Simple and Effective Cash Closing In Just 4 Steps

If you are an entrepreneur or engage in the business world, you certainly know that closing the cash register is one of the most important practices for any business, regardless of its size or sector of activity, right?

Actually, it is a process executed smoothly that ensures all financial transactions of the day are recorded precisely and that the cash balance is consistent with business activities.

However, many business owners and managers encounter a challenge when closing the cash register since there is no clear procedure or guide on how to do this important task.

The process of closing one’s cash flow will then be illustrated, in a simplified yet efficient manner, and categorized into just four main steps. When consistently pursued, the four steps outlined ensure that you are better prepared for making informed financial decisions, minimizing losses and maximizing profit.

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Difference Between Cash Flow and Cash Closing

In the first place, it is very important to know what differentiates cash flow from cash closing.

While both are definitely tied together with the financial control of an enterprise, they actually refer to different phenomena and relate to some special roles in the process of decision-making and financial control.

Although they are related, they have complementary roles in business finance management. A cash flow that is to be considered efficient demands precise records and data from the closing of cash accounts.

Cash Flow

What Is It

In short, cash flow is a financial management tool that tracks and analyzes a company’s cash inflows and outflows over a longer period of time, usually weekly, monthly, quarterly or annually.

Objective and Purpose

Cash flow may serve its principal function, which is to present the firm’s finances as a whole, allowing managers to understand how money flows into and out of the business over time.

Thus, the purpose of this tool is to help the company make informed financial decisions, such as planning investments , determining credit policies , identifying potential cash flow problems, and evaluating financial performance over time.

Cash Closing

What Is It

Cash closing is a closure process done at the end of any set period of time, usually every day, whereby all financial transactions that had occurred in the cash register of the company-the sales, receipts, payments, etc are listed and balanced.

Objective and Purpose

Thus, the most related objective of the cash closing is to ensure that the balance indicated is consistent with the actual and what it should read as it is accounted for by the transactions recorded in the period.

That is to say, the cash closing should have its cash activities recorded accurately to avoid a difference between the amount consumed and the one recorded at the beginning of a period.

4 Steps Toward an Effective Cash Close

Now that you have a better understanding of what the closing of the cash register is, it’s now your turn to take the reins!

1. Check the opening balance and record it

The first step to a good cash closing is to check the initial balance available in cash. In other words, the amount you started the day with.

Make sure that the beginning balance recorded at the beginning of the day matches the actual amount in the cash register. If there are discrepancies, it is important to investigate and resolve the issue before proceeding.

This is because discrepancies in the initial balance may be an indication of errors in previous transactions or even possible security issues, such as lost money. Therefore, immediate verification and correction are essential actions for a successful and reliable cash closing.

2. Document all inputs and outputs

Documenting all inflows and outflows is a fundamental practice in the cash closing process.

This step is essential to make the finances of any business accurate and transparent, as well as providing a detailed record of all financial activities that occurred during the period analyzed.

Second, include all manners of payments, be it made or received. This includes cash, credit card, debit card, and other forms of payments. This is to make sure that all the income as well as expenses are provided for. This will be a list of sales, supplier expenses, operating expenses, and many more.

By documenting all inflows and outflows, you are creating a reliable financial history, ensuring that there is:

• Financial transparency;
• Quick identification of errors;
• Greater financial control;
• Improved tax compliance.

3. Check all amounts and verify the actual balance

Then, at the end of the day, count the cash in your cash register, including coins and bills. Make sure the amount matches the total cash sales recorded. Any discrepancies could be a sign of error or fraud.

After you count your cash on hand, compare it to your beginning balance. Your actual balance should equal your beginning balance plus cash sales minus expenses. If your actual balance doesn’t match what you expected, double-check your notes and records for any errors.

Actual balance = Beginning balance + Sales – Expenses

4. Complete the cash closing

Finally, despite being the most important part of the process, closing the cash register is relatively simple, as long as you have carried out all the other steps correctly and accurately.

Then, record the results of the cash closing in a clear and organized manner. This includes the beginning balance, sales, expenses, actual balance, and any relevant observations. Keeping a complete record makes it easier to track the results in the long term and identify financial trends.