Cash Transactions:
Cash Payments

Cash transactions can be the most difficult to account for and record, and the most necessary.  Maintaining control and accountability of cash transactions is a huge responsibility for a company, and the company's accounting department.  But, before we can determine how to handle cash transactions, we must understand what cash transactions are; where do we find cash transactions?  Cash includes coins, currency, checks, money orders, and money on deposit with a financial institution that is available for unrestricted withdrawal.  Generally, all businesses accept cash payments, and keep cash ledgers (well, now they're kept on the computer) to record all the cash transactions.

Of all the transactions that take place, cash transactions are the hardest to record and track, simply because the paper trail generated by a purely cash transaction is virtually non-existent.  So, how do companies assure themselves that the transactions are being recorded properly, and that employee theft is not a problem?

Many companies have in place preventive and defective control procedures that are designed to protect cash from misuse and theft.  Cash payments can be controlled internally, and for the most part, are successfully monitored and accurately recorded.  Why is this necessary?  Aren't all employees basically honest?  No, they're not;  Employee theft is one of the biggest problems confronting businesses owners today.  That's really sad, since if it weren't for the employer, there would be no jobs at all.  In many small businesses, owners write checks and make cash payments based on personal knowledge of goods and services purchased.   But what about in larger businesses, or in small business where there are employee expenses that are reimbursed?  How can these situations be effectively controlled?  Effective procedures for recording cash payments must be in place.

A voucher system is most often used to record cash payments.  This is a set of procedures for authorizing and recording liabilities and cash payments.  The voucher system covers all types of payments that must be made, and provides for the accurate recording of transactions, as well as accurate recording keeping for reference back to those transactions.  The voucher system usually includes vouchers, matching receipts that verify the amount of the voucher, and a filing system for paid and unpaid vouchers.  In each area, whether the voucher request-for-payment comes from an employee or a vendor or as a refund for a customer, there are policies and procedures in place for making such a request.  Only if these procedures are followed and adhered to, will the voucher system work.  The accountability issue that is a part of the voucher system procedure mandates that each person involved in the process of making a cash payment, be held accountable for their part of the process.  From the employee/vendor/customer to the accounting clerk; everyone must be able to verify the accuracy of the request.

This seems like a really simple concept, doesn't it?  Do you know that over half of all small businesses in America don't use the voucher system, or for that matter, any system?  And we wonder why 85% of all small businesses fail?  Pay attention, everyone.  The key to a successful business lies in the knowledge of the product, and the record keeping systems used!


Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.