Chapter 10
Cash Controls
292
Cash transactions
As discussed, any cash that is received must be properly recorded and protected until it is deposited
to the business bank account. Cash transactions in Canada are rounded to the nearest nickel since
the penny was removed in 2013. It is important to note that only cash transactions are rounded;
payments by cheque, debit card or credit card are not rounded. The rounding rules are shown in
Figure 10.2.
round Down
round up
$1.01 or $1.02
$1.00 $1.03 or $1.04
$1.05
$1.06 or $1.07
$1.05 $1.08 or $1.09
$1.10
______________
FIGURE 10.2
All sales should be recorded at the actual amounts calculated and not rounded. Only if cash is
received as payment from the customer should the amount received be rounded to the nearest
nickel.This rounding means that the amount of cash received will not equal the amount of the sale.
To account for this, an account to track the cash over or short should be used.This can be set up as
a revenue (cash is over) or expense (cash is short) account on the income statement.
Instead of recording every cash sale separately and accounting for the rounding, a business may
decide to make a single transaction at the end of the day for all cash sales. This simplifies the
accounting process. In this case, sales amounts would be totalled and only rounded at the very end.
Suppose a business recorded cash sales of $1,425.56 for May 25, 2016.The journal entry in Figure
10.3 shows how to account for rounding to the nearest nickel.
Journal
Page 1
Date
2016
account title and explanation
Debit
Credit
May 25 Cash Over and Short
0.01
Cash
1,425.55
Sales Revenue
1,425.56
To record cash sales
______________
FIGURE 10.3
This journal entry shows the Cash Over and Short amount being used as an expense account. It is
considered to be short when there is less cash collected than the amount of the sale. This expense
account is recorded under the other expenses line item on the income statement. Normally, the
balance for this account is small and would be considered immaterial. However, if the balance is
larger, this would be investigated because it could be material.
