Recording Basic Cash Transactions
Cash transactions are those where payment is made or received immediately (i.e. when cash is exchanged at the point of sale/purchase). Sales and purchases made by cheque, however, are classed as cash transactions. The main reason for this is that traditionally such transactions would be processed using a cash register or cash till. The cheques and cash in the till would be counted at the end of the day and then transferred to the bank account.
Double entry for cash transactions
For the sake of simplicity the following illustrations all refer to payments and receipts of cash being made out of the "cash" account, rather than distinguishing between "bank ledgers" and "cash ledgers."
When cash is received (i.e. receipt of an asset) the entry in the cash ledger is a debit. When cash is paid out (i.e. a reduction in an asset) the entry in the cash ledger is a credit.
A business conducts the following transactions
(1)It pays $80 for rent by cheque.
(2)It sells goods for $230 cash which he banks.
(3)It purchases $70 of goods for resale using cash.
(4)It sells more goods for cash, receiving $3,400.
The double entry journals for these transactions are as follows:
(1)Dr rental expenses $80
Cr cash $80
(2)Dr cash $230
Cr sales revenue $230
(3)Dr purchases $70
Cr cash $70
(4)Dr cash $3,400
Cr sales revenue $3,400
These are posted the the ledger accounts as illustrated below:
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