Predictive Analysis: What is the principle behind cash reconciliation?
Ideally, a traders spending should equal the money received. By calculating thespending, 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 cashexpenditure, on items such as wages, drawings, stock purchases, expenses, capitalequipment etc. The accuracy of the exercise depends on the accuracy of the informationprovided by the trader. A potential problem occurs if cash is withdrawn from the bank andspent on these items, or even re-banked. This money would be double-counted, thusinflating the sales value. Cash withdrawn is, therefore, deducted to ensure that moneyspent is only the first use.
Accountants use this credibility check to compile annual accounts.
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