businessBusiness Coachingbusiness growthconsultantFinanceProcess Improvementsmall-businessHow To Manage And Record Your Cash Receipts

If you are a small to medium sized business owner, you will more than likely receive cash payments from your customers. To ensure that your books and records are accurate, you need to know about recording cash receipts.

Cash receipts are the written proof that your business has made a sale. One copy of the cash receipt is issued to the customer as proof of purchase, while another copy stays with the business that has made the sale.

Consistently tracking and monitoring your business’s cash receipts is a necessary component for efficient financial management. Proper accounting practices for cash receipts allow you to maintain adequate records for financial statement development and income tax preparation, so it’s critical to learn how these receipts work and how to manage them.

Keep reading to get a private review about managing and recording cash receipts in your small business.

What Are Cash Receipts?

Proof that your business has made a sale, you record cash receipts when you receive cash from an outside source, such as a customer/client, investor, or bank. When you collect money from a customer or client, you must properly record the transaction and reflect the sale on your balance sheet. When you collect money from a customer, the cash increases (debits) your balance sheet.

This practice not only ensures accuracy in your cash flow and profit, it minimizes theft and helps to prevent fraud.

In order to qualify as a cash receipt, certain information must be present on the printed receipt:

• Date of transaction
• Amount of transaction
• Description of product/service
• Number sold
• Company name
• Whether the payment was made by cash, check, or some other method
• Payor signature
• An identifying number

When You Need A Cash Receipt

It is your responsibility to record a cash receipt when a cash, check, or purchase on store credit sale is made.

Each time a cash receipt is created and you have received one of these three forms of payment, you

1. Debit your cash account in your cash receipts journal
2. Credit your sales on your profit and loss statement

The physical or digital owner’s copy of the cash receipt is referred to as a source document in the accounting for cash receipts. Source documents are the proof that a sale was actually made and a payment was received in return.

It should be kept for income tax reporting purposes and to support your financial statements.

Steps In Accounting For Cash Receipts

1. Make a cash sale

Evidently, before you can record cash receipts, you need to first make a cash sale. When making a cash sale, be sure to save all receipts as they provide proof that the sale took place.

Sales receipts typically include things like:

• Customer’s name
• Date of Sale
• Itemization of the products or services sold, price for each item, total sale amount, and sales tax (if applicable)

2. Record the cash receipt transaction in the cash receipts journal:

Your cash receipts journal should show a chronological record of your cash transactions. Using your sales receipts, record each cash transaction in your cash receipts journal.

Do not record the sales tax you collected in the cash receipts journal. You must record this in the sales journal instead.

3. Create the sales entry

Record your cash sales in your sales journal as a credit and in your cash receipts journal as a debit. Keep in mind that your entries will vary if you offer store credit or if customers use a combination of payment methods.

Cash sale
Say your business makes a cash sale of $100. Because you have already received the cash at the point of sale, you can record it in your books. Again, you must record a debit in your cash receipts journal and a credit in your sales journal.

Combination of cash and credit
When customers pay with a mixture of payment methods, you need to account for it. When this occurs, you must debit and credit various accounts.

Record any cash payments as a debit in your cash receipts journal like usual. Then, debit the customer’s accounts receivable account for any purchase made on credit. In your sales journal, record the total credit entry.

Record any cash payments as a debit in your cash receipts journal like usual. Then, debit the customer’s accounts receivable account for any purchase made on credit. In your sales journal, record the total credit entry.

Explanation of Column Headings

Date: The date on which the cash is received for the sale.
Account Credited: The name of the account credited as a result of the cash sale.
Reference: The number of the account in the chart of accounts to which the entry belongs.
Explanation: A brief explanation of the sale.
Cash Dr: The amount of the cash sale debited to the cash account.
Sales Discount Dr: The amount of any sales discount offered to the customer.
Accts Receivable Cr: The column used for credit sales.
Sales Cr: The offsetting entry to Sale Revenue for this sale.
Other Accts Cr: Any transaction that yields cash but occurs fewer times per accounting period like the sale of fixed assets.

While accounting practices and accurate bookkeeping in your company is critical, it comes with a weighted learning curve. And if you can’t afford to have an internal team dedicated to your financials, you may feel that your options are extremely limited, however, we are here to show you this is not the case. If you would like to create a customized process for your business accounting, reach out as our MCDA CCG experts are more than happy to help.

MCDA CCG has years of experience providing personalized accounting, bookkeeping and CFO services to businesses in many industries. If costs are your first concern, know that many of our clients are amazed when they see how much they can save with our attentive service while synchronously benefiting their business performance.

As the year rapidly draws to a close, ensure that your books are in top shape and that you are prepared for the upcoming tax season.

We are here as your financial team, give our office headquarters in Placentia, Orange County, California a call today!

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