Cash Memo

Publication Date :

07 Nov, 2019

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Table Of Contents

Cash Memo Meaning

A 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 prepared along with a duplicate copy, as the original will be handed over to the buyer, and the seller will retain the duplicate copy. It is the documentary evidence for all the cash sales made by the business, and it is proof of cash purchases for the buyer.

A cash memo is equivalent to an Invoice copy and a legal document. It is used for knowing the cash sales of the business, for paying tax, for reconciliation and analysis, Inventory planning, Cash flow position, etc.

It is a non-negotiable commercial instrument that acts as 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 account for the cash balance. Credit sales cannot be made via a cash memo, as it can be issued for a sale transaction only if the cash is received.

Cash Memo Meaning

Cash Memo Format

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

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. One of the regular customers, Jeni, visits the shop and buys two pairs of jeans of Levi's brand for $100 each and 3 T-shirts of Nike brand for $50 each. Joe offers a 10% discount to Jeni and charges 10% VAT 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 are more favorable to business for cash flow as the customer pays cash immediately for sale.
There will be no outstanding customers in the transactions made via a cash memo, and the working capital 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 debts 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 evasion 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 day.
It is a manual process, so a responsible person should be appointed to take care of these transactions as the risk is more in handling cash transactions.

Conclusion

A cash memo is a business voucher issued by a seller on cash sales. It is a legal document, and all transactions accounted for via cash memo are 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. The system is simple and effective for day-to-day transactions.