Cash memo is the accounting document that seller gives to buyer after the cash purchase. The seller prepares a cash memo as the evidence that buyer has paid cash to settle for the goods or service. They usually prepared two sets of copies, the original give to buyer while a copy keeps with the seller.
Cash memo is the legal document that proves that buyer already make a payment. The buyer will pass the document to the accountant to prepare the payment voucher and file it for recording. It will prevent the buyer from making double payments for the same invoice.
Cash Memo Elements
- Company Name: The seller name.
- Name of buyer: The buyers who pay for the cash settlement
- Reference number: The reference number should be in order.
- Date: The date of transaction
- Purchase order: It should track back to customer order.
- Product name: The list of products that customers purchase.
- Quantity: The number of products.
- Price: selling price per unit.
- Total Amount
Cash Memo Template
Cash Memo Journal Entries
Cash memo issue when customer make cash payment to the supplier, so it will impact cash balance. The seller will record revenue and recognize cash. The buyer will record cash out and increase expenses or assets.
- Seller should make the following journal entries
|Cash on Hand
- Buyer should make the following journal entries
|Cash on Hand
Advantage of Cash Memo
|Simple and straightforward
|The process of preparing the cash memo is very simple for both buyer and seller. It can be done base on the amount of sales which is flexible. It is very useful for small businesses that not require complex systems.
|The cash memo can be used instead of the invoice which is the legal document proof of the sale and purchase transaction. In case of dispute, this document is very important to prove the occurrence of the transaction.
|Separate cash transaction and credit sale
|The seller can separate the cash sale from credit sale by sorting the reference number of cash memo which should be placed by order.
|To support cash reconciliation
|Cash received can be matched with the cash memo, so it helps accountants to do cash on hand reconciliation.
|The document is proof of sale and cash collect from the customer. It will prevent fraud if employees want to steal the cash which will cause an imbalance at the end of the day.
What are the Disadvantages?
|Not suitable for big company
|The process is manual, so it is hard to operate in a big company that generates many transactions per day. They need support from the accounting software to generate official receipts or invoices.
|As the cash memo is manually prepared, it very easy for the staff to manipulate detail on the document.
|It is a very high risk to operate cash sales compare to bank transfers or credit cards. It encourages the staff to commit fraud and steal the cash which is easy to do.
|Customer not paying cash
|What if the customer purchase on credit, we need to have an alternative for them.