How to record cash sales

Here, a cash sale means one the customer pays for in notes and coins when they buy. business.gov.au's glossary gives cash a broader meaning that also takes in petty cash and money sitting in bank accounts. A card payment through an EFTPOS terminal reaches you by another route, through the card provider and then the bank, so it is recorded on a path of its own.

Because the customer pays as they buy, a cash sale goes into the books on the day it is made, whichever accounting method you use. In business.gov.au's description of the two methods, cash accounting waits for the payment and accrual accounting records the sale as it happens. For a cash sale those two moments are the same.

Until it is banked, cash has no record outside the business, so your own sales record is the main evidence of each sale. business.gov.au points businesses that take cash to a way of tracking sales, such as a cash register. It also notes that point-of-sale systems can update sales income and stock records automatically.

• A register or point-of-sale report, printed or stored when trading closes each day.
• A numbered receipt book, which suits a market stall or a trade business that collects cash at the job.
• A daily sales sheet listing each sale, when neither of the others is practical.

Whichever you use, someone else should be able to read it and see what was sold, when and for how much. The ATO's minimum for a record generally includes its date, amount, description and purpose.

At the end of each trading day, record the day's cash sales as one entry. In general bookkeeping terms that usually means a debit to an account holding cash not yet banked, often called cash on hand or undeposited takings, and a credit to sales. The cash account then carries the takings until they reach the bank.

If you keep separate income accounts for different kinds of sales, split the credit to match, so the profit and loss statement shows each one. A cash refund is a separate line, so the day's gross sales and its refunds both stay visible.

After these entries, the cash on hand account shows what should be bagged up for the bank, and the sales accounts show what the register recorded. How your sales accounts are grouped for reporting is a question for your accountant.

• The float: the notes and coins placed in the till to give change already belong to the business. Setting up a float or topping it up moves cash between accounts, usually from the bank to a till float account kept apart from cash on hand, so cash on hand holds takings only.
• Cash paid out of the till: if takings are used to buy something, record it as that cost paid from cash on hand, with its receipt attached. Don't lower the sales figure to make room for it.
• Cash the owner takes: money taken from the takings for personal use is neither a business cost nor a smaller sale. Record it against an owner's account, and ask your accountant which one fits how your business is set up.
• Cash received for an invoice already sent: if the customer was invoiced earlier and your books use accrual accounting, the sale is already recorded, so the cash clears what the customer owed.

Banking cash is a transfer, not new income. The usual entry is a debit to the bank account and a credit to cash on hand for the amount deposited. The sale went into the books on the day it was made, so treating the deposit as a sale as well would count the same money twice.

When the deposit appears on the bank statement, match it to that transfer rather than to an income account. If one deposit carries several days' takings, note which days it covers. That note makes the later check of takings against deposits much quicker.

The count at closing sometimes finds a little more or less cash than the day's records say there should be. The register total remains the record of what was sold. Record the gap on its own, usually in an account for cash shortages and overages: a shortage is a debit to that account and a credit to cash on hand, and an overage runs the other way.

One of the ATO's tips is simply to look for errors when the numbers don't add up. An occasional small gap can be a counting slip. A gap that keeps coming back, or keeps landing on the same shift, is a reason to look closely at how the cash is being handled.

• the register or point-of-sale report for the day, or the receipt book pages
• the cash-up sheet showing the count, the float kept back and any shortage or overage
• receipts for cash paid out of the till
• the deposit slip or bank receipt for each banking.

Sales records are on business.gov.au's list of records a business must keep, and its general keeping period is 5 years. The ATO adds two conditions: what a record says must not be altered, and records must be stored somewhere that protects them from alteration or damage.