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 A potential problem occurs if cash is withdrawn from the bank and spent on these items, or even re-banked.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 Cash withdrawn is, therefore, deducted to ensure that money spent is only the “first use”.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.
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