Cash book is the book for recording
detailed particulars of all money received and money paid. All cash transactions and
transactions with cheque must pass through the
cashbook. The cashbook is a subsidiary book
and it is really part of the principal book called ledger. It is the
only book that combines the functions of the
subsidiary and principal books.
The cash and bank accounts are taken out of the ledger and combined into a single book called cashbook. It is the
book for cash receipts, payments and transactions
with cheques. In the treatment of the cashbook,
the principle of Double- Entry system will remain unchanged. Any transaction on credit must not appear in the book.
The term “cash book” covers the one-
column, two- columns, three- columns and the petty cash book.
DEFINITION
Grewal T.S. (“Double Entry Book
Keeping”) Cash book is a subsidiary book which records the receipts and payment
of cash. With the help of cash book cash and bank balance can be checked at my
point of time.
Cash book is the book
of prime entry in which cash and bank transaction are recorded in a
chronological order i.e. they occur. Cash receipts are recorded on the debit
side of the cash book and cash payments on the credit side. A balance is struck
by deducting total cash payments from total cash receipts to know the cash in
hand. Cash transaction in a firm are generally numerous, therefore, it is
convenient to maintain separate cash book.
Cash Book is a Book in
which all cash receipts and cash payments are recorded. It is also one of the
books of original entry. It starts with the cash or bank balance at the
beginning of the period. In case of new business, there is no cash balance to
start with. It is prepared by all organisations. When a cash book is
maintained, cash transactions are not recorded in the Journal, and no cash or
bank account is required to be maintained in the ledger as Cash Book serves the
purpose of Cash Account.
FEATURES CASH BOOK:
- It plays a dual role. It is both a book of original entry as well as a book of final entry. All cash transactions are primarily recorded in it as soon as they take place; so it is a journal (a book of original entry). On the other hand, the cash aspect of all cash transactions is finally recorded in the Cash Book (no posting in Ledger); so a Cash Book is also a Ledger (a book of final entry).
- Only one aspect of transaction is recorded.
- It has two identical sides-left hand side, the debit side and right hand side, the credit side.
- All the items of cash receipts are recorded on the left hand side and all items of cash payments on the right hand side in order of date.
- The difference between the total of two sides shows cash in hand.
- It always shows debit balance. It can never show credit balance.
TYPES OF CASH BOOK
Cash book can
be of four types:
- Simple Cash Book.
- Two column cash book.
- Three column cash book.
- Petty cash book
SIMPLE CASH BOOK
a simple cash book is prepared like any ordinary account. The receipts are recorded in the Dr Side and the payments are recorded in the Cr side of the cash book.
a simple cash book is prepared like any ordinary account. The receipts are recorded in the Dr Side and the payments are recorded in the Cr side of the cash book.
The
cashbook could be strictly for either cash transactions or bank (cheques)
transactions only. Its ruling is similar to that of a ledger account
Balancing the Cash Book
The Cash book is balanced like any other account. The receipts column total will be more than the payments column total. The difference will be written on the Cr. Side as “By Bal c/d”.
The Cash book is balanced like any other account. The receipts column total will be more than the payments column total. The difference will be written on the Cr. Side as “By Bal c/d”.
TWO COLUMN CASH BOOK
A cash book that
records receipts and payments made but does not record discounts allowed and
discounts received.
Contra Entries
These are entries made in cashbook when cash is deposited into the bank account out of the cash in hand or when cash is withdrawn from the bank for office use.
Cash paid into bank
Dr: Bank Column
Cr: Cash Column with amount deposited
Cash withdrawn from the bank
Dr: Cash Column
Cr: Bank Column with value of cheque
These are entries made in cashbook when cash is deposited into the bank account out of the cash in hand or when cash is withdrawn from the bank for office use.
Cash paid into bank
Dr: Bank Column
Cr: Cash Column with amount deposited
Cash withdrawn from the bank
Dr: Cash Column
Cr: Bank Column with value of cheque
THREE-COLUMN CASHBOOK
The cashbook, as mentioned earlier, is a book of prime entry,
which records cash account and bank account. It does not stop there, it goes to
the extent of having columns for recording both cash discount received and
allowed.
Cash Discount
Prompt payment will often be rewarded by a saving called cash discount. The entries will be recorded as follows:
Prompt payment will often be rewarded by a saving called cash discount. The entries will be recorded as follows:
- Debit creditor’s account with the full amount due
- Credit bank (or cash) amount with the actual payment sent
Discount Received Account with the Discount Received
In practice, the discount element will be recorded in the discount column of the three-column cashbook. Periodically, this column will be totaled and the amount posted to the credit of discount received account. if discount is allowed to debtors who pay promptly, similar entries are
made as follows:
· Debit bank (or cash) account with the actual payment received
· Discount Allowed Account with the Amount of Discount
· Credit debtor’s personal account with the full amount due Again, the discount column will be totaled periodically and posted to the debit of discount allowed account.
In practice, the discount element will be recorded in the discount column of the three-column cashbook. Periodically, this column will be totaled and the amount posted to the credit of discount received account. if discount is allowed to debtors who pay promptly, similar entries are
made as follows:
· Debit bank (or cash) account with the actual payment received
· Discount Allowed Account with the Amount of Discount
· Credit debtor’s personal account with the full amount due Again, the discount column will be totaled periodically and posted to the debit of discount allowed account.
PETTY CASH BOOK
Petty Cash Book is the book which is used for the
purpose of recording expenses involving small amounts. Beside petty expenses, receipts
from main cash are recorded. Petty Cash Book is maintained by Petty Cashier and
acts as the petty cash account. Petty cash book may be maintained by ordinary
system or by imprest system.
A petty cash book is one in which all petty or
small payments made through petty cash fund are recorded systematically. Petty
cash book is maintained by the petty cashier.
Ordinary System:
Petty cashier
is given appropriate amount of cash and after spending the whole of that amount,
he submits the account to the head cashier.
Imprest System Of Petty Cash :
Under this
system, an estimate is made of amount required for petty expenses for a period
(say a week, a fortnight, or a month). The amount so ascertained is given to
the Petty cashier in the beginning of a period. The amount paid by him during
the period . Thus he will again have the fixed amount in the beginning of a new
period reimbursed. The amount is called imprest money. This system of paying
advance in the beginning and reimbursing the amount spent from time is called
imprest system.
ADVANTAGES:
- Daily cash receipts and cash payments are easily ascertained.
- Cash in hand at any time can easily be ascertained through Cash Book balance.
- Any mistake in the book can be easily detected at the time of verification of cash.
- Any defalcation of money can be detected while verifying cash.
- Since cash is verified daily, Cash Book is always kept up-to-date.