How to Record the Journal Entry of a Cash Deposit?

Most companies exist to profit from their activities. These activities may differ from one company to another. On top of that, even investors prefer to invest in companies that illustrate growing profits.

In most cases, the net income generated by a company plays a role in how it fares in its operations. However, profits aren’t the only crucial metric for a company.

Companies manage their cash resources as a part of their business. Cash plays a crucial role in regulating operations and keeping things running. Usually, it is a part of the liquidity management process within a company.

In the absence of adequate cash resources, companies can face significant problems. Ultimately, they can also expect liquidation if they don’t manage those resources efficiently.

Companies also maintain bank accounts to keep their cash resources safe. Usually, they keep an insignificant amount of money at hand.

It forms a part of the petty cash system managed by a company. On the other hand, most cash resources exist within bank accounts. Companies may hold various bank accounts simultaneously to manage those resources effectively.

Bank accounts also involve several financial transactions. One of these includes cash deposits. Usually, these transactions are straightforward. The journal entry for a cash deposit is also uncomplicated. Before discussing that, it is crucial to understand other aspects of cash deposits.

What is a Cash Deposit?

A cash deposit is a bank transaction in which a company or individual puts money into their bank account. This transaction increases the bank balance within that account. Similarly, it may decrease other assets based on the type of transaction.

Cash deposits may occur through various means. These include money deposits, ATMs, electronic transfers, etc. For the bank, it creates a liability to repay the account holder in the future.

A cash deposit allows companies to transfer their resources into a bank account. This deposit can occur by a company or one of its related parties.

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For example, companies may ask their customers to deposit cash directly into their bank accounts. Regardless of the source, the cash deposit goes into the bank account and increases its balance.

Cash deposits can take some time to process before being added to the bank account. Once the deposit process completes, the account holder can withdraw the amount through a cash withdrawal.

When a company or individual deposits money into a bank account, they receive a deposit slip. This slip includes specific information about the account and the transaction.

Cash deposits are also mandatory in various transactions. For example, they may include rental items, services, etc. In this case, the cash deposit may be outward or inward.

If a company makes a cash deposit into a supplier’s account, it constitutes a cash outflow. On the other hand, if it is inward, it will be a cash inflow. In both cases, the accounting treatment and journal entries will differ.

A cash deposit refers to a bank transaction where a company puts money into a specific bank account. In most cases, it occurs in the company’s bank account. Therefore, it will be a cash inflow for that company.

However, if a company makes a cash deposit to another party’s bank account, it will be a cash outflow. Cash deposits also include a deposit slip as a supporting document.

What is the accounting for a Cash Deposit?

The accounting for a cash deposit is straightforward. It involves increasing the cash in the bank account. On the other hand, it will also require a credit entry.

If a company deposits its idle cash into its bank account, this entry will be the cash in hand account. However, if they receive the cash deposit from a different source, the credit entry will differ.

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Accounting for cash deposits requires companies to transfer an account balance from one head to another. In most cases, the classification does not change.

For example, if a company receives money from a customer, the transfer will be between asset accounts. Similarly, if a company deposits its idle cash to the bank account, it will apply.

Cash deposits are one of the prevalent recurring transactions within bank accounts. For most companies, accounting for these transactions is a common occurrence.

However, most companies may not know about cash deposits. They only find out about those transactions once they receive their bank statement. Therefore, accounting for cash deposits may also be a part of the bank reconciliation process.

A cash deposit may also come from a customer. In that case, companies must decrease the accounts receivable balance for that customer. In exchange, they must increase their cash resources in the bank account.

The type of cash deposit does not matter when accounting for these transactions. For example, companies may deposit money directly or through electronic transfers.

If companies maintain multiple bank accounts, they will debit the cash deposit to that specific account. In that case, the accounting for cash deposits will remain the same. However, the underlying accounts impacted will differ.

However, it won’t affect the financial statements. Since these balances become a part of cash in the bank anyway, the overall effect will be the same.

How to record the journal entry of a Cash Deposit?

Companies can record the journal entry of a cash deposit by impacting two accounts. As stated above, the debit account usually remains the same. However, the underlying bank account to which a company adds this balance may vary.

On the other hand, the credit entry will differ based on the source of the cash deposit. In most cases, these will include the cash in hand balance.

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If a company deposits cash in hand to the cash in the bank account, the journal entries will be straightforward.

In that case, the company debits the bank account to which the money gets added. On the other hand, it will reduce the cash in hand balance by the same amount. In that case, the journal entry for the cash deposit will be as follows.

DateParticularsDrCr
 Cash in bankXXXX 
 Cash in hand XXXX

If the company receives the cash deposit through a customer, the journal entry will differ. In that case, the debit side will remain the same.

However, the credit entry will reduce the customer’s receivable balance. In that case, the journal entry will be as below.

DateParticularsDrCr
 Cash in bankXXXX 
 Accounts receivable XXXX

As apparent in the above journal entries, the accounting for cash deposits is straightforward. As long as the company can identify the source of the deposited sum, it can use it as a credit entry.

On the other hand, the debit side will remain unchanged. However, it may change based on the bank account to which the money gets deposited.

Example

A company, ABC Co., received several sums of money from a customer. The customer paid the company in cash.

However, ABC Co. has a policy of depositing its money in a bank account. Consequently, the company deposits $10,000 of the cash in its bank account. ABC Co. records the journal entry for the cash deposit as below.

DateParticularsDrCr
 Cash in bank$10,000 
 Cash in hand $10,000

Conclusion

A cash deposit is a bank transaction where a company puts money into its bank account. In some cases, this cash may also come from other sources.

The accounting for a cash deposit is straightforward. Primarily, it involves debiting the bank account. On the other hand, it also requires decreasing the cash balance. Companies can record the journal entry of a cash deposit accordingly.