When Performing a Proof of Cash Receipts, the Auditor Will

question 48

True/False

When performing a proof of cash receipts, the auditor will test if the total cash receipts recorded in the cash receipts journal for a given period agree with the actual deposits made to the respective bank account for the same period. A difference found during this test generally signals to the auditor a potential weakness in internal controls.

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Definitions:

Convertible Securities

Convertible Securities are financial instruments, such as bonds or preferred stocks, that can be converted into a specified number of other securities, typically common stock, at the option of the holder or issuer.

Simple Capital Structure

A company's capital structure that consists only of common shares or straightforward debt without complex financial instruments such as convertible securities.

Diluted Earnings

Earnings per share calculated using the total number of shares that would be outstanding if all possible sources of conversion, such as convertible bonds and stock options, were exercised.

Basic Earnings

The net income available to common shareholders, divided by the weighted average number of common shares outstanding.