Keeping track of your cash, payables, and records can be challenging. Find out the most efficient ways to keep your money and your records in line and updated appropriately.
If your company is a typical business, you deal with a variety of cash transactions. Lumping all these transactions into one record may be tempting, but it's almost always a bad idea.
You'll want to record your cash transactions in a number of different ways, depending on the nature of your business.
- Sales and cash receipts journal: To simplify your recordkeeping, we recommend that you combine your sales and cash receipts in a single journal.
- Daily cash sheet: If cash transactions are a significant part of your business, you should also prepare a daily cash sheet to reconcile your cash received and paid out for the day. If you use a daily cash sheet, you can reconcile your cash receipts with your daily deposit into your bank account.
- Cash disbursements journal: Your daily cash disbursements should be recorded here.
- Bank reconciliation: Reconciling your records with your monthly bank statement verifies the amount you have in your checking account. It will also help you find bookkeeping errors. It could also enable you to detect (and remedy) irregularities such as employee theft.
- Petty cash fund: If your customers normally pay by check, having a petty cash fund will provide you with cash on hand to pay miscellaneous small expenses. A petty cash fund isn't necessary if you use a cash register and always have currency on hand, as long you keep track of these small purchases.
Maintaining daily cash sheets
A cash sheet is a daily reconciliation of cash received and cash paid out. If a good deal of your business is transacted in cash, such as in a retail store, you should prepare a cash sheet at the end of each day. It's sound practice to deposit all cash receipts in your bank account daily.
Your daily cash receipts should generally be the same amount as your daily bank deposit. Any reasons for a difference should be apparent on your cash sheet, such as a small amount of cash paid out for a miscellaneous expense.If they do not match, you should investigate and reconcile any discrepancies between the two amounts.
Maintaining cash sheets provides an alert to any shortage or surplus of cash for the day. Some businesses opt to simply count the cash in the register at the end of the day without maintaining a cash sheet, leaving them clueless to any shortages or overages. A shortage could be the result of theft, or it could simply result from your failure to record a special transaction, such as an expense you paid in cash—but without a cash sheet, you'll never know.
Among the Tools & Forms is a cash sheet for your use. Simply plug in your daily amounts to see instantly whether you have a cash shortage or surplus at the end of the day. You can use the spreadsheet over and over again for your daily needs.
Preparing a bank reconciliation
Preparing a bank reconciliation when you receive your bank statement every month helps you verify the amount of cash in your checking account.
This reconciliation is necessary because the cash balance in your books will never agree with the balance shown on the bank statement. The delay in checks and deposits clearing the bank, automatic bank charges and credits you haven't recorded—and errors you may have made in your books—render the ideal impossible.
After preparing the bank reconciliation, you can be comfortable that the account balance shown on your books is up-to-date, and gain insight into any irregularities such as employee theft of funds.
Step-by-step instructions for preparing a bank reconciliation
- Prepare a list of deposits in transit. Compare the deposits listed on your bank statement with the bank deposits shown in your cash receipts journal. On your bank reconciliation, list any deposits that have not yet cleared the bank statement. Look at the bank reconciliation you prepared last month. Did all of last month's deposits in transit clear on this month's bank statement? If not, you find out what happened to them.
- Prepare a list of outstanding checks. In your cash disbursements journal, mark each check that cleared the bank statement this month. On your bank reconciliation, list all checks from the cash disbursements journal that did not clear. Look at last month's bank reconciliation. Are there any checks that were outstanding last month that still have not cleared the bank? If so, be sure they are on your list of outstanding checks this month. If a check is several months old and still has not cleared the bank, you may want to investigate further.
- Record any bank charges or credits. Examine your bank statement. Are there any special charges made by the bank that you have not recorded in your books? If so, record them now just as you would have if you had written a check for that amount. By the same token, if there are any credits made to your account by the bank, those should be recorded as well. Post the entries to your general ledger.
- Compute the cash balance per your books. Compute the general ledger cash account to arrive at your ending cash balance.
- Enter bank balance on the reconciliation. At the top of the bank reconciliation, enter the ending balance from the bank statement.
- Total the deposits in transit. Add up the deposits in transit, and enter the total on the reconciliation. Add the total deposits in transit to the bank balance to arrive at a subtotal.
- Total the outstanding checks. Add up the outstanding checks, and enter the total on the reconciliation.
- Compute book balance per the reconciliation.Subtract the total outstanding checks from the subtotal in step 6 above. The result should equal the balance shown in your general ledger.