Closing Out the Cash Journals in Your Business

By Lita Epstein from Bookkeeping For Dummies

After business owners check the accuracy of their accounting books, they can finalize the cash journals and prepare financial reports to verify the company’s financial success or failure during the last month, quarter, or year. This process of verifying the accuracy of cash is called proving out.

The first step in proving out the books involves counting the company’s cash and verifying that the cash numbers in your books match the actual cash on hand at a particular point in time.

Closing the cash journals

If you keep the books manually, you can find a record of every transaction that involves cash in one of two cash journals: the Cash Receipts journal (cash that comes into the business) and the Cash Disbursements journal (cash that goes out of the business).

If you use a computerized accounting system, you don’t have these cash journals, but you have many different ways to find out the same detailed information as they contain. You can run reports of sales by customer, by item, or by sales representative.

The following figure shows the types of sales reports that QuickBooks can automatically generate for you. You can also run reports that show you all the company’s purchases by vendor or by item as well as list any purchases still on order.

Using QuickBooks, you can generate reports showing your company’s cash receipts organized by customer, items sold, or sales representative.

The next figure shows the various purchase reports that QuickBooks can automatically run for you. These reports can be run by the week, the month, the quarter, or the year, or you can customize the reports to show a particular period of time that you’re analyzing. For example, if you want to know what sales occurred between June 5 and 10, you can run a report specifying the exact dates.

Using QuickBooks, you can produce reports showing your company’s cash disbursements by vendor or by items bought.

In addition to the sales and purchase reports shown in the preceding figures, you can generate other transaction detail reports including customers and receivables; jobs, time, and mileage; vendors and payables; inventory; employees and payroll; and banking.

One big advantage of a computerized accounting system when you’re trying to prove out your books is the number of different ways you can develop reports to check for accuracy in your books if you suspect an error.

Finalizing cash receipts

If all your books are up-to-date, when you summarize the Cash Receipts journal on whatever day and time you choose to prove out your books, you should come up with a total of all cash received by the business at that time.

Unfortunately, in the real world of bookkeeping, things don’t come out so nice and neat. In fact, you probably wouldn’t even start entering the transactions from that particular day into the books until the next day, when you enter the cash reports from all cashiers and others who handle incoming cash (such as the accounts receivable staff) into the Cash Receipts journal.

After entering all the transactions from the day in question, the books for the period you’re looking at may still be incomplete. Sometimes, adjustments or corrections must be made to the ending cash numbers.

For example, monthly credit-card fees and interest received from the bank may not yet be recorded in your cash journals. As the bookkeeper, you must be sure that all bank fees related to cash receipts as well as any interest earned are recorded in the Cash Receipts journal before you summarize the journals for the period you’re analyzing.