Cash Memo is equivalent to Invoice copy and a legal document.
When the goods are purchased or sold in cash, in that case the cash memo is prepared by the seller of goods. In case of a cash sale, the seller prepares the cash memo and hands it over to the purchaser. It acts as a proof for ‘cash sales’ made by a business. On the other hand, it acts as proof for cash purchase made by a person or business.
Duplicate copy of cash memo is maintained with the business as a proof for all-cash sales. Cash memo is entered in the seller’s cash book and avoids any confusion of cash transactions as it records in written all cash entries.
CONTENTS OF CASH MEMO
Different details relating to sales items like amount, quantity and rate are included in cash memos. The contents of a cash memo are :-
- Name and address of the supplier
- Name and address of the purchaser
- Serial No. and Date of cash memo.
- Description of goods.
- Quantity and rate of goods.
- Total amount.
- Discount (Trade discount or cash discount)to be shown separately
- Sales Tax number of purchaser and supplier in case of sale of goods.
- Service tax number of the supplier in case of sale of services.
- Must be signed by authorized person.
- Terms & conditions (if any )
Cash memo is different from invoice since cash memo records only sales that took place in cash whereas the invoice is a document which records only credit sales transactions.
- It is simple and effective to prepare and track.
- There is no risk of bad debts to the business since credit transactions are not made in cash memo.
- It is an authenticate document since it is signed by an authorised person.
- It is not suitable for large business.
- Chances of tax evasion are more since there is no proper tracking system as it involves a manual process.
- It is more risky to use since it involves manual process . Hence chances of manipulations and errors will be more.
Thus, in simple words Cash memo is a document used for recording cash sales transaction that took place between buyer and seller. It serves as evidence for the payment received for cash sales made by business.