Many businesses operate using only debit cards, credit cards, and checks, which leave a digital paper trail in your bank account, but that isn’t necessarily the case when buying and selling with cash. Whether your small business makes an occasional cash purchase or relies on cash as a primary method of doing business with customers, it’s important to keep close track of the details using cash receipts. If you have not been keeping track of cash transactions in the past, it’s not too late to get started.
What are cash receipts?
Cash receipts are documented records of the amount of cash that has changed hands in a transaction. You’re likely familiar with them, but if you need a refresher, go to your local retail store and buy something with cash. You should automatically get a receipt explaining the purchase details, including a line indicating how you paid (cash) and how much you paid in total. While this is likely the most common type of cash receipt you’ll encounter on a day-to-day basis, cash receipts may also play an important role in your business.
Cash receipts don’t necessarily need all the details that are automatically included on receipts from big-box retailers. To qualify as an official record, they only need to record that cash changed hands, who was involved, when the transaction took place, and details of what was purchased. However, more details can be helpful later on. Cash receipts can be computer printed, handwritten, or digital. What’s most important is that they contain a clear record of key transaction details.
What are cash receipts used for?
Cash receipts are used to create an official record of a cash-based transaction. They may also be used when payment is made via check or store credit. But, as the name implies, you’re most likely to see them when a transaction uses actual cash.
To better understand how they work, here are two examples:
1.) Purchase Transaction
Let’s say your business makes hand-made crafts to sell online. You like to buy supplies from a local vendor that works as a cash-only seller. Every time you make a purchase, it’s crucial to get a cash receipt to record what you spent on supplies. These records will come in handy later on when you’re reconciling your accounting records and may be important if there are any questions about your taxes.
2.) Sale Transaction
Pat lives on a large property with a small orchard and likes to sell organically grown, local produce at weekend farmer’s markets in the area. Pat makes most sales using a mobile debit or credit card reader, but many customers prefer to buy in cash. Pat uses a tablet-based digital cash register to track cash-based sales to understand which products are performing well and how many were sold.
How to use cash receipts
Cash receipts play a critical role in business bookkeeping and taxes. It’s necessary to track every transaction and dollar that goes in and out of your business, both for tax reporting purposes and making the best financial decisions for your business. Follow these steps to use cash receipts as a seller:
- Generate a cash transaction: First, your business must make a sale where the customer wants to pay with cash.
- Create a cash receipt: When the sale occurs, create the cash receipt in your sales system. If you don’t have one, it’s okay to create a sales receipt by hand. It doesn’t have to use a fancy form, but branded receipts make your business look more professional. Provide a copy to the customer and keep a copy for your business. If the customer has paid using a check (remember, those count as cash for these purposes), be sure to note the check number on your copy of the sales receipt.
- Enter the receipt in your bookkeeping system: If it doesn’t happen automatically, you’ll have to type the receipt details into your bookkeeping and accounting system so you can create accurate financial reports.
- Deposit your cash payments: Make sure your bank deposit slip amount matches your cash receipts journal (more on this in the next section). Hang on to your deposit receipts in case of any discrepancies.
If you use a point-of-sale (POS) system, your cash receipts may be recorded without having to do any additional work. Companies that frequently make cash sales and don’t use a cash register should consider keeping a cash receipts journal to ensure they don’t miss recording a sale.
Benefits of tracking cash receipts
While creating and tracking cash receipts takes some effort, there’s a big payoff. Here are some of the most significant benefits of tracking cash receipts:
- Proof of sale: The first benefit of tracking cash receipts is having proof of a sale. If there’s a dispute with the customer or a refund, having a record of past cash purchases may be very helpful.
- Accurate accounting records: Accurate accounting records help you make sound business decisions. They are also needed to generate an accurate tax return, which is required by law. Without cash receipts, you could under-report sales, which would lower your taxes and get you in trouble with the government, or you could under-report expenses, which would mean over-paying your taxes.
- Evidence if audited: If you wind up on the wrong side of an Internal Revenue Service (IRS) audit, you’ll be glad you have detailed records. You may need to provide your receipts as evidence that your taxes are correct in this situation. Source