If you’re a small business owner, you’re likely to receive cash payments from your customers for delivering products or services. And if you receive cash payments, you need to record cash receipts in your books using a journal entry on your general ledger in your accounting records. So, how to do that?
Read on to learn more about cash receipts accounting. We’ll show you how to manage and record cash recipes in your small business to ensure your books are accurate.
What is a cash receipt?
A cash receipt is documented record of the account of cash received in the cash sale transaction. A copy of this receipt is given to the customers and another copy is retained for accounting purposes of a business.
While cash receipts can be computer printed, handwritten, or digital, an office record has to contain key transaction information as follows:
The date of the transaction
Who was involved
The amount of cash received
The details of what was purchased
How to manage a cash receipt journal
Cash receipt journals are bookkeeping tasks that record all of your incoming cash in your journal. This cash receipts accounting step allows you to manage all cash inflows for your business. Use the steps below to properly manage and record cash receipts in your small business:
Step 1: Keep all cash receipts organized
Before you can record cash receipts, you need to keep all receipts whenever you make cash sales. The sales standard sales receipts that contain key information as mentioned above, provide proof that the sale took place.
To make sure your books are as accurate as possible, make sure you organize sale recipes using a storage system.
Step 2: Record the cash receipt transaction
Your cash receipts journal should be recorded chronologically. Remember not to record the sales tax collected in the cash receipts journal. Instead, record this in the sales journal.
Step 3: Create the sale entry
Cash receipts are recorded in your sales journal as credit and your cash receipts as a debit.
Cash receipts journal entry examples
Let’s take a look at a couple of examples of cash receipts journals. To make sure you have cash receipt accounting down pat, check out the example below. Say you make a cash sale of $1000, you must record a debit in your cash receipts and a credit in your sales journal.
Cash receipts journal
Benefits of tracking cash receipts
While managing and tracking cash receipts takes some effort, there’s a bit of payoff:
Reduce the time it takes for a business to determine how much income was collected from customers
Make it easier for a business to accurately track every dollar that goes in and out of your company
Provide the document to complete accounting records
Become important for an audit since cash receipts support the existence of the transaction. Keeping cash receipts will avoid the risk of audit issues and avoid risky issues in the long run.
Useful for a vendor when they have to entertain product warranty claims from customers.
In reality, most businesses today are using accounting software to not only generate cash receipts but also link to credit sales with cash receipt transactions. This way, the business owners are always on top of bills that are paid and ones that are still outstanding.