How do you Journalize cash receipts?

The cash receipts journal is an important way to track any cash you receive in exchange for a product or service. You will use the cash receipts journal if your company uses the accrual accounting system. This system is one that uses debits and credits. The other type of accounting system is cash based accounting where you just record cash coming in and cash coming out. This journal should be a sub-journal to your general ledger where non-cash receipts are kept.

Cash Receipt Journal

1. The cash receipt journal is a ledger book that your business will keep for any cash transactions. The journal has entries for each account that is possible in a sale, so you will have cash, sales, accounts receivable, other accounts and inventory. Then each of these accounts will have both a credit side and a debit side. Each line on the journal ledger is a separate transaction. Your debits must equal your credits on each line.

CR

1. CR is an abbreviation used for credit. Crediting an account will either increase or decease the account. If you credit your inventory or accounts receivable, then inventory or accounts receivable account will decrease. If you credit your sales, then your sales account increases. Any time you credit an expense account, this amount decreases.

DR

1. DR stands for debits. This is the opposite side of credits. If you debit cash, then your cash increases. If you debit sales discounts, then you increase the account. You should not have many other accounts on your receipts journal unless you have some specialized accounts specific to how you operate your business.

Balancing Your Equation

1. Whenever you have a transaction in accounting, you must keep the equation balanced. Balancing the equation means you keep your debits equal to your credits. For example, assume you sell a widget for $500 in cash. You need to debit your cash account by $500 to increase the account by $500. You also sold a widget, so your inventory needs to decrease. You can do this by crediting the inventory account by $500. As you see, you have $500 in debits and $500 in credits. This means the equation is balanced because both have $500.

   A cash receipts journal is a special journal used to record cash received by a business from any source. The major sources of cash receipt in a business include:

   • Investment of capital by the proprietor or owner
   • Cash sales
   • Sale of an asset for cash
   • Collection from customers
   • Collection of interest, dividends, or rent
   • Loan from an individual, bank, or any other financial institution

   Explanation

   The cash receipts journal is used to record all transactions involving the receipt of cash, including transactions such as cash sales, the receipt of a bank loan, the receipt of a payment on account, and the sale of other assets such as marketable securities.

   The image below shows a standard cash receipts journal. As the example shows, a typical cash receipts journal consists of many columns. This is necessary because there are numerous transactions that lead to the receipt of cash.

   The debit columns in a cash receipts journal will always include a cash column and, most likely, a sales discount column. Other debit columns may be used if the firm routinely engages in a particular transaction.

   In the example below, the only other debit column is the other accounts column. This column is divided into three parts:

   • One column for the account name
   • One column for the post reference (in this case, labeled “Ref.”)
   • One column for the amount.

   If desired, the area for the name of the account in this column can be replaced with an area for account numbers.

   The credit columns in a cash receipts journal will most often include both accounts receivable and sales. Again, other columns can be used depending on the type of routine transactions that the firm engages in.

   In our example, the only other credit column featured in the cash receipts journal is for all other accounts. It is set up in the same way that the other column on the debit side is, except that the account title area is replaced by a “Ref.” column.

   

   
   To learn more about how cash receipts journals are used, let’s consider an example.

   Assume that, during June, the Fortune Retail Store made the following transactions involving cash receipts:

   June 1: Cash sales totaled $506

   June 2: Collected from Perry Alexander (account no. 17) $184.61 from the sale made in May. No sales discount allowed

   June 10: The firm sold marketable securities for $2,000 that were purchased for $1,800

   June 12: Collected $1,470 on account from Thomas Hunter (account no. 4), Sales discount of $30 allowed

   June 15: Cash sales totaled $1,200

   June 20: Collected $1,421 on account from Jerry Myers (account no. 26). A sales discount of $29 allowed

   June 22: Repayment of employee advance of $200

   June 30: Collection on account from William Young (account no. 15). Total received is $3,947.27, which represents an outstanding balance of $147.37 on June 1 and subsequent sale on June 18. No discount allowed.

   To log these transactions in a cash receipts journal, each of these transactions is entered sequentially into the journal in the appropriate column.

   For example, the cash sale on June 1 is recorded in the cash receipts journal by first entering June 1 in the date column. Cash sales are entered in the explanation column. The amount of $506 is then placed in both the cash debit column and the sales credit column.

   In this example, it is not necessary to make an entry in the account credited column. This is because the entry in the cash and the sales columns makes it clear that this is a cash sale. Other entries are made in a similar fashion.

   Format/Specimen of Cash Receipts Journal

   Depending on a company’s requirements, different formats are used for a cash receipts journal. To help you understand the recording procedure, a simple format is given below.
   

   

    

    

    

    

    

   An overview of the purpose of each column in the specimen shown above is given as follows: 

   1. Date column: Used to record the date at which cash is received by the business.

   2. Accounts credited column: Used to enter the title of the respective account on which cash is being received.

   3. Posting reference column: Used to write the number of the ledger account at the time of posting.

   4. Cash column: Used to record the total amount of cash received.

   5. Discount column: Used to record the amount of cash discount allowed at the time of receiving cash.

   6. Sales column: Used to record the sale of merchandise for cash.

   7. Accounts receivable column: Used to to record cash received from customers.

   8. Sundry accounts column: Used to record the credits to any account for which there is no special column (e.g., receipt of interest, receipt of cash for the return of merchandise purchased on cash, and so on).

   Example

   For the year 2016, record the following transactions in a cash receipt journal:

   Dec. 01: Received $500 from A & Co. in full settlement of his account of $525
   Dec. 04: Received $4,600 from Sam & Co. and allowed discount of $50
   Dec. 08: Received $150 as interest on investment
   Dec. 15: Cash sales for the first half of the month $1,800
   Dec. 23: Received payment of $700 from A & Co. for goods sold on account, and discount allowed of $30
   Dec. 24: Sold office supplies for cash $70
   Dec. 25: Received $1,600 cash from Beauty Supply Corporation and allowed a cash discount of $100
   Dec. 31: Cash sales for the second half of the month $2,200

   Solution

   

    

    

    

    

    

    

    

    

    

   Posting Cash Receipts Journal to Ledger Accounts

   The procedure for posting the cash receipts journal is described below:

   • The total of the cash column is posted as a debit to the cash account in the general ledger.
   • The total of the sales column is posted as a credit to the sales account in the general ledger.
   • The amounts in the accounts receivable (A/C R.A) column represent cash received from debtors. These amounts are posted to the individual customer’s accounts in the accounts receivable subsidiary ledger.
   • The total of the accounts receivable column is posted as a credit to the accounts receivable account in the general ledger.
   • Each amount in the sundries column is posted as a credit to the appropriate account in the general ledger. The total of the sundry accounts is not posted.
   • None of the individual amounts in the cash and sales columns are posted.

   As with other journals, the cash receipts journal is posted in two stages. Any entries in the accounts receivable column should be posted to the subsidiary accounts receivable ledger on a daily basis.

   This ensures that the individual customers’ accounts are up to date and accurately reflect the balance owed at that date.

   As these accounts are posted, the account number is entered into the post reference column. In the subsidiary ledger, the post reference is “CR-8”, which indicates that the entries came from page 8 of the cash receipts journal.

   At the end of the month, the different columns in the cash receipts journal are totaled. The totals from all the amount columns (other than the other account column) are posted to the appropriate general ledger accounts.

   Again, in the general ledger accounts, the post reference “CR-8” is recorded to indicate that these entries came from page 8 of the cash receipts journal.

   The amounts in the other accounts column must be posted accurately. Although these amounts are often posted at the end of the month, they could be posted more frequently. As they are posted, the account numbers are placed in the post reference column.

   A check is placed under the total of this column as this total is net posted.

   The postings are shown in the above example for the general ledger accounts: Cash, Accounts Receivable, Marketable Securities, and two selected subsidiary ledger accounts receivable accounts (namely, Perry Alexander and Thomas Hunter).

   Reach Out to the Professionals

   To sum it up, the cash receipts journal manages all the cash inflows of a business. It’s typically where you can track down any cash received by a business. Learn more about this when you connect with a financial advisor in South Burlington, VT or browse through our financial advisor page to get a list of the places we currently service.

   What is the entry for cash receipts?

   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.

   Which journal is used to record a cash receipt?

   A Cash receipts journal is a specialized accounting journal and it is referred to as the main entry book used in an accounting system to keep track of the sales of items when cash is received, by crediting sales and debiting cash and transactions related to receipts.

   Is cash receipts debit or credit?

   Cash sales are reported in the sales journal as a credit and the cash receipts journal as a debit. For example, a $500 cash sale is a $500 debit in the cash receipts journal and a $500 credit in the sales journal. Sometimes, customers pay with a combination of cash and in-store credit.

   How does a cash receipts journal work?

   The cash receipts journal is that type of accounting journal that is only used to record all cash receipts during an accounting period and works on the golden rule of accounting – debit what comes in and credits what goes out. Credit sales. It gives them the required time to collect money & make the payment.