Cashbook

A cash book is that unique book of accounts which fulfills the objective of both, a journal and a ledger. Like a journal, it is the first book which records all the cash transactions of the business. It also acts as a subsidiary book to post all the cash transactions, similar to a cash account in the ledger.

It can be broken down into two words, i.e., ‘cash’ and ‘book’. Cash is a real monetary instrument like currency, i.e., coins or notes used as a medium of exchange for acquiring goods and services. Book refers to a compiled record of the information available in the written or printed form.

Thus, we can say that cash book is the record of all the business transactions in the form of notes or coins, taken place in a particular period.

A cash book excludes the following type of transactions:

• Payments received or made through cheques: All the bank related transactions and exchange of cheques for making or receiving payments.
• All non-cash transactions: Any business transaction taking place in kind or for which the payment is due.
• Discount received or given: Any discount received on making purchases or discount allowed on carrying out sales of goods or services.

Features of Cashbook

Knowing about the essential characteristics of a general cash book will help us to understand more about it:-

1. Journal as well as Ledger

A cash book is used to record the transactions immediately; thus, it serves the purpose of a journal.

At the same time, it is also a ledger since purely cash transactions are posted in it (similar to a cash account in a ledger).

2. Substitution for Cash Account

A cash book is used as an alternative of a cash account made in ledger. Since maximum transactions in the business are related to cash, it becomes convenient to prepare a separate book for it.

3. Dual Entry

Similar to other books of accounts, a cash book also has a debit side, that shows all increase in cash. Along with a credit side, that records all decrease in cash.

4. Two Identical Sides

In a cash book, the total of the debit side should always be equal to the credit side.

5. Always have Debit Balance Cash in hand is the principal element of a cash book which is used to meet the day to day business expenses.

Logically, paying more than the available cash is not possible. Therefore, the business will always be left with a debit cash balance (or even no cash balance in some cases).

6. Date wise Entry

The cash receipt entries are made on the debit side or left-hand side. Whereas, the cash payments made are posted on the right side, i.e., the credit side.

7. Verifiable

The debit cash balance so acquired can be cross-checked by calculating the actual cash in hand remaining with the business.

Advantages of Cash Book

A cash book has simplified the entry cash transactions for accounting purpose to a great extent.

Following are the various other benefits of maintaining a cash book:

1. Traces Mistakes

The balance of the cash book can be verified by matching it with the actual cash in hand; thus, mistakes and errors can be easily detected.

2. Daily Record

The cash transactions are recorded promptly in a cash book daily, which helps in maintaining a regular record of the cash receipts and payments.

3. Ascertain Receipts and Payments

The cash receipts and the payments made in cash on a specific date can be easily determined with the help of a cash book.

4. Identifies Default

Any default, theft, failure in payment or cash evasion can be easily identified while verifying the cash book balance with the actual cash balance.

5. Determines Cash in Hand

It provides a clear picture of the remaining balance or cash in hand left with the organization.

6. Saves Time, Cost and Labour

Recording the cash transactions first in a journal and then posting it in the cash account of the ledger is a hefty task.

A cash book initiates creating of a single book of accounts and thus saves a lot of time, efforts and expense incurred while preparing these two separate books.

Types of Cash Book

A cash book varies based on its complexity and the needs and requirements of the business. Following are the two major categories into which a cash book can be bifurcated:

1. General Cash Book

The cash book, which serves as a journal for the first recording of the cash transactions and also replaces the cash account in a ledger, is called a general cash book.

It is further subdivided into three different categories:-

• Single Column Cash Book: A single column or simple cash book is that type of cash book which is used to note down only the cash transactions.
• Double Column Cash Book: A double column cash book records two types of transactions under two separate columns. Here, one is compulsorily cash column, and the other can be either a discount column or a bank column.
• Triple Column Cash Book: This type of cash book records transactions related to three different types of accounts, i.e., cash, bank and discount. Thus, it substitutes the creation of cash account, bank account, discount received and discount allowed in the ledger.

2. Petty Cash Book

The small cash transactions taking place a significant number of times daily if recorded in a general cash book may make it bulky and difficult to handle.

Therefore such numerous business operations involving a minimal amount of transactions can be written down in a separate book called a petty cash book and the person responsible for maintaining it, is called a petty cashier.