What is a Cash Receipt? [A Complete Guide]

Cash receipts are the sums of all the cash that you receive from your clients. These could be generated by sales or payment collections and raise the cash balance recorded on a company’s balance sheet.

At times, understanding the concept of cash receipts can be tricky. People who work in professions that don’t involve handling actual money will find this to be particularly true.

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What Does Cash Receipt Means?

A printed acknowledgment of cash received during a business transaction that involves the transfer of money, or cash equivalent, is known as a cash receipt. The customer receives the original copy of this receipt, and the seller retains the other copy for record-keeping purposes.

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• The date of the transaction
• The amount of the transaction
• Description of the product or service
• The total quantity sold
• The payor’s name or company name
• Whether cash, cheque, or another payment method was used to complete the transaction
• The payor’s signature
• An identification number

Why Do You Need Cash Receipts

When any of the following payment options are used, you must generate a cash receipt:

• Cash
• Cheque
• Using store credit for purchases

When you generate a cash receipt and receive one of the abovementioned types of payment, you credit the sales on the profit and loss statement and debit the cash account in the cash receipts journal.

In accounting for cash receipts, the seller’s original cash receipt, whether it be printed or digital, is referred to as a source document.

Source documents are proof that a business transaction was done and payment was received. It should be retained in order to support your financial accounts and for use in income tax reporting.

The easiest and safest place to save source documents today is online. If you use accounting or bookkeeping software, it is convenient to save one copy of the sale. As a backup, another copy should be uploaded to cloud storage.

Advantages of Obtaining Cash Receipts

Although setting up and keeping track of cash receipts takes some effort, the returns are rewarding. Using a free receipt generation software to keep track of cash receipts has the following significant benefits:

1. The provision of proof in the event of an audit

You will be thankful that you kept good records if you ever find yourself the target of an Internal Revenue audit. In such a situation, you can be asked to provide proof that your taxes are accurate, such as purchase receipts.

2. Proof of sale

The fact that you have proof of a transaction is the primary benefit of recording cash receipts. A history of previous cash transactions may come in handy if there is a dispute with a customer or the customer asks for a refund.

3. Reliable accounting records

You can run a successful business and make appropriate business decisions by keeping accurate financial records. They play a crucial role since they are required by law to generate an accurate tax return.

If you don’t have cash receipts, you run the risk of underreporting sales, which would result in lower taxes and would get you into trouble with the law.

Alternately, you risk the consequences of underreporting expenses, which might lead to overpaying taxes and putting you in hot water with the government.

When Do Cash Receipts Become Acceptable?

When a seller receives cash or cash equivalent from an external source, such as a bank, client, or investor, a cash receipt is created using a free receipt template.

Since they can be turned into cash anytime, liquid assets are listed on a company’s balance sheet.

Cash is typically acknowledged when money is obtained from a client to reduce the unpaid balance of accounts receivable created when the credit sale transaction occurred.

As a result, it can be viewed as a sum of money that raises the balance of cash and cash equivalent balance on the company’s balance sheet.

Where Can You Find Cash Receipts on a Financial Statement

On a financial summary, cash receipts are shown as an addition to the cash account or some other asset account. This is determined by the type of sale.

When a company offers services and receives payment in the form of cash, the amount is added to the company’s accounts receivable.

If you sell goods manufactured by your manufacturing division, this will have an impact on inventories. This is in contrast to accounts receivable. In this case, you sold products that already existed.

In this scenario, a company can record the collection of cash payments as an increase to cash or some other asset account.

How to Record Cash Receipts on Your Financial Summary?

Implementing the following three steps will enable you to record cash receipts on your financial statements:

Step-1 

Whenever you get paid for selling your goods or services, whether it’s cash or a personal check, keep track of the entire amount. To do this, improve your cash balance by crediting cash and debiting accounts receivable.

Step-2 

If you received payment for products that you manufactured but did not yet sell, record it as a rise in inventory (debit) rather than an increase in accounts payable (credit).

Depending on the kind of sale that was made, the credit would go to accounts receivable or cash, and the debit would go to inventories. 

The increase in inventory brought on by production is reflected as a decrease in inventory after the sale has been made. Unlike an increase in cash, this is not recorded.

Step-3

Recording product returns on financial summary necessitate two things. Recording them simultaneously as reductions in both accounts receivable and inventory. They are recorded by crediting cash and debiting accounts payable.

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Final Words

If you do not already create and store cash receipts now is a great time to start by using a free </spanreceipt maker tool.

If your business runs on a cash basis, you must keep track of cash receipts. They are essential for carrying out business processes.

Therefore, you should always create a digital cash receipt as soon as you receive one and save the original documents in a secure, accessible place.