Accounting for Cash Transactions

Cash transactions are ones that are settled immediately in cash. Cash transactions also include transactions made through cheques. Cash transactions may be classified into cash receipts and cash payments.

Cash Receipts

Cash receipts are accounted for by debiting cash / bank ledger to recognize the increase in the asset.

Following are common types of cash receipt transactions along with relevant accounting entries:

Cash Sale:

Debit

Cash

Credit

Sales

Cash receipt from receivable:

Debit

Cash

Credit

Receivables

Capital contribution from shareholders:

Debit

Bank

Credit

Share Capital

Receipt of loan from a bank:

Debit

Bank

Credit

Loan payable

Cash Payments

Cash payments are accounted for by crediting the cash / bank ledger to account for the decrease in the asset.

Following are common types of cash payment transactions along with relevant accounting entries:

Cash payment to a payable:

Debit

Payable

Credit

Cash

Purchase of inventory for cash:

Debit

Purchases

Credit

Cash

Purchase of a machine for cash:

Debit

Machinery - Asset

Credit

Cash

Cash Drawings by owner:

Debit

Drawing Account

Credit

Cash

Repayment of loan installment:

Debit

Loan Payable

Credit

Bank

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