Cash Journal Entry Guide

Making accounting journal entries for cash are fundamental for a business. Whenever a business either spends or receives cash or a cash equivalent, then an entry must be recorded to account for this transaction. Knowing what to debit and what to credit are key in this process. 

Obviously if cash is involved, that will be one side of the entry, and the other will depend on the type of transaction you are performing.

Journal Entry for Cash Sales

Assuming your business sells inventory to someone for the sales price of $1,000 then you would need to record this entry. Any time cash is received, it would be a debit to cash, as this is the normal balance of the account. The normal balance of Sales is a credit, when we credit that account it also increases.

Dr. Cash $1,000
Cr. Sales $1,000

Along with each sale of goods, there is a related cost of goods entry that must be booked to record the inventory being sold. When the inventory is delivered to the customer, it is taken off the books for the cost originally paid as a credit to inventory. The Cost of Goods Sold account, and expense account, is debited for the same cost as the inventory was recorded at, as shown below.

Dr. Cost of Goods Sold $700
Cr. Inventory $700

These two journal entries are generally booked simultaneously, as one action (selling an item to a customer) drives the need to book both of them.

Journal Entry for Cash Receipt of Account Receivable
When cash is received from a customer for an amount due, an entry must be recorded to remove the asset of an Account Receivable and add the cash. Receiving cash of $1,000 would be recorded as follows.

Dr. Cash $1,000
Cr. Accounts Receivable $1,000

This would remove the record of the customer owing the amount to the company, as well as record on the books the cash that was deposited, usually in a bank.

Journal Entry for Cash Payment of Account Payable
When cash is paid to a creditor for an amount due, an entry must be recorded to remove the liability of an Account Payable on the books, as well as the cash. Payment of $1,000 would be recorded as follows:

Dr. Accounts Payable $1,000
Cr. Cash $1,000

Journal Entry for Cash Payment of Expenses
When cash is paid for certain expenses such as rent, then an entry must be booked to record the expense, and also record the cash that has been paid. Cash and expenses both have a normal debit balance, therefore the following entry will increased expense with a debit and decrease cash with a credit.

Dr. Rent Expense $1,000
Cr. Cash $1,000

These entries above will cover most of the different types of journal entries for a cash transaction. While there are many more, the fundamental principles here still apply. Cash is a balance sheet account that has a normal debit balance, which means cash goes up with a debit and down with a credit.

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