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Dear Professor,
“The finance costs should be recalculated and any increase agreed to the loan documentation for confirmation of interest rates. Interest payments should be agreed to the cash book and bank statements to confirm the amount was paid and is not therefore a year?end payable.”
Professor the above is an AUDIT RESPONSE with regards to risk of commission of Finance costs. What I really don’t understand is why does the kit states that “Interest payments should be agreed to the cash book AND bank statements to confirm the amount was paid”
I mean it should have been Cash Book OR Bank Statement. either the company will pay in cheque or through cash, of course not through both at the same time, right?
Every cash/bank receipt/payment should be recorded in the cash book (client’s book of prime entry) and on the bank statement (bank’s accounting documentation).
If anything is recorded only by the client or only by the bank there will be a difference on the bank reconciliation.
Perhaps you are thinking of cash “literally” – as physical cash – when what is recorded in the “cash” book really means “cash at bank”.
If a business conducts nearly all business on credit terms, the only cash will be “petty” cash – recorded in a separate book.
If real cash transactions are significant, the cash book may be thought of as “four-column” – i.e. with separate columns for cash and for bank for receipts and payments.
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