Cash Receipts- Definition, Examples and Journal
The word receipt probably brings up images of the little crinkled pieces of paper that linger in your pocket or bag days or even months after a purchase, but that’s not the full story. Cash receipts, in accounting and for businesses, means something completely different, and can be a critical part of keeping track of business. Let’s find out more!
Cash Receipt Definition
A cash receipt is a printed acknowledgement of receivement of, in this case, cash payment from an external source, like a customer, bank or investor. Two copies are made, one for the customer, and one for the merchant. In many cases digital copies are saved into a database for the merchant to keep record of all transactions.
Furthermore, the cash receipt, which represents the transaction, is recorded on the balance sheet. In the balance sheet the transaction is recorded on the debit side.
A cash transaction can mean three types of payment:
- Cash
- Check
- Or Store Credit, if you own and run a store
Examples
There could be many scenarios where you have to deal with cash receipts, so let’s run through a couple hypothetical to give you a better idea.
Example 1
The first example is the most commonly known one. A customer walks into a clothing store, sees a piece of clothing that they like, and buys it. When the customer gives the cashier the money they get a paper receipt, which on the balance sheet results in a debit in the cash account and a credit on the sales account.
Pretty easy, right?
Example 2
Let’s look at a bit more complicated example. Take a supplier that has a long-standing relationship with a manufacturer. The manufacturer orders a large supply of raw materials in order to make a certain product, as stated before they have a long-standing relationship and the supplier knows the manufacturer will pay. So when the supplier ships the manufacturer the raw materials, they record a transaction, but not a receipt. This would be noted as a sales transaction on the income statement, and an accounts receivable to be received in 30 days, or a given period, on the balance sheet. The receipt would only be issued when the payment is received, normally when the manufacturer gets the raw materials. Then that would be recorded as a credit of the accounts receivable and a debit to the cash account.
Still pretty easy, right?
Cash Receipt Journal
Similar, but not the same as a balance sheet or income statement, a cash receipt journal is used to record only cash transactions. It can be very useful for businesses that have a lot of credit and cash payments and need to be able to organize them. It’s especially useful in distinguishing between receipts of cash from credit customers, like Example 2, and just normal cash transactions like Example 1.
Cash Receipts- More Than You Think
As we laid out here, cash receipts can play an important role in a business. They lay out a huge part of your transactions and can really help your business stay organized, and even comply with local regulations on bookkeeping. Keeping track of what’s coming into your business is extremely important.
So tell us, what are you doing to keep track of your cash receipts?