Cash is a company's most liquid asset. It's essential for paying bills and taking advantage of financial opportunities. Companies receive cash from a variety of sources, including payments from customers, dividends on investments and sales of equipment and supplies, among many other sources. Most companies' cash accounts experience numerous transactions throughout the accounting period. They record detailed information regarding these transactions in the cash ledger.
Companies use both a general ledger and subsidiary ledgers to track the company’s financial transactions. The general ledger contains account information for every account a company uses. Subsidiary ledgers provide detailed information on specific accounts. A cash ledger represents one type of subsidiary ledger. A cash ledger records detailed information for separate cash accounts. These accounts may be separated based on individual bank accounts or based on individual locations.
Some companies maintain several bank accounts. Each bank account may be used to control specific functions within the company. Many companies, for example, use one bank account strictly for payroll, issuing all payroll items from it and depositing sufficient funds periodically to cover all items issued. A cash ledger maintains a separate transaction listing and a running balance for each individual bank account. Whenever the company issues payment from -- or makes a deposit into -- a particular account, it records that payment in the corresponding cash ledger account.
Some companies maintain separate cash accounts for individual company locations. Each cash account is used to control specific cash transactions applicable to a particular location. The cash ledger maintains a separate transaction listing and a running balance for each location. Whenever a location issues a payment or records a deposit, the transaction is recorded in the corresponding ledger account.
The sum of all cash ledger account balances needs to equal the total cash balance recorded in the company’s general ledger. At the end of the month, the company reviews each cash ledger account and reconciles the balance from the account to the backup documentation, which includes such things as bank statements, deposit slips and canceled checks. After reconciling each cash ledger account, the company totals the balances of all cash accounts and compares this total to the primary cash account balance. Any discrepancies must be investigated.
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