3.3 Source Documents for Cash Transactions

Summary

This script explains the importance of cash receipts and check butts in financial transactions. It details the process of issuing receipts for cash received, such as for sales, debtor payments, and owner contributions, ensuring the original goes to the buyer while the business retains a copy. The script also covers issuing check butts when cash is paid out, like for expenses, asset purchases, and loan repayments. It highlights the key information to include on these documents, such as the names of the parties involved, receipt or check number, date, and total amount with GST, to maintain a record of transactions.

Takeaways

• 📜 Cash Receipts are issued by a business every time it receives cash, with the original going to the buyer and the business retaining a copy.
• 💼 Situations requiring cash receipts include sales of goods and services with GST, debtor payments, owner investments, and bank transactions like loans or interest.
• 🔍 A typical cash receipt should include the seller's name, buyer's name, receipt number, date, details of the transaction, and the total amount including GST.
• 🏦 Check butts are kept by the business as proof of cash outflow when payments are made via check, with the actual check given to the other party.
• 💡 Check butts are necessary for various transactions such as paying expenses, buying assets, paying back creditors, and owner drawings or loan repayments.
• 📝 On a check and check butt, important information includes the date, the party being paid, the amount in both words and numbers, and the check number.
• 🔑 Each check and check butt should be numbered to keep track of all transactions made by the business.
• 🛒 When selling goods or services, if GST is charged, the business must issue a cash receipt to the customer, who receives the original copy.
• 💳 In the context of accounting, even if the business is receiving money from the owner, a cash receipt must still be issued to maintain proper documentation.
• 📈 The business must keep a record of all cash transactions, whether it's receiving or paying out, to ensure accurate financial reporting and auditing.
• 📑 The check butt serves as a crucial document for the business to maintain proof of payment, which is essential for accounting and legal purposes.

Q & A

What is the purpose of a cash receipt in a business transaction?

A cash receipt is issued by a business every time it receives cash to document the transaction. It serves as proof of the transaction and is given to the person who provided the cash.

Who receives the original cash receipt in a transaction?

The original cash receipt goes to the customer or the buyer, while the business keeps a copy for its records.

Under what circumstances might a business issue a cash receipt?

A business might issue a cash receipt when selling goods and services, receiving payment from a debtor, starting the business with owner's money, or receiving money from the bank in the form of a loan or interest.

What are the key elements to look for on a typical cash receipt?

A typical cash receipt should include the name of the seller at the top, the name of the buyer underneath, a receipt number, the date of issue, details of the transaction, and the total amount including any GST.

What is a check butt and why is it kept by the business?

A check butt is the part of a check that the business keeps after issuing a check to another party. It serves as proof of the transaction and is kept for record-keeping purposes.

In what situations would a business need to issue a check butt?

A business would need to issue a check butt when paying expenses, buying assets, paying back creditors, or when the owner is making drawings or repaying loans.

How are cash payments assumed to be made in the context of the script?

In the context of the script, it is assumed that all cash payments are made via check, even though this is not a common form of payment in the real world.

What information should be present on both parts of a check and the check butt?

The date, the name of the party being paid, the amount in words and numbers, and the check number should be present on both parts of the check and the check butt.

Why is it important for a business to record the number of each check that is sent out?

Recording the number of each check is important for tracking and reconciling financial transactions, ensuring accurate financial records and compliance with financial regulations.

What is the significance of the name of the seller on a cash receipt?

The name of the seller on a cash receipt indicates the entity that issued the document and is responsible for the transaction, providing a clear identification of the business involved.

What does GST stand for and why is it included on a cash receipt?

GST stands for Goods and Services Tax. It is included on a cash receipt to show the tax amount paid on the transaction, which is important for both the business and the customer for tax accounting purposes.