Cash is one of the most important accounts in an audit because almost every business transaction affects cash. Money comes into the business through sales, loans, disposal of assets, or capital introduced by owners. Money goes out through purchases, payroll, payment of liabilities, and buying assets.
Cash is considered high risk because it is easy to steal, misuse, or manipulate. Unlike inventory or equipment, cash does not need to be converted into another form before it can be used. Therefore, auditors must pay close attention to cash balances and cash transactions.
In auditing cash, the auditor must check two important things:
- Whether the bank reconciliation is correct.
- Whether the cash recorded in the general ledger reflects all actual cash transactions during the year.
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