Where is cash balance recorded?

The Trail of Tears (But for Money Out): Where Cash Balance is Tracked

Cash, the lifeblood of any organization, needs careful tracking. Knowing exactly where your cash stands – your “cash balance” – at any given moment is crucial for making informed financial decisions, managing liquidity, and preventing discrepancies. While the final cash balance is summarized in financial statements, the journey of how we get to that balance is recorded meticulously, leaving a clear audit trail.

So, where exactly is that cash balance recorded, beyond the obvious bank statement? The answer lies in a few key places, interconnected to create a comprehensive picture.

The Cash Disbursements Journal: The Outgoing Route

Imagine a river flowing out of your organization. This river represents outgoing cash, and its journey is meticulously charted in what’s often called a cash disbursements journal. Think of it as a detailed logbook of every dollar that leaves your company’s accounts.

This journal, sometimes also referred to as a purchases journal (if primarily tracking purchases made with cash) or an expense journal (if focusing on expense payments), provides a granular view of all cash outflows. For each transaction, you’ll typically find:

• Date: When the payment was made.
• Payee: Who received the payment.
• Description: What the payment was for (e.g., rent, supplies, salary).
• Account Debited: Which expense or asset account is being increased (e.g., Rent Expense, Office Supplies).
• Amount Paid: The precise amount of cash disbursed.

By systematically recording each outflow, the cash disbursements journal acts as a primary source document for tracking decreases in the cash balance. It allows you to quickly identify where your money is going and analyze spending patterns.

The Cash Receipts Journal: The Incoming Tide

Of course, cash doesn’t just flow out; it also flows in. For the incoming tide, we have the cash receipts journal. This journal meticulously documents all cash inflows, such as:

• Date: When the payment was received.
• Payer: Who made the payment.
• Description: What the payment was for (e.g., sales, loan proceeds).
• Account Credited: Which revenue or liability account is being increased (e.g., Sales Revenue, Loan Payable).
• Amount Received: The precise amount of cash received.

General Ledger: The Big Picture

Both the cash disbursements and cash receipts journals feed into the general ledger, which acts as a master repository of all financial transactions. The general ledger contains a specific account dedicated to cash. This “Cash” account is updated based on the entries from the cash disbursements and receipts journals. When cash goes out, the “Cash” account is credited (decreased). When cash comes in, the “Cash” account is debited (increased).

The balance of the “Cash” account in the general ledger reflects the running total of cash on hand. It provides a summary view, combining all inflows and outflows into a single figure.

Bank Reconciliation: Bridging the Gap

While the company’s records are meticulously maintained, they may not perfectly align with the bank’s records at all times. Outstanding checks, deposits in transit, and bank fees can cause discrepancies. To reconcile these differences, a bank reconciliation is prepared. This process involves:

• Comparing the cash balance per the company’s records (from the general ledger) with the cash balance per the bank statement.
• Identifying and adjusting for any differences, such as outstanding checks, deposits in transit, bank fees, and errors.

The bank reconciliation ensures that the company’s records accurately reflect the actual cash available.

Financial Statements: The Final Summary

Finally, the cash balance is summarized on the company’s financial statements, specifically the balance sheet. The balance sheet presents a snapshot of the company’s assets, liabilities, and equity at a specific point in time. The cash balance is listed as a current asset, indicating the amount of cash readily available.

In Conclusion:

Tracking the cash balance is not a single-step process but a multi-faceted system. The cash disbursements journal, cash receipts journal, general ledger, bank reconciliation, and ultimately the balance sheet all play vital roles in ensuring accurate and comprehensive records of a company’s most liquid asset. By understanding where cash is recorded and how these records are interconnected, businesses can effectively manage their finances and maintain financial stability. This diligent tracking ensures that the “trail of tears (but for money out)” – and the path of incoming cash – is always clear and accounted for.