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:
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 + 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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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.