Cash Receipts From Cash Sales Affects Which Financial Statement Elements

Cash Receipts From Cash Sales Effects On Financial Statements

Cash receipts from cash sales affects cash account and sales account. Cash is a Balance Sheet Account and recorded in the balance sheet while sales is an Income Statement Account and recorded in income statement. So, it affects both Income Statement and Balance Sheet.

Cash Received From Customer Journal Entry / Cash Receipts From Cash Sales Journal Entry

For example, Mr. A is a sole proprietor, received cash of Rs. 5000 from his customer, Mr. B for merchandise sold for cash. What is the journal entry and the effect of cash receipts from cash sales on the accounting equation?

The journal entry is recorded in Cash Receipts Journal. The entry to record shown below:

                                                                                      Cash a/c  5000

 

                                                                                                                    Sales a/c  5000

 

                                                                                            (Merchandise Sold For Cash)

As cash is increasing i.e., it is coming into the business, so we debit it while sales is also increasing, as merchandise is selling to customer, so increase in sales is also credited.

The Effect Of Cash Receipts From Cash Sales On The Accounting Equation

                                                       Assets     =     Liabilities      +   Owner’s Equity

                                                       +Cash      =            0              +          (+Sales)

                                                       +5000      =            0              +           (+5000)

As cash, being a current asset is increasing, so it is added to assets on the left side of the accounting equation while sales is the result of operating activities of the owner (Mr. A) of the business, so it affects owner’s equity and as the sales is increasing, so it positively affects the owner’s equity, so it is also added to owner’s equity on the right side of the accounting equation. After the effect of cash receipts from customer, Mr. B, the accounting equation is in balance at +5000 on both sides.