accountants use this credibility check to compile annual
accounts.
(This text has been withheld because of exemptions in the
Freedom of Information Act 2000)
