Cash Receipt

The business has a cash receipt of 500 from a customer relating to a sales invoice already posted to the sales ledger and accounts receivable (trade debtors) control account.

How do you show the Cash Receipt?

The cash receipts transaction is shown in the accounting records with the following bookkeeping entries:

Cash Receipt Journal Entry
Account Debit Credit
Cash 500
Accounts receivable 500
Total 500 500

In practice the entry to the accounts receivable would be a two stage process. The amount would be posted to the sales ledger, to the individual account of the customer, and then the control totals in the sales ledger would be posted to the accounts receivable control account.

Cash Receipt Bookkeeping Entries Explained

Debit – What came into the business
Cash came into the business from the customer.

Credit – What went out of the business
The obligation of the customer to pay and therefore the assets of the business have been reduced.

The Accounting Equation

The accounting equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities plus the equity of the business. This is true at any time and applies to each transaction. For this transaction the accounting equation is shown in the following table.

Cash Receipt Accounting Equation
Assets = Liabilities + Owners Equity
Cash + Accounts receivable = None + None
500 – 500 = 0 + 0

In this case both one asset (cash) is increased and another asset (accounts receivable) is decreased by the same amount due to the cash receipt.

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Cash Receipt November 6th, 2016

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