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How to Create a Foolproof Cash Book

Finance
Article
01/29/2015

Tracking the cash flow of your small businesses is essential, and maintaining a cash book can help. Think of this as an expansion of your basic checkbook register. By further detailing your cash transactions, you'll have a record of all receipts and disbursements. At the end of each month, the transactions recorded can be used to reconcile bank statements and record cash entries into a general ledger.

Tracking Cash at the Transaction Level

Cash books, also known as cash journals, are useful when a simple checkbook register is too small to handle a business's transactions. A cash book can also assist with double-entry accounting where both sides of an entry are recorded — not just the cash portion of the transaction. If a company has not fully integrated their financial recordkeeping into accounting software, but still must track a relatively large amount of cash flow, a cash book can help with month-end bank reconciliations.

Setting Up a Cash Book

Each page of a cash book generally covers one month of activity, but that depends on the amount of transactions processed. The first line lists the beginning cash balance, and as transactions are recorded, cash receipts and disbursements are listed along with the balancing entry.

Cash Receipts

Cash receipts are recorded as debits because they increase the cash account, which falls on the asset side of the balance sheet. Examples of cash receipts are customer payments or interest paid on bank accounts. As each receipt is recorded and cash increases, a credit entry for the same amount will reflect incoming revenue, or capital, to the company.

Cash Disbursements

Disbursements decrease the cash account and are therefore recorded as credits. Examples of disbursements are bill payments, debt payments on company loans, or equipment purchases. For example, if a new computer is purchased for the business, the cash disbursement would be recorded as an outflow, or credit, to cash. The office equipment account would be increased, or debited, for the same amount.

Portability of Cash Transaction Reporting

Although companies generally maintain one central cash report, online accounting with integrated smart device apps can also help capture activity that affects the cash account. For example, business travel receipts can be scanned and stored in the app while an employee is on the road. This information can later be moved to the cash book and eventually into a general ledger.

Choose a Format that Works for You

The best way to set up a foolproof cash book is to design a report that helps you easily keep track of the cash moving in and out of your business. Setting up a visual trail of individual transactions may involve trial and error before you find the best method for your business. You may find it useful to separate cash receipts from disbursements for the purpose of totaling sales at the end of each month. Grouping transactions by invoice or customer are alternative methods of recording cash flows. These recorded entries also serve as an audit trail when financial statements are prepared.

For small businesses, cash reporting is essential to understanding overall financial viability. In addition to a cash book, customized reports, online accounting, and smart device apps can also be combined to help track cash flows and reconcile monthly activity statements from company credit cards, employee expense reports, and bank accounts.

 

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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