How to reconcile cash

This check sits between two others. The cash-up at closing compares the till with the day's sales records. The bank reconciliation compares the bank account in your books with the bank statement. Reconciling cash covers the stretch in between: did every amount set aside for banking actually reach the bank?

• Inside records: each day's cash-up sheet, showing the cash counted and the amount set aside for banking, and the deposit slips.
• Outside record: the deposits on the bank statement.

The ATO's tips on common record-keeping errors include a regular reconciliation of cash and EFTPOS sales: compare the payments your own records show with an external record of them, and carry the amounts into your main accounting system.

The reconciliation is far simpler when cash takings pass through an account of their own on the way to the bank. Each day's cash sales are debited to it, and each banking is credited to it and debited to the bank. At any moment its balance is the cash the books say is waiting to be banked.

Keep the till float and petty cash in accounts of their own, so this balance is takings only. Then the check comes down to one question: is the cash on hand balance made up of cash you can count, plus deposits on their way to the bank?

1. List each day's amount for banking from the cash-up sheets, for the period you are checking.
2. List the cash deposits from the bank statement for the same period and a few days after it.
3. Match each deposit to the day or days it carried, using the deposit slips.
4. Mark takings not yet on the statement, and count any still held in the safe.
5. List anything left over on either side and work out why.

Here each banking was recorded in the books at the amount the bank credited, so the shortfall on Friday's deposit is still sitting in cash on hand while it is queried.

A deposit credited at less or more than the slip usually means the bank's count differed from yours. Look at the bank's notice or the deposit record, and at your copy of the slip and the cash-up sheet. If your count was wrong, record the difference as a cash shortage or overage. If you believe the bank is wrong, raise it with the bank and keep the amount on the reconciliation as an open item until it is settled.

• Several days in one deposit: not a difference at all once the days are grouped. Writing the dates covered on each deposit slip makes this quick.
• Takings in the safe or in transit: count what is in the safe, and check that anything dropped at the bank after its cut-off appears on the next business day.
• Takings recorded but never deposited, with nothing in the safe: treat this seriously. Check the cash-up sheets and who handled the cash before deciding what it is.
• A cash deposit with no takings behind it: it may be the owner putting money in, a customer paying an invoice in cash, or a float returned to the bank. Record it as what it is, not as sales.
• Cash spent from the takings before banking: enter each payment against its cost account, crediting cash on hand, and keep the receipt, so the balance still adds up.

The ATO's tips say the regular check may be daily, weekly or monthly, depending on the business. A shop that banks every day may tick deposits off daily; a business that banks weekly may check each banking as it happens and look at the cash on hand balance at each month end.

business.gov.au points to cash sitting outside the bank as the reason it carries more theft risk than other payments. Frequent banking lowers that risk and keeps this reconciliation short, because fewer days sit in the gap.

File the cash-up sheets, deposit slips and any bank notices for each period with the reconciliation. Bank and sales records both appear on business.gov.au's list of records to keep, for 5 years in most cases. Don't rewrite a sheet after the event; the ATO's record-keeping rules call for records to be stored so their information can't be changed.