October 3, 2022

What is Cash Memo: Explained

A cash memo is a piece of paper used for cash transactions between a buyer and a seller. It is made by the seller for cash sales and given to the buyer when goods are bought. It is made along with a copy that will be kept by the seller. The original will be given to the buyer, and the seller will keep the copy. It’s proof that the business sold things for cash, and it’s proof that the buyer bought things for cash, too.

Cash Memo at a Glance

A cash memo is the same thing as a copy of an invoice and a legal document. It is used to find out how much money the business made in cash, to pay taxes, reconcile and analyze, plan inventory and cash flow, etc.

It is a non-negotiable business document that shows the seller that the customer paid cash for the goods sold. It also lets the buyer record the cost and figures out how much cash is left over. A cash memo cannot be used to make a credit sale because it can only be given when cash is received for a sale.

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 proof for a purchaser to record the purchase.
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 goods 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
The 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

 

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.

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

Conclusion

A cash memo is a business voucher that a seller gives out when they get paid in cash. It’s a legal document, and all transactions that are recorded on it are valid. It shows that a business has made sales. It’s good for a small business with a small but steady amount of business. Everyday transactions are easy and work well with this system. Checkout delivery challan format to know about the formal document which is used while delivering the goods.

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