From Paper to Proof: Role of Cash Receipts in Accounting

Imagine this: Mr. A, owner of ABC Enterprise. It happened once; he remembered that a payment of Rs. 50,000 was pending from Mr X’s end (who happens to be Mr A’s client). He checked his bank account statement but could not find any credit entry from Mr X. Then he decided to follow up with him, so he rang him and sought payment. Mr. X was initially confused, but then he checked his accounts and learned that he had already paid in cash. It was embarrassing for Mr. A; he could have lost a valuable client. 

Now, take a pause and think about how to avoid such a situation in your business. Any ideas? No? Don’t worry, we are here to help! 

Cash receipts are documents that record cash transactions and can also be used as proof of payment by businesses. 

In this blog, we will discuss cash receipts, their formats, types, benefits, and more. 

What is a Cash Receipt? 

A cash receipt is a formal document employed by businesses to record the cash transactions with the third party, including customers. It is important for a business to track cash inflows so as to maintain optimum cash reserves for a business to operate hassle-free. 

Types of Cash Receipts

Following are the different types of cash receipts that businesses employ based on their application: 

1. Sales receipts: Issued when goods or services are sold 
2. Payment receipts: Issued when payment is received 
3. Miscellaneous receipts: Used when cash is received from interest income, rent payment, asset sales, etc. 

When Should You Generate Cash Receipt?

Following are the cases where you should generate cash receipts:

Accounts receivable Collections: When a business gets payment against any credit sale or outstanding invoice. 

Sales transactions: When a customer makes the payment immediately after the purchase either via cash, cheque or any other payment mode. 

Miscellaneous income: When income is from any miscellaneous source, i.e., excluding sales, interest, dividends, or rental income. 

Refunds: When a business refunds a customer, a cash receipt is generated to record the details of the transaction. 

Read More: The Importance of Sales Invoice

What is Included in Cash Receipts? 

Following are the details that you should print in cash receipts: 

• Unique serial numbers
• Date of receipt
• Name of the organisation
• Payer’s name
• Contact details
• Reason for receiving the cash 
• Amount in digits as well as words
• Mode of payment
• Receiver’s signature

Benefits of Cash Receipts 

Using cash receipts in your business accounting process has the following advantages: 

Smoother cash flow monitoring 

With the implementation of cash receipts in the accounting process you get a clear and concise record of all transactions, making it effortless to track revenue and expenses. 

Efficient Financial Management 

Maintaining an accurate record of cash payment receipts and tracking can help businesses to identify a pattern in inflow and outflow of money, which can make financial management easier.  

Prevents Disputes 

Cash payment receipts can help prevent the chances of disputes between the buyer and seller by recording accurate records of the transaction.  

Step-by-Step Process to Record Transactions with Cash Receipts 

Follow the below-mentioned steps to keep accurate records of transactions with cash payment receipts: 

Step 1: Receive the Payment 

When a payment is received, the first will be to ensure notes are counted properly. If the payment is being made with a cheque, then you have to check the spelling of the name of your organisation and the amount. 

Step 2: Issue a Receipt & mention the details 

Fill all the data on the cash payment receipt, do not leave anything blank or write ‘NA’ so that customers cannot alter the data later. It is highly recommended that you provide a description of the transaction and keep a copy of the receipt for your records. You can even use accounting software to generate receipts instead of manually generating them. 

Step 3: Update the accounts 

After the cash payment receipt is accepted by the customer, update your accounting records against the appropriate records. For example, if the payment is received for a sale, the payment should be reflected in the same. 

Over to You 

That was all about cash receipts. We hope that after reading this blog, you will update your accounting practice with this document. If you are looking for any accounting and billing software for your business, consider signing up with Munim Accounting and Billing Software’s 14 free trials. We can assure you that it can take your business accounting to the next level against minimum efforts. 

FAQs on Cash Receipts 

What is a petty cash receipt?​

Petty cash receipt, also known as Petty cash voucher, is a document that records withdrawal of money from a petty cash fund. 

How to fill out cash voucher receipt​

Following are the details that you should fill in a cash voucher receipt: 

• Date of transaction
• Recipient’s name and contact details
• Amount of money given, write in digits as well as words 
• Purpose of the transaction
• Signature of the person in authority

How do you record cash receipts​? 

Following is the step-by-step procedure to record cash receipts: 

Step 1: Get the necessary information such as date of transaction, amount, purpose, and the recipient information. 

Step 2: Choose your preferred recording method, i.e. manual ledger or accounting software. 

Step 3: Feed the data in a chronological order 

Step 4: Reconcile the cash receipts records with cash in hand or bank statement regularly, ensuring accuracy in bookkeeping. 

Step 5: Keep a hard copy or electronic copy of cash receipts for audit or tax purposes. 

How do you calculate budgeted cash receipts​? 

Following is the step-by-step process to calculate budgeted cash receipts: 

Step 1: Identify the source of cash receipts from sales, accounts receivable or any other income (e.g. interest payment, dividends, property rent). 

Step 2: From historical data of each category of transactions, analyse the percentage of cash receipts received and predict the future. 

Step 3: Use the formula to calculate the final budget cash receipts: Budgeted Cash Receipts = (Cash Sales) + (Expected Cash Collections from Receivables) + (Other Cash Inflows).  

What is a cash receipt voucher​? 

A cash receipt voucher is a document that records details of the cash received from a debtor.