Cash Receipts Journal: Definition, Types, Pros & Cons

Since no cash is received from credit sales transactions, they are not recorded in an accounting journal. Credit sales are handled using the accrual basis of accounting, while cash transactions are handled using the cash basis.

That’s where cash receipts journals come into play. Read on as we take a closer look at what a cash receipts journal is, the different types, and the pros and cons.

Table of Contents

What Is the Cash Receipts Journal?

Types of Cash Receipts

Example of a Cash Receipt Journal

Advantages of a Cash Receipts Journal

Disadvantages of a Cash Receipts Journal

Key Takeaways

Frequently Asked Questions

What is the Cash Receipts Journal?

A cash receipts journal is a record of financial transactions that includes bank deposits and withdrawals as well as all cash payments and receipts. The general ledger account is then updated with the cash receipts journal entries.

A cash receipts journal is also known as a specialised accounting journal.

The following information is found in the typical cash receipts journal:

• Date
• Client name
• The cash receipt will be identified, and it could be any of the following:
  • Paid cheque number
  • Client name
  • The paid invoice
• Both sides of each entry are recorded in separate columns for debit and credit. The typical entry is a debit to cash and a credit to sales.

Depending on how frequently you get cash from customers, there can be a lot of entries in this journal.

Regularly, an overall sum of the journal balance is calculated and sent to the general ledger. When looking into a specific cash receipt, a person would start with the general ledger before descending to the cash receipts log, where they might find a reference to the particular receipt.

The cash receipts journal would cover items like payments made by customers on an unpaid accounts receivable account or cash sales. Whereas the cash disbursement record would include items like payments made to vendors to lower accounts payable.

Types of Cash Receipts

Cash receipts can be broken down into three separate categories. They are as follows:

• Receipt of cash from cash sales
• Receipt of cash from credit customers
• Receipt of cash from other sources

Let’s take a slightly closer look at each of these three categories. 

Receipt of Cash From Cash Sales

In the cash receipts diary, all funds received from clients that fall under cash sales for goods and services are noted along with the counterparty’s name in the narration.

Receipt of Cash From Credit Customers

After making credit sales to the consumer based on the advanced credit period, any money is subsequently collected.

Receipt of Cash From Other Sources

All additional cash sources, including bank interest, investment maturities, sales of non-inventory assets, sales of fixed assets, etc.

Example of a Cash Receipt Journal

The cash receipts journal is used to track transactions where a shop or wholesaler sells products to a customer and receives payment in cash.

Cash receipts are used to track a variety of financial transactions for businesses, including the owner’s capital investments, the sale of an asset for cash, all types of credit customer collections, bank interest income, dividend payments, and rental income.

The cash receipts diary also contains information on any additional loans that a person has taken out from banks or other financial institutions. Tax refunds for direct and indirect taxes, any fee or commission collected, or the maturity of an investment or insurance policy. Any donations made are also recorded in this diary. 

This journal aids in tracking the organisation’s cash flow analysis and inflow of liquidity, which are eventually included in the IFRS-reported financial statements and different disclosures provided to other stakeholders and governmental agencies.

Advantages of a Cash Receipts Journal

There are a number of advantages of using a cash receipts journal. These include: 

• It keeps track of all the money received within the time period.
• It aids in the creation of the period’s cash flow statement and ledger for cash accounts.
• It keeps track of the trade receivable ledger and past-due accounts.
• By comparing the amount of money received and the amount of money paid over time, it helps to keep track of all unpaid and overdue supplier payments.

Disadvantages of a Cash Receipts Journal

There is only one real disadvantage of using the cash receipts journal. And that is that it only takes into consideration the cash basis of accounting. 

Cash Basis Accounting is a type of accounting whereby all of the company’s revenues are recognised upon actual cash receipt and all of the expenses are recognised upon payment. Most independent contractors and small businesses adhere to the method.

The cash receipts journal ignores the accrual basis of accounting, which serves as the foundation for sound accounting and double-entry bookkeeping.

Key Takeaways

All cash transactions made during an accounting period are documented in a cash receipts journal, which is set up as a subsidiary of the general ledger. Chronological entries are made in the cash receipts journal and the balance is continuously updated and confirmed. 

The cash disbursement diary and the cash receipts journal are typically divided. This is into two components in larger organisations. In contrast to a cash account, which is an account within a general ledger, a cash receipts journal is a separate ledger. This is where cash transactions are documented.

The main objective of a cash receipts journal is to properly manage cash by making it simple to ascertain cash balances at any given time, enabling managers and corporate accountants to budget their cash. 

Additionally, accessing monetary information through a cash receipts journal is far quicker than tracking the cash payment through a ledger.

FAQs on Cash Receipts Journal

What Is the Difference Between Cash Receipts and a Cash Receipts Journal?

All cash receipts for a given accounting period are recorded in the cash receipts journal, a special kind of accounting journal. Cash receipts, on the other hand, serve as documentation of a cash sale from the cash received for your company.

Are Cash Receipts Debit or Credit?

As an accounting entry that records the receipt of money from a customer, a cash sales receipt is a debit.

Are Loans Cash Receipts Journal?

When a company receives a loan from a bank, a transaction is performed in the cash sales collections journal to record the loan.

How Do You Calculate Cash Receipts Journal?

You calculate your cash receipts journal by totalling up your cash receipts from your accounts receivable account.

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