The Cash Accounting Gap

Cash is King, so they say, but cash is also a double- edged sword. It is the lifeblood of your business, but can also become a curse. Be vigilant, and take extra care when dealing and accounting for your cash.

Dealing with check receipts or credit card transfers is very simple. A wide array of accounting software is available on the market, which offers a seamless integration from your credit card settlements and bank deposits statements into your accounting records.

To date, no such software exists for cash, save for, point of sale terminals records (which overlooks cash outside the system) the business owner’s information on a spreadsheet or manual records. Millions go missing on a daily basis in most small businesses, due to theft, losses and sheer negligence by the owner. Constant “drawings”, from cash on hand, by the owner also contributes to this cash “gap”.

In a nutshell, the cash gap, is that variance between cash received (debtors, cash sales, advances) less cash banked and transferred to the recorded cash float or cash on hand. In most cases, the business owner bears most of the responsibility for this sad state of affairs.
The nifty accounting software, that builds accounting records in seconds, only reveal a part of the story. Cash invariably gets under reported in small business accounting.

Even the most advanced point of sale terminal, will not address a cash management problem, if the business same day loans owners hands are continuously in the till. Of course the owner can do as he/she please, but then he/ she should refrain from seeking advice if discipline is lacking.

Surely, the owner is entitled to the cash in the business? Yes, but then I will respectfully suggest, that the owner set a decent salary for himself/ herself. Pay yourself, as if you were an employee of the business. It is dangerous to mix personal expenses, with business expenses.

Bank all cash before the close of business, or the following day. If cash is required in the business, operate on a petty cash system. Advance a cash check to the petty cash on a weekly basis, rather than using the cash on hand for petty cash expenses. The petty cash system creates a proper paper trail for cash accounting.

If certain suppliers insist on cash only, maintain a cash float, with proper accounting for such cash transactions and bank all unused cash. If no alternative exist, but to use cash received, ensure that proper record keeping is in place. Example: Say the business receipted $ 5000.00 for the day, but urgently had to use about $750.00, write on the till slip that $750.00 was utilized.
The relevant entry for the $750.00 debit should be affected against the cash control account. The cash control account is a special account for cash sales. Credit cash sales, and debit cash control. Clear this cash control account, by banking the available cash!
Make a further note that the balancing $ 4250.00 was banked on a certain date. This will enable your accountant to trace precisely where the $ 750.00 went, and compare the deposit on bank statement to the note on the till slip summary.

Business owners are known to complain or gloat about, sacrificing a regular salary. Whilst this comes with the territory, and serious cash flow problems are encountered by small business, including cash pilferage, the owner is not blameless. Maybe all those drawings on a daily basis could have contributed to a fixed salary at month end, for the owner. Theft and cash losses can be addressed early, if the methods highlighted above, are implemented.
Responsibility and control goes hand in hand.

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