Cash Records

Learning objectives

By the end of this chapter, you should be able to:

• Explain how daily takings are captured and controlled using point-of-sale outputs (including interpreting end-of-day till reports and performing daily cash counts).
• Calculate a cash overage or shortage by comparing expected cash to physical cash counted, and adjust for common misclassifications and unsupported items.
• Record typical cash and bank transactions in a two-column cash book, applying correct debit/credit rules for cash versus credit transactions.
• Perform a bank reconciliation by identifying and resolving differences between the cash book (bank column) and the bank statement.
• Apply petty cash imprest principles to reimburse expenses correctly and identify shortages.
• Recognise key internal controls and fraud warning signs used to safeguard cash handling processes.

Overview & key concepts

Cash is the most exposed asset: it is portable, handled frequently, and can be miscounted or misused without leaving an obvious trail. Reliable cash records depend on two linked disciplines:

1. Accurate recordingso the accounts reflect what happened, and
2. Strong controlsso mistakes and irregularities are prevented or detected quickly.

This chapter focuses on four connected areas:

• Till controls(capturing and proving daily takings)
• Cash book(recording receipts and payments through cash and bank)
• Bank reconciliation(explaining differences between the cash book bank balance and the bank statement)
• Petty cash imprest(controlling small payments through a fixed float supported by vouchers)

Keep the accounting equation in mind:

Assets = Liabilities + Equity

Cash and bank balances are assets. Errors in cash records often affect profit (and therefore equity), unless they create or remove another asset or liability (for example, a receivable created by a dishonoured cheque, or a liability created by cash received in advance).

Till controls

Till controls are the procedures used to ensure that sales and takings are complete, accurate, and safeguarded. Most businesses produce an end-of-day point-of-sale summary (often called a Z report) showing totals for items such as:

• cash sales
• card/online sales
• cheque sales
• refunds/returns and voids
• discounts/overrides (where relevant)

A daily cash count is then performed and compared to what the system indicates should be present after allowing for:

• theopening float
• cash refundspaid from the till
• authorisedpaid-outsfrom takings (for example, a small urgent purchase)

Illustration (end-of-day report and cash count)

A store’s end-of-day report shows total sales of 5,000 made up of cash 3,000, card 1,500 and cheques 500. The manager counts physical cash and investigates any difference from expected cash after allowing for the opening float, refunds, and authorised paid-outs.

Till controls protect cash on hand and support accurate reporting of revenue (including returns/refunds where shown separately).

Cash book

The cash book is the day-to-day record of money received and paid. It is commonly presented with:

• acash column(physical cash held), and
• abank column(transactions through the bank account).

The cash book acts as a book of prime entry for cash and bank transactions and supports postings to the relevant ledger accounts (including receivables/payables control accounts where used).

Cash versus credit transactions (core patterns)

Cash recording problems often arise when students confuse cash movement with revenue recognition. The key patterns are:

• Cash sale:
• Dr Cash/Bank, Cr Revenue
• Sale on credit:
• Sale:Dr Trade receivables, Cr Revenue
• Receipt later:Dr Bank, Cr Trade receivables
• Cash received in advance (deferred income / unearned revenue):
• Receipt:Dr Bank, Cr Deferred income (liability)
• When delivered:Dr Deferred income, Cr Revenue

Sales tax/VAT note: If VAT (or similar sales tax) applies, split amounts between revenue and output tax as required by the question. Always check whether figures are net or gross.

Practical points that frequently arise

• Card receipts:many businesses record card takings into the bank column on the day of sale; if the bank has not credited them by the statement date, they appear as atiming difference. Some questions instead require acard clearing/merchant receivableuntil settlement—follow the approach stated in the question.
• Cheques received:often recorded as a bank receiptwhen lodged. Until cleared, a lodged cheque can be dishonoured. If dishonoured, reverse the bank receipt and restore the customer receivable.
• Cash paid-outs:paid-outs from takings must be authorised and supported by evidence (voucher/receipt). If not recorded, they typically surface as a cash shortage at the daily cash count stage.

Common cash book postings beyond sales (exam-relevant)

• Operating expense paid from bank:Dr Expense, Cr Bank
• Inventory purchase paid in cash/bank:Dr Inventory (or Purchases), Cr Cash/Bank
• Loan/note proceeds received:Dr Bank, Cr Loan/Note payable
• Interest paid:Dr Finance cost, Cr Bank
• If incurred but unpaid at the period end:Dr Finance cost, Cr Interest payable
• Share issue for cash:Dr Bank, Cr Share capital (and Cr Share premium if applicable)
• Cash dividend paid:Dr Dividends (distribution within equity), Cr Bank
• Dividends aredistributions to owners, not an expense in profit or loss.

Bank reconciliation

A bank reconciliation explains why the bank balance per the cash book differs from the balance on the bank statement at a point in time. A reliable way to classify differences is to ask where the item first appears:

• If thebank has processedan item but thecash book has not yet recordedit (for example, fees, standing orders, interest, reversals), the cash book is incomplete —update the cash book first.
• If thecash book includesan item but thebank has not processedit by the statement date (for example, deposits still in transit or cheques not yet cleared), the cash book is already correct —show it as a timing differencein the reconciliation.
• If the cash book has the item but the amount/side is wrong, it is acash book error— correct it as part of the cash book update.

After updating the cash book, the reconciliation should use timing items only (plus any bank errors if the question states them).

Petty cash imprest system

Under an imprest system, petty cash is held at a fixed float. At each reimbursement:

• vouchers are submitted for authorised spending,
• reimbursement restores cash back to the imprest amount, and
• any difference betweencash remaining + vouchersand the imprest float is investigated.

Shortages may indicate error, missing documentation, or misappropriation. Overages can occur (for example, a voucher was overstated or cash was mistakenly added to the tin).

Internal controls and fraud warning signs in cash handling

Cash systems are strongest when each stage produces evidence that can be checked by someone independent. A practical way to evaluate control is to follow the journey of cash.

At the till (capture)

• Sales activity should be fully captured by the point-of-sale system.
• High-risk exceptions—refunds, voids, overrides, and unusual discounts—should require reasons and approval.

After closing (prove)

• The cash count should be performed promptly and documented.
• Paid-outs from takings should be supported by vouchers/receipts and shown separately so expected cash can be evidenced.

To the bank (transfer)

• Cash should be bankedintactand regularly.
• Holding back cash, delayed banking, or informal “borrowing” breaks the audit trail and makes losses harder to detect.

In the records (record)

• Posting should be based on source documents (till report, banking slip, merchant settlement reports).
• Where duties can be separated, the person reconciling should not be the person handling cash.

Reconcile (verify)

• Reconciliations should be prepared to a consistent timetable and reviewed independently.
• Reviews should focus on old reconciling items and unusual statement entries—not only whether the reconciliation totals agree.

Warning signs

Warning signs are patterns that do not fit normal trading, such as repeated small shortages, unusually frequent refunds/voids, missing end-of-day reports, frequent paid-outs, late banking, or discrepancies concentrated around particular shifts or staff.

Where receipts are diverted and later money is used to conceal the gap, records may show delayed postings and unsupported “tidying up” entries. This concealment technique is often described as teeming and lading (also known in some contexts as lapping).

Exam technique and structured approach

Use these short checklists to stay structured under time pressure.

A. Daily takings and cash count (till-to-bank)

1. Start with the till report totals (cash, card, cheque, refunds/voids).
2. Compute expected cash after float, refunds and authorised paid-outs.
3. Compare to the cash count and identify any explained differences first.
4. Document banking (what is retained as float, what is lodged).
5. Record receipts/payments in the cash book from source documents.

B. Cash overage/shortage

• Expected cash = opening float + cash receipts − cash refunds − authorised paid-outs
• Cash over/(short) = actual cash counted − expected cash

If the difference is unexplained, it is often recorded in a cash differences/suspense account pending investigation (especially if material). Once resolved, reclassify appropriately.

C. Bank reconciliation (method that earns marks)

1. List the differences given in the question.
2. Classify them into:
   • items toupdate the cash book,
   • timing items, and
   • cash book errors(to be corrected in the cash book).
3. Update the cash book (bank column) and obtain theupdated cash book bank balance.
4. Prepare the reconciliation using timing items to bridge to the bank statement balance.

Worked example

Narrative scenario

Harbour Traders operates a busy retail outlet. Daily takings are recorded through a point-of-sale system, and the business maintains a two-column cash book.

On 5 January 2026, the end-of-day till report showed total sales of 5,000, analysed as:

• cash:3,000
• card:1,500
• cheques:500

The opening float was 200. During the day:

• an authorised cashpaid-outof100was made for office supplies, and
• a cash refund of50was issued to a customer.

A cash count at closing showed 3,050 in the till.

Later that day, the accounts team prepared a bank reconciliation. The bank column of the cash book showed a debit balance of 15,980 at close of business on 5 January 2026.

The bank statement showed a closing balance of 15,220. The following differences were identified:

1. Bank charges of45(not in cash book).
2. Standing order for rent of1,200(not in cash book).
3. Direct debit for utilities of180(not in cash book).
4. Interest credited by the bank of25(not in cash book).
5. Direct credit from a customer of640(not in cash book).
6. A cheque previously lodged was dishonoured for300(not in cash book).
7. Outstanding lodgements:1,250and300(lodged but not yet credited).
8. Unpresented cheques:700and430(issued but not yet cleared).
9. Card receipts of520were recorded in the cash book but had not yet been credited by the bank.
10. Cash book errors:
    • A bank transfer received from head office of800was entered on thepaymentsside of the cash book (bank column) instead of the receipts side.
    • A cheque payment to a supplier was entered in the cash book as260, but the cheque was actually620.

Required

1. Calculate the expected cash and the cash over/short for 5 January 2026.
2. Prepare the cash book (cash column) entries relevant to the till information. Clearly show thecontrafor cash lodged.
3. Classify the bank reconciliation differences into:
   • update cash book,
   • timing items, and
   • cash book errors.
4. Update the cash book (bank column) and calculate the updated cash book bank balance.
5. Prepare the bank reconciliation at 5 January 2026.
6. Explain the impact of the transactions on the financial statements.

Solution

1) Expected cash and cash over/short

• Expected cash = opening float + cash receipts − paid-outs − cash refunds
• Expected cash = 200 + 3,000 − 100 − 50 =3,050
• Cash over/(short) = actual cash counted − expected cash
• Cash over/(short) = 3,050 − 3,050 =0

There is no cash discrepancy on the information provided.

2) Cash book (cash column) — till-related entries

• Cash to lodge = cash counted − float retained
• Cash to lodge = 3,050 − 200 =2,850

Cash column (summary, 5 January 2026)

• Opening balance b/d: 200
• Receipts: cash sales 3,000
• Payments: paid-out (office supplies) 100; refund 50
• Contra (cash lodged to bank):2,850
• Closing balance c/d: 200

Contra explained: Cash lodged is a transfer between cash and bank — it appears as Cash credit / Bank debit.

3) Classification of bank reconciliation differences

Assumption for card receipts: The cash book records card takings in the bank column on the day of sale (not via a card clearing account), unless instructed otherwise.

Direct credit note: Normally a direct credit from a customer is settlement of a receivable unless the question indicates it relates to a cash sale or other income.

4) Update the cash book (bank column) and calculate the updated balance

Starting point: Cash book bank balance (debit) = 15,980

(a) Record statement-only items in the cash book (bank column)

• Bank charges .........................................................Cr Bank 45
• Standing order (rent) ...............................................Cr Bank 1,200
• Direct debit (utilities) ..............................................Cr Bank 180
• Interest credited .....................................................Dr Bank 25
• Direct credit from customer ......................................Dr Bank 640
• Dishonoured cheque .................................................Cr Bank 300

(b) Correct cash book errors in the cash book (bank column)

Error 1: Receipt entered on the wrong side (800 entered as a payment instead of a receipt)
Correct using two cash book adjustments:

1. Remove the incorrect payment entry ................................Dr Bank 800
2. Record the correct receipt entry .....................................Dr Bank 800

Net effect on bank balance: increase 1,600.

Error 2: Payment entered at the wrong amount (260 recorded, actual cheque 620)
The payment has been understated by 360, so record the additional amount:

• Correct the payment by the difference .............................Cr Bank 360

(Any corresponding ledger posting is made to the appropriate account, or temporarily to a corrections account if required by the wider question. For bank reconciliation marks, the priority is that the cash book bank column is corrected.)

Updated cash book bank balance (working)

• Starting cash book balance (Dr) .................................. 15,980
• Less: charges 45 ..................................................... (45)
• Less: standing order 1,200 ...................................... (1,200)
• Less: direct debit 180 .............................................. (180)
• Add: interest credited 25 ............................................ 25
• Add: direct credit 640 ................................................ 640
• Less: dishonoured cheque 300 .................................. (300)
• Add: cash book error (wrong side receipt) ........................ 1,600
• Less: cash book error (payment understated) ..................... (360)
• Updated cash book bank balance (Dr)......................16,160

5) Bank reconciliation at 5 January 2026

Rule for presentation: After updating the cash book, the reconciliation uses timing items only.

6) Impact on the financial statements

Assets

• Cash on hand:closes at200(float retained).
• Bank:closes at16,160per the updated cash book.
• Trade receivables:increase by300due to the dishonoured cheque, and normally reduce by640due to the direct credit (settlement of a receivable), unless the question indicates otherwise.

Profit or loss

• Revenue:includes sales of 5,000, with sales returns of 50 reducing revenue (or shown as a contra line).
• Operating expenses:rent 1,200; utilities 180; office supplies 100.
• Bank charges expense:45.
• Interest income:25 (if treated as income under the entity’s policy and presentation).

Inventory and cost of sales: cash records do not replace inventory accounting. Cost of sales is recognised under the inventory system in use and is recorded separately from the cash-handling process.

Equity

• The net profit effect flows into retained earnings.
• Any dividend paid is a distribution within equity, not an expense in profit or loss.

Common pitfalls and misunderstandings

• Reconciling the wrong balance:bank reconciliations compare the cash bookbankcolumn to the bank statement, not the till cash count.
• Missing paid-outs and refunds in expected cash:expected cash must reflect authorised movements, otherwise shortages appear unexplained.
• Treating card/cheque receipts as physical cash:card and cheque amounts are not part of the cash count.
• Failing to update the cash book first:charges, standing orders, interest, direct credits and dishonoured items must be posted before the reconciliation is prepared.
• Misclassifying timing items:outstanding lodgements and unpresented cheques are timing differences, not errors.
• Ignoring cash book errors:wrong side, wrong amount and omissions in the cash book must be corrected to reach the updated cash book bank balance.
• VAT/sales tax confusion:always confirm whether figures are net or gross and split tax correctly where required.
• Cash differences handled too quickly:unexplained cash differences are often held in a cash differences/suspense account until investigated, then reclassified.

Summary and further reading

Reliable cash records allow a business to trace amounts from:

• point-of-sale totals
• to cash counted and documented movements
• to banking records and merchant settlements
• to the bank statement, supported by a clear reconciliation

Strong cash procedures reduce errors, deter misuse, and improve the credibility of reported balances.

FAQ

What is the importance of till controls in cash management?

Till controls provide daily evidence that recorded sales and recorded takings agree. They require review of exceptions (refunds, voids, paid-outs), a cash count, and prompt investigation of differences. This strengthens the audit trail and reduces the risk of theft or error going undetected.

How do you calculate cash over/short?

Expected cash is calculated using the float and authorised cash movements:

Expected cash = opening float + cash receipts − cash refunds − authorised paid-outs

Cash over/(short) = actual cash counted − expected cash

Correct identifiable posting/classification mistakes first. Only the remaining unexplained difference should be treated as a cash discrepancy, often held temporarily in a cash differences/suspense account while investigated.

What are the key steps in bank reconciliation?

1. List the differences given.
2. Classify them: update cash book, timing items, and cash book errors.
3. Update the cash book (including error corrections) to obtain the updated cash book bank balance.
4. Use timing items to bridge between the updated cash book balance and the bank statement balance.

Why is the petty cash imprest system important?

It keeps petty cash controlled and measurable. Vouchers explain spending, and reimbursement restores the float to a fixed amount. This makes shortages visible quickly and discourages informal borrowing.

What are common fraud warning signs in cash handling?

Repeated small shortages, missing end-of-day reports, unusually frequent refunds/voids, regular late banking, frequent paid-outs, and patterns concentrated around particular staff or shifts. Delayed postings and unsupported adjustment entries are also warning signs.

Summary (Recap)

This chapter explained how daily takings are controlled through till reports and cash counts, how receipts and payments are recorded in a two-column cash book, and how bank reconciliations are prepared by classifying differences, updating the cash book for bank-processed items and correcting cash book errors, and then using timing differences to bridge to the bank statement balance. It also covered petty cash imprest principles and practical controls and warning signs in cash handling.

Glossary

Till controls
Procedures that verify point-of-sale totals by comparing system reports to cash counted and documented movements such as refunds and paid-outs.

Cash book
A day-to-day record of receipts and payments, often presented with separate columns for cash and bank, and used as a book of prime entry supporting ledger postings.

Contra (cash book)
A transfer between cash and bank recorded as a credit in one column and a debit in the other (for example, cash lodged to bank).

Bank reconciliation
A process that explains differences between the cash book bank balance and the bank statement balance by updating the cash book for bank-processed items and correcting cash book errors, then reconciling remaining differences as timing items.

Petty cash imprest system
A method of controlling small cash payments by maintaining a fixed float and reimbursing amounts spent based on authorised vouchers.

Cash over/(short)
The difference between actual cash counted and expected cash after allowing for float, refunds and authorised paid-outs.

Cash differences/suspense account
A temporary account used to hold unexplained cash discrepancies pending investigation.

Outstanding lodgements
Deposits recorded in the cash book but not yet credited on the bank statement at the reconciliation date.

Unpresented cheques
Cheques issued and recorded in the cash book that have not yet cleared the bank at the reconciliation date.

Card receipts in transit
Card takings recorded by the business but not yet credited by the bank at the statement date (where card takings are recorded directly in the bank column).

Segregation of duties
Separating custody of cash, recording, and reconciliation responsibilities to reduce errors and limit opportunities for misuse.

Deferred income (unearned revenue)
A liability arising when cash is received before goods or services are provided.

Teeming and lading / lapping
A concealment method where diverted receipts are temporarily covered using later receipts, often associated with delayed postings and weak supporting documentation.