How to Enter Cash Sales in QuickBooks

Recording a cash sale in QuickBooks seems simple, but getting it right is fundamental to your financial accuracy. The correct method ensures your income, sales tax, and bank balances are always accurate, making bank reconciliations and tax time manageable instead of a nightmare. This guide will walk you through the proper, step-by-step process for entering cash sales in both QuickBooks Online and QuickBooks Desktop.

Why It's Important to Record Cash Sales Correctly

Before diving into the "how," let's quickly cover the "why." Consistently and correctly entering cash sales does more than just track revenue. It's the foundation for:

• Accurate Income Reporting: Properly recorded sales mean your Profit & Loss statement reflects the true performance of your business. This is vital for making sound business decisions and for accurate income tax filings.
• Painless Bank Reconciliations: The method outlined below ensures the deposits you record in QuickBooks match the actual deposits on your bank statement, turning a potentially frustrating monthly task into a simple check-and-balance.
• Correct Sales Tax Tracking: In a sales tax audit, regulators will want to see clear records tying your sales to the taxes you remitted. Correctly using sales forms in QuickBooks automatically calculates and tracks your sales tax liability.
• Up-to-Date Inventory Levels: If you sell physical products, recording sales on the proper forms will automatically decrease your inventory counts, giving you a real-time view of what you have on hand.

For clarity, when we say "cash sales," we mean any payment received immediately at the time of sale. This includes physical currency, checks, credit card swipes, or digital wallet payments—not just paper bills and coins.

Before You Start: Setting Up for Cash Sales

A few minutes of setup will save you hours of headaches later. Two key items need to be in place for a smooth process.

1. The Undeposited Funds Account

The Undeposited Funds account is a special temporary account in QuickBooks that acts like a digital bank bag. When you receive a payment, you first place it in Undeposited Funds. This allows you to group multiple payments (e.g., several cash sales and a few checks from a single day) into one deposit that matches the single deposit transaction on your bank statement. It's the single most important tool for easy bank reconciliations. This account is created by default in most QuickBooks company files, but it's good practice to ensure it's active.

2. A Generic "Cash Customer"

For retail or over-the-counter sales, you likely don't need to create a unique customer profile for every single person who buys something. Save time by creating a generic customer.

1. Navigate to Sales > Customers (in QBO) or the Customer Center (in QBD).
2. Select "New Customer."
3. In the name field, enter something clear like "Daily Cash Sales," "Retail Sales," or "Walk-in Customer."
4. Save the new customer. You can now use this profile for all your point-of-sale transactions.

Method 1: Using Sales Receipts in QuickBooks Online

For payments received on the spot, the Sales Receipt is the correct form to use in QuickBooks Online (QBO). It records the sale and the payment in a single step.

Here’s the step-by-step process:

1. From your QBO dashboard, click the + New button in the top left corner.
2. Under the "Customers" column, select Sales Receipt.
3. In the "Customer" dropdown, choose the generic cash customer you created earlier (e.g., "Daily Cash Sales").
4. Enter the Sales Receipt Date, which should be the date of the transactions.
5. For Payment Method, select "Cash," "Check," or the appropriate payment type. This is for your records; the next step is the most important one for your accounting.
6. In the Deposit To field, you must select the Undeposited Funds account. If you deposit directly to your checking account, you create a separate deposit for every single sale, which will never match your bank statement's single-day deposit. Using Undeposited Funds is a critical step.
7. In the "Product/Service" section, add the items sold. You can either list each item individually or, for a simpler approach if you don't track inventory, you can use a generic service item like "Daily Sales" and enter the total sales amount for the day.
8. Ensure the "Sales Tax" amount is calculated correctly based on the items and your location settings.
9. Review the total to ensure it matches your sales records for that period (e.g., your Z-tape from the register).
10. Click Save and close or Save and new to enter another.

Method 2: Using Sales Receipts in QuickBooks Desktop

The workflow in QuickBooks Desktop (QBD) is conceptually the same but involves a different interface. The Sales Receipt is still the correct tool for the job.

Follow these steps:

1. From the top menu bar, click Customers > Enter Sales Receipts. Or, you can click "Create Sales Receipts" on the home page.
2. In the "Customer:Job" dropdown, select your generic cash sale customer.
3. Set the correct Date for the sale.
4. In the main part of the form, add the specific Items you sold, including quantity and price for each. This ensures your sales and inventory are tracked accurately.
5. Verify that the tax code and total Sales Tax are correct.
6. At the top of the form, you’ll see the "Deposit To" account field. To mimic the Undeposited Funds workflow in Desktop, you need to click the “Undeposited Funds” radio button or checkbox. Sometimes this will be a direct dropdown selection; in other versions of QuickBooks Desktop, it might be located under preferences for sales receipts settings. In either location, make sure not to select your checking account.
7. Click Save & Close or Save & New. This action posts the revenue and sales tax liability and holds the payment in the Undeposited Funds account, waiting to be grouped in a deposit.

The Final, Crucial Step: Recording the Bank Deposit

You’ve recorded the sales and received the payments into your digital "bank bag" (Undeposited Funds). Now you need to record the final step of taking that money to the bank. This action moves the funds from the temporary Undeposited Funds account to your actual bank account in QuickBooks.

Making the Deposit in QuickBooks Online:

1. Click the + New button on the left navigation bar.
2. Under the "Other" column, select Bank Deposit.
3. At the top, select the correct bank Account where you deposited the money.
4. Enter the Date you made the deposit at the bank. It should match the date on your bank statement.
5. A section called "Select the payments included in this deposit" will appear. You will see a list of every payment currently in Undeposited Funds.
6. Check the box next to each payment that was part of this single deposit. For example, check the boxes for the five cash sales and two checks you took to the bank on Tuesday.
7. As you select the payments, watch the deposit Total at the top. This total must match the exact amount on your physical bank deposit slip. This is the payoff for using the Undeposited Funds workflow.
8. Once the total matches, click Save and close.

Making the Deposit in QuickBooks Desktop:

1. From the top menu, navigate to Banking > Make Deposits. Or, click "Record Deposits" on the home page.
2. A "Payments to Deposit" window will appear, listing all the cleared payments currently residing in your Undeposited Funds account.
3. Check off all the individual payments that you bundled together for this specific bank run.
4. Click OK.
5. On the "Make Deposits" screen, confirm that the Deposit To account is the correct bank account.
6. Verify the Date matches your deposit slip.
7. The total deposit amount should exactly match what you gave the bank teller. Once confirmed, click Save & Close.

Tracking Cash Over and Short

Occasionally, the cash counted in your till at the end of the day won't quite match the total sales on your register tape. This is known as a cash over/short. You should account for this discrepancy on the Bank Deposit screen.

• Create a special account in your Chart of Accounts called "Cash Over and Short." This is typically an expense account.
• On the Bank Deposit screen, add a new line under the "Add funds to this deposit" section.
• In the "Received From" column, you can leave it blank or pick your own company.
• In the "From Account" column, select your "Cash Over and Short" account.
• If you were short on cash (e.g., $1.50 less than the sales total), enter the amount as a negative number (e.g., -1.50). This reduces your deposit total to match the actual cash you have.
• If you were over on cash, enter the amount as a positive number. This increases your deposit to match. Small overages can be recorded to this account, while larger, consistent overages might be recorded to an Other Income account.

Alternative Method: Using a Journal Entry (and Why to Avoid It)

While an accountant could technically record a daily cash sale with a journal entry (Debit Cash, Credit Sales, Credit Sales Tax Payable), this method is not recommended for business owners or bookkeepers. It bypasses many of QuickBooks' built-in features. A journal entry won't subtract products from inventory, won't appear on sales reports filtered by customer or item, and is far more susceptible to data entry errors that unbalance your books. Stick with the Sales Receipt workflow; it was designed specifically for this purpose and keeps your data clean and integrated.

Final Thoughts

Consistently using the Sales Receipt and Undeposited Funds workflow is the most reliable way to handle cash sales in QuickBooks. It creates an easy-to-follow audit trail, keeps your income and inventory accurate, and makes matching your QuickBooks records to your bank statements a simple, straightforward process.

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