Definition: Cash receipts are the collection of money, typically from a customer, which increases (debits) the cash balance recognized on a company’s balance sheet.
What Does Cash Receipts Mean?
What is the definition of cash receipt? Simply put, a cash receipt is recognized when an entity receives cash from any external source, such as a customer, an investor, or a bank. Typically, this cash is recognized when money is received from a customer to offset the accounts receivable balance generated when the sale transaction occurred.
Businesses can operate in a variety of fashions, some of which sell products and services on credit (expecting cash payment at a later time), and some require immediate cash payment upon selling a good or service (cash sale). Regardless of the type of sales transaction, the cash receipt occurs when the customer provides the cash or check to the business as payment for the good or service received.
Let’s take a look at two quick examples, and determine when the receipt occurs:
Example
Example of a cash receipt associated with a cash sale
A great example of a cash sale transaction occurs at a lemonade stand your neighbor’s kid, Timmy, sets up each weekend throughout the summer. This is a simple operation, selling a simple product, for a simple price. Timmy sells a glass of lemonade for $1, and without say it’s expected that you have to immediately pay Timmy $1 to receive a glass of lemonade. In this example, each sale generated by Timmy’s lemonade stand generates a $1 cash receipt. Timmy does no sell you a glass of lemonade on credit, with a due date one month later, rather, immediate cash receipt is record with recognition of the sale (debit the cash account, credit the sale account).
Example of a cash receipt associated with a credit (receivable) sale
Let’s say you own a large distributor of televisions, and you sell a variety of different brands. You continually purchase your televisions from several different manufacturers, and they’ve each extended you credit terms that allow you to order televisions when you need them allowing you to pay the bill within 30 days. While the manufactures would recognize a sale to your business upon shipping the televisions to you, this is not when they would record the cash receipt. Rather, the manufacturer would record the sale, and record a receivable balance due in 30 days (debits the accounts receivable account, credits the sales account). The cash receipt would be recorded when you actually pay cash or check to the manufacturer. They would reduce the receivable balance outstanding, and increase the cash balance (debit the cash account, credit the accounts receivable balance).
Summary Definition
Define Cash Receipts: A cash receipt is when money is collected from an external source and recorded as an increase to the cash account.
