Legal re­quire­ments for cash registers

Do you run a company that generates all, or parts of its revenues, from cash trans­ac­tions? If yes, then the cash register records are the basis for your company’s taxes. You should therefore carefully document all business trans­ac­tions to meet the re­quire­ments of the IRS (Internal Revenue Service). It is common for business owners who incur a large number of daily cash receipts and ex­pen­di­tures to use an elec­tron­ic checkout system. A few benefits of using these include:

• Enabling clear, careful reporting
• Fa­cil­i­tat­ing co­op­er­a­tion with the IRS and other financial au­thor­i­ties
• Pro­tect­ing against theft and fraud (par­tic­u­lar­ly from staff)
• Providing in­ter­faces to pro­fes­sion­al mer­chan­dise man­age­ment systems

In principle, cash pro­cess­ing systems are subject to the same recording and retention oblig­a­tions as ac­count­ing systems. This article will tell you what you need to consider when using these systems, as well as how to dif­fer­en­ti­ate between different systems.

In the USA, all business owners are required to keep detailed records of their trans­ac­tions – including cash only busi­ness­es. The most popular method of record­keep­ing continues to be a cash book, while a detailed file con­tain­ing records and receipts is also ac­cept­able. For best practice, it is generally rec­om­mend­ed to keep both. It is in your interest as a business owner to keep records of your trans­ac­tions so that you have any evidence required by the IRS in the event of an audit (quite likely if you are operating a cash business, as many business owners un­der­state their cash earnings to avoid paying high tax rates), as well as assisting in business expense reduction claims. Keeping a record of your trans­ac­tions also extends to your payroll, if you choose to pay your staff in cash.

While is it im­per­a­tive to keep records of all your trans­ac­tions, there is no specific leg­is­la­tion forcing a business owner to keep elec­tron­ic or paper records. The elec­tron­ic records you keep (should you choose to do so) must meet basic record­keep­ing standards.

Each cash report is signed and marked with the date and time (probably after the close of business). The daily result de­ter­mined using the cash report is recorded in the cash book.

Please note: Cash reports and cashbooks created with con­ven­tion­al office software (e.g. Excel) are not always tamper-proof. Ac­count­ing software is only deemed to be valid if sub­se­quent amend­ments are not an option, or are au­to­mat­i­cal­ly annotated by the program.

Elec­tron­ic cash col­lec­tion systems consist of spe­cial­ized recording equipment which records cash receipts and expenses, and issues receipts. In terms of design and operation, there are two primary elec­tron­ic cash register systems: cash registers with print drives and PC cash desks.

• Cash registers with print drives: Typical cash registers have one or two print drives. A dis­tinc­tion must be made between me­chan­i­cal and simple, elec­tron­ic cash registers.
  
  
  • Cash registers which print me­chan­i­cal­ly: Me­chan­i­cal cash registers usually work with two print drives, issuing a paper document for the customer and a con­tin­u­ous roll which has all the entries for the cash register recorded. The till rolls are not supported elec­tron­i­cal­ly.
  
  
  • Simple elec­tron­ic cash registers: Simple, elec­tron­ic cash registers usually have just one print drive. This till roll provides customers with a physical receipt for their purchases. The till roll con­tain­ing the day’s trans­ac­tions meant for the business owner is produced and stored elec­tron­i­cal­ly. At the end of the business day, the cash data recorded can be output using a one-day total. The records stored in the cash register are then usually deleted.

• PC cash registers and computer-based cash registers: Compared to simple elec­tron­ic cash registers, PC cash registers offer a wider range of functions in terms of data col­lec­tion and storage. The use of state-of-the-art PC cash registers is con­sid­er­ably more con­ve­nient, thanks to barcode scanners and touch screens. These are also sometimes self-checkouts. Another big advantage over simple elec­tron­ic cash registers is being able to further process cash data using mer­chan­dise man­age­ment or ac­count­ing systems. Re­stric­tions on certain software products need to be observed when using pro­pri­etary cash dis­pens­ing systems. Computer-based cash registers are available as open and closed systems.
  
  
  • Open systems: The classic PC cash register is an open system, where software and hardware are purchased in­de­pen­dent­ly. Cash register software (standard solution or in­di­vid­ual software) is generally based on a standard operating system like Windows or Linux.
  
  
  • Closed systems: With closed cash registers, hardware and software com­po­nents are offered as a package by the same man­u­fac­tur­er. Business owners can grow dependent on these, but they are helpful as they benefit from a higher level of data security.

Cash register ma­nip­u­la­tion and fraud is becoming more and more frequent. Typically, the risk for business owners is that customers perform fraud­u­lent returns, or that employees steal from the till. A host of cash register software is available today, providing security elements to protect the business owner from fraud­u­lent ac­tiv­i­ties of this nature. However, there has also been an increase in till tampering by busi­ness­es them­selves, often in an attempt to evade tax. The EU has taken steps to combat cash register fraud on a federal level, and Canada has also taken steps to legislate against cash register-specific tampering and created legal standards for elec­tron­ic cash registers. While the US has yet to follow the same leg­isla­tive steps, all cash registers are subject to the same legal book­keep­ing standards, and dis­crep­an­cies found by an IRS audit will be treated with the same severity as any other record tampering.