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.

Outlines

00:00

🧾 Cash Receipts and Their Importance

The paragraph discusses the necessity of issuing cash receipts whenever a business receives cash. It explains the two types of documents involved in cash transactions: cash receipts and check butts. The original cash receipt is given to the buyer, while the business retains a copy. Situations that may require issuing cash receipts include selling goods and services, charging GST, receiving payments from debtors, starting a business, and receiving loans or interest from a bank. A typical cash receipt includes the seller's name, buyer's name, receipt number, date, details of the transaction, and the total amount including any GST. The paragraph also emphasizes the importance of keeping records for accountability.

📝 Understanding Check Butts and Their Usage

This section delves into the concept of check butts, which are kept by the business as proof of cash outflows when payments are made via check. The paragraph outlines situations that necessitate issuing a check, such as paying expenses, purchasing assets, repaying creditors, and handling owner's drawings or loans. It also describes the process of issuing a check, where the business gives the check to the recipient for deposit and retains the check butt. Key information on a check includes the date, the payee's name, the amount in both words and numbers, and the check number, which must be recorded for each transaction.

Keywords

💡Source Documents

Source documents are the original records of a transaction. In the context of the video, they are crucial for maintaining accurate financial records. They include cash receipts and check butts, which are essential for tracking cash inflows and outflows. The script mentions that every time the business receives cash, a cash receipt must be issued, serving as a source document.

💡Cash Receipts

Cash receipts are documents issued by a business when it receives cash. They are a key part of the video's theme on financial documentation. The script explains that the original cash receipt goes to the buyer, while the business retains a copy. This is exemplified in various scenarios such as selling goods, services, or receiving repayments from debtors.

💡Check Butts

Check butts are the stubs of a check that remain with the payer after the check has been given to the payee. They are vital for the payer to keep as proof of the transaction. The script discusses the importance of issuing a check butt for every cash outflow, serving as a record of payment made.

💡GST (Goods and Services Tax)

GST is a value-added tax levied on most goods and services sold for domestic consumption. In the script, it is mentioned as a charge that may be included in the sale of goods and services, affecting the total amount shown on cash receipts. It is an important concept as it impacts the financial calculations businesses must make.

💡Debt

Debt in the script refers to money owed by one party to another. It is relevant to the video's theme as it discusses the process of issuing a cash receipt when a debtor repays the business. This is an example of a transaction that requires proper documentation for accounting purposes.

💡Owner's Drawings

Owner's drawings refer to the money taken out of a business by its owner for personal use. The script mentions that even when money is taken from the business by the owner, a cash receipt must be issued, illustrating the importance of documenting all financial transactions, regardless of the party involved.

💡Bank Loans

Bank loans are funds borrowed from a financial institution. The script discusses receiving money from the bank in the form of loans or interest, which may also require the issuance of a cash receipt. This highlights the need for proper documentation even when dealing with external financial institutions.

💡Receipt Number

A receipt number is a unique identifier for each cash receipt document. The script emphasizes the importance of having a receipt number for organization and tracking purposes. It helps in maintaining an orderly record of all transactions.

💡Transaction Details

Transaction details refer to the specific information about a financial transaction, such as the purpose of the receipt. The script provides examples of different types of transactions, like sales or repayments, and how they are documented in the details section of a cash receipt.

💡Check Number

The check number is a unique identifier for each check issued by a business. The script mentions the necessity of recording the check number for every check sent out, which is crucial for tracking and proving the transaction history.

💡Proof of Transaction

Proof of transaction refers to the documentation that证实s a financial transaction has taken place. Both cash receipts and check butts serve as proof in the video's narrative. They are essential for verifying the legitimacy of transactions and for audit purposes.

Highlights

Two types of documents for cash transactions: cash receipts and check butts.

Cash receipts must be issued every time a business receives cash.

Original of a cash receipt goes to the customer, and the business keeps a copy.

Cash receipts can be issued for selling goods, services, receiving debtor payments, and owner contributions.

A typical cash receipt includes the seller's name, buyer's name, receipt number, date, details, and total amount with GST.

Check butts are kept as proof of cash outflows paid by check.

Check butts are issued for paying expenses, buying assets, paying back creditors, and owner drawings.

In accounting, all cash payments are assumed to be made via check.

The check part is given to the other party for payment, while the check butt is retained by the business.

Important information on a check includes the date, payee, amount in words and numbers, and check number.

Each check and check butt must be recorded with a unique number.

Cash receipts and check butts are essential for accurate financial record-keeping.

Understanding the process of issuing and retaining cash transaction documents is crucial for business operations.

The role of the original document and copy in maintaining a record of financial transactions.

The necessity of issuing receipts for various financial activities to ensure transparency and accountability.

The importance of detailing the purpose of each transaction on cash receipts and check butts.

The inclusion of GST in the total amount on receipts and the need to account for it in financial records.

The practical application of cash receipts and check butts in different business scenarios.

Transcripts

we'll start off with the source

documents that are created for cash

transactions so we can see the two types

of documents there are cash receipts and

check buts so with cash receipts every

time the business receives cash it must

issue a cash receipt so someone gives us

cash we send them a receipt someone

gives us cash we send them a receipt and

so on and then what's important to note

is that we learned in the previous uh

lecture that the original will go to the

customer or the person who is the buyer

in this case where the issuer so the

business will keep a copy of that

receipt um the different situations

where we might need to issue cash

receipts could be for selling goods and

services and charging

GST we'll give those people a receipt

and again they'll get the original and

we'll keep the copy could be a debtor

paying us back and we'll give them a

receipt and we'll keep the copy it could

be the owner starting a business and

even though the business is getting

money from the owner you still got to

issue a receipt and the owner will have

a copy of the original and the business

will file the copy and it could be uh

getting money from the bank in the form

of loan or

interest just looking at a typical cash

receipt the things you want to look out

for is the name at the top will be the

name of the seller that's the person who

issues the document the name underneath

will be the buyer or the person who is

actually being issued the document

usually the customer we got a receipt

number each receipt should have a number

we've got the date that it was issued

and looking at the details we should

always look at what it's for so the

receipt on the left is for a sale and

the one on the right looks like it's a

DEA paying us back money and lastly the

total so we can see not only the actual

total but also there's any GST in the

transaction looking at check butts every

time there's a cash outlow uh we're

going to say that is paid by a check and

the business gives the check to the

other person and then we'll actually

keep the check but so we'll look at at

what a check butt is in a second but for

now we send the check to the person or

the other party and we keep the check

butt so for each transaction that we pay

send the check to the other party keep

the check butt as proof send the check

to the other party and keep the check

butt as proof just looking at some of

the situations we need to issue a check

for we'll have paying expenses with any

GST on top we'll have buying assets and

any GST that's charged on that we'll

have paying back creditors

uh the owner making

drawings and repaying any loans that we

may have as well looking at a check and

a check but um with obviously not a

common form of payment in the real world

but in your 12 accting we're going to

assume that all cash payments are made

via check so the part on the right is

called the check itself that's the bit

that we tear off and give to the other

party as payment they're going to then

go and deposit that in their bank

account what we'll keep is the check

butt the part on the left so we keep the

original or that of that document and

that serves as proof of that transaction

so looking at the important info we

should always have the date on both

parts of the check and the check butt

who is the party being paid so in this

case Central Plumbing Supplies the

amount and it should be written in uh

words and also in numbers on the actual

check itself and the check number so

we'll need to record the number of each

check that we send

out