Why Do Small Businesses Need Cash Receipts?

When you buy something, you’re usually given a receipt documenting that purchase. These receipts—which might be printed on paper or sent digitally via email or an app—record the key details of the transaction, including what you purchased, how you paid, and the amount of money you spent.

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As a consumer, you probably don’t think too much about that receipt; in fact, you may just throw it right in the trash. But as a small business owner, throwing receipts away is not an option—because cash receipts play an important role in a variety of business functions, including accounting, planning, and tax purposes.

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But what, exactly, are these types of receipts? And why are they important for your business?

What Are Cash Receipts?

A cash receipt is a record that proves your business made a cash sale. These financial statements can be physical or digital and feature a variety of details, including:

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• What was purchased
• The cost of each item or service
• The payment method (for example, bank deposit, cash, debit or credit card, personal check or cashier check, store credit)
• The total amount of the transaction

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Some receipts might also include other information—for example, the business name and address, contact information, the specific cash register or POS system used during a transaction, a unique number to identify the receipt, a check number, the name of the client or customer, and/or a customer signature.

When Do You Record a Receipt?

Businesses need to generate receipts whenever they receive cash (via physical or electronic means, such as cash, check, or payment card) from any source, including clients, customers, lenders, and investors. In other words, you need to create and record a cash receipt any time a transaction:

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• Increases your cash account (i.e., your current assets reported on your balance sheet)
• Decreases your accounts receivable account (i.e., the amount of cash your business is owed)

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Typically, both you and the payer should receive a copy of the sales receipt to document the transaction.

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Busy doing a lot of tracking? Hourly can take time and attendance tracking off your hands—and use that data to update your payroll in real-time. What’s more, it connects your payroll directly to your workers’ comp plan, so premiums are always accurate.

What if I Haven't Been Paid Yet?

If you haven't been paid yet, you can hold off on a cash receipt. That's because cash receipts aren’t recorded when you make a sale; they’re recorded when you receive a cash payment. So, an unpaid invoice doesn’t generate a receipt until the invoice is paid—and only then would you create, send, and record the receipt.

Examples of Cash Receipts

So, what do receipts look like in action? Some examples of relevant receipts include:

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1. A plumber is hired to snake the drains inside a customer’s home. After he finishes his work, he provides the customer with a bill, who hands him a check for the total amount. Because cash changed hands, the plumber provides the customer with a receipt, which is recorded in his company’s cash journal when he arrives back at his office.

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2. A graphic designer is hired to create a new logo for a company. After completion, the designer invoices the company for the cost of work on a net-30 basis, recording the invoice as an accounts receivable. When the invoice is paid, the designer issues a cash receipt, credits her accounts receivable, and debits her cash account.

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Here’s an example of a cash receipt you can customize for your business. Just click "Make a copy" to edit your own.

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What Are the Benefits of Cash Receipts?

Generating and managing cash receipts is a good general accounting practice. But that’s not the only benefit! Some other benefits these statements provide for your business include:

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• Improves bookkeeping accuracy: Receipts create a paper trail that helps you reconcile accounts and correct any accounting discrepancies.
• Proof of sales: Receipts verify that transactions have taken place—helping you settle potential disputes with customers, claim tax deductions, and provide evidence to the IRS in the case of an audit.
• Helps track and manage financials: Recording receipts can help you easily calculate the cash flow and total revenue of your business, helping you track income and expenses, create or modify your budget, and plan for the future.
• Better internal controls: Recording receipts helps businesses improve and maintain internal controls (internal procedures that support accurate financial reporting) by creating an immediate record of a cash payment.

How Do You Record Cash Receipts?

It’s not enough to stuff a bunch of receipts into a file cabinet and call it a day; cash transactions need to be recorded and stored in a dedicated cash receipts journal, which is a specific part of your general ledger. To record entries into your receipts journal:

1. Make a Cash Sale

A cash transaction must take place before you can record an entry into your cash receipts journal. After your business receives funds via bank deposit, cash, check, debit or credit card, or a customer uses store credit, generate a receipt that includes details about the transaction. Provide a copy of the receipt to the payer and keep a copy for your records.

2. Record the Receipt in Your Journal

Next, you’ll need to record your transaction in your journal. The information included in these journals can vary, but many journals include the following information:

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• Transaction date
• Account credited (the customer’s account information)
• Reference (the internal reference number of the account that the entry belongs to)
• Explanation (what was sold/what the sale was for)
• Cash Dr. (how much cash you received—debit)
• Sales Discount Dr. (the total discount applied to the transaction, if any)
• Accounts Receivable Cr. (the total amount credited to a customer’s account—credit)
• Sales Cr. (the total amount received in a cash transaction)
• Other Accounts Cr. (the total amount of cash received from other sources, such as interest or rent)

Cash Receipts Journal Entry Example

As mentioned, journal entries can vary, but let’s take a look at what one might look like:

Most bookkeeping software handles cash journal entries for you. Similarly, many registers and POS systems automatically generate relevant journal entries—so, chances are, you won’t need to manage this manually.

3. Keep Your Receipts and Financial Statements

After documenting your receipts in your journal, ensure you’re safeguarding all sensitive material—including receipts, cash deposit receipts, and other information—in a locked file cabinet and/or digital storage. This helps you maintain internal controls and is important for quick referencing if discrepancies, disputes, and other issues occur.

Frequently Asked Questions About Receipts

Still have some questions about receipts? Let’s cover some frequently asked questions about these financial statements.

What Is Considered a Cash Receipt?

A cash receipt is a document (either physical or digital) that details a cash transaction. 

What Are Different Types of Cash Receipts?

Different types of receipts are generated from cash sales, debit or credit card payments, payments via check or bank transfer, or store credit. Receipts should also be generated for funds received via lenders or investors.

What Are Cash Receipts vs. Cash Payments?

A cash payment occurs when a payer transfers funds to a payee—like a customer to your business. This increases your funds and revenue, and can reduce a payer’s accounts receivable balance. A receipt is a record of this transaction that proves the cash payment took place.

What Is Another Word for Cash Receipts?

Cash receipts are also sometimes called sales receipts—or simply receipts. 

Manage Your Cash Flow by Recording Your Receipts

As an average consumer, receipts can be a pain. But as a small business owner, cash receipts provide valuable insights into your company’s cash flow and financial health. Tracking how much cash is coming into your business (and when) plays a critical role in making decisions for your business, like when to take on a big expense or take your business to the next level. 

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And now that you better understand receipts, you’re armed with the information you need to track them—and reap the benefits of those accurate financials in the process.