How To Manage and Record Cash Receipts

Learn the correct accounting procedures

Small business owner using tablet while calculating finances
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Cash receipts are the written proof that your business has made a sale. One copy of the cash receipt goes to the customer as proof of buying the product or service, while another copy stays with the business that has made the sale. 

Keeping track of your business’s cash receipts in a timely manner is necessary for efficient financial management. Proper accounting procedures 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. 

Key Takeaways

  • Cash receipts are proof that your business has made a sale. 
  • Cash receipts include receipts for cash sales, sales paid for by check, and purchases on store credit.
  • Cash receipts from cash sales impact the cash account on the balance sheet and the sales account on the profit and loss statement.
  • It’s important to use accounting software and keep the source documents for all your cash receipts as they are required for tax and financial statement purposes.

What Are Cash Receipts?

Cash receipts are proof that your business has made a sale. A cash receipt should be generated whenever you receive cash from an external source and record an increase to your cash account on the balance sheet. This will ensure that your cash flow and ultimately your profit are correct. Cash receipts are also necessary to minimize theft and stop fraud. 

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

  • The date of the transaction
  • The amount of the transaction
  • Description of the service of product
  • The quantity sold
  • The name or company of the payor
  • Whether the payment was made by cash, check, or some other method
  • The signature of the payor
  • An identifying number

A cash receipt is not an invoice. An invoice is a request for payment after goods or services have been exchanged. A cash receipt, on the other hand, is the record that says payment has been received for goods or services and the receipt is the proof of purchase for the buyer.  

When You Need a Cash Receipt

You need to generate a cash receipt when any of the following payment methods are used:

  • Cash 
  • Check
  • Purchase on store credit

Whenever a cash receipt is generated and you have received one of these three forms of payment, you debit your cash account in your cash receipts journal and credit your sales on your profit and loss statement. 

The physical or electronic owner’s copy of the cash receipt is called a source document in the accounting for cash receipts. Source documents are the proof that a sale was actually made and payment received. It should be kept for income tax reporting purposes and to support your financial statements. Source documents are now most conveniently stored online. If you use bookkeeping or accounting software, you can conveniently store one copy with the sale. Another copy should be placed in cloud storage as a backup. 

How To Account for Cash Receipts

Here are the steps in accounting for cash sales and cash receipts. 

1. Make the sale: Make the sale of Product A for $50 paid in cash. Generate a cash receipt.

2. Make the entry in the cash receipts journal: Make the cash receipt accounting entries if you have sold $50 of Product A for cash in the cash receipts journal:

Cash Receipts Journal
Date Account Debit Credit
08/20/2021 Cash Sales $50

3. Make the equal and opposite entry in the sales journal:

Sales Journal
Date Account Debit Credit
08/20/2021 Cash Sales $50

4. Record the cash sale in the expanded cash receipts journal: Make all cash receipt entries chronologically in the expanded cash receipts journal. Here is the format of the expanded cash receipts journal. If your company, ABC, made a sale of a product for $50 in cash, the entry would look like this:

ABC Company Cash Receipts Journal
Date Account Credited Ref Explanation Cash Dr. Sales Discount Dr Accounts Receivable Cr Sales Cr Other
Accounts CR
08/20/2021 Sales 225 Sale Product A $50 $50

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.

What Happens If You Lose Track of Cash Receipts?

If you lose one or more cash sales receipts, it may be difficult to have an accurate balance sheet because the cash account will be incorrect. An inaccurate balance sheet can lead to underestimation of business expenses and inflation of profit and revenue. This can be financially damaging to your business due to potential overspending and overestimating cash flow among other issues.

For tax reporting purposes, the situation can be just as precarious. You need to report all your cash sales to the IRS. If you are missing cash sales receipts, you may understate your sales on your tax return. If you are audited but your sales are stable from month-to-month or year-to-year, here are some options: 

  • Try to estimate your sales. It is safest to overestimate them. 
  • Present canceled checks, debit/credit card statements, photographs of items, or any applicable emails as evidence of transactions. 
  • Seek the counsel of a CPA or tax attorney to avoid any issues with the IRS.  

You should always record a cash receipt in accounting software as it comes in and keep the source documents in a safe, convenient place so they’re easily accessible.

Frequently Asked Questions (FAQs)

How do you write a receipt for a cash payment?

If you are writing out a receipt for a cash payment, include the date, items purchased, quantity of each item, price of each item, total price, type of payment and payment amount, and your business name and contact information.

What is a miscellaneous cash receipt?

A miscellaneous cash receipt is for cash not received in the ordinary course of daily business. Examples would be the proceeds for loan payments, money for increased capital investment, and refunds from vendors.