The core cash receipts audit procedures are: trace remittance records forward to bank deposits and the receipts journal, vouch recorded receipts back to the bank statement, test cutoff around year end, compare remittance totals to each deposit, and read the timing of customer credits for lapping. Together they test completeness, existence, accuracy and the period.
Which cash receipts audit procedures test which assertions?
Cash receipts audit procedures each test one assertion, and the direction of the test decides which. Starting from a source document and following it into the books tests completeness. Starting from the books and going back to the bank tests existence. Cutoff and accuracy have their own procedures. A program needs all four.
The table below is an example program for a client that receives checks by mail and payments by card and ACH. Your firm's program may group these differently.
| Procedure | Direction | Assertion | Evidence |
|---|---|---|---|
| Trace mail log and remittance advices to deposits and the receipts journal | Source to books | Completeness | Mail log, remittance copies, deposit lines |
| Vouch receipts journal entries to bank statement deposits | Books to source | Existence | Bank statement, deposit detail |
| Agree remittance totals to each deposit amount | Both | Accuracy | Remittance batch, deposit slip, bank line |
| Test receipts in the last and first days of the year | Both, around the date | Cutoff | Deposit dates, journal dates, cutoff statement |
| Compare customer credit dates to deposit dates | Books to source | Existence of receivables credits | Customer ledger, bank statement |
| Agree total deposits for the year to total receipts | Totals | Completeness and existence | Proof of cash, bank confirmation |
The last line ties the detail to the whole year. A proof of cash, the four-column test, compares receipts recorded in the books with deposits on the statements for each period, so a gap in total receipts shows up even if your sample missed it.
Tracing remittance records forward to deposits and the receipts journal
Tracing remittance records forward means picking items from a record made before the money reached the bookkeeper, such as the mail log or the remittance stubs, and following each into a bank deposit and then into the receipts journal. A remittance that never reaches the deposit is cash that went missing between the mail and the bank.
The source must be independent of the person who records receipts. A mail log kept by the person who opens the mail, a lockbox report from the bank, or a payment processor's settlement report all qualify. A list the bookkeeper typed up after the fact does not, because it may leave out the same items the books leave out.
Pick the sample from the source, not from the journal. For each item, find:
- The deposit that should contain it, by date and amount.
- The entry in the receipts journal and the customer account credited.
- Any difference in amount, date or customer.
Expect a short lag between the mail date and the deposit. Ordinary practice is to deposit within a day or two. A remittance that took a week to reach the bank is a finding about control, even if the money arrived in the end.
Vouching recorded receipts back to bank statement deposits
Vouching recorded receipts means picking entries from the receipts journal or customer ledgers and tracing each back to a deposit on the bank statement. It tests existence: that each receipt the client recorded really arrived. A recorded receipt with no deposit behind it can hide a fictitious payment used to clear an old receivable.
The bank statement is the evidence that matters here, since the client does not produce it. Agree the amount and date of each sampled entry to a deposit line. When one deposit contains many receipts, as with a day's checks, ask for the deposit detail and agree the sampled item to it.
Watch for receipts recorded but deposited somewhere unexpected. A customer payment recorded in the operating account but deposited to a second account, or credited to a customer from a non-cash entry, both look fine in the journal. The bank statement, read alongside the journal, shows the difference.
Bank balances used in this work should be supported by the bank itself. Sending a bank confirmation request and reading the reply gives you the year-end balance from the bank, which anchors the deposits you vouch during the year.
Cash receipts cutoff around the year-end deposit
Cash receipts cutoff means each receipt is recorded in the period in which the client received it. Test it by listing the receipts and deposits in the last few days of the year and the first few days of the next, and comparing journal dates with deposit dates on the bank statement and the cutoff statement.
Two errors are common. The client holds the books open and records January receipts as December, which overstates cash and understates receivables. Or the client records December receipts in January, which does the reverse. The first is the one to watch when the client wants a stronger year-end cash figure.
Deposits in transit at year end deserve particular attention. A deposit listed on the December reconciliation should appear on the bank statement within a day or two. If it clears in mid-January, ask what was deposited and when it was received. A December deposit in transit that turns out to be January customer payments is a cutoff error dressed as a timing item.
Read the first January deposit closely. If it is unusually large, and the December deposits are unusually small, the client may have held receipts over the year end, for example to manage a loan test or a tax position.
What does a remittance-to-deposit mismatch tell the auditor?
A remittance-to-deposit mismatch means the total of the remittance advices for a batch does not equal the deposit the bank recorded. A short deposit means money was taken or lost before banking. A late deposit means receipts sat somewhere. A split deposit, where one batch arrives as two or more bank lines, can be innocent or can hide a substitution.
Short deposits are the clearest signal. If the remittance batch shows $14,380 and the deposit shows $13,880, someone removed $500 or made an error. Ask for the deposit slip and the check copies. If the slip agrees with the deposit and lists fewer checks than the batch, find out which check is missing and where it went.
Late deposits often reflect workload rather than theft. A gap between the remittance date and the deposit date still matters, because receipts held for days give someone time to swap items. Plot the gap over the year. A steady two days is a process; a gap that grows month by month is worth asking about.
Split deposits are harder. A bank may post a large check separately, or a clerk may make two trips to the bank. Combine the split lines and compare the total. If the total matches, note it and move on. If the pieces arrive on different days, read what is in each.
When the mismatches pile up, list them in one place with the evidence for each. The exception layout in a reconciliation report sample for workpapers suits that list.
Lapping patterns in cash receipts and customer credits
Lapping is a theft where an employee steals one customer's payment, then covers it by crediting that customer with a later payment from a second customer, and so on. It shows as a lag between when each payment was deposited and when the customer's account was credited, a lag that grows and moves between customers.
The worked example below shows the pattern for four payments. Customers, dates and amounts are invented for illustration.
| Customer | Check received | Amount | Deposit containing it | Credited to customer | Gap |
|---|---|---|---|---|---|
| Customer A | Mar 2 | 3,200 | None | Mar 9 | Paid by B's check |
| Customer B | Mar 9 | 3,450 | Mar 9 | Mar 16 | Credited 7 days late |
| Customer C | Mar 16 | 3,600 | Mar 16 | Mar 23 | Credited 7 days late |
| Customer D | Mar 23 | 3,700 | Mar 23 | Not yet | Open at test date |
In the table, the $3,200 from Customer A was taken. Customer B's payment was used to credit A, C's to credit B, and so on. The amounts rarely match exactly, so the employee splits or tops up credits to keep each account looking current.
How to test for it
Compare, for a sample of customer credits, the date the check was received (from remittance copies or the bank's check images) with the date the customer account was credited. Credits that lag the deposit by days, especially when the customer names on the deposit and the credit differ, are the sign. Confirming balances directly with customers can also surface lapping, because the customer's records show a payment date the client's ledger does not.
Lapping needs one person to handle both the cash and the customer records. If the work shows that combination, extend the test across the year.
Cash receipts audit procedures for processor and electronic payments
Cash receipts audit procedures change when payments arrive through a card processor, a payment platform or ACH. The bank shows a net payout, not each customer payment. Testing then starts from the processor's settlement reports, which list each transaction, fee and refund, and ties their net total to each bank deposit.
The processor report becomes the independent source. Trace a sample of sales from it to the receipts journal and to the customer, and agree each payout's net amount to the bank statement. Fees, refunds and chargebacks are the reconciling items between gross receipts and the deposit. Testing them is part of accuracy. A processor payout that matches the bank but includes an unusual refund to an employee's card is a finding the bank statement alone would not show.
Payment platforms that hold a balance add a step. Money can sit in the platform account, move between platform and bank in both directions, and pay expenses directly. The month-end tie between platform, ledger and bank is covered in how to reconcile PayPal transactions each month, and the same thinking applies to other platforms.
ACH receipts carry little detail on the bank statement. Ask for the remittance information that came with each credit, from the bank's portal or the customer's email, and agree it to the customer credit.
Line-level testing of a year of deposits starts with a reliable list of those deposits. PreciseBankFlow extracts each deposit line from the statements, checks that each statement foots and flags possible duplicates, so you sample from statements whose lines add up to the printed balances.