All transactions in accounting must have accurate documentation as proof of financial trail. Documentation is a must whether you have a small business or a large one. A cash memo is one such document that stores transaction records between the seller and buyer. This helps in keeping track of cash transactions.
In this article, you will learn about cash memo – their uses, types, format, contents, examples, how to create a cash memo and benefits. Read on! .
During a cash sale, the seller creates a cash memo and hands it over to the buyer. It is an official record of any cash sale.
The seller prepares a cash memo along with a duplicate copy so that they can retain the duplicate while the original is for the customer. It is a negotiable trading tool that works as proof for a seller that goods have been sold and money has been received from a buyer.
A cash memo is an accounting document that aids in keeping track of accounting transactions done using cash or any other payment format and in managing an accounting process. This helps in knowing cash sales of a business, analysis and reconciliation, paying taxes, cash flow position, inventory planning, etc.
Using a cash memo, you will have no chance of losing any vital transaction information in the process. Transaction details stored in these cash memos are then recorded in the book of accounts.
Also Read: GST PMT-06 Form – Benefits, Eligibility Criteria, and How to Use
Here are some of the primary types of cash memos that small businesses can utilise to maintain their accounts:
A typical cash memo used for cash transactions by any business in any industry. This serves as proof of the involvement of both parties in a transaction. It includes necessary information such as items, rates, taxes, due amount, etc.
Seller makes a partial cash memo when a buyer makes a partial payment via cash and the rest via bank account for any transaction. In such a situation, tracing cash memos to invoices takes place so as to look at all transaction payment details.
It is a more thorough or specialised variant of a basic cash memo. This type of cash memo includes detailed product information and parties involved in the division of taxes into applicable forms of GST.
Given below is a sample of the cash memo format:
A standard cash memo format contains the following information:
This helps in tracking transactions daily
It works as proof that purchaser has validated the transaction
It is proof that supplier has made the sales
This helps track the sales of a business and keep a record of all the transactions without missing out on any
To keep track of what is being sold and what is in the stock
To identify nature of the goods sold
This helps in calculating sales value
To know the sales done by the business
For the purpose of tax payment
This should be the person who receives cash for accounting purposes, making a transaction more valid
It helps in tracking any discount given
This helps to understand the taxes that are charged for the purchase of the goods
This is the amount the buyer pays after the imposition of tax. It is to be written in figures as well as words
These consist of the rules and regulations regarding purchase
NO. 144 141, ABC Street Date. 20.02.2022
Buyer’s Name: Anny
Buyer’s Address: 34, Hartford Street, AL
|1||Skirt||1||Rs. 500||Rs. 500|
|2||Shirt||2||Rs. 300||Rs. 600|
Total Discount @10%
Tax [email protected]5%
|Total Amount||Rs. 1039.5|
This is an example of a cash memo template. Here the name of the shop is written on top, below which the address is written. The serial number comes in the next line. Next, the transaction date is mentioned in the right-hand corner of the same line. The next line is for the name of the buyer with an address.
After that, the quantity of each product purchased, product description, rate of one unit and amount for each product are mentioned beside them. The discount percentage is also mentioned below. Finally, the amount payable is provided.
You can easily create a cash memo by using the word “cash memo” format. Many sample cash memo formats are available these days on various sites that you can use to create a similar one by opening a blank word document. You just have to create a similar document by providing all your business details and saving it. Include all the contents that are available in the template.
This way, you can generate a cash memo bill by copying it and filling in all the necessary details. If you are unable to use the cash memo format in word, you can use the same method to create a cash memo format in Google Docs, which is a free source. All you require for this is a Google account to access Google Docs.
You can also create a cash memo using an Excel sheet or Google Sheets. It has the table and formulas to auto-calculate the amount as well.
Another way of creating a cash memo is by using PDF. To create a cash memo in PDF, first, you have to build the format in Word or Excel, as mentioned above. But you cannot modify the date in the PDF. Therefore, make all the necessary changes in Word or Excel documents and download a final copy as a PDF.
Here are the advantages of using a cash memo:
This is an easy way to track and keep sales records for both buyers and sellers. This method is apt for small businesses that do not require complicated processes.
Being more of a manual process, it does not require any computerised system or program.
By sorting the reference number in order, the seller can better track the cash and credit sales.
A cash memo works as proof of sale for the seller and as a receipt for the buyer. Therefore, it helps in keeping a record of day-to-day cash, prevents any miscalculation on the side of the business, and helps to identify in case the staff steal money.
As the customer pays the cash immediately, cash memo transactions are preferable for any business’s cash flow.
Cash memos help in matching the cash received. This makes it easier for the accountant to calculate the cash in hand.
The transaction is authentic as the cash memo includes the signature of the responsible person.
A cash memo is equivalent to an invoice, which is a legal document proving that the transaction has taken place. Hence, if there is any dispute, this document works as evidence.
There are no chances of bad debt to the business, as cash memos do not allow credit transactions.
Following are some of the disadvantages of using a cash memo:
As the seller prepares the cash memo in a handwritten and manual format, employees are likely to falsify the document’s details.
As monitoring of income and expenses is manual, there is a lack of proper tracking.
As the whole process is manual, it is not easy to use in large organisations where there is a huge number of daily transactions. The seller might require accounting software to generate receipts and invoices in this case.
Cash memos do not support credit sales. Vendors or customers might only sometimes be able to pay cash and prefer paying in credit format.
As cash memos are mostly manual, a responsible person will have to oversee the transactions as handling cash transactions involve greater risk.
Cash sales carry greater risk than credit card or bank transactions. Employees might get encouragement to commit fraud or steal money as it is easier.
As the seller takes care of the revenue and cost records in a manual format and there is no proper tracking, tax evasion might occur.
While both a cash memo and an invoice are used for the keeping of sales and transactions, there are notable differences between them. Here is a table for a quick & better comprehension:
|A cash memo is a commercial document that the seller issues for the buyer when they make a payment in cash||The issuance of an invoice takes place by the seller for the buyer to make the payment|
|Invoice is issued prior to payment||Cash memo is given after the cash transaction is over|
|Generation of an invoice takes place during credit sales||Cash memo generation occurs during cash sales|
A cash memo is a business voucher the seller generates on cash sales. It is a testament to all the sales done by the business. Cash memos are appropriate for small businesses. Though it is not a receipt, it does not require the attachment of a revenue slip.
Also Read: GSTR-4 – Annual Return Filing, Format, and Due Date
Ans: Sellers usually prepare cash memos for the buyers. However, on behalf of the sellers, the accounting staff, bookkeepers and sometimes the business owners themselves are responsible for creating cash memos.
Ans: Receipts are accounting documents that denote payment for goods and services to suppliers or any other company. In comparison, cash memos track transactions involving purchases, sales and receiving payments from buyers in exchange for products.
Ans: Yes, there are apps available for cash memos, such as Vyaparapp, which helps you create bills on the go, Cash memo and many more. This and similar apps save time and chances of error in calculation.
Ans: Cash memos work as accounting documents that keep track of all transactions using cash. This will help avoid accounting discrepancies that lead to complications in business, like getting into financial trouble with creditors.
Ans: The trader produces the cash memo for the buyer in case of cash purchases. The seller makes this bill after the completion of the cash payment. While a credit memo is a type of commercial document, the supplier sends it to the customer, informing them that there is a reduction in the money due to the seller.
|Section 194IB||Section 44AA||Section 80E|
|Section 195||Section 80EEA||Section 80DD|
|Section 80CCC||Section 80GG||Section 80 G|
|Section 54F||Section 1941A||Section 10|
|Section 194Q||Section 192||Section 269SS|
|Section 80DDB||Section 44AD||Section 194C|
|Section 194A||Section 194H||Section 80D|
|Section 80C||Section 80C, 24(b), 80EE & 80EEA||Section 234A|
|Section 50C||Section 80C||Section 80EEA|
|Section 194B||Section 194J||Section 206C|
|Section 80CCG||Section 80 EEB||Section 24Q|
|Section 40b||Section 194C||Section 54EC|
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