Cash & Bank Tie-Out — Proof of Cash Analysis for M&A
Published February 2026
Cash doesn't lie — but the books might. Proof of cash is the ultimate validation test: if the GL and the bank don't agree, something is missing.
100%
Of transactions should tie to bank activity
12–24 mo
Typical proof of cash analysis period
High
Manipulation detection effectiveness
What Is Proof of Cash?
Proof of cash (also called a cash proof or bank tie-out) is an analytical procedure that reconciles the general ledger's recorded cash activity to actual bank statements. It validates that all transactions flowing through the bank are recorded in the books — and vice versa.
In QoE analysis, proof of cash serves as a completeness test. It catches unrecorded revenue, unrecorded expenses, off-books transactions, and intercompany transfers that might otherwise go undetected.
Why Proof of Cash Matters
Completeness validation
Confirms all bank transactions are recorded in the GL — no off-books activity
Revenue verification
Bank deposits should match recorded revenue — discrepancies signal recognition issues
Expense verification
Bank disbursements should match recorded expenses — gaps may indicate unrecorded liabilities
Fraud detection
One of the most effective procedures for detecting financial manipulation
Proof of Cash Methodology
The proof of cash compares four elements between the GL and bank statements:
Beginning balance
GL cash balance at period start = bank statement opening balance (adjusted for outstanding items)
Receipts
Total deposits per GL = total deposits per bank statement
Disbursements
Total payments per GL = total payments per bank statement
Ending balance
GL cash balance at period end = bank statement closing balance (adjusted for outstanding items)
Bank Reconciliation Review
Outstanding checks
Checks written but not yet cleared — verify they're legitimate and not stale-dated
Deposits in transit
Revenue collected but not yet deposited — confirm timely clearing
Bank errors
Rare but possible — verify bank-side corrections are properly reflected
Reconciling items
Items that explain differences between book and bank balances — should be reasonable and documented
Common Discrepancies
Unrecorded deposits
Cash received but not posted to the GL — potential unrecorded revenue
Unrecorded disbursements
Payments made but not recorded — potential unrecorded expenses or liabilities
Timing differences
Transactions recorded in different periods between GL and bank — usually benign but verify
Intercompany transfers
Cash moving between related entities — ensure properly recorded on both sides
Credit card activity
Credit card expenses may bypass the bank account — ensure they're captured in the GL
Cash transactions
ATM withdrawals, cash payments received — hardest to verify and highest manipulation risk
Commingled Expense Detection
In owner-operated businesses, personal and business expenses are often commingled. The proof of cash helps identify:
Personal purchases on business accounts
Retail, dining, travel, and entertainment that aren't business-related
Personal bill payments
Mortgage, car payments, personal insurance paid from business accounts
Cash withdrawals
ATM withdrawals and cash-back transactions with no documented business purpose
Transfers to personal accounts
Funds moved to owner's personal bank accounts beyond documented distributions
These items are typically EBITDA add-backs in the QoE analysis.
Step-by-Step Process
Obtain bank statements
Request complete bank statements for all accounts for the analysis period (12-24 months)
Export GL cash activity
Pull all transactions from GL cash accounts for the same period
Reconcile opening balances
Confirm GL and bank opening balances match (with reconciling items)
Match deposits to revenue
Tie bank deposits to GL revenue entries — investigate unmatched items
Match disbursements to expenses
Tie bank payments to GL expense entries — investigate unmatched items
Reconcile closing balances
Confirm GL and bank closing balances match (with reconciling items)
Document discrepancies
Create a schedule of all unresolved differences with proposed adjustments