What is the perception of cash and bank transactions?
Cash is one of the most important things for a business to operate smoothly. A cash transaction in a company is a payment made by money when a purchase is made for business purposes, and cash is received when a product or service is sold to your customer.
The idea of cash and bank transactions.
All financial transactions are made by cash immediately after purchase or sale and maybe after a few days after any deals. When the transactions are made for smaller amounts, the money is used for that, ad if the transactions are made for more significant amounts, the bank applies for that because of safety issues. Cash transactions can be misappropriated by showing different quantities in the record of payments. Therefore a cash book is maintained and balanced with the cash in hand. At the end of every day, show the correct amount in the transactions. Thus, to control cash and bank transactions, a cash book is maintained to avoid mishandling.
Cash transactions.
Cash transactions refer to payments and receipts of cash. Cash received from sales, sales of assets, loans, investments, borrowing, and capital received. Cash payments are for purchases, rent, rates, salaries, creditors, and loan repayments: directors’ drawings, interests on loans, and liabilities.
Banking
Business nowadays deals with most of their transactions through their bank accounts. It is a safety measure to stop using cash directly for purchases, sales, or other operations. A business can also instruct the bank to make payments and collect receipts on behalf of the company. There is no cash held in the office other than petty cash in today’s businesses.
Cash transactions.
In this method, cash is paid and received immediately and does not involve delays in this transaction.
Cash receipts
When sales are cash received, the entry will be that money is debited, increasing the asset, and the income increases because the sales are credited. Therefore the accounting entry will be
Debit – Cash
Credit – sale
| Date | Debit | $ | Date | Credit | $ |
| March 5 | sale | 50 | March 5 | sale | 50 |
Cash payments
When payments are made cash/bank credited, the asset decreases, whereas the expenses are debited and used in the preparation of financial
| Date | Debit | $ | Date | Credit | $ |
| March 5 | Salaries | 200 | March 5 | Bank | 200 |
In this, cash payments and receipts are made through the bank, and at the end of each month, the entries are checked and balanced, known as the bank reconciliation.
Cash taken for personal use will have an accounting entry like this. Even though the asset (money) is reduced and the drawings are increased, the net effect will be the owners holding in the business will be reduced. It is a temporary entry, but at the end of the year, when preparing the financial statements, the amount in the drawings account is transferred to the debit of the capital account.
| Date | Dr | $ | Date | Cr | $ |
| March 6 | Drawings | 500 | March 6 | Cash | 500 |