4 Steps to Record Checks Made Out to Cash
Mastering Cash Transactions for Smarter Bookkeeping
In the world of business, cash transactions, even those originating from a check, can sometimes feel like a financial gray area. While writing a check "to cash" might seem convenient, it presents unique challenges for accurate bookkeeping and financial tracking. At Maureen Oyarzo Bookkeeping, we frequently advise our clients on the best practices for managing these transactions to ensure their financial records are always clear, compliant, and ready for review.
Why is this so important? Checks made out to cash bypass the clear audit trail of a named payee, making it harder to identify the purpose of the expenditure. This can lead to issues during tax season, audits, or simply when you're trying to understand your business expenses and cash flow.
Here are 4 essential steps to correctly record checks made out to cash, designed to empower our bookkeeping clients with confidence and clarity.
Step 1: Document the "Why" Immediately
This is the most critical step. The moment you write a check to cash, you must document its purpose. Without a clear reason, this transaction becomes an accounting mystery.
On the Check Stub/Register: Make a detailed note on the check stub or in your check register. Instead of just "Cash," write something like: "Cash for Petty Cash Fund replenish," "Cash for Office Pizza Party - Team Appreciation," or "Cash withdrawal for specific vendor payment (XYZ Inc. - invoice #12345)."
Create a Memo/Receipt: If the cash is being used for multiple small expenses, create a simple internal memo or a "cash receipt" form. Date it, state the amount, and list the individual items purchased or purposes for the cash. This acts as your audit trail.
Step 2: Identify the Recipient and Purpose of the Cash
Once the check is cashed, the actual usage of the funds needs to be tracked. Who received the cash, and what was it spent on?
Petty Cash: If the cash is replenishing a petty cash fund, the subsequent individual expenditures from that fund must be meticulously recorded (see Step 3).
Direct Payment: If the cash is immediately handed over to a specific person or vendor for a specific business expense, document that. Get a signed receipt from the recipient if possible, detailing what the cash was for.
Payroll: In rare cases, cash might be used for small payroll payments. Ensure you still have all the necessary payroll documentation, including employee details and tax withholdings.
Step 3: Record the Detailed Expenditures (If Applicable)
This step applies especially when the cash from the check is used for multiple smaller purchases or to fund a petty cash drawer. Each individual expense must be recorded in your bookkeeping software.
Individual Receipts: Collect physical or digital receipts for every single item purchased with the cash.
Expense Reimbursement Forms: If an employee is given cash for specific purchases, they should provide detailed expense reports or receipts, just as they would for a credit card purchase.
Categorization: Each individual expense should be categorized correctly (e.g., "Office Supplies," "Mileage Reimbursement," "Meals & Entertainment"). This ensures accurate financial reporting and tax preparation.
Step 4: Accurately Enter into Your Accounting System
Finally, translate all this documentation into your accounting software.
Original Check Entry: When you record the original check, ensure the memo or description clearly links back to your detailed documentation from Step 1. Instead of simply "Cash," use the more descriptive notes.
Expense Allocation: If the cash was used for multiple items (e.g., from a petty cash fund), these individual expenses should be entered and categorized separately, offsetting the initial cash withdrawal entry.
Consult Your Bookkeeper: If you're unsure how to properly record a complex cash transaction, consult your professional bookkeeper. They can guide you through the correct entries to maintain accurate financial records.
Let Maureen Oyarzo Bookkeeping Streamline Your Outsourced Bookkeeping
Managing checks made out to cash, along with all your other business financial records, can be time-consuming and complex. That's where Maureen Oyarzo Bookkeeping comes in. We specialize in providing comprehensive outsourced bookkeeping services that bring clarity and efficiency to your financial operations.
Our expertise ensures that every transaction, including those tricky "cash" checks, is meticulously recorded, categorized, and reconciled. We help you establish robust internal controls and implement best practices for financial record keeping, freeing you to focus on growing your business.
From expense management to payroll processing and financial statement preparation, we streamline your entire bookkeeping process, ensuring compliance and providing you with the accurate financial insights you need to make informed decisions.
Don't let the nuances of cash transactions become a burden. Partner with Maureen Oyarzo Bookkeeping for reliable, expert small business bookkeeping solutions. Contact us today to learn how we can simplify your financial life!
