Publication 583 - Sample Record System
This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small
automobile body shop. Henry uses part-time help, has no inventory of items held for sale, and uses the cash
method of accounting.
These sample records should not be viewed as a recommendation of how to keep your records. They are intended
only to show how one business keeps its records.
1. Daily Summary of Cash Receipts
This summary is a record of cash sales for the day. It accounts for cash at the end of the day over the amount in
the Change and Petty Cash Fund at the beginning of the day.
Henry takes the cash sales entry from his cash register tape. If he had no cash register, he would simply total his
cash sale slips and any other cash received that day.
He carries the total receipts shown in this summary for January 3 ($267.80), including cash sales ($263.60) and
sales tax ($4.20), to the Monthly Summary of Cash Receipts.
Petty cash fund. Henry uses a petty cash fund to make small payments without having to write checks for small
amounts. Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his
receipt as proof of payment. He sets up a fixed amount ($50) in his petty cash fund. The total of the unspent petty
cash and the amounts on the petty cash slips should equal the fixed amount of the fund. When the totals on the
petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a
check to “Petty Cash” for the total of the outstanding slips. (See the Check Disbursements Journal entry for check
number 92.) This restores the fund to its fixed amount of $50. He then summarizes the slips and enters them in the
proper columns in the monthly check disbursements journal.
2. Monthly Summary of Cash Receipts
This shows the income activity for the month. Henry carries the total monthly net sales shown in this summary for
January ($4,865.05) to his Annual Summary.
To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his
customers and turned over to the state. He cannot take a deduction for sales tax turned over to the state because
he only collected the tax. He does not include the tax in his income.
3. Check Disbursements Journal
Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. All
checks are prenumbered and each check number is listed and accounted for in the column provided in the journal.
Frequent expenses have their own headings across the sheet. He enters in a separate column expenses that
require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Under
the General Accounts column, he enters small expenses that normally have only one or two monthly payments,
such as licenses and postage.
Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. If he did, he
would record them in the journal, even though he could not deduct them as business expenses.
Henry carries the January total of expenses for materials ($1,083.50) to the Annual Summary. Similarly, he enters
the monthly total of expenses for telephone, truck/auto, etc., in the appropriate columns of that summary.
4. Employee Compensation Record
This record shows the following information.
- The number of hours Henry's employee worked in a pay period.
- The employee's total pay for the period.
- The deductions Henry withheld in figuring the employee's net pay.
- The monthly gross payroll.
Henry carries the January gross payroll ($520) to the Annual Summary.
5. Annual Summary
This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's
tax return. He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary
of Cash Receipts. He figures the expense totals from the totals of monthly expense items shown in the Check
Disbursements Journal. As in the journal, he keeps each major expense in a separate column.
Henry carries the cash receipts total shown in the annual summary ($47,440.95) to Part I of Schedule C (not
illustrated). He carries the total for materials ($10,001.00) to Part II of Schedule C.
A business that keeps materials and supplies on hand generally must complete the inventory lines in Part III of
Schedule C. However, there are no inventories of materials and supplies in this example. Henry buys parts and
supplies on a per-job basis; he does not keep them on hand.
Henry enters annual totals for interest, rent, taxes, and wages on the appropriate lines in Part II of Schedule C. The
total for taxes and licenses includes the employer's share of social security and Medicare taxes, and the business
license fee. He enters the total of other annual business expenses on the “Other expenses” line of Schedule C.
6. Depreciation Worksheet
This worksheet shows the information used in figuring the depreciation allowed on assets used in Henry's
business. Henry figures the depreciation using the modified accelerated cost recovery system (MACRS). He
purchased and placed in service several used assets that do not qualify for the section 179 deduction or the
special depreciation allowance. Depreciation, the section 179 deduction, and the special depreciation allowance
are discussed in Publication 946. Henry uses the information in the worksheet to complete Form 4562,
Depreciation and Amortization (not illustrated).
7. Bank Reconciliation
Henry reconciles his checkbook with his bank statement and prepares a bank reconciliation for January as follows.
1. Henry begins by entering his bank statement balance.
2. Henry compares the deposits listed on the bank statement with deposits shown in his checkbook. Two deposits
shown in his checkbook— $701.33 and $516.08—were not on his bank statement. He enters these two amounts
on the bank reconciliation. He adds them to the bank statement balance of $1,458.12 to arrive at a subtotal of
3. After comparing each canceled check with his checkbook, Henry found four outstanding checks totaling
$526.50. He subtracts this amount from the subtotal in (2). The result of $2,149.03 is the adjusted bank statement
4. Henry enters his checkbook balance on the bank reconciliation.
5. Henry discovered that he mistakenly entered a deposit of $600.40 in his checkbook as $594.40. He adds the
difference ($6.00) to the checkbook balance of $2,153.03. There was a $10.00 bank service charge on his bank
statement that he subtracts from the checkbook balance. The result is the adjusted checkbook balance of
$2,149.03. This equals his adjusted bank statement balance computed in (3).
The only book adjustment Henry needs to make is to the Check Disbursements Journal for the $10 bank service
charge. He does not need to adjust the Monthly Summary of Cash Receipts because he correctly entered the
January 8 deposit of $600.40 in that record.
Daily summary cash receipts
1. Daily Summary of Cash Receipts. Summary: This is an example of the daily summary of cash receipts as
pertains to the sample in the text. It states:
Date: January 3, 20--
Cash sales: 263.60
Sales tax: 4.20
TOTAL RECEIPTS: 267.80
Cash on hand
Cash in register (including unspent petty cash)
TOTAL CASH IN REGISTER: 300.80
Add: Petty cash slips: 17.00
TOTAL CASH: 317.80
Less: Change and petty cash
Petty cash slips: 17.00
Coins and bills (unspent petty cash): 33.00
TOTAL CHANGE AND PETTY CASH FUND: 50.00
TOTAL CASH RECEIPTS: 267.80
2. Monthly Summary of Cash Receipts
3. Check Disbursements Journal
3. Check Disbursements Journal (Continued)
Employee compensation record, annual summary, and depreciation worksheet
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