It's absolutely critical that you know what your cash balance is. You should be able to put your hands on this number whenever you need it. By that, I mean you should know your cash balance within two minutes of needing it. It is the only way to ensure you are making good financial decisions each day.
Even the most intelligent and experienced person will fail if he or she is making business decisions using inaccurate or incomplete cash balance information.
There are really just three primary things you absolutely must do no matter what to make sure you maintain an accurate cash balance in your accounting system:
Cash Receipts. Enter the cash receipts shortly after the end of each day. As you receive money in the mail, from credit card sales, and so on, you need to record those transactions in your accounting system in a timely manner.
Vendor Invoices. There are two very important points I'd like to make here. First, enter invoices from your vendors upon receiving them. Don't let them sit around because you don't intend to pay them right away. Get them in the accounting system ASAP.
Second, pay your bills on or before the date they are due. Don't buy into the belief that you are being smart with your money by delaying payment until after the due date.
Develop a reputation with your vendors for paying them on or before the due date. The outstanding reputation you develop with your vendors is worth 10 times more than any interest you may earn by paying your bills late.
Reconcile the Bank Balance. The cash balance needs to be reconciled to the bank balance each month. Reconcile the cash balance to the bank balance promptly and religiously. This is not a task to be neglected or put off.
You should have the reconciliation complete within two to three days of receiving the statement from your bank. It's the perfect way to verify that the cash balance on your books is accurate. It's also the way you verify that the bank has not made any mistakes with your account.
The bottom line is: do today's work today. When you do, you will have the numbers you need when you need them. You will also be confident the balance is accurate.
Problems occur when you, or the person you have in charge of your books, violates this rule. The trouble begins when entering cash receipts is put off or entering invoices is delayed, often with the excuse, "we don't need to enter them today because we won't be paying them for another week or two anyway."
Look at it like doing the dishes at home. Do you (or someone in your family) do the dishes every day or do you let them pile up for days or weeks until you "get around to it"?
You do the dishes each day. It's one of those chores that can be overwhelming if neglected for too long. Doing the dishes every day is the practice of doing today's work today. You do it because the alternative approach is a really bad idea.