Recording Cash Transactions

Welcome back to our course.

In the previous lessons, we've recorded transactions that create debts and receivables. When we recorded sales or the disposal of an asset on credit, we created a créance (receivable) from a client. When we recorded purchases, we created a dette (payable) to a supplier. Today, we will address the next logical step in the business cycle.

This lesson focuses on the learning outcome: Record cash receipts from customers and payments to suppliers. We will explore how to account for the settlement of these receivables and payables, which is the process of managing the company's cash flow. Mastering these entries is fundamental, as they are among the most frequent transactions an accountant handles.

1. The Foundation: Treasury Accounts and Settlement Methods

Before recording the entries, it's essential to understand the accounts involved and the common methods of payment. In accounting, all transactions involving cash, cheques, or bank transfers are managed through Treasury accounts (Comptes de Trésorerie), which belong to Class 5 of the Moroccan chart of accounts.

The two primary accounts we will use are:

• 5141 - Banques: This account tracks all transactions flowing through the company's bank accounts (cheques, bank transfers).
• 5161 - Caisse: This account tracks all transactions involving physical cash (espèces).

To grasp the mechanics of these accounts and the different settlement methods, please review the following material.

As you've read, the core principle is simple:

• Cash Inflow (Encaissement): Increases a treasury account. Since Banques and Caisse are asset accounts, an increase is recorded with a Debit.
• Cash Outflow (Décaissement): Decreases a treasury account. A decrease in an asset account is recorded with a Credit.

2. Recording Receipts from Customers (Encaissements Clients)

When a customer pays a previously recorded invoice, you are "settling" a receivable. This means you are converting a receivable (an asset) into cash or bank funds (another asset).

The general journal entry for a customer payment is:

The debit increases your cash/bank balance, and the credit decreases the amount your customer owes you. The Clients account is "cleared" or "settled" by the amount paid.

The image below perfectly illustrates this two-step process: first the sale that creates the receivable, then the payment that settles it.

A Practical Detail: Handling Cheques

As you learned from the reading, when you receive a cheque, there's a delay before the funds are actually available in your bank account. For precise tracking, especially at month-end, professional practice often uses temporary accounts:

1. Upon receiving the cheque:
   • Debit 51111 - Chèques en portefeuille (Cheques in hand)
   • Credit 3421 - Clients
2. When depositing the cheque at the bank:
   • Debit 51112 - Chèques à l’encaissement (Cheques for collection)
   • Credit 51111 - Chèques en portefeuille
3. When the bank confirms the payment (on the bank statement):
   • Debit 5141 - Banques
   • Credit 51112 - Chèques à l’encaissement

While some small businesses might take a shortcut and directly debit 5141 - Banques upon receiving the cheque, this multi-step process provides much more accurate and rigorous financial control.

3. Recording Payments to Suppliers (Décaissements Fournisseurs)

Paying a supplier is the reverse of receiving money from a customer. You are settling a payable (dette), which means you are using your cash/bank funds to extinguish a liability.

The general journal entry for a payment to a supplier is:

Here, the debit to Fournisseurs decreases the liability (the amount you owe). The credit to Banques or Caisse reflects the decrease in your cash balance.

In a real company, these payments are tracked systematically. The image below shows a payment log from accounting software, which is the source for generating these journal entries.

4. Professional Practice & Terminology

Professional Terminology

Frequent Mistakes to Avoid:

1. Reversing Debit and Credit: Remember, Banques and Caisse are asset accounts. Debit them when cash comes in, credit them when cash goes out.
2. Crediting Sales/Purchases Instead of Receivables/Payables: A payment settles the Client (3421) or Fournisseur (4411) account. The Ventes (7111) or Achats (6111) account was already recorded at the time of the original transaction.
3. Forgetting Supporting Documents: Every payment or receipt must be backed by a pièce justificative. In Morocco, this is a strict legal and audit requirement.

Conclusion

Today you have learned how to record the fundamental cash flow transactions of a business. These entries connect the income-generating activities (sales) and operational activities (purchases) to the company's treasury.

Key Takeaways:

• Customer Receipts (Encaissements): Debit an asset account (Banque or Caisse) and Credit the receivable account (Clients).
• Supplier Payments (Décaissements): Debit the payable account (Fournisseurs) and Credit an asset account (Banque or Caisse).
• The use of temporary accounts for handling cheques (51111 and 51112) allows for more precise tracking of cash flow.

Preview of the Next Lesson:

Often, when a client pays an invoice early, they might be granted a discount. Similarly, you might receive a discount for paying a supplier promptly. These events complicate the settlement entry. In our next lesson, we will apply accounting rules for sales and purchase discounts, learning how to adjust the payment and record the financial gain or loss from these discounts.