Definition

A cash receipts journal is a special journal within the general journal that is used specifically to record all the cash receipts. It has a total record of all the cash collections during an accounting period.

The credit sales which the busy ones make are not recorded in the cash journal as no cash is received while these sales transactions occur. These transactions are recorded based on an accrual basis. Cash sales, on the other hand on a cash basis of accounting and therefore are recorded in the cash journal.

Explanation

Since the Cash Receipts Journal consists of recording all cash transactions only, this cash may be received from several sources. The main sources of cash receipts recorded within a cash journal generally include:

  • Investment capital by the business owner or proprietor
  • Cash sales
  • Cash received from sale of asset
  • Cash received from credit sales
  • Cash received from interest, dividend or rent
  • Cash received in form of a loan from an individual, bank or any other institution.
  • A cash sales journal is used to record all transactions involving cash be it from sales of goods, a loan or cash generated by selling an asset.

Three main types of cash receipts occur in general during the regular operations of the business, which essentially include:

  1. Receipt of Cash from Cash Sales
  2. Receipt of Cash from Credit Customers
  3. Receipt of Cash from Other Sources

The cash journal essentially consists of two sides, a debit side having debit columns and a credit side having credit columns. A cash journal can consist of several columns. These may vary from business to business depending upon the usual cash transaction recorded by the business. However, the columns usually found in Cash Journals include:

  1. Date: The date of the receipt of cash is entered in this column
  2. Account Credited: The account which is credited at the receipt of the cash is mentioned in this column
  3. Reference: The reference number for the mentioned account is written in this column for internal use only.   
  4. Explanation: The explanation or short narration for the receipt of cash is written here.
  5. Cash DR: The amount of cash received is written down in this column.
  6. Sales Discount DR: When making sales, the business might allow a cash discount to buyers. This discount allowed on sales is written in this column.
  7. Accounts Receivable CR: When customers make payments for goods sold to them on credit, this amount is written off by the business in the Account Receivable and thus when such cash will be received, the business will write the amount received from the customer in the Accounts Receivable CR.
  8. Sales CR: When the business makes a cash sale, the amount of cash received from the sale must be recorded in this column.
  9. Other CR: When a business receives Cash from sale of assets, rent, interest, dividend or any other source, this amount must be recorded in this column.
Related article  Accounting for Credit And Cash Purchase Transactions (Explained With Journal Entries)

Format

Businesses may use varying formats of Cash Receipts Journal to accommodate their everyday transactions. However, the cash receipt journal below shows one of the formats of a cash receipts journal that businesses might use:

DateAccount CreditedRef.ExplanationCash DrSales Disc. DrA. Receivable Cr.Sales Cr.Others Cr.
xxxxxxxxxxxxxxxxxx
Total        

Example

The cash receipts journal below shows an example of how transactions are recorded in it:

  1. Cash received from sales made of $1000 on 5th June 2020
  2. Cash received from credit sales made to Company ABC for $500 after allowing a $20 cash discount on 6th June 2020. 
  3. Cash received from sale of used office furniture for $100 on 8th June 2020.
DateAccount CreditedRef.ExplanationCash DrSales Disc. DrA. Receivable Cr.Sales Cr.Others Cr.
5th JuneSales Cash sales1,000  1,000 
6th JuneCompany ABC  48020500  
8th JuneOffice Furniture Sale of old furniture100   100
Total   $1,580$20$500$1,000$100

Pros and Cons of a Cash Receipt Journal

The cash receipt journal has many advantages about its use within regular business accounting methods. A cash receipts journal provides an easy and organized way to record all the cash receipts during the period. Therefore, it allows a quicker and accurate way to prepare the cash ledger and a cash flow statement for the business for an accounting period.

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It also ensures that the business can keep track of all the account receivables and aged receivables. Similarly, it also provides an easy way to keep track of all the unpaid supplier and vendor payments by allowing the business to quickly see what cash was received and paid out during a said period.  

There is mainly one major disadvantage of using a cash receipts journal which is that since it utilizes the cash basis of accounting, it does not allow the business to keep track of transactions on an accruals basis, which is one of the most important principles of accounting and the basis of the double-entry bookkeeping system.

Proof of Posting for Cash Receipts Journal

There are two tests available to prove the postings made to the cash receipts journal. These proof checks include the following:

  1. The total of customer account balances in the accounts receivable ledger also known as the subsidiary ledgers in this case, should be equal to the balance on the subsidiary ledger control account in the general ledger.
  2. The general ledger should be in balance which can be proven through a trial balance that is to say that all the debit balances must equal the total of the credit balances at the end of the accounting period. This will help in ensuring that all entries have been made correctly and the amounts on both credit and debit sides match, when recorded.