How to Balance Cash Register Transactions
A business must balance cash register transactions at the end of each day to properly track and record sales transactions. This also helps to ensure that cashiers don’t pocket a business’s cash — cashiers must prove out (show that they have the right amount of cash in the register based on the daily sales transactions) the amount of cash, checks, and charges they took in during the day.
This process of proving out a cash register actually starts at the end of the previous day, when cashier John Doe and his manager agree to the amount of cash left in John’s register drawer. Cash sitting in cash registers or cash drawers is recorded as part of the Cash on Hand account.
When John comes to work the next morning, he starts out with the amount of cash left in the drawer. At the end of the business day, either he or his manager runs a summary of activity on the cash register for the day to produce a report of the total sales taken in by the cashier.
John counts the amount of cash in his register as well as totals the checks, credit-card receipts, and store credit charges. He then completes a cash-out form that looks something like this:
Cash Register: John Doe (Date)
| Receipts |
Sales |
Total |
| Beginning Cash |
|
$100 |
| Cash Sales |
$400 |
|
| Credit Card Sales |
$800 |
|
| Store Credit Sales |
|
$200 |
| Total Sales |
|
$1,400 |
| Sales on Credit |
|
$1,000 |
| Cash Received |
|
$400 |
| Total Cash in Register |
|
$500 |
A store manager reviews John Doe’s cash register summary (produced by the actual register) and compares it to the cash-out form. If John’s ending cash (the amount of cash remaining in the register) doesn’t match the cash-out form, he and the manager try to pinpoint the mistake. If they can’t find a mistake, they fill out a cash-overage or cash-shortage form. Some businesses charge the cashier directly for any shortages, while others take the position that the cashier’s fired after a certain number of shortages of a certain dollar amount (say, three shortages of more than $10).
The store manager decides how much cash to leave in the cash drawer or register for the next day and deposits the remainder. He does this task for each of his cashiers and then deposits all the cash and checks from the day in a night deposit box at the bank.
The manager then sends a report with details of the deposit to the bookkeeper so that the data makes it into the accounting system. The bookkeeper enters the data on the Cash Receipts form (see the following figure) if a computerized accounting system is being used or into the Cash Receipts journal if the books are being kept manually.
Example of a sales receipt in QuickBooks.
Accounting Glossary
accounting equation
The equation Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping).
Accounting Glossary
accounting period
The time period for which financial information is being tracked in a business, such as monthly, quarterly, or annually.
Accounting Glossary
accounts receivable
An account that records the amounts that customers owe to a business.
Accounting Glossary
adjusting entry
A correction made to a bookkeeping account that adjusts for accounting errors or other necessary changes at the end of the accounting period.
Accounting Glossary
cash flows
Used to describe the source or sources of cash or how cash is used.
Accounting Glossary
Chart of Accounts
A list of all the accounts used by a business, including what types of transactions go into each account.
Accounting Glossary
debit
An accounting entry that increases an asset or expense account, and decreases a liability or income account.
Accounting Glossary
dividends
A portion of a company’s profits paid by share of common stock on a quarterly or annual basis.
Accounting Glossary
FASB
Financial Accounting Standards Board. FASB is the highest-ranking authority in the private (non-government) sector of the U.S. for making pronouncements on GAAP and for keeping accounting standards up-to-date.
Accounting Glossary
Federal Unemployment Tax
In the U.S., the fund that used to be known simply as Unemployment. Employers contribute to the fund, and states also collect taxes to fill their unemployment fund reserves. (The acronym FUTA means Federal Unemployment Tax Act.)
Accounting Glossary
fidelity bonds
A type of insurance — typically carried by employers for their employees — that helps guard against theft and reduce the risk of loss.
Accounting Glossary
FIFO
First-in, first-out. A method for costs of goods sold in which a business charges out product costs to cost of goods sold expense in the chronological order in which the goods were acquired.
Accounting Glossary
fungible
Describes a product that is interchangeable and virtually indistinguishable from another product.
Accounting Glossary
General Ledger
A summary of all of a business’s accounts and transactions.
Accounting Glossary
IASB
International Accounting Standards Board. The IASB (based in London) is the main authoritative accounting standards setter outside the U.S.
Accounting Glossary
Journals
The location in which bookkeepers keep records (in chronological order) of daily company transactions.
Accounting Glossary
LIFO
Last-in, first-out. A method for costs of goods sold that selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.
Accounting Glossary
LLP
Limited liability partnership. A legal structure that state laws offer to qualified professionals in which all the partners have limited liability.
Accounting Glossary
PC
Professional corporation. A legal structure that state laws offer to qualified professionals who otherwise would have to operate as an unlimited partnership liability.
Accounting Glossary
petty cash
A cash account that businesses keep on hand for unexpected expenses.
Accounting Glossary
revenue
Monies that are collected in the process of selling a company’s goods and services.
Accounting Glossary
salvage value
The amount that an asset is worth after it has been fully depreciated.
Accounting Glossary
statement of cash flows
A financial statement that summarizes a business’s cash inflows and outflows during an accounting period.
Accounting Glossary
transactions
Economic exchanges between a business or other entity and the parties with which the entity interacts and makes deals.
Accounting Glossary
worker’s compensation insurance
A type of insurance carried by employers that covers its employees in case they are injured on the job.
