Understanding Deposit Reconciliation


Some of the most common questions we receive relate back to Deposit Reconciliation. In this article, we explain more behind Ceterus’ method of accounting for revenue called the Modified Cash-Basis Accounting. This method is explained below. That being said, there are also other common methods of accounting, listed below.

Methods of Accounting

Cash Basis Accrual Basis Modified Cash-Basis 
Cash basis accounting method results in recognizing revenue when a deposit hits the bank account. Generally speaking, a point-of-sale (POS) transaction today would be recognized as revenue somewhere between one and four days from today due to the delay in deposits (cash or credit card).

What Happens When a New Customer Signs Up with Ceterus?

We always begin the bookkeeping with the first day of the current year.  We also adjust to the Modified Cash-basis of accounting for our new customers.  This oftentimes requires several “true-ups” to ensure everything is accounted for properly.  Almost always, adjustments are made to undeposited funds accounts we utilize (Undeposited Cash, Undeposited Merchant Collections, and Undeposited Amex Collections).  We do this so reported revenue ties to your POS as this is what your franchiser expects.  The adjustments made will have an impact on the profit and loss statement. 

We utilize either non-operating miscellaneous income or expense to balance out the journal entry.  These accounts are used because they do not affect Net Operating Income, which is a key metric business owners should be focusing on when they review their results.  These adjustments are related to prior periods, so they need to be excluded from current period Net Operating Income.  We will dig in on the undeposited funds accounts as we move through our process.

It’s important to remember that every POS report looks slightly different.  Nevertheless, all POS systems should contain a report that summarizes sales for the day, including payment type, sales tax collected and tips collected.  If you need help finding the right report, please request help through Ceterus Support.

Example A: Sample POS Report

Sale Date - 8/3/20 Sales Tax Rate - 6%
Service Sales - $1,000 Product Sales - $500
Tips Collected - $200 Tax Collected - $30
Payment Type: Cash - $100 Payment Type: AMEX - $700
Payment Type: Visa/Mastercard - $930 Total Collected - $1,730

How does this information get into my financial statements?

The answer is one big journal entry.

When looking at your income statement, you should expect the following increases based on Example A:

Service Sales Product Sales
Increase $1,000 Increase $500


The impact on your balance sheet may have you asking "If I collected $1,730 then why don't I see that same amount on my income statement?" The answer is that Sales Tax and Tips are not revenue for the business, nor are the expenses when they are remitted to the state and the employee.

Instead, tips and sales tax show up like this since they are both liability accounts, meaning you owe these amounts to a third party:

Sales Tax Payable Accrued Tips Payable
Increase by $30

In September, you will remit sales tax to your state and this payable amount will be reduced
Increase by $200

When you pay your next payroll, tips will be included and thus this payable amount will be reduced

Where is the cash?

Credit card sales take a couple days to hit the bank accounts. We need to account for this delay. Similarly, cash sales can take time to make it to the bank account if daily deposits are not happening. We strongly encourage you to deposit cash daily to help prevent theft.

To address this delay, we have created three unique accounts for the delay in deposits.

    • Undeposited Cash - Undeposited checks or cash
    • Undeposited Merchant Collections - Undeposited Visa, Mastercard, Discover, or          ACH deposits
    • Undeposited AMEX Collections - Undeposited AMEX Deposits

In most cases your merchant (or credit card) processor will deposit funds in your bank account between one and four days after the sale. At the time, you will see an increase in your bank account and a decrease in the clearing accounts. The same thing will happen when you deposit the cash sales for the day. 

Most circumstances allow you to reconcile revenue to the penny. There are times where this can be more difficult, though. Most notably when the merchant processor takes their fee as part of the deposit (net settlement), versus billing you once a month for their fees (gross settlement).  By tracking these accounts, you have visibility to see if shortfalls occur and need to be addressed.  Feel free to contact your Financial Consultant if you have questions on these balances.

Revenue recognition and associated deposits can seem overwhelming at first. However,  breaking it down into bite size pieces should make it a little easier to digest and understand.

 Related Articles

Accounting for Tips

More Questions? Email Ceterus Support

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