Cash reconciliation is a process used to compare cash balances in ledgers and bank accounts with actual cash on hand. It can be done at any time and involves counting actual cash, recording transactions, and identifying discrepancies to prevent theft and ensure accurate cash balances.
Cash reconciliation is a process that is used to compare the balances found between ledgers and the amount of cash available. This approach is necessary for companies that maintain a small cash fund, as well as for reconciling the amount of money in bank accounts with the balances indicated in the accounting records. The idea behind cash reconciliation is to account for all cash resources and ensure that there is no doubt about funds received or spent during the period under review.
A cash reconciliation can be conducted at any time. It’s not unusual for businesses that maintain a small cash pool for quick purchases of items at a certain price to undertake the small cash reconciliation at least once a week. In some cases, the process of reconciling the available cash with the accounting records can take place on a daily basis. The decision on how often to engage in this type of reconciliation depends on the amount of transactions performed each day or week and the type of cash accounts involved.
While the cash reconciliation process will vary from one setting to another, there are a few basics that can apply in any situation. The first step typically involves counting the actual cash available to determine the immediately verifiable amount. When reconciling for the balance of funds found in a cash register, this usually means first adding up the amount of paper currency on hand, then also counting any coins that are also in the register. This serves as the basis for matching those totals to the amounts found in the accounting ledger.
Typically, the cash reconciliation will go through the ledger and the necessary posting to account for recently made receipts and disbursements from cash reserves. Here, the goal is to account for each of these transactions, recording both debits and credits in order to identify how much money it shows on the current date. Ideally, the figure in the ledger will agree with the physical inventory of available cash, making it possible to consider books balanced and totals accurate. In the event that there is some sort of discrepancy, steps should be taken to identify the presence of any addition or subtraction errors in the books or attempt to justify the possibility of a disbursement from money not recorded in the books.
With all forms of cash reconciliation, discrepancies can be identified relatively quickly, which also means that problems can be resolved before minor differences lead to major differences. For example, conducting a ledger cash reconciliation at the end of each business day will go a long way in preventing any type of theft from occurring, as well as accounting for any situations where there is more cash available than the accounting records reflect. Identifying discrepancies early enhances the potential for quickly identifying the source, making the necessary adjustments and moving forward with an accurate cash balance.
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