What is a Cash Receipt? | Meaning, Purpose, Examples

Meaning of Cash Receipts

Cash receipts serve as printed acknowledgements of funds transferred during a cash or cash equivalent transaction. The seller sends the original copy to the customer and keeps one copy for his accounting records.

When Do We Need To Issue Cash Receipts?

In the case of an external source like a customer, investor, or bank, a cash receipt is generated when the seller accepts cash or cash equivalents. As a general rule, cash is recognized when money is taken from a buyer to adjust an outstanding accounts receivable balance that arose from the credit sale transaction.

As well as increasing a company's cash balance and cash equivalents, it also serves as a collection of money.

What Information do We Find in Cash Receipts?

Here are the details that Cash Receipts should include:

  • Customer's name
  • Transaction date
  • The unique number which
  • Received amount of cash
  • Payment method
  • Seller's signature

Advantages of Cash Receipts

As Cash Receipts have a lot of benefits, it is particularly crucial for companies that deal with credit sales. The majority of businesses use accounting software to generate both cash receipts and link credit sales to cash receipts. This keeps business owners on top of bills that are paid and those that are pending.

The followings are the advantages of Cash Receipts:

  • This document proves ownership of a product.
  • It is handy for customers if they need to exchange or return goods or services.
  • It is beneficial for sellers when they have to handle product warranty claims from buyers.
  • Cash receipts provide comprehensive information about recorded transactions.
  • Besides being a necessity for an audit, a cash receipt is also significant because a lack of documentation (like a cash receipt) is a primary reason for an audit. Thus, keeping cash receipts and filing them properly will prevent audit issues. In the absence of a cash receipt, the accounting record is incomplete, which can lead to future risks.

Some Examples of Cash Receipt Journal

A few examples below will help you understand the importance of Cash Receipt.

Case Number 1.

Here's an example of a cash receipt journal for a credit sale with a receivable. Imagine that there is a large distributor that sells a variety of notebook brands. A long-established distributor has developed a strong business network due to his extensive history in the industry. As a result of the long-standing relationship with notebook manufacturers, the distributor is offered favourable credit terms that allow him to order notebooks on demand.

Manufacturers would record a sale to distributors after shipping the notebooks to them, as opposed to recording receipts.

It is preferable for the manufacturer to record the sale transaction in the income statement while recording a receivable balance in the balance sheet, which is due in 30 days ( the receivable account will be debited, and the sales account will be credited). Once the payment is made in cash or by check, the receipt will be issued. Debiting the cash account and crediting the receivables account results in a reduction of the receivable balance and an increase in the cash balance.

Case Number 2.

Consider the case of a seller who runs a food truck in the neighborhood during the weekends that sells bread.

In this business model, the seller sells pieces of bread for 10 rupees, expecting to receive payment immediately.

The vendor does not sell bread on credit; instead, an immediate cash receipt is recognized with the sale (a debit is made to the cash account, and a credit is made to the sales account).

According to this case, the seller sells every piece of bread for 10 rupees and then issues the customer with a cash receipt.