What Is a Cash Receipt and Why It Matters for Business Transactions

A cash receipt records the exchange of cash during a transaction, detailing the amount, parties involved, and purchase specifics. Maintaining accurate cash receipts supports tax reporting, financial management, and dispute resolution while ensuring compliance with audits.

By Douglas Wade, Attorney

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Table of Contents

1. What is the purpose of a cash receipt?

2. What to do with cash receipts

3. Methods for keeping track of money received

4. Advantages of keeping track of money received

5. In Conclusion

What is the purpose of a cash receipt?

When you pay with cash, there may not be a digital paper trail left behind like there is when you use a debit, credit, or check from a business that uses these methods exclusively. Whether your small business uses cash for infrequent purchases or as its main form of payment, it is essential to meticulously record all transactions involving cash receipts.

It is never too late to begin recording your monetary transactions if you have neglected to do so in the past. Take a deeper look at the potential benefits of cash receipts for your organization and the reasons why it’s crucial to monitor all monetary transactions.

Cash receipts serve as official documentation of the total amount of cash that was exchanged during a transaction.

Probably nothing new here, but if you’d need a refresher, pick something up from the corner shop and pay with cash. There should be a line on the receipt that shows the total amount you paid and how you paid (cash or another method). It should clarify the purchase specifics. Even though this is the most typical form of cash receipt you’ll see every day, they may still be quite useful to your company.

A cash receipt does not necessarily require the same information that is often provided on receipts from big-box stores. Simply documenting the exchange of money, the parties involved, the time and date of the transaction, and the specifics of the goods or services acquired is sufficient to constitute an official record. However, additional details may prove useful at a later time.

Receipts for monetary transactions might be digital, handwritten, or printed. Most importantly, they include a detailed record of vital transaction information.

A cash receipt serves as an official record of a transaction that involves the exchange of cash. You may also use them when you pay with a shop credit or a check. Yet, as their name suggests, they are most commonly encountered in transactions involving cash.

The following are two examples that might help illustrate how they work:

Purchase Transaction

Suppose your company is in the industry of selling handcrafted goods on the internet. You like to conduct business with a local vendor that accepts just cash for purchases of supplies. It is essential to obtain a cash receipt for each and every transaction you make in order to keep track of the amount of money you spent on goods. In the event that you have any problems regarding your taxes or need to reconcile your accounting records, these documents will be invaluable.

Sales Deal

At the local weekend farmer’s markets, Joan enjoys selling locally grown, organic vegetables from her expansive property, which includes a small orchard. Even though Joan accepts most major credit and debit cards through her mobile device, many of her clients still prefer to pay with cash. In order to keep tabs on cash transactions and see which goods are doing well, Joan employs a digital cash register that is tablet-based.

What to do with cash receipts

For tax and accounting purposes, cash receipts are crucial for businesses. For the sake of accurate tax reporting and sound financial management, it is critical to keep meticulous records of all money coming into and going out of your company. If you are a seller, you may use cash receipts by following these steps:

Make a cash transaction: First, your company needs to sell something and the customer wants to pay cash.
Make a cash receipt: In your sales system, generate the cash receipt at the time of sale. It is OK to make a sales receipt by hand if you do not own one. Branded receipts give the impression that your company is more professional, and they do not necessarily need to be in a fancy form. Give one to the client and retain one for your company. Remember to write down the check number on your sales receipt if the customer paid with a check (remember, checks are considered cash for these purposes).
Put the receipt into your accounting software: If your accounting and bookkeeping software doesn’t automatically enter the information of your receipts, you’ll need to do so in order to generate reliable financial reports.
Put your cash payments in the bank: Here we’ll go into more detail on how to ensure that the amount on your bank deposit slip matches the amount in your cash receipts journal. Keep the receipts for your deposits just in case.

It is possible to automatically record cash receipts with a point-of-sale (POS) system. To avoid missing any sales, businesses that accept cash but do not use a register should think about starting a cash receipts diary.

Methods for keeping track of money received

Business owners and managers can benefit from keeping a cash receipts notebook, which is often an actual document in the form of a booklet, to record all cash transactions in one convenient location. With this, you can more easily keep track of sales as you transfer them to your accounting system.

With a line for every transaction, a cash receipts diary may resemble a check register. The client and the business both receive duplicates of the sales receipt because some companies employ receipt journals that make an original and a carbon copy of a paper receipt.

When you receive cash, you should record the transaction in your books by making a journal entry in your general ledger.

Your accounts receivable balance will go down and your cash account will go up when you get payment in cash for a previously made credit sale. As shown above, you would change Accounts Receivable to Cash Sales. You should pay close attention to this difference in your balance sheet.

Advantages of keeping track of money received

Although it requires some work to create and keep track of cash receipts, the reward is substantial. The most important reasons to keep track of money coming in are as follows:

Proof of sale: Keeping track of cash receipts is helpful because it gives you proof that you made a sale. Keeping track of previous cash transactions could be quite useful in the event of a customer dispute or refund.
Honest financial records: When you have accurate financial records, you can run your company with confidence. In addition, you can’t legally file a tax return without them. You run the risk of getting in trouble with the authorities for underreporting sales or overpaying taxes if you don’t keep track of your cash receipts.
Confirmation in the event of an audit: You should keep meticulous records in case you find yourself in hot water during an IRS assessment. To prove that your taxes are accurate, you might have to get out your receipts.

In Conclusion

You should not underestimate the value of accurate and comprehensive accounting records. Having correct financial records is essential for filing a tax return each year, so keeping them is essentially a legal requirement. Get into the habit of recording and preserving all of your cash receipts immediately.

In addition to having all the information you need for tax time, better records from cash transactions can allow you to make informed decisions about how to build your business by providing accurate financial reports. Cash receipts are necessary for every company that deals in cash. You can’t do business without them.

Have a quick question? We answered nearly 2000 FAQs.

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