Cash Receipts and Cash Sales (Chp 5)

Flashcard maker : Brad Bledsoe
In accounting terms ‘cash’ means
anything that is not on credit
Cash sales include
bank notes
debit card
credit card
electronic transfer payments
When cash is received by a business it must be
recorded at once
In most retail businesses the recording of cash is done by
a cash till
Cash tills vary in complexity, options available include
a simple one with a till roll which gives a total of all receipts during the day (this can be checked with the amount in the till at the end of the day)

one that store the amount of sale totals electronically and update stock levels as each sale is made

If you receive cheques/other money by post you may have a
remittance list
Remittance simply means
what money you have been sent in payment for goods or services
If cheques/other money is received you would record the
and then this would be totalled at regular periods)
If there is no till, the you may combine
the remittance list with cash received list
Whatever methods you use, it will eventually be recorded in the
Cash book
A cash book is used to
record all the monetary transactions of a business
Typically a cash book will
have a column for bank transactions
and a column for cash transactions
Transactions are ‘cash’ until they are
actually banked (so it is quite possibly to have cheque amounts in the ‘cash’ column)
The cash book follows the same principles as any other ‘T’ account. The debits on the
left are for ‘receiving’ and the credits on the right are for ‘giving’
The cash book usually doubles as a
book of prime entry and part of the double entry (therefore, any entry in the cash book will need a balancing entry in some other account)
The cash book will look different in different companies, some who bank all of their cash daily may not have a
cash column. It is not necessary for them to know how much cash is left on the premises
Some companies will need to analyse their receipts and (particularly) their payments so that a
check can be kept on what the amounts in the cash book are for
Recording a cash sale is the same as recording a
credit sale, except that the cash book is used instead of the Sales Ledger or the Sales Ledger Control
Not all cash receipts will be for
If a credit customer pays by cheque, this is recorded in the
– cash book (on the left under bank)
– Sales Ledger Control Account (right – credit)
– Subsidiary Sales Ledger (right – credit)
In the Sales Ledger and the Sales Ledger Control is it easier to think of debit enteries
increasing what the customer owes
In the Sales Ledger and the Sales Ledger Control is it easier to think of credit enteries
reducing the amount the amount owes
When the cash is paid into the bank, this needs to be reflected in the cash book. This is done by means of a
contra (this means opposite or against).
the contra entry will be identifed by a ‘c’
In accounting terms it is when one account is set off against an opposite entry in another
When cash is paid into the bank we will increase the amount in the bank and decrease the
amount of cash
When cash is paid into the bank, the cash book will look like
Bank (c) – the cash column will be credited with the cash (the right as this have been ‘given’ to the bank)
Cash (c) – the bank column has been debited as the amount has been ‘received’ by the bank
The details column shows where the other side of the double entry is and explained by the (c) meaning contra entry
There will be many entries in the cash book. Since it is a book of prime entry, all cash and bank transactions will be shown here, and it may only be updated
to the rest of the main ledger daily, weekly or even monthly
By the time we update the rest of the main ledger there may be a lot of entries and sorting out the cash sales from the payments by credit customers can be
time consuming and could lead to errors. For this reason, the cash book often has analysis columns
The balance b/d is the amount of cash and money at the
bank at the end of the previous month
Cash sales – this is the record of a cash sale. The total amount of cash paid by the customer is entered in the
cash column, while the net amount is shown in the cash sales column and the VAT amount is shown in the VAT column
The folio column shows
Main Ledger entries (ML)
Sales Ledger entries (SL)
Only settlements discounts need to be recorded in the
accounts because it is not clear at the time of raising the invoice whether the discount will be taken or not
Entries in the Sundry column would include
– Rental income from letting out spare office space
– Income from a loan
– Money introduced from the owner’s private funds (known as capital)
The cash column is the total of all
cash received in the month plus the opening balance.
It may not be the cash in hand just the cash receipts.
Cash payments will be shown on the
other side of the cash book
The bank column will show all the amounts
paid into the bank in the month plus the opening balance.
It may not be the amount you have in the bank as only dealt with bank receipts.
Bank payments will have been made and shown on the
other side of the cash book (the payments or credit sales)
When you have analysed the cash book you can check the accuracy of your totals. The sum of the cash book and bank columns less the
opening balances should equal the sum of the other totals but not the discounts allowed)
The double entry for the other side of the cash book are
– credit Sales Account
– credit VAT Account
– credit Sales Ledger Control Account (and discount amount)
– debit Discounts Allowed Account
Remember to update the Sales Ledger. The customer accounts must be updated with the
amount they have paid and the discount allowed
The double entry for the other side of the cash book for Sales Ledgers (customer accounts) will be
credit customer account (and discount allowed as a separate line)
The discount allowed is included in the main ledger because the discount is not
a cash transaction and as such is not shown in the cash or bank columns of the cash book
Strictly speaking a discount is not a cash book entry at all, but it is shown in the
cash book as a means of showing why the receipt from the customer was not the total amount of the invoice. Since it is not shown in the cash book or bank columns of the cash book, it needs its own double entry
A remittance advice is a
document which usually accompanies the cheque saying what the payment is for.
Typically a remittance advice will
Typically it will show the invoices to be paid and the credit notes and discounts taken. Some companies provide a tear-off slip with their statement of account
Figures on a remittance advice to be taken off the invoices to be paid are in
Putting figures in brackets is a common (and acceptable) way of showing negative amounts
A remittance advice is important to both parties, it shows
the company what transactions they payment was for and for the supplier shows what invoices are outstanding
Another method of payment which you may receive is a
BACS transfer
BACS stands for
Bankers Automated Clearing Serivce
BACS is the company which organises/sets the rules for
Standing Orders, Direct Debits and Direct Credits
A standing order is a
instruction a bank account holder gives to their bank to pay a set amount at regular intervals to another account.
The instruction to pay comes from the person sending the money
A direct debit is the same
as a standing order except that the instructions to pay come from the person receiving the money
A direct credit is mainly used for
paying wages and salaries, but it also used by many companies to pay suppliers
BACS started in
1968, and takes 3 days to clear
CHAPS stands for
Clearing House Automatic Payment System
CHAPS offer
same day transfers, but can be expensive
The government commissioned a company called
VocaLink to set up another system which would be quicker and cheaper
FPS stands for
Faster Payments Service
FPS processed the first transaction on
27th May 2008
FPS transfers money between
bank accounts almost instantaneously and currently runs along side bacs
To ensure the receiving company knows they are getting an automated payment you can send
a BACS (or FPS) remittance advice
EFTPOS stands for
Electronic Funds Transfer at Point of Sale
EFTPOS is the method used for
accepting debit cards and credit cards
Once the customer enters their card into an on-site machine and enters their pin the equipment
– contacts the store’s bank electronically about the transaction.
– a message is also sent to the customer’s bank
– the funds will be transferred between the 2 accounts unless their is a problem
– it only takes a few seconds
The cards now issued (use with EFTPOS) are called
The chip is the embedded integrated circuit which processes the information
It is the gold coloured square which can be seen on the face of the card
If you need to take payment from a customer with a debit or credit card you will need to make sure that
– the card has a logo and a chip
– the card is in date (valid from and expires on)
– the card has not been tampered with and there is a signature on the reverse
The old style of chip and signature (or even the old magnetic strip and signature) can no longer be guarantee for payment.
There are 3 exceptions for this
– customers with the old style card which has not yet been updated
– some disabled cardholders
– cardholders from countries which have not yet upgraded to chip and PIN
A floor limit is the payment amount above which
credit or debit card transactions must be authorised before being processed
The floor limit can vary from business to business and is set
by the card company
The floor limit has to a certain extent become unnecessary, as authorisation of debit or credit cards is done
electronically. However, it may occasionally still be used if the customer does not have a chip and PIN card or if there is a problem in the connection to the card company’s electronic authorisation system,
The floor limit for all telephone, mail order or internet transactions is
A cheque is a written instruction to a bank (the drawee) to
pay a specific amount to another person (the payee)
When you receive a cheque you must check the following points
– that it is signed
– that the date is today’s date or earlier
-the words and the figures are correct
A banker’s draft is almost identical to a cheque except that the
drawer and the drawee are one and the same
A customer can order a banker’s draft from the bank, usually for
large purchases
For a banker’s draft the bank will take the funds from the
customer before it issues the draft
The advantage of a banker’s draft is that
funds for payment are from the bank itself rather than the customer’s account. In a way it is more secure than a cheuque
Postal orders are essentially
cheques for people without bank accounts
Postal orders can be purchased from the
Post Office and used as payment for goods and services
Postal Orders are particularly useful when
paying by post of a cheque is not possible
The 2 vertical lines on a cheque with the words ‘a/c payee’ written between means
that the cheque can only be paid into the payee’s bank account
Having ‘a/c payee’ is a security measure so that a
lost cheque is virtually useless to someone who finds it
To find a cheque issued by a bank without the ‘a/c’ crossing is very rare nowadays, but if it has not got this then it would be
fully transferable, meaning that is could be passed on to someone else if it was signed on the back (endorsed)
A crossing without words on a cheque means it has to be
paid into a bank account (i.e. cannot be exchanged for cash at the bank)
Cheque guarantee cards are useful to the payee as it
guarantees payment of the cheque up to a certain limit set by the bank, whether or not the customer has enough funds in their account to cover it.
(often this is the same card as the debit or credit card)
When receiving a cheque with a cheque guarantee card you will need to
write the cards number on the back of the cheque
A cheque guarantee card is only valid per
Accepting cash has the advantage as
there can be no dispute over payment. The coins and notes are legal tender and cannot be disputed
Accepting cash has the disadvantage that
they belong to whoever bears them, so theft is a real threat
Bank notes can be used
for any amount as can £1 and £2 coins
50p and 20p coins are legal tender up to
10p and 5p coins are legal tender up to
2p and 1p coins are legal tender up to
If you receive more than the legal tender (coins) you are entitled
to refuse them (though customer relations may suffer if you do!)
Payment of coins and notes should be for the
exact amount as legally you cannot demand change, however, the vast majority of suppliers (if not all suppliers) will give change
When you check the contents of your till at the end of the day, you must remember to be
sure to take off the till float to arrive at the takings of the day
If you are comparing the contents of the till with the till roll, then you must remember to
add on the till float you had at the beginning of the day
When taking payments by cash you must be aware of the security problems
– cash should be kept in the till and should be closed except when actually being used
– if you don’t keep a till the money should be kept in a cash box or safe which is locked. They keys to the box or safe should be limited and kept away
– cash should be banked as soon as possible
– the contents of the till should be checked with the till roll at least every day, preferably by someone else other than the person taking the cash payments

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