what is it and how to calculate it
Cash accounting can be of great interest to small and medium-sized business owners who want to improve financial control of their businesses. In addition, accountants and financial managers can benefit from learning effective techniques for performing accurate cash accounting and avoiding discrepancies in cash management.
What is cash counting?
Cash reconciliation is the process by which the money received and other valuables available in a company’s cash register are verified by comparing their physical quantity with the accounting records.
Cash audit objectives
The objectives of cash reconciliation include verifying balances, detecting errors, preventing fraud, ensuring accuracy, and maintaining daily financial control.
Ensuring Accuracy in Cash Records
Ensure accurate cash and other valuables records in the cash register. One of the main objectives of cash reconciliation is to ensure that accounting records reflect reality.
Tax compliance
Cash accounting is also crucial for tax compliance. By keeping accurate and verifiable records of cash and other valuables, businesses can comply with tax regulations.
Detect and prevent discrepancies, fraud and errors in cash handling
The cash reconciliation process allows discrepancies, fraud and errors in the handling of cash collections or payments to be identified and corrected. During the reconciliation, several circumstances may arise:
- If the cash in hand is higher than the cash recorded in the accounting books, the difference will be recorded as income.
- If the cash on hand is less than the cash recorded in the accounting books, the difference will be recorded as a loss.
Manage your finances intelligently with the digital platform for entrepreneurs and SMEs.
Cash reconciliation process
Before starting the cash count, it is essential to make adequate preparations. This includes gathering all the necessary tools and documents such as calculators, specific forms, accounting records and any other relevant cash or credit card payment materials.
Necessary tools and documents
To perform an effective cash audit, several tools and documents are needed, including:
- Calculator
- Forms for accounting
- Accounting records
- List of payment vouchers
- Sales and payment documents.
Cash counting steps
The cash reconciliation process can be broken down into several key steps:
Counting cash and valuables in the till
The first step is to count all the cash and other valuables in the cash register. This includes coins, bills, checks and any other accepted means of payment.
Comparison with the balance recorded in the accounting books
Once the count is complete, the total is compared to the balance recorded in the accounting books using the cash counts. This comparison helps to identify any discrepancies between the physical cash and the accounting records.
Variables to consider in the calculation
During cash accounting, several variables must be taken into new zealand email list account to obtain an accurate picture of the cash flow’s financial status:
- Cash at Closing (CEF)
- Daily Sales Sum (DV)
- Payments through other authorized means (VO)
- Discounts (D)
- Credit sales (CC)
- Outflow of money for other items of the company (OG)
- Initial cash balance (ICB).
Documentation of discrepancies found
Any discrepancies found during the audit must be documented email authentication: guide to authentication in email marketing in detail. This includes recording the nature of the whatsapp number discrepancy and any action taken to resolve it.
Accounting adjustments for differences in accounting
Accounting adjustments correct differences in cash balances, ensure accuracy, reflect actual movements, and maintain financial integrity.
Negative difference (lack of money in the cash register)
If a cash shortage is found, this negative difference must be adjusted in the accounting records and the causes must be investigated to prevent future errors.
Undiscovered income
If unrecorded income is found, it should be added to the accounting records and the source of this additional income should be investigated.
Procedures for investigating and resolving differences
This may include reviewing recent transactions, interviewing involved personnel, and implementing corrective cash measures.
Frequency of cash reconciliation
The frequency of cash reconciliation varies depending on the company, and may be daily, weekly, monthly, or according to specific business needs.
Daily audit
Performing a daily cash count at the end of each workday is a recommended practice. This allows errors to be detected and corrected quickly.
Intermittent arcing
These intermittent audits help ensure that cash handling is consistent and accurate at all times throughout the accounting record.
Benefits and need for bookkeeping
It enables errors to be detected quickly, ensures accuracy in daily records and facilitates informed financial decision-making.
Situations that may require additional surveys during the day
Detected errors, unexpected events, large transactions and internal audits may require additional audits to maintain financial control.