Meaning And Importance Of A Cash Receipt

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While making sales is one of the prime objectives of any business, it is important for a company to prepare and maintain appropriate documentation in respect of each business transaction. A company enters into various purchase and sales transactions with its customers and vendors.

In case of a small business, the volume of these transactions may not be very high. However, in case of a large scale organization having offices across the world, the frequency of these transactions may be very high. In the absence of proper documentation, it may become impossible to keep a track of business expenses and incomes.

Cash receipt is issued to the customer against purchase of goods on cash basis. Unlike a credit sale where invoice is raised after the execution and delivery of an order, cash receipt is generally given at the point of purchase only. Cash receipt is a valid business document if it is properly stamped and signed by the vendor. It is important for a customer to check the details mentioned on the cash receipt in order to validate the purchase transaction.

Meaning Of Cash Receipt

Cash receipt is also known as cash memo in many countries. Cash receipt is a bill containing details on the name of the vendor and customer, description of items sold, price per unit of different items, quantity of different items, total amount paid by the customer, etc. In many cases, cash receipts are manually filled in by the vendor.

However, in case of purchase from retail stores, electronic cash receipts are generated by the vendor. Many small businesses use cash receipt to account for their sales transactions. Issuance of cash receipts is generally prohibited at large scale organizations to prevent misuse of cash by employees.

3 Important Purposes Of A Cash Receipt

Tracking And Reconciliation

A cash receipt with a unique identification number can be used to identify a sales transaction. Since cash receipts are issued only in respect of those transactions which have been made against cash, it becomes easier to distinguish between the value of cash sales and credit sales made by the company. Further, it becomes easier to reconcile the cash balance available with the company with the amount of total cash sales made by the company.

Support And Profit Estimations

Cash receipts can be used to support the value of total sales made by the company. This helps in accurate calculation of sales tax and submission of accurate income and sales tax returns with government and state authorities.

Further, cash receipts can also help in estimating the profitability of the business. Cash receipts when compared with business expenses can help in estimating the value of gross profit and net profit (if sales are made on cash basis only).

Avoidance Of Fraudulent Transactions

In the absence of cash receipts, it may become impossible to calculate the value of cash sales. It is quite possible that employees may resort to fraudulent tactics in order to make some quick money.

A company can reduce the possibility of such fraudulent transactions by making it mandatory to issue cash receipts in respect of each sales transaction (irrespective of the value of the transaction). Proper internal controls and monitoring can help a company in ensuring compliance (on the part of employees) with various accounting policies and procedures.