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Cash reconciliation is a process that is utilized to compare the balances found between ledgers and the amount of cash on hand. This approach is necessary for businesses that maintain a petty cash fund, as well as for reconciling the amount of money in bank accounts with the balances shown in accounting records. The basic idea behind cash reconciliation is to account for all cash resources and make sure there is no question regarding monies received or spent during the period under consideration.
A cash reconciliation may be conducted at any time. It is not unusual for businesses that maintain a petty cash fund for quick purchases of items under a certain price to undertake the petty cash reconciliation at least once each week. In some cases, the process of reconciling cash on hand with the accounting records may occur on a daily basis. The decision of how often to engage in this type of reconciliation depends on the amount of transactions executed each day or week, and the type of cash accounts involved.
While the process of conducting a cash reconciliation will vary from one setting to the next, there are a few basics that are likely to apply in any situation. The first step typically involves counting the actual cash on hand to determine the amount that is immediately verifiable. When performing the reconciliation for the balance of funds found in a cash register, this usually means totaling the amount of paper currency on hand first, then also counting any coins that are also in the register. This serves as the basis for the matching those totals with the amounts found in the accounting ledger.
Typically, the cash reconciliation will move on to the ledger and the posting necessary to account for the receipts and disbursements recently made from the cash reserves. Here, the goal is to account for each of these transactions, posting both debits and credits in order to identify the amount of cash showing as of the current date. Ideally, the figure in the ledger will agree with the physical inventory of the cash on hand, making it possible to consider the books balanced and the totals accurate. In the event there is some sort of discrepancy, steps must be taken to identify the presence of any addition or subtraction error in the books, or attempt to account for the possibility of a disbursement from cash that was not recorded in the books.
With all forms of cash reconciliation, it is possible to identity discrepancies relatively quickly, which also means the issues can be resolved before smaller differences lead to larger ones. For example, conducting a register cash reconciliation at the end of each business day will go a long way toward preventing any type of theft that may be occurring as well as account for any situations in which there is more cash on hand that the accounting records reflect. Identifying the discrepancies early on enhances the potential of identifying the origin quickly, making the necessary adjustments, and moving forward with an accurate cash balance.