Cash transactions are those where payment is made or received immediately (i.e. when payment is exchanged at the point of sale/purchase). Sales and purchases made by cheque or immediate bank transfer are therefore classed as cash transactions. The main reason for this is that, traditionally, such transactions would be processed using a cash register or cash till. The cheques and cash in the till would be counted at the end of the day and transferred to a bank account.
Credit transactions, on the other hand, occur when goods are sold or purchased and paid for at a later date and, increasingly, are more commonly paid for using electronic payments methods and are referred to as bank transactions.
For the sake of simplicity the content in this chapter refers to payments and receipts of cash being made out of the 'cash at bank' general ledger account, rather than distinguishing between 'bank ledger and a 'cash ledger'.
When cash is received (i.e. increase in an asset) the entry in the cash at bank general ledger account is a debit. When cash is paid out (i.e. a reduction in an asset) the entry in the cash at bank general ledger account is a credit.
Businesses receive money from credit customers who are paying invoices and from customers who do not have a credit account. From an accounting perspective, there is an important difference between receipts from credit customers and receipts from customers without a credit account.
Receipts from credit customers have to be recorded, not just in the general ledger, but also in the individual 'memorandum only receivable ledger account of each credit customer. With computerised accounting systems, the memorandum-only information is updated simultaneously at the same time as the general ledger.
Receivables
to record the amount owing to the business
Sales
to record the income earned
When a credit customer subsequently pays the amount due, the accounting records are updated to show that the customer has paid the money owed.
In this situation, the accounting entries required in the general ledger will be:
Cash at bank
to record the receipt of cash
Receivables
to reduce or clear the amount owing to the business
Receipts from customers without a credit account are treated as cash sales. These receipts may come from takings in a cash register or through orders by post, telephone or e-mail, where payment is by cheque, credit card or some form of immediate automated or electronic payment. Cash sales are only recorded as and when they occur.
In this situation, the accounting entries required in the general ledger will be:
Cash at bank
to record the receipt of cash
Sales
to record the income earned
When a business has receipts from cash sales, the amount received must be checked to ensure that all the receipts are complete. The total value of receipts in notes and coins, cheques, and credit and debit card vouchers should be calculated separately, to obtain three separate totals. The total value of receipts by cheque and by credit and debit cards is found by going through the cheques and credit/debit card vouchers one by one and adding up their total value. Some calculators produce a printed list of the individual cheque or credit/debit card voucher amounts.
When the total value of receipts has been calculated in this way, it may be possible to compare this total with a till roll (for cash received recorded by a cash register) or a printout of credit card receipts (for receipts taken and recorded through a credit card machine). The two totals should be equal.
When money is received from credit customers, it is important to ensure that each receipt is properly recorded. A common method of doing this is to start by preparing a remittance list or cash received list. A remittance list is simply a list of each receipt, with details of who the money has come from and the amount of the receipt.
The following is a typical remittance list:
| Customer name | Account number | Amount received |
|---|---|---|
| A C Bryan | 1037 | 265.40 |
| Flowers Limited | 1002 | 319.64 |
| E Patel | 1053 | 396.61 |
| P Taylor | 1025 | 236.98 |
| F Willis | 1129 | 326.89 |
| Young Fashions | 1042 | 115.79 |
| Perry & Co | 1079 | 163.26 |
| L Connor Limited | 1023 | 115.37 |
| O McGovem | 1152 | 327.36 |
| J Shepard | 1116 | 372.45 |
| Cole and Porter | 1014 | 325.67 |
| P Smith | 1046 | 235.89 |
| D Iqbal | 1103 | 117.80 |
The account number here is the customer's account number, which is the account number in the memorandum only receivables ledger. This number may be obtainable from the remittance advice from the customer, if there is one, or from the copy of the invoice held by the accounts office.
A remittance list may also be prepared by a small business that does not have a cash register but receives money from customers during the course of each day. In this case, all receipts from customers would be recorded immediately on the remittance list.
H Chan works for Bradshaw Electrical Repairs. H Chan carries out repairs to household appliances and is called out to repair washing machines, fridges and other household items. For each call out, a fee is charged that is paid either in cash or by cheque.
When H Chan finishes each job, a receipt is completed and handed to the customer, giving details of the amount charged and acknowledging that the customer has paid.
H Chan keeps a carbon copy of each receipt, and from these carbon copies a remittance list of all of the receipts from customers during the day can be prepared.
A remittance list might look something like this:
| Date | Customer | Work done | Amount |
|---|---|---|---|
| 12 June | F Bond | Washing machine repair | 62.30 |
| 12 June | V Assam | Fridge repair | 41.78 |
| 12 June | T Poll | Freezer repair | 56.02 |
| Total | 160.10 | ||
The remittance list is a document for recording receipts from customers. Each day or week, the details from the remittance list should be used to update the general ledger. When a business receives a large number of receipts, it is often a good idea to split them into manageable batches of transactions, and to process each batch separately.
When money is received from a credit customer, the receipt should be matched against the invoice or invoices that the customer is paying.