A cash receipt is a document that certifies the receipt of money from an external source, such as a debtor, a bank, or a third party. If you get cash or cash equivalent in a transaction, a cash receipt is a printed acknowledgement of that amount. Cash receipts are handed to customers in original form, with a second copy maintained by the seller as a record. If you're selling something for cash, you'll need a cash receipt, a printed or written explanation of how much you received from the customer. Read on to know all the relevant details about a cash receipt and cash receipt format, along with its benefits and examples in business transactions.
When is a cash receipt issued?
When a vendor accepts cash or cash equivalent from an external source, such as a bank, client, or investor, the vendor generates a cash receipt. Cash equivalents are liquid assets, i.e., assets that can be easily converted into cash and found in the balance sheet of a business.
In most cases, cash is acknowledged when a customer's account receivable balance is lowered due to a credit sale transaction that generated an outstanding balance. It can also be viewed as a gathering of money that raises a company's cash and cash equivalent balance.
Need for a cash receipt
To accomplish tasks such as managing investors, inventory, debtors, customers, etc., a business entity (small or big) relies heavily on cash. To check and display the genuine picture of the firm, it is vital to keep a cash record. Receipts and payments are the two main components of a cash transaction in the business.
Cash receipts are receipts from banks, debtors, etc. Businesses create official documents called cash receipts to record each cash received. Fraud and other scams become more likely when cash is a key mode of transaction in a business. It is, therefore, crucial to keep records in the form of cash receipts. Companies have their own set of rules regarding cash receipts. Some people like thorough records, while others prefer summaries of their transactions.
Increase or debit your cash balance when documenting cash receipts. Cash receipts help in recording the amount of money owed (accounts receivable balance) from the sale. As a seller, you're responsible for recording the cash receipt for any sales you've made in cash. Cash sales include the following payment methods:
- Purchases on store credit
The Cash Receipts Journal is the place to keep track of all cash transactions. If you have a sales journal or accounts payable ledger, enter the cash transaction there.
Characteristics of Cash Receipt
A cash receipt has the following characteristics:
- Receipts are used as proof of cash received for a variety of reasons.
- A cash receipt is a legally binding document.
- We create cash receipts to keep track of funds and prevent deflections and other misappropriations.
- If a company uses cash receipts to record the cash transactions, any theft of cash or misappropriation can be easily identified.
Cash Receipt Format
The following information is printed on cash receipts:
- The date of receipt, as well as the recipient organisation's name
- A pre-printed unique serial number
- Payer’s name and the name of business/company of the payer
- The reason for receiving cash, such as whether it is for sales or a loan, with details (this is to keep track of cash records)
- The receiver's signature, indicating that an authorized individual is receiving the cash.
- Whether cash, online transfer, or cheque, the mode of payment must be noted on the cash receipt voucher.
Also Read: Sundry Creditors - Meaning & Example
Example of Cash Receipt
Assume a person has opened a chemist shop in the neighbourhood. A chemist sells medicines with the expectation of receiving the money at the time of transaction. The chemist does not offer credit to his customers. The sale is recorded as cash received immediately. In the book of accounts: debit the cash account, credit the sales account.
In this example, the chemist sells medicines to customers as per their requirements in exchange for a cash payment from the customer, and the chemist subsequently issues a cash receipt to the customer.
- ABC & Co. sold goods to Mr X amounting to Rs 10000. Mr X didn’t make an immediate payment for the goods. He promised to pay the bill after 2 months. ABC & Co. noted the sales to Mr X in their records and marked Mr X as a debtor.
- After 2 months, ABC & Co’s executive approached Mr X asking for Rs 10000 against the pending bill in cash. He presented the invoice/bill to Mr X.
- After verifying the invoice, Mr X clears the pending payment of Rs 10000 and issues a cash payment receipt.
- Mr X signs the receipt and gets it signed by the executive who had come to collect the payment on ABC & Co’s behalf. The cash receipt voucher is also issued by the executive as confirmation of clearance of Mr X’s debt.
In this example, ABC & Co would not record the receipt immediately after selling the goods. Instead, they would report the selling transaction in the income statement and record a receivable balance in the balance sheet that is due in 60 days (in the books of accounts: debit the receivable account, credit the sales account).
The receipt will be issued only after the actual payment is received in the form of cash or cheque. The outstanding receivable balance would be reduced, and the cash balance would be increased in that instance (in the books of accounts: debit the cash account, credit the receivable account).
What is receipt in accounting?
With this newfound knowledge, it's time to learn about cash receipt meaning in accounting. You can account for cash receipts in your business books by following these steps:
1. A cash purchase
The first thing to do is make a cash sale before you can report cash receipts. Remember to save all receipts if you're selling something for cash. The sales receipts serve as documentation that a sale was made and that payment was received. As a rule of thumb, sales receipts should include information such as a customer's name and contact information and a breakdown of what was sold and at what price (if applicable).
You should include the cheque number on the sales receipt if you accept the cheque as payment. Business receipts should be recorded/stored to ensure that your books are as correct as possible (e.g., filing cabinets or computers).
2. Maintain cash receipt records
In your cash receipts journal, you should keep a chronological record of all of your cash receipts and payments. Each cash transaction should be recorded in your cash receipts journal using your cash receipts. The sales tax you collect should not be recorded in the cash receipts journal. You should enter this information in the sales journal.
3. Making a sales entry
Cash sales should be recorded as a credit in your sales journal and a debit in your cash journal. It's important to note that entries will differ if you give shop credit or if your clients pay with a combination of credit and cash.
Cash Receipts Process
The cash receipts process must be in place to maintain your accounts accurately. With this method, you'll be able to keep track of your overall cash receipts, avoid accounting mistakes, and record transactions appropriately.
As an example, your cash receipts process should look like this:
- Sorting and organising business receipts
- Making a note of the amount of cash and cheques.
- Keeping track of additional incoming cash (if applicable)
- Making cash deposits
A customer may send you a cheque or cash payment at some point in the future. To record this information, you'll need to create a separate journal entry. The impact of these payments on customer invoicing and shop credit must be tracked.
Advantages of Cash Receipt
Cash receipt has the following advantages:
- It serves as proof of purchase and establishes the ownership of a product.
- Cash receipt vouchers are legally binding documents.
- It is easier to keep track of payments received or done for business transactions with a cash receipt.
- In the event of an exchange or return, a cash receipt is helpful to a customer.
- When a vendor has to deal with product warranty claims from customers, it can be beneficial.
- Cash payment vouchers can be used to track deflections when they are issued.
- If there are any irregularities, the payer can be readily tracked down as the details are mentioned on the cash receipt.
- When a cash receipt is issued, the issuer must keep accurate records, reducing the chances of theft or misappropriation.
- All businesses maintain cash receipts as one of their primary records.
- A cash receipt makes it easier to keep track of the business transactions and determine its remaining receivable or payable balance.
- A company's operations are constrained by budgets, which are often used in the business world. As a result of using actual cash receipts and cash payments, managers who overspend capital are held to a stricter standard. Because actual cash balances are allotted to a department, the budget normally leaves no space for excess.
- Cash receipts and disbursements can be used to improve profitability by increasing control over cash received and disbursements.
- At any moment, cash receipts can be used to verify the amount of cash with the business.
- In addition, a cash receipt is significant since one of the key reasons for an audit is the lack of paperwork (such as cash receipts) to prove that a transaction occurred.
Therefore, having cash receipts and filing them properly will reduce the risk of auditing. The accounting records are incomplete and potentially risky without cash receipts.
Today, most businesses are using modern accounting software that allows for both cash receipt generation and credit sales tracking. That way, they'll know exactly which bills have been paid and which ones are still pending. A cash receipt voucher does not illustrate a distinction between revenue and capital spending. Non-cash transactions are also not recorded. The position of cash may be easily tracked with the help of cash vouchers, whether they are receipts or payments. Cash receipts vary from one entity to the next in terms of the format. The easier it is to track and trace, the clearer and unambiguous the format. We hope through this article, you have understood the relevance of cash receipts for a business entity. Develop and maintain your cash receipt voucher through the aid of the Biz Analyst application. It also helps ensure business growth, make data entry and analysis of sales, and send payment reminders.