What is Cash Receipt? Benefits and Example

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Tally Solutions | Jan-14-2020

What is Cash Receipt?

A cash receipt is a printed acknowledgement of the amount of cash received during a transaction involving the transfer of cash or cash equivalent. The original copy of the cash receipt is given to the customer, while the other copy is kept by the seller for accounting purposes.

When is a Cash Receipt Generated?

A cash receipt is generated when a vendor accepts cash or cash equivalent from an external source, such as a customer, an investor or a bank. Usually, the cash is acknowledged when money is taken from a customer to adjust the outstanding accounts receivable balance that was generated when the credit sale transaction happened.

It can also be seen as a collection of money that increases the cash and cash equivalent balance in a company’s balance sheet.

What Information do We Find in Cash Receipts?

Generally, the following information is featured in a cash receipt -

  • The date on which the transaction happened
  • The unique number which is assigned to the document for identification
  • The name of the customer
  • The amount of cash received
  • The method of payment i.e. whether the payment is done by cash, cheque etc.
  • The signature of the vendor

Examples of Cash Receipt journal

Example No. 1 -

Let’s assume that a vendor has set up a food truck that sells vada pav (a popular Indian snack) in the neighbourhood to cater to customers during the weekends. It is a plain vanilla business model where the vendor sells a plate of vada pav for Rs. 20 /- with the expectation that the money will be paid immediately.

The vendor does not sell any plate of vada pav on credit; rather immediate cash receipt is recognized with the sale ( debit the cash account, credit the sales account ).

In this example, the vendor sells each plate of vada pav against cash payment of Rs. 20 /- from the customer and then the vendor issues the cash receipt to the customer.

Example No. 2 -

Now let us look at an example of a cash receipt journal associated with a credit sale that results in receivable.

Let us assume that there is a large distributor of mobile phones who sells a variety of different brands of mobile phones. The distributor has been in the business for a long time and as such has developed a strong business network.

The distributor purchases the mobile phones from numerous mobile phone manufacturers and due to the long-standing relationship, the distributor is offered favourable credit terms that allow him to order mobile phones as and when required.

In this example, a mobile phone manufacturer would record a sale to the distributor after shipping the mobile phones to him; however, this is not when the manufacturer would record the receipt.

Rather, the manufacturer would record the sale transaction in the income statement and recognize a receivable balance in the balance sheet which is due in 30 days ( debit the receivable account, credit the sales account ). The receipt would be finally issued only when the actual payment is realized in the form of cash or cheque. In that case, the outstanding receivable balance would be reduced and the cash balance would be increased ( debit the cash account, credit the receivable account ).

Benefits of Providing or Obtaining Cash Receipts

  • Serves as proof of ownership for the product purchased.

  • Useful for a customer in case of exchange or return of the purchased item.

  • Useful for a vendor when he has to entertain product warranty claims from customers.

  • The important benefit of a cash receipt is the completeness of the accounting records that support the existence of recording transactions.

  • A cash receipt also becomes important because one of the major reason for an audit is the lack of documents (such as cash receipts ) to support the existence of the transaction. As such having cash receipts and proper filing will avoid the risk of audit issues. Without a cash receipt, the accounting record is incomplete which can be risky in the long run.

While there are numerous benefits, it becomes more critical for business dealing with credit sales. Today, most businesses are using accounting software to not only generate cash receipt but also to link credit sales with the cash receipt transaction. This way, the business owners are always on top of bills which are paid and one’s which are pending,

We have put forward a guide to what is Cash Receipt and discussed about the ‘Cash Receipt Journal’ examples along with its format and its relevance. Click here to can learn more about how to record a cash receipt entry in Tally.ERP 9.

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