Having much cash within your reach is high risk, but inevitable for some businesses. Business owners must learn to properly account for the cash that they hold at each point in time. In accounting for cash, the fundamental rule that I want you to understand is the keywords are “coming in “and “going out” of cash. If you can track the coming in and the going out, then you will have perfect cash accounting.
Importance of Cash accounting in Business
So, how does cash come in? Here are the most common ways:
1) From Sales – Customer pay cash
2) The owner’s pocket
3) Bank withdrawal
4) The delivery man who went to make deliveries to customers
Next, how does cash go out? Here are the most common ways:
1) Expenses to run the business
2) Purchases of raw material or other costs related to executing the sales
3) Lodging cash into the bank
4) Cash refunds to customers
Now that you know the major activities that bring in cash and take cash out in your business, you only need a report that tracks all these activities. A simple report that tracks all cash in and all cash out.
Importance of Cash Accounting
- It helps in recording revenue and expenses during the periods in which they are incurred, even if no money changes hands at that point.
- It helps in tracking inventory, as well as accounts receivable and payable.
- It provides a more accurate picture of the financial health of the company
Say goodbye to all those long hours you spent reconciling cash. All those time when you lump up cash sales for several days, take it to the bank, then you come back to hours of balancing your books.
To some business owners, cash is a nightmare because their team is never able to keep a sensible clean report or even understand the various cash movements in and out. Another easy option to solve this will be Book keeping. This is an act of daily recording of debit and credits transactions for accounting purposes. It can be a book or a spreadsheet.
