• Money
  • Prompt payment for goods or services in currency or by check

Cash is necessary for finalization of business transactions.

  • With respect to special journals, and specialized ledgers, or prime books of accounting, cash control forms one of the main motivating factors for the system of use.
    • Separating bookkeeping from cash handling as a form of internal fraud control. Similarly, job rotation and enforced holidays and limited overtime help to prevent cooking of books.
    • centralising payment and receipts of cash for better tracking and easier bank reconciliation.
    • documents that support bookentries, such as invoices and receipts issued, can be numbered , so that any lost numbers in a series can be accounted for , without relying on just the bookkeeping
  • cash budgeting is like a concession that despite accrual accounting making the tracking of credit sales and purchases easier, it is still necessary to minimise the risk of a cash flow problem by trying to predict how much cash is being used or received for a given period . Estimation are often made in terms of percentages of a period income or expense arriving in subsequent periods, and with income, a percentage of eventual bad debt ( with expense, there is usually no deliberate planning of jibbing creditors ). After adding the different stages of cash collection for a given period (e.g. a month), a projection can be made as to what the cash balance may be, or what remains to be collected in trade debtors balance, and a plan for cash outflows can be made (e.g. how much to pay the creditors for each period). Financing cash flow , with interest, principal repayments, and projected borrowing needs, can also be factored out period by period. Cash budgetting falls partly in management accounting.

cash at bank reconciliation


This serves as a confirmation that what is written down as the current balance at cash in bank account can be eventually accounted for by what is being recorded through the bank statement, as the bank statement is an arm's length record of cash transactions. The aim is to have everything recorded in both the books and the bank statements, and recorded correctly.

  • items that appear both in the bank statement and the cash receipts or cash payment journal are likely to be correct , and the item in the bank statement and the relevant journal can be marked off.
  • this leaves items in the bank statement, and the journals, that aren't marked off.
  • items in the bank statement only, may be missing in the journals.
  • items in the journals, may be missing in the bank statement.
  • or items in either, may not be correctly entered, either by the bookkeeper ( more likely), or by the bank's bookkeeper (less likely).
  • items that were missing in the journals in the last period, may be present in the journals this period (less likely).
  • items that were missing in the bank statement last period, may be present in the bank statement this period ( more likely).
  • items that haven't been accounted for from previous periods, should be also checked, and accumulated like bad debt records if still not confirmed.
  • any items that are found to be bank only recorded transactions, like electronic transfers, bank fees and interest, should be

updated to the journals.

  • cash payments journal entries incorrectly recorded can be more easily detected from the bank statement if they were paid by cheque and a correcting entry should be made (in the general journal).
  • cash receipts incorrectly recorded may be more easily correlated with bank statements if cash received is banked daily.
  • Checking original receipts to customers may help in finding incorrectly recorded receipts in cash receipts journal.

In summary , there is a list of outstanding deposits and payments from the previous reconciliations, which should be checked first against a current bank statement; then run through the cash payments and cash receipts journal sequentially, and tick off each against a corresponding bank statement; unticked bank only items should be written to the journals if missing; anything left in the journals is either outstanding (unpresented cheques, undeposited payments), or incorrect (and written back in the previous step), and should be reversed.

After doing the above, then a bank reconciliation statement can be done (assuming a credit balance at the bank):

Balance at Bank             1200 CR
less unpresented cheques     200
  1022 blogs bales   100
  1025 purple taxis   25
  1027 corn cutters   75
add outstanding deposits     100
Balance at cash in bank      1100 (DR)

Cash budgetting


An example budget may run for one quarter. Like bank reconciliation, there may be a present record of future cash receipt and cash payment, such as accounts receivable and accounts payable, in the current balance sheet . These should be included in the cash budget, as they are likely to fall due and be settled in the budgeted quarter. A cash budget may include predictions of cash flow , based on previous patterns of cash flow. e.g. 60% of credit sales are collected in the same month, with 30% collected in the next month, and 8% collected in the second month.

Operating cash flows include sales revenue, and inventory purchases. Each can be divided into smaller periods of cash flow, e.g. immediate payment, payment within a month, payment in the next month, payment in 2 months, estimated bad debt ( never paid, this pertains to sales revenue, as it would be unethical to plan for inventory purchases that are intended never to be paid). When these payments are viewed within a longer budget period, it is usually the ones at the end of the period that partial cash collections occur , of the sales or purchases that occur in the ending months for example. So if credit extends for up to 2 months, then the predicted 30+ days credit receipts for sales in the last month, and the predicted 30+ days credit payment for purchases in the last month, will not be part of the cash flow for the quarter being accounted for.

Apart from operating cash flows of sales and inventory purchases, there will be operating cash expenses such as wages, rent, interest, and any cash prepayments that fall due like rates and insurance. Depreciation is not a cash expense, and shouldn't be included.

In the second division of investing cash flows, sale of equipment and purchase of equipment and the cash that is exchanged in those transactions should be considered. Interest income from non-core investments is often cash.

In the third division, there may be regular cash flows of a financial nature, such as payment of dividends on shares, payment of principal on bank loans, and possibly extraordinary items like issuing of shares with cash from subscriptions.

These cash receipts and payments can be worked out for the period in question (e.g. a quarter), and the net cash flow can be determined , in order to see if there is any danger of a cashflow stoppage, because of excessive cash outflow.