What Are Cash Receipts? Definition, Example & Benefits
Do you know what cash receipts are? Cash receipts are the collection of money (cash) from your customers. These increase the cash balance recognized on a company’s balance sheet. They can be generated by either sales or collections. Cash receipts can be a tricky concept to understand. This is especially true for people who work in industries that don't deal with physical cash.
This article will discuss more about cash receipts. It will include topics like how to record cash receipts and what a cash receipt should include. Read on to learn more about cash receipts.
Here’s What We’ll Cover:
What Is a Cash Receipt?
A cash receipt is an accounting entry that documents the collection of cash from a customer. Cash receipts typically increase (debits) the company’s cash balance on its balance sheet. Simultaneously, they decrease (credits) either accounts receivable or another asset account.
What Are Some Examples of Cash Receipts?
Examples of cash receipts could include fees collected by a lawyer, deposits made toward the purchase of a home and refundable airline tickets bought by a customer and returned after their flights are cancelled. Cash receipts can come from the sale of goods instead of services as well.
Here are a few more examples of cash receipts:
- When a business sells goods at the cash register, the cash collected is considered a cash receipt.
- An insurance company pays out claims to customers in the form of cash receipts.
- A taxi company counts any cash that it collects through fares as cash receipts.
Where Do Cash Receipts Appear on a Financial Summary?
Cash receipts appear on a financial summary as an increase to the cash account or another asset account. This depends upon the nature of the sale.
If a business sells services and those payments were collected in cash, then those payments would be put toward accounts receivable.
If you sell goods that you have produced through your manufacturing division, then this would affect inventory. This is opposed to accounts receivable. You have sold goods that already existed. In this case, a business may record the collection of cash as an increase to cash or to another asset account.
What Are the Benefits of Recording Cash Receipts?
The benefits of recording sales in the form of cash receipts are several. These include enabling a business to accurately track its income and expenses. This reduces the time it takes for a business to determine how much income was collected from customers.
How Do You Record Cash Receipts on Your Financial Statements?
Cash receipts on your financial statements can be recorded by following these three steps:
- When you receive payment (in cash payment or personal check) for your goods or services, record the total payment that you received. Do this by debiting accounts receivable and crediting cash for an increase to your cash balance.
- If the payment you received is for goods that you have produced and not yet sold, then record it as an increase in inventory (debit) instead of as an increase to accounts payable (credit). The debit would be for inventory and the credit would be for either cash or accounts receivable, depending upon what type of sale was made. After the sale is recorded, the increase in inventory due to production is counted as a decrease to inventory. This is opposed to being counted as an increase to cash.
- Recording returns of products on financial statements requires two things. Recording them as decreases in inventory and accounts receivable at the same time. They are recorded by debiting both accounts payable and crediting cash.
Why Are Cash Receipts Important?
Cash receipts are important to all businesses, no matter the industry. Recording cash deposits accurately helps a business track its income and expenses. It also reduces the time it takes for a business to determine how much income was collected from customers.
Who Should Sign a Cash Receipt?
You should receive two copies of your cash receipts, one for you and one for the customer. The original copy will be filed in the company’s files (the business). The duplicate copy is given to the customer as proof of payment.
Cash Receipts are an important part of accounting and business management. There are three main types: Cash, Accounts Payable, and Credit Sales. One of the biggest benefits of recording cash receipts is to help accurately track income and expenses. This reduces the time it takes for a business to determine how much income was collected from customers. You should receive two copies of your cash receipts, one for you and one for the customer. Make sure that whoever signs them is authorized to do so!
To find more information like this, check out our resource hub! There are many articles just like it.