Cash Receipts

Cash Receipts entry is normally used to record the receipt of invoice payments. However, it can also be used to record “direct” sales, that is, sales that are paid for immediately. Both types of transactions are described below.

Payment for an Invoice

When you receive payment for an invoice, the amount of cash received may not be the full amount of the invoice. It is possible that this could be a partial payment; more often, however, the customer took advantage of your terms discount and paid their account in a timely fashion. Another possibility is that you and your customer had a dispute over part of the invoice, and you agreed to write off a portion of the charge.

Assume a cash receipt of $650.00, applied against an invoice with an original amount of $700.00. The customer paid promptly, and therefore qualifies for a 2 percent discount, but disputes a $36.00 charge for copying services.

The cash receipt looks like this:

Check Amount: $ 650.00

With the following line items:

Credit Amount: $ 700.00 Discount Given: $ 14.00 Write Off Amount: $ 36.00

This updates the following accounts when posted to General Ledger:

Note that the full amount of the receivable was credited. If you had chosen to insist that the customer pay the $36.00 copying charge the Write-Off Amount would have been zero, and the Credit Amount (to Accounts Receivable) would have been $664.00. If the customer had not disputed the copying charge in the above example, the Check Amount would have been $686.00, and the Write-Off Amount would have been zero.

Direct Sale

When you receive money for a direct sale, there is no need to record the sale into the Accounts Receivable account; rather, that account can be bypassed, and the sale’s revenue and cash can be recorded together.

The cash receipt for a direct sale of $1000.00 of merchandise would look like this:

Check Amount: $1000.00

With the following line item:

Direct Amount: $1000.00 Direct Account: Revenues

This updates the following accounts when posted to General Ledger: