Bank and Petty Cash: The Cycles That Make or Break Your Month-End

21 Jun

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When financial statements go off track, the problem often starts with the bank and petty cash balances. These areas appear simple at first glance, but they are where many practices lose control. The risks are high, particularly because these are the most liquid assets in the business. When cash is not handled carefully, mistakes and fraud follow close behind.

If you are responsible for cashbook entries, reconciliations, or petty cash, then you are not just doing data entry. You are directly influencing whether the business stays compliant, audit-ready, and financially sound.

Cash is the Frontline of Financial Control

Every financial transaction in a business ultimately touches cash. That includes EFTs, card payments, petty expenses, loans, capital injections, and supplier settlements. The bank and petty cash cycle is not just about routine tasks. It is about ensuring financial information is reliable, traceable, and legally defensible.

You are not just recording numbers. You are building a financial system that protects the business and supports decision-making.

Understanding the Cycle and Where It Can Go Wrong

The cycle includes the inflow and outflow of funds, recording in the appropriate ledgers, and reconciling the books with actual bank activity. It covers:

Cash receipts such as customer EFTs, loan proceeds, and owner contributions
Cash payments including supplier invoices, wages, and asset purchases
Petty cash usage for small expenses like parking and refreshments
Bank transactions like EFTs, debit orders, and deposits
Reconciliations that verify completeness and correctness
Internal controls that prevent misuse and detect fraud

Problems arise when bookkeepers do not record transactions promptly, fail to reconcile monthly, or work without source documents. These issues may seem minor until SARS or your auditor starts asking questions.

Petty Cash Must Be Treated Like Real Money

Petty cash is often viewed as informal, yet it is a frequent source of error and misuse. The imprest system remains the gold standard for managing petty cash. A fixed float is issued and only replenished once receipts and vouchers support the amount spent.

Key controls include the following:

A single named custodian who takes full responsibility
Secure storage in a locked location
Use of pre-numbered vouchers for every transaction
Original, itemised receipts attached to each voucher
Regular reconciliations, typically monthly or when replenishing
No advance payments and no personal use

You must always ensure that the sum of cash on hand and approved vouchers equals the original float. If it does not, there is a problem.

Bank Reconciliation Proves Accuracy

Bank reconciliation is a vital internal control and should be done every month. It confirms that the business’s records reflect reality. If the cashbook and the bank statement do not agree, then something has been missed, duplicated, or entered incorrectly.

A proper reconciliation process includes:

Obtaining the latest bank statement and the matching cashbook
Comparing all transactions line by line
Identifying outstanding items such as uncleared deposits
Recording bank-only entries such as fees, interest, or debit orders
Investigating and correcting all discrepancies
Reconciling the closing balances
Documenting and filing the reconciliation with supporting documents

Common errors include duplicate entries, incorrect values, date mismatches, or carrying unresolved items for months. These mistakes compromise audit readiness and financial credibility.

Source Documents Are Non-Negotiable

Every entry in the cashbook must have a supporting document. This includes deposit slips, EFT confirmations, vouchers, receipts, and payment approvals. Without these, transactions can be challenged during audit or SARS reviews.

Good bookkeeping relies on traceability. If you cannot explain where the money came from or where it went, your financial records are incomplete.

Controls That Actually Prevent Problems

The following internal controls are not optional. They are essential:

Dual authorisation for all payments
Segregation of duties so that no one person prepares, authorises, and records the same transaction
Daily banking to reduce the risk of cash loss
EFT limits and user restrictions in online banking systems
Surprise petty cash counts to ensure compliance

Without these, even a well-meaning employee can introduce risk. Fraud is not always intentional at first. It often starts small and grows in silence.

Recognise and Respond to Fraud Risk

Bank and petty cash cycles are frequent targets for fraud. Common schemes include fake vouchers, duplicated payments, payments to fictitious suppliers, and EFT redirection scams.

Warning signs include vague voucher descriptions, repeated use of round numbers, staff who resist taking leave, and long-standing reconciling items with no follow-up. These are red flags. Bookkeepers are in the best position to detect and act early.

IFRS for SMEs: What You Must Know

Sections 2 and 7 of the IFRS for SMEs standard explain how to treat cash correctly. Recognition must only happen when the entity controls the cash and can measure it reliably. Cash should be measured at face value. Petty cash and bank balances must be presented separately on the statement of financial position.

The statement of cash flows is required unless the entity qualifies for exemption. This report must focus on actual cash movement. Non-cash items such as depreciation or accruals are excluded. Any restrictions on cash, such as pledged accounts, must be disclosed.

What a Clean Month-End Looks Like

Your month-end process should include:

Completing all cashbook entries with matching documents
Performing bank reconciliations with valid explanations for every difference
Replenishing and reconciling petty cash
Clearing or flagging outstanding items
Documenting who holds floats and who has access to EFT platforms
Filing all source documents in an accessible, organised format

This is not about compliance for its own sake. It is about preparing accurate financial reports, staying audit-ready, and avoiding year-end chaos.

Final Thought: It Starts with You

Cash is not just another item on the balance sheet. It is the most exposed asset and the easiest to manipulate. That is why the people who manage cash carry enormous responsibility. When you keep your bank and petty cash cycles clean, you protect the entire financial system.

Good bookkeeping builds trust. It keeps the business safe. And it shows that you take your role seriously.

Join CIBA CPD here Every Cent Counts: Mastering Bank and Petty Cash Recons the Right Way

💰 Every Cent Counts – and So Should Your Recons

If you’ve ever found yourself struggling with missing transactions, confusing bank balances, or petty cash that just doesn’t add up, this session is for you.

“Every Cent Counts: Mastering Bank and Petty Cash Recons the Right Way” is now available on demand. Perfect for junior bookkeepers, admin staff, or anyone needing to sharpen their monthly close process, this recorded webinar walks you through the full cycle—clearly, practically, and with tools you can use right away.

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Reconcile bank statements with confidence
Fix common errors and timing issues
Manage petty cash without chaos
Spot warning signs of fraud early
Use checklists and templates that make month-end easier

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