13 Apr What is a Cash Receipt?
When a customer pays a business in cash or by check, it is referred to as a cash receipt. Even payments made by debit/credit card or by wire transfer are referred to as cash receipts. The definition of “cash receipt” even extends to the receipt of funds from an investor or a lender.
What does cash receipt mean?
In its most common form, the term cash receipt refers to a payment made by a customer.
Let us consider a situation where a business makes a sale. The seller could require the customer to pay cash immediately. Alternately, the sale could be on credit.
In these two situations, the cash receipt by the seller is said to take place at the following points in time:
- Cash sale: a cash receipt occurs at the time that the sale is made.
- Credit sale: when a credit sale occurs, there is no immediate receipt of cash. A cash receipt takes place when the buyer pays. This could be after 30 days or whenever the credit period expires.
It’s important to remember that a cash receipt will always lead to the cash account in the company’s books being debited.
Example of a cash receipt
Cox Catering is a small business venture that provides food services for weddings, conferences, and fundraisers. It maintains a cash receipt journal in which it records the details of its cash receipts.
The following are the different sources of cash that result in an entry in the cash receipt journal:
- Cash and checks received from customers.
- Funds received from the owner of Cox Catering as investment capital.
- Loan received from the bank.
- Amount received from the buyer of the firm’s old equipment.
The cash receipt journal records the date of receipt and the nature of the payment. The cash account is debited for each receipt while the relevant account is credited. For example, a cash receipt for catering services provided will be credited to the account of the customer who makes the payment.
A cash receipt leads to an increase in the firm’s cash balance. Whenever cash or a check is received from a customer or any other external source, it results in a cash receipt.