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Jun 08
cash rereipts

What are the procedures for cash receipts in bookkeeping?

Nowadays, it’s not unusual for businesses to make transactions solely with the use of credit cards, debit cards, and bank checks. While these payment methods make it easier for you to monitor transactions as you will have records in your bank account, there will be times when you have to use cash receipts if you purchase or when your clients make payments using cash.

If you think you haven’t done a good job tracking cash transactions previously, this is the time to fix that. In this article, we’ll talk about cash receipts, why it’s important for your business, as well as the procedures for cash receipts in bookkeeping.

What are cash receipts?

Cash receipts are documents that provide proof that a business, for example, has made a sale. A cash receipt can either be printed, handwritten, or digital. They don’t necessarily contain the details that are found on receipts from huge establishments, but some of the information that is in a cash receipt include:

  • Date of sale
  • Customer’s name
  • Amount of cash received
  • Itemized products/services sold
  • Payment method (either cash, check, or store credit)
  • Signature of person who received payment

Note that a cash receipt is not the same as an invoice. An invoice is something you (or a seller) issue to a client to request the payment for the goods/services that are provided to them. On the other hand, a cash receipt is a record stating that a payment has been received for the said goods/services, where the receipt is the buyer’s proof of purchase.

To better understand how cash receipts work, here are some examples.

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Example #1 (Sale Transaction)

Annie has a small business where she sells handcrafted beaded jewelry online. However, every weekend she joins a farmer’s market where she sells bracelets at $4.50 each. Her business model is pretty much straightforward. Every time a customer wants to buy her products from the market, it is expected for the buyer to immediately pay Annie with cash. In this example, each bracelet that Annie sells generates a $4.50 cash receipt, which she will issue to her customer.

Example no. 2 (Purchase Transaction)

Cash receipts are not only useful when you make sales and the client pays you with cash, but it also applies when you pay for supplies from a cash-only vendor.

Let’s use Annie’s business as an example again. To produce her handcrafted items, Annie has to buy supplies from local vendors, who only accept cash payments. Each time Annie places an order and pays in cash, she should get a cash receipt to keep a record of what she spent on her supplies. It’s crucial that she does this as it will help her when she is reconciling her records or when it’s time to file her taxes.

What is the procedure for managing cash receipts in bookkeeping?

Like we always say, keeping your books updated and filing accurate taxes start with closely monitoring every financial transaction that takes place in and out of your business. Cash receipts help make this possible as they serve as a record that your company has received payment for the goods/services you provided to your clients.

If you’re a seller, you can follow this procedure when using cash receipts:

Step 1: Generate a cash transaction first. Obviously, for you to issue cash receipts, your company should make a sale where your client wishes to pay you with cash.

Step 2: The next step for you to do is to make a cash receipt. When a cash transaction occurs, you can either create the cash receipt on your sales system or if you don’t have one, create it by hand. Even if you’re a micro or small business, you can consider issuing cash receipts that are branded or printed to make your company look more professional.

Make sure to include in the cash receipt the information that we mentioned above. If, however, you accept checks and the customer pays you with one, make sure to include the check number on the cash receipt so that you keep your records as accurate as possible.

Provide a copy of the cash receipt and keep one for yourself.  Note it’s vital that you keep all the receipts on every cash sale that you make.

Step 3: If you have to do things manually (if you’re not creating a cash receipt on your sales system), record the cash receipts by entering them in your cash receipt journal and then onto your bookkeeping or accounting system.

Important note: Do not include in the cash receipts journal the sales tax you collected. Instead, record this in the sales journal.

Step 4: Finally, you have to deposit into your bank the cash payments you received. You have to ensure that the amount on your bank deposit slip will match the amount on your cash receipts journal. As with other financial documents for your business, make sure you keep your bank slips so that you have a record in case there will be discrepancies.

How do you manage a cash receipt journal?

If you generate a number of cash transactions each day, it will be difficult for you to track and manage these sales if you don’t keep them recorded in a document – this is where a cash receipts journal comes in handy. A cash receipts journal is often a physical document where you can monitor cash transactions in one place. Keeping this file will also make your life easier when it’s time to input these transactions into your accounting or bookkeeping system.

When you add to your cash receipts journal, make sure that you record the transactions chronologically. You can then record the cash sales in your sales journal as a credit and then in your cash receipts journal as debit.

Cash Receipts Journal

Date Account Debit Credit
Mar 23, 2022Cash Sales$200

Sales Journal

Date Account Debit Credit
Mar 23, 2022Cash Sales$200

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    What are the benefits of tracking cash receipts?

    Although tracking cash receipts will be an additional task and will take some time, the benefits of having and monitoring them make it worth it.

    • Keep your accounting records accurate –  Keeping and monitoring cash receipts will help ensure that your financial accounts remain accurate. When your books are correct, you will file the correct taxes, and importantly, you can make better business decisions based on numbers.

     

    • There is proof of sale – Another benefit of keeping cash receipts is that you have proof of sale. If there is a customer who is looking for a refund, a record of their previous purchase can help in this situation.

     

    • Useful during an audit  – If your business gets on the radar of the IRS, you’ll be more confident to undergo an audit when you have proper records with you, including your cash transactions. These will be your proof that you filed the correct taxes.

    Need help with your books?

    Are you too busy staying on top of other areas in the business including the accounting side of things? We can help!

    At Akuracy, we will make sure that every dollar (both cash and other types of transactions) that goes in and out of the business will be accounted for in your records.

    Book a free 30 minute consultation with a bookkeeper today!

    When you sign up with us, you will be assigned a dedicated bookkeeper who is responsible for your books. S/he will be your go-to person if you have questions or concerns about your numbers.

    Our team of professional bookkeeping will take care so your financial records so you can focus on running your business.

    If you’re curious to know how we can help, get in touch with us today.

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