Cash receipts

Cash receipts are all the money a business receives: customer payments by cash, cheque, card, e-transfer, ACH or wire, plus refunds, loan proceeds and interest. In accounting, cash means any money that reaches the bank account, not only bills and coins. The term also covers the documents that prove each payment and the cash receipts journal where they are recorded.

The cash receipts journal

A cash receipts journal lists every incoming payment in date order: who paid, the amount, the method, what it was for and the accounts affected. Most lines debit cash and credit accounts receivable, for a customer paying an invoice, or sales, for a cash sale. The totals are posted to the general ledger at period end. Accounting software keeps the same record as deposits and payments received.

Controls over cash receipts

• Separate duties: the person who opens the mail or takes payments should not be the one who records them or reconciles the bank account.
• Record and deposit promptly: log cheques and cash when they arrive and deposit them daily.
• Balance every day: the IRS's small business guide advises checking at the end of each business day that your records balance with the actual cash and credit receipts for the day.
• Reconcile monthly: match the journal to the bank deposits.

Applying payments

Recording a payment is only half the job. It also has to be matched to the invoice it settles, which is hard when a customer pays several invoices at once, short-pays or sends no remittance advice. That matching step is cash application, and payments that can't be matched sit as unapplied cash until someone works out what they cover.