Cash Transactions:
Cash Received

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?

Most retail sales companies incorporate the use of registers, and remittance advice receipts in their attempts to record cash received.  This paper takes a look at both methods, and attempts to explain the nature of each method, as transactions are recorded.

When using registers to record cash sale transactions, the operators responsible for the register during a particular shift, are also accountable for the transactions processed during that same time frame.   The register generates a report that can be used to compare sales run through the register with the cash totals inside the register at the end of a shift.  Register operators are expected to count their actual cash on hand, and balance to the register report generated for their particular shift.  In most situations, variances in either direction are cause for reprimand and/or dismissal.  Additionally, register receipts and sales are often recorded into a computer system, and compared daily, even hourly with the available on hand inventory; discrepancies can be detected through thorough reviews of this information by store managers.

Incoming cash receipts that are received via the mail systems are posted by a clerk, and if the cash is received without the remittance advice (a portion of the invoice that is returned with the payment) then the clerk will generally create one, and stamp the remittance with a received date.  The use of the remittance advice in posting to the customer's account is absolutely necessary and balancing daily between cash receipts received and account posting balances operates in much the same manner as the register balancing. 
 
If all of this seems a bit much, consider this information: employee theft accounts for billions of dollars in lost revenue for businesses each year; the easiest and most often used methods involve cash transactions. Customer theft follows closely behind, and even small amounts of cash, can add up to big losses over the period of a month, or year.  As a business, accounting for and recording cash sales is one of the most important accounting functions performed by the internal accounting system.


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.