3.1: Banking Procedures

Cash Transactions

A typical small business has a variety of different types of cash transactions, which should be recorded in a number of different places:

• Sales and cash receipts journal. To simplify your record keeping, it is recommended that you combine your sales and cash receipts in a combined journal.
• Daily cash sheet. If a lot of cash moves in and out of your business each day you should also prepare a daily cash sheet to reconcile your cash received and paid out for the day. If you use a daily cash sheet, you can reconcile your cash receipts with your daily deposit into your bank account.
• Bank reconciliation. Bank reconciliation at the end of every month verifies the amount you have in your cheque account. It will also help you find bookkeeping errors and could help prevent irregularities such as employee theft.
• A cash disbursements journal. Your daily cash disbursements should be recorded here.
• A petty cash fund. If your customers normally pay by cheque, you may need to set up so that you will have some currency on hand to pay miscellaneous small expenses. A petty cash fund isn’t necessary if you use a cash register and always have currency on hand, as long you keep track of these small purchases.

Sales and Cash Receipts Journal

There are many different types of sales journals and cash receipts journals available. To simplify your bookkeeping, a combined sales and cash receipts journal is recommended. If you are going to be recording sales and cash receipts manually in a journal, visit an office stationary shop. They will have many different kinds of journals for you to choose from. Look at the different column headings, and choose the one that best meets the needs of your business. If you will be using computer software, you probably won’t have to decide which type of journal to use. Your program will probably have some type of sales and cash receipts journal, but may allow you to customise it based on your type of business.

Assume that your business is a retail sales outlet that extends credit to some customers. Here is an example of a few entries in a combined sales and cash receipts journal. The following transactions occurred:

• On February 2, you sold on credit, R500 worth of goods to Sandra Shaw. VAT included in that amount is R80. Since Shaw owes you a total of R500 (430 + 70), your accounts receivable have increased by that amount.
• Also on February 2, Tamara Dwight paid you her account balance of R1 359.
• On February 5, several customers bought merchandise for cash. Total cash sales were R716. On those sales, R100.24 VAT was collected, adding up to a total of R716 of cash receipts from your customers.
• On February 6, Sandra Shaw paid her balance of R500.
• Upon completion of this journal page, you should foot all five amount columns. Since you are using a double-entry accounting system, you can check to see if all entries were recorded correctly. Make sure the sum of the debits equals the sum of the credits. Total debits: 2 575 + 500 = 3 075. Total credits: 1 859 + 1 045.76 + 170.24 = 3,075.

If the sum of the debit columns doesn’t equal the sum of the credit columns, you have a problem that you should investigate right away. You may have recorded one of the amounts in the wrong column. Maybe you charged the customer the wrong amount. Or you might have simply added incorrectly when computing the totals. It is usually easy to pinpoint the error because the debits should equal the credits for each transaction. Your sales and cash receipts journal will probably have more columns than our sample.

For example, you could have more than one column for “Sales” by splitting your sales into categories. You might have one column labelled “Parts and Spares Sales” and another labelled “Service and Repair”. This could provide you with more meaningful information. The way you do business might require additional columns.

For example, if you give a discount to your charge customers who pay within 10 days, you could add a column labelled “Sales Discounts Dr.”