It is easy to test for a cash receipts cutoff error by:
A) performing a four-column proof of cash.
B) reconciling the bank statement.
C) observing the counting of cash at the balance sheet date.
D) tracing recorded cash receipts to bank deposits on the bank statement of a subsequent period.

Question

Quizplus · Accepted Answer

Tracing recorded cash receipts to bank deposits on the bank statement of a subsequent period is the best way to test for cash receipts cutoff errors. This is because the bank deposits would reflect the actual date the cash was deposited, which can be compared to the date the cash receipts were recorded by the company. If there is a significant time gap between the recorded receipts and the deposits, it could indicate a cash receipts cutoff error. The other options (performing a four-column proof of cash, reconciling the bank statement, observing the counting of cash) may not necessarily identify cash receipts cutoff errors.

It Is Easy to Test for a Cash Receipts Cutoff