What is the credit card to cash ratio analysis?

Answer

A popular method that auditors like to use is what’s known as the credit card ratio analysis. This is where they would look at either what’s known as a 1099K, which is an annual statement that you receive from your merchant card processor. They would then compare the amount of credit cards reported as a percentage of cash sales reported. It’s easily done by looking at the 1099K amounts and making any adjustments for tax or tip and then comparing that to the total gross receipts reported. The difference has to be the cash receipts. So depending on your type of business and the nature of your business they would evaluate that ratio to determine whether or not it’s reasonable for your type of business. If it’s not deemed reasonable they could then impeach your records, impeach your reporting and go with what they determined to be a reasonable method, either through an observation test or some other method.

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