What it means
Every business takes in money, and the recording of that money at the moment it arrives is the foundation of both its accounting and its control. A sale that is paid but not recorded understates revenue, understates cash and, if the money is diverted, is theft without a trace.
A customer's payment that is banked but not applied leaves the customer's account showing a debt they have paid. The cash receipt process exists to ensure that every payment is recorded, identified, applied, banked and reconciled.
Receipts arrive by many routes. Bank transfers from customers appear on the bank statement or feed, usually with a reference; card payments arrive through a processor as settlements, net of fees, one to three days after the sale; direct debits are collected on a schedule; cheques arrive by post and must be listed, banked and tracked until cleared; physical cash arrives at tills and must be counted, recorded and banked.
Each route has its own recording and control requirements, and a business's receipts procedure covers all of them. The recording is the same in principle for every route: the receipt is entered in the cash receipts journal (or its equivalent in accounting software) with the date, payer, amount, method and the account it is credited to; a customer payment is applied to the customer's account and the specific invoices it settles; other receipts are credited to the relevant income, liability or asset account.
The entry is made on the day the money arrives, not when the bookkeeper gets round to it, because the value of the record lies in its timing. Controls concentrate on completeness and custody.
For physical cash: a till or numbered receipt book records every sale; the till is counted at shift end and compared with the record; the cash is banked intact, with no payments made from it; and a person other than the cashier reconciles the count, the record and the banking. For cheques: the post is opened by two people who list the cheques before they go to the bookkeeper.
For electronic receipts: the bank feed is matched daily to the ledger, and unapplied receipts are chased. For all: the person who records receipts does not reconcile the bank, and the reconciliation is reviewed by someone independent.
The receipt as a document matters to the payer as much as the payee. A customer who pays in cash needs a receipt as evidence; a business that issues numbered receipts creates a sequence that auditors can check for gaps; an invoice marked paid closes the transaction.
Many tax regimes require receipts to be issued for cash sales above a threshold, and businesses that fail to issue them are presumed to be under-recording.
In practice
Real-world examples.
Example
A dental practice records every patient payment on the practice system at reception, banks daily, and the practice manager reconciles the system's takings report to the bank weekly.
Example
A software company's receipts arrive almost entirely as direct debits on the 1st of the month, matched automatically by customer reference.
Example
A market stallholder issues a numbered receipt from a duplicate book for every sale over $20 and banks the takings each evening.
Think of it
“Cash receipts are all the money coming into your business-the incoming money stream.
Formula
Calculation
Cash received from customers (period) = Opening receivables + Credit sales minus Closing receivables + Cash sales
Till reconciliation: Opening float + Recorded cash sales minus Recorded payouts = Expected cash; Count minus Expected = Variance
Banking check: Cash banked = Cash counted minus Float retained
Worked example. A garden centre's receipts for a Saturday:
- Till 1: opening float $200; recorded cash sales $2,340; recorded card sales $6,120; cash payout for a delivery $45 (voucher); count at close $2,495. Expected cash = $200 + $2,340 minus $45 = $2,495. Variance nil. Banked $2,295; float $200 restored.
- Till 2: opening float $200; recorded cash sales $1,880; card sales $4,970; no payouts; count $1,990. Expected $2,080. Variance minus $90. The supervisor reviews the till journal and finds a $90 cash refund given without a refund slip; the customer's original receipt is attached to the day's paperwork and the refund is recorded. Variance resolved. Banked $1,790.
- Card settlements: the processor will settle Saturday's $11,090 on Tuesday, less 1.4% fees ($155): $10,935. Recorded as a receivable from the processor until it arrives, then matched.
- Trade account receipts: a landscaping customer paid $3,600 by transfer on Friday evening, appearing on Saturday's bank feed with the invoice numbers in the reference; applied to invoices 4471 and 4478. Another transfer of $1,250 arrived with no reference; recorded as unapplied and the three customers with balances near that amount are emailed on Monday.
- Other: a refund of $310 from a supplier for returned goods, credited against the supplier's account; interest of $22 on the deposit account, credited to interest received.
Cash receipts journal for the day: cash sales $4,220; card sales receivable $11,090 (net $10,935 when settled); trade receipts $4,850 (of which $1,250 unapplied); supplier refund $310; interest $22. Bank deposit slip Monday morning: $4,085 ($2,295 + $1,790). The Monday bank reconciliation will match the $4,085 deposit, the $3,600 and $1,250 transfers and the $22 interest, with the card settlement following on Tuesday.
Monthly customer receipts check from the accounts: opening trade receivables $84,000; credit sales $126,000; closing receivables $91,000. Cash received from trade customers = $84,000 + $126,000 minus $91,000 = $119,000, which the cash receipts journal's trade column should total. A difference would point to receipts recorded against the wrong account, credit notes not reflected, or unrecorded receipts.Case study
Seen in the real world.
A sports club with a bar, a shop and membership subscriptions had one office administrator who took cash across the counter, recorded it in a spreadsheet, banked it when the safe was full, and reconciled the bank herself. The treasurer, a volunteer, reviewed the annual accounts and noticed that bar takings had fallen 15% in two years while bar purchases had risen. An audit found that cash was banked in round sums that bore no relation to the recorded takings, that the spreadsheet had been edited after the fact, and that about $38,000 had gone missing over two years.
The club's recovery from its insurer was limited by its lack of controls. The new procedure was simple: a till with a Z-reading at close for the bar and shop, counted by the bar manager and a committee member together; membership payments moved to direct debit; cash banked intact the next morning against the Z-reading and count; the bank statements sent to the treasurer, who reconciles them monthly; and numbered receipts for any cash payment over $10.
Bar takings rose 18% the following year with no change in prices or footfall, which told the committee what had been happening. The treasurer's report to the members noted that the club had trusted one person with the cash, the record and the bank, and that this had not been trust but the absence of a system.
Watch out
Common mistakes.
- Making payments out of cash takings before banking, which understates both sales and expenses and destroys the audit trail.
- Leaving one person to receive, record, bank and reconcile cash, which removes every check on completeness.
- Recording receipts late or in batches, so that the receivables ledger and cash position are wrong in between and unapplied receipts accumulate.
Questions
People also ask.
What is the difference between a cash receipt and a sales invoice?
The invoice records the sale and creates the receivable; the receipt records the payment and clears it. For cash sales the two coincide; for credit sales they may be weeks apart.
Must a business issue a receipt for every payment?
For cash payments, it is good practice and in many jurisdictions a legal requirement above a threshold. For electronic payments the bank record serves as evidence, though customers may still request an acknowledgement.
How should receipts be reconciled?
Daily for tills (record against count against banking), daily or weekly for bank receipts (feed against ledger), and monthly overall (cash receipts journal against bank statement), each by someone other than the person who recorded them.
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