What is Cash Receipt Journal?

A cash receipt journal is a source document that records all cash inflows of a business. It is an important part of the cash book.

Businesses can record details of cash receipt transactions that are otherwise omitted from the general ledger.

Let us discuss what is cash receipt journal, how it is constructed, and its pros and cons for a business.

What is a Cash Receipt Journal?

A cash receipt journal is an accounting journal that records the cash receipts of a business. It is a chronological record of the cash receipts by a business.

For most businesses, it is part of the cash book whereas the other section comprises the cash disbursement journal.

A business records its cash receipts on this journal by entering all transactions made through cash and checks. Each transaction can be recorded with full details.

A cash receipt journal provides a useful alternative space to the general ledger. Cash receipts on a general ledger cannot be recorded with the full transaction details.

The cash receipt journal is frequently used by small businesses. It is a manual form of recording cash transactions.

As a cash receipt journal is a chronological record of one-sided cash transactions, it does not form double-entry postings. Therefore, subsidiary ledger accounts on it may not show equal credit and debit sides.

What Information is Included in a Cash Receipt Journal?

A cash receipt journal can record as many details about a cash detail as required. It is a multi-column sheet that records all important details of a cash receipt transaction.

It has no set format or templates as it is a primary source document. It can be modified or customized according to the needs of a business.

It can record all cash receipt transactions including:

  • Sales and revenue transactions
  • Payments received from customers
  • Payments received against accounts receivable balance
  • Other income transactions

Broadly, these transactions can be categorized into:

  • Receipts from cash sales
  • Receipts from credit balances
  • Receipts from other income sources

A cash receipt journal can record the following information:

  • Transaction Date: It is the date when cash is received by the company.
  • Transaction Reference – A reference number for recordkeeping purposes.
  • Transaction Details – A description of each transaction with important details.
  • Ledger folio – a reference to the sub-ledger or main ledger.
  • Transaction Amount – The cash amount paid for each transaction.
  • Analysis or Notes Column – A descriptive column showing analysis or special notes about each transaction.
  • Transaction Type – It classifies each transaction into different categories like receivables, sales, or other income.
  • Check number or electronic transfer reference number.
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A sample cash receipt journal format looks like this:

DateTransaction ReferenceDetailsLedger FolioAmountPayerAccount DetailsNotes
01-07-xx701SalesSF 08$ 150Jet PrintersSales RevenuePrimary Sales Revenue
02-07-xx702SalesSF 190$ 1,000Fine MaterialsSales RevenuePrimary Sales Revenue
03-07-xx703SalesSF 208$ 500Star Co.Sales RevenuePrimary Sales Revenue
04-07-xx704ReceivablesRF 37$ 1,000Fine MaterialsAccounts ReceivableCredit Recovery
05-07-xx705InterestIR 03$ 2,000LaborersInterest IncomeInterest on Deposits

Similarly, a business can record any number of cash receipt transactions. The number of columns can be modified accordingly as well.

How to Create a Cash Receipt Journal?

A business can create a simple cash receipt journal as shown above. Here is the step-by-step approach to creating it.

STEP 01:

The first simple step is to create an outlay of the journal by adding the required columns. Each column should have a title.

STEP 02:

The second step is to start recording cash receipt transactions. As the business receives cash from sales, interest earned, cash from customers, etc. It should record these transactions chronologically.

STEP 03:

Then, a business can categorize each cash receipt into different categories. These accounts should be in line with the subsidiary ledger accounts. However, unlike the general ledger, the credit and debit balances wouldn’t be the same here.

STEP 04:

Finally, the balances for each account should be transferred to the subsidiary ledger accounts. These account balances would then reflect on the general ledger.

As the general ledger follows the double-entry accounting system, the account balances would show equal credit and debit sides there.

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Special Considerations with Cash Receipt Journal

Businesses often offer sales discounts to their customers to attract new buyers and increase revenue. A cash receipt journal should record these discounts distinctively.

Cash discount transactions in bulk can be grouped. Also, a business can show a lump sum cash discount for its receipts on a daily or monthly basis.

Similarly, there will be cash reversal entries due to returned goods and warranty claims. A consistent approach to recording cash reversal would be to record each reversal separately.

A cash receipt journal is a primary source document. It is not a mandatory document and most businesses using automated bookkeeping systems do not deploy it.

When maintained properly, a cash receipt journal can work as proof of cash transactions. It is also a useful source document for recording general ledger entries.

Tips to Maintain Cash Receipt Journal

A cash receipt journal can be a good source of information for any business. It is part of the cash book of a business that offers primary bookkeeping data for cash transactions.

Here are a few tips to maintain a cash receipt journal and improve the log:

  • It should be updated regularly (usually daily)
  • Update cash receipt journal in conjunction with other subsidiary ledgers for consistency.
  • Keep a consistent and updated record of returned inventory and record the cash reversal entries accordingly.
  • Reconcile the cash receipt journal, subsidiary ledger accounts, and general ledger accounts.

Keeping a clean and consistent cash receipt journal helps a business track its cash movements. It complements the cash disbursement journal and keeps the cash book records updated.

Pros and Cons of Using Cash Receipt Journal

A cash receipt journal is a simple but lengthy document. It offers several pros and cons to a business, especially dealing with cash.

Pros Explained:

It helps a business in maintaining its cash book. It means it is useful in cash tracking and helping a business in maintaining working capital.

A cash receipt journal also helps a business track its accounts receivable. When done correctly, it helps in collections and managing discounts offered.

It can also be used as a primary document that can help in creating general ledger accounts. Cash entries from the general ledger accounts would then be used for financial statement records.

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Cons Explained:

As a primary source document, it does not follow the double-entry accounting rules. It records only one side of a cash transaction; receipts.

It means the account balances on a cash receipt journal would often be out of balance. The debit and credit sides would balance only when transferred to the general ledger.

It is a time-consuming process and most automated accounting systems do not use it nowadays. Also, it is more suitable for businesses following the cash basis of accounting rather than accrual accounting.

Cash Receipt Journal as Proof of Posting

Like the cash disbursement journal, a cash receipt journal would also offer two types of proofs of posting. It means a business can verify the accuracy of information recorded in the cash receipt journal in two similar ways.

  • The total balances of each subsidiary ledger account should be the same as the total of each subsidiary ledger control account on the general ledger.
  • The general ledger should always show the same balance for its debit and credit sides. It means the general ledger should be in balance at all times

The general ledger balances can be taken from the cash book. Therefore, when these two conditions are satisfied, the information taken from the cash book can be used as proof of posting.

Cash Receipt Journal Vs Cash Disbursement Journal

The cash receipt journal records the receipt side of all cash transactions of a business. Contrarily, the cash disbursement journal records the cash payments of the business.

Both of these journals form the cash book. In that sense, these are two sides of the cash book where a business records all cash transactions.

Both cash logs follow the same pattern and approach. Each cash journal has similar types of columns and information recorded.

Both these journals can act as primary source documents to update subsidiary ledger accounts and ultimately the general ledger.

In short, a cash receipt and disbursement journal complement each other. When these two journals record accurate information, it can be transferred to complete the ledger book.

The key difference between the two is the contrasting nature of cash transactions only. These opposite-side cash transactions can be made to and from the same customers though.

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