By Sergei Mochtchenkov, CFA
What it reconciles
Proof of cash reconciles bank activity with the business's recorded cash movements and reported revenue. Begin by identifying the relevant bank and payment accounts, then reconcile opening balances, receipts, payments and closing balances by period. A deposit total alone is not revenue: transfers, borrowings and owner contributions must be separated from customer receipts.
Cash to revenue
Customer cash collections and accrual revenue occur at different times. Investigate receivables movements, customer prepayments, refunds and payment-processor settlements when connecting the two. For cash-basis books, an accrual conversion also needs records for amounts earned but not collected and expenses incurred but not paid; bank statements alone cannot establish every accrual.
Common exceptions
Common items to investigate include inter-account transfers counted twice, net processor deposits, loan proceeds treated as sales and timing differences around month-end. Reconcile gross sales, fees and refunds rather than assuming the net bank deposit equals sales. Record an unresolved difference as an exception with an owner and supporting request instead of forcing the reconciliation to zero.
What the schedule shows
A useful schedule shows opening and closing cash, classified bank movements, the link to recorded receipts and the remaining exceptions for each period. Read it alongside customer revenue and working capital analysis to understand collection patterns. Proof of cash supports financial diligence; it is not an assurance opinion or a guarantee that every transaction is free of error.