Describe how to keep a simple cash record showing money in, money out and the running balance, and explain why keeping records matters

What this dot point is asking

You need to describe how to keep a simple cash record showing money in, money out, and the running balance, and explain why keeping records matters. A cash record is a simple list of the money a business receives and pays out, with the balance after each. Keep your answer practical: be able to fill in a small cash record, work out the closing balance, and say why records help the owner.

The answer

What a cash record is

A cash record is a simple list of the money a business takes in and pays out, with the amount of cash left after each entry. It has three main columns:

• Money in - cash received, such as sales.
• Money out - cash paid, such as buying stock or paying a bill.
• Balance - how much cash the business has after each entry.

Money in and money out

• Money in is cash the business receives. The main source is sales, but money the owner puts in also counts.
• Money out is cash the business pays. This includes buying stock, paying rent and wages, and paying bills.

The running balance

The balance is how much cash the business has at that point. You work it out as you go:

• Start with the opening balance (the cash at the start).
• Add each money in.
• Subtract each money out.

The number you reach is the closing balance at the end of the period.

A simple cash record

Here is a simple cash record for one week. Notice the balance is updated after each entry, and a negative balance is shown in brackets.

On Tuesday, paying 400 dollars rent left the balance at (20), meaning the business was short by 20 dollars, shown in brackets. On Wednesday the owner put in 100 dollars, bringing the balance back to 80 dollars.

Why keeping records matters

Keeping a cash record matters because it:

• Shows the cash position - the owner always knows how much cash there is and whether there is enough to pay bills.
• Helps spot mistakes or missing money - the owner can compare the record with the actual cash in the till.
• Helps planning - the owner can see busy and quiet times and plan ahead.
• Helps work out profit - records of money in and out are the basis for working out profit or loss.

Without records, an owner is guessing, which can lead to running out of cash without warning.

Examples in context

Example 1. A hawker checking his till. At closing, a hawker compares his cash record, which says he should have 340 dollars, with the cash in the till, which holds only 300 dollars. The 40-dollar gap warns him that an entry is wrong or money has gone missing, so he checks his receipts. Without the record he would never have known, showing how records catch problems.

Example 2. A stall owner planning for rent day. A stall owner watches her running balance over the week and sees it will dip low on the day her 400-dollar rent is due. Because the record warned her early, she keeps enough cash aside to cover it instead of being caught short. The cash record turned a possible cash shortfall into something she planned for.

Try this

• Cue. A stall starts with 100 dollars, makes 180 dollars in sales, and pays 70 dollars for stock. Work out the closing balance and show your working. Start with the opening cash, add money in, then subtract money out, and write the final balance.

• Cue. State what money in and money out mean, and give one example of each for a cafe. Remember money in is cash received (sales) and money out is cash paid (stock, rent, wages).

• Cue. Explain two reasons a small business should keep a cash record. Cover knowing the cash position at any time and spotting mistakes or missing money by comparing the record with the actual cash, and add that it helps planning.