The entries recorded in the Other Accounts column of a cash payments journal

The cash receipts journal is that type of accounting journal that is only used to record all cash receipts during an accounting period and works on the golden rule of accounting – debit what comes in and credits what goes out.

Credit salesCredit SalesCredit Sales is a transaction type in which the customers/buyers are allowed to pay up for the bought item later on instead of paying at the exact time of purchase. It gives them the required time to collect money & make the payment. read more are not recorded in this accounting journalAccounting JournalAccounting journal, often known as the book of original entry, is first used to record the company's accounting record whenever a financial transaction occurs. It's difficult to comprehend, yet it's crucial in business operations and accounting.read more because there isn’t any cash collected in those credit sales transactions. Cash sales work on the cash basis of accounting, and credit sales on the accrual basis of accountingAccrual Basis Of AccountingAccrual Accounting is an accounting method that instantly records revenues & expenditures after a transaction occurs, irrespective of when the payment is received or made. read more.

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Source: Cash Receipts Journal (wallstreetmojo.com)

Table of contents

Types of Cash Receipts

They can be further divided into three different parts as well which are broken down below:

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• Receipt of Cash from Cash Sales: All cash received from cash sales of goods and services to customers is recorded in the cash receipts journal, mentioning the counterparty’s name in the narration.
• Receipt of Cash from Credit Customers: All cash subsequently collected after making credit sales to the customer basis the credit period advanced.
• Receipt of Cash from Other Sources: All other sources of cash such as Bank Interest, Maturity of investments, sale of non-inventory assets, sale of fixed assetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more, etc.

Example of Cash Receipt Journal

When a retailer/wholesaler sells goods to a customer, and it collects cash, this transaction is recorded in the cash receipts journal.

Investment of capital by the owner of a business is recorded in cash receipts, sale of an asset for cash is recorded in cash receipts, all kinds of collections from credit customers are recorded in cash receipts, collection of bank interest,, dividendDividendDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more or rental income is also recorded in cash receipts journal.

Another Loan taken by an individual from any bank or financial institutionFinancial InstitutionFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. read more is also recorded in the cash receipts journal. Any fee and commission received the maturity of an investment or an insurance policy, tax refunds for direct and indirect taxesIndirect TaxesIndirect tax, also known as consumption tax, is the type of tax the person does not directly bear. In contrast, the incidence of such taxes is passed on to the end consumer of goods or services by adding such taxes to the value of those goods or services, like Excise duty, Service tax, VAT, etc.read more, Donations received also form part of this journal and help keep track of liquidity inflow and cash flow analysis for an organization periodically, which ultimately forms part of IFRS reported financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more and various disclosures made to other stakeholders and government authorities.

Cash Receipts Journal Format

The format usually looks like the below:

Explanation of Columns Used in Cash Receipts Journal

• Date (Column 1): The date on which the cash is received is entered in the date column.
• Account Credited (Column 2): This is the account name that is credited due to the receipt of cash in the books of accounts.
• Ref (Column 3): The reference column is used to enter the internal reference number of the account to which the journal entry belongs.
• Explanation (Column 4): The explanation or narration of the cash receiptCash ReceiptA cash receipt is a small document that works as evidence that the amount of cash received during a transaction involves transferring cash or cash equivalent. The original copy of this receipt is given to the customer, while the seller keeps the other copy for accounting purposes.read more is briefly explained in this column.
• Cash Dr(Column 5): The amount of cash received is entered in this column. The cash in the general ledger account is debited by the amount coming in this total.
• Sales Discount Dr(Column 6): Sellers allow a discount to buyers who make payment within credit periodCredit PeriodCredit period refers to the duration of time that a seller gives the buyer to pay off the amount of the product that he or she purchased from the seller. It consists of three components - credit analysis, credit/sales terms and collection policy.read more allowed. The total amount of discount allowed to buyers is entered in this column.
• Accounts Receivable Cr (Column 7): When a credit customer/buyer makes the payment, his account is credited in the accounts receivable ledger. The amount by which a customer’s/buyer’s account is credited is filled in this column.
• Sales Cr (Column 8): This column records cash sales. Every time a cash sale is made to a customer, the amount received is entered in this particular column.
• Other Accounts Cr (Column 9): This column is used to record the receipt of cash from other sources, including cash for interest, rent, the sale of fixed assets, etc.

Practical Example

The following example shows how cash receipt journal accounting works and is recorded in accounting ledgersAccounting LedgersLedger in accounting records and processes a firm’s financial data, taken from journal entries. This becomes an important financial record for future reference. It is used for creating financial statements. It is also known as the second book of entry.read more:

List of Transactions

• 07/08/2019 – Cash Sales made of £5,000.
• 12/08/2019 – Cash received from credit customer Douglas of £490 after-sales discount of £10.
• 14/08/2019 – Cash Sales made of £7,000.
• 17/08/2019 – Cash received from credit customer Rob of £990 after-sales discount of £10.
• 20/08/2019 – Loan from Bank £1,500.
• 21/08/2019 – Cash Sales made of £6,500.
• 22/08/2019 – Interest received on Bank account of £350.
• 23/08/2019 – Cash received from credit customer John of £741 after-sales discount of £9.
• 25/08/2019 – Cash received from credit customer Amanda of £345 after-sales discount of £5.
• 28/08/2019 – Cash Sales made of £9,000.

Advantages

• Helps in keeping track of all cash received during the period.
• Helps in preparation of cash account ledger and cash flow statement for the period.
• Helps in keeping track of trade receivablesTrade ReceivablesTrade receivable is the amount owed to the business or company by its customers. It is also known as account receivables and is represented as current liabilities in balance sheet.read more and aged receivables.
• Helps in keeping track of all outstanding and aged supplier payments by matching the cash received with cash paid during the period.

Disadvantages

A single disadvantage of the cash receipts journal is that it only considers the cash basis of accountingCash Basis Of AccountingCash Basis Accounting is an accounting method in which all the company's revenues are accounted for only when there is an actual cash receipt, and all the expenses are recognized when they are paid. Small companies and individuals generally follow this accounting method.read more. It doesn’t consider the accrual basis of accounting which is the principal basis of doing double-entry bookkeeping and prudent accounting.

Post Posting Checks

There are two post posting checks which can be made following the posting of the cash receipts journal at the end of an accounting period to ensure that the transactions during the period have been correctly entered and presented in ledgers and the financial statements of an organization:

• The total of all the customer sub-ledger balances appearing under the account heading accounts receivables should always be equal to the balance on the sub-ledger control account in the general ledger trial balance.
• Also, the general ledger trial balance should always be in balance, which means that the total debits in the general ledger should equal the total credits so that the balance sheet also matches at the end.

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