Cash Memo

Cash Memo Meaning

Cash Memo is one of the documentation for cash transactions between buyer and seller, and the seller prepares it for the cash sales, and the same is given to the buyer on the purchase of goods. It is the documentary evidence for all the cash sales made by the business, and it is proof for cash purchases for the buyer. It is prepared along with a duplicate copy, as the original will be handed over to the buyer, and the seller will retain the duplicate copy.

Cash Memo is equivalent to Invoice copy and a legal document. It is used for knowing the cash sales of the business, to pay tax, for reconciliationReconciliationReconciliation is the process of comparing account balances to identify any financial inconsistencies, discrepancies, omissions, or even fraud. At the end of any accounting period, reconciliation involves matching balances and ensuring that debits (credits) from one account for one transaction is same as the credit (debits) to another account for the same transaction.read more and analysis, Inventory planning, Cash flow position, etc.

It is a non-negotiable commercial instrument which acts as a proof for the seller that cash has been received from the customer for the goods sold and for the purchaser to book the cost and to account for the cash balance. Credit salesCredit SalesCredit Sales is a transaction type in which the customers/buyers are allowed to pay up for the bought item later on instead of paying at the exact time of purchase. It gives them the required time to collect money & make the payment. read more cannot be made via a cash memo, as it can be issued for a sale transaction only if the cash is received.

 Cash Memo Format

Given below is the format to prepare a sample cash memo.

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For eg:
Source: Cash Memo (wallstreetmojo.com)

Contents

• Name and address of the supplier – To substantiate that the supplier has made the sales
• Name and address of the purchaser – It acts as a proof for a purchaser to record the purchases
• Serial Number of cash memo – It serves as a trail to track the sales made by the business, to record all the transactions entirely without missing any transaction
• Date of cash memo – To track the transaction on a daily and monthly basis
• Customer or Purchaser’s Order number – To track the volume of transactions made against a single customer
• Description of goods – To identify the nature of goods sold
• Quantity of goods – To follow the good sold and to know the inventory position
• Rates of Goods – To calculate the sale value
• Amount – To know the sales made by the business
• Discount (Trade discount or cash discount) to be shown separately – To track the discounts provided
• Tax registration number of purchaser and supplier in case of the sale of goods – For tax payments
• Total amount mentioned in the cash memo needs to be written in words and figures
• The cash memo must be signed by the duly authorized person – To make it more valid;
• Terms and Conditions if any

Cash Memo Example

Joe owns a boutique called Billy Reid. Jeni, one of the regular customers, visits the shop and buys two pairs of jeans of Levi’s brand for $100 each, 3 T-shirts of Nike brand for $50 each. Joe offers a 10% discount to Jeni and charges 10% VATVATValue-added tax (VAT) refers to the charges imposed whenever there is an accretion to a product's usefulness or value throughout its supply chain, i.e., from its manufacturing to its final selling point. It is an indirect tax levied on the product consumption.read more on the sale transaction. Joe prepares a sample cash memo for the transaction mentioned above.

Advantages

• It is simple and effective to prepare and track.
• It is suitable for all small businesses which deal with cash transactions.
• It is a legal document, and it is equivalent to the invoice.
• It is more of a manual process, so no separate computerized system is required.
• It is authenticated as it always carries the signature of a responsible person.
• Transactions made via cash memo is more favorable to business for cash flow position as the customer pays cash immediately for sale made.
• There will be no customer outstanding in the transactions made via a cash memo, and the working capitalWorking CapitalWorking capital is the amount available to a company for day-to-day expenses. It's a measure of a company's liquidity, efficiency, and financial health, and it's calculated using a simple formula: "current assets (accounts receivables, cash, inventories of unfinished goods and raw materials) MINUS current liabilities (accounts payable, debt due in one year)"read more position of the business will be good. The funds can be better utilized for the business.
• As credit transactions cannot be made under a cash memo, there will not be any bad debtsBad DebtsBad Debts can be described as unforeseen loss incurred by a business organization on account of non-fulfillment of agreed terms and conditions on account of sale of goods or services or repayment of any loan or other obligation.read more to the business.

Disadvantages

• It is easy to manipulate the transactions
• It is not suitable for large business
• Bank transactions are better than cash transactions as it carries a proper trail
• Tax evasionTax EvasionTax Evasion is an illegal act in which the taxpayers deliberately misreport their financial affairs to reduce or evade the actual tax liability. This includes using multiple financial ledgers, hiding or representing lesser income, gains, or profits than actually earned, overstating deductions, & failing to file returns. read more is possible as the revenue and cost are taken into account by manual method, and there is no proper tracking system.
• Vendors and customers may not always be interested in paying cash immediately as they prefer to have some credit days.
• It is a manual process, so a responsible person should be appointed to take care of these transactions as risk is more in handling cash transactions.

Conclusion

A cash memo is a business voucher that is issued by a seller on cash sales. The system is simple and effective for day to day transactions. It is a legal document, and all transactions accounted via cash memo is valid. It is proof of all the sales made by a business. It is suitable for a small business where the volume of business is low and recurring in nature.

Recommended Articles

This article has been a guide to what is Cash Memo and its Meaning. Here we discuss the format to prepare a cash memo along with a sample example to understand it better. You can learn more about accounting from the following articles –

• Credit Memo (Credit Memorandum)
• Debit Memo
• Provision for Income Tax
• Examples of Cash Book