What is Cash Book in Accounting | Format, Example, Types

Cash is an important asset of a business. No matter what the size of an organisation is, all of them need a cash book to manage their cash transactions effectively and prevent errors and mistakes at an early stage. So maintaining detailed cash transactions is very crucial. The cash book is an accounting record. It helps businesses in assessing their current cash balance and efficiently managing finances, formulation of budgets, and knowing their cash position at any time. 

Did you know? If you maintain a triple column cash book, you need not maintain a bank account, discount received account and discount given account.

Definition of a Cash Book

The easiest and simplest cash book meaning is a book that records every cash transaction of the business. It acts as both books of original entries and a ledger. A cash book is one of the most important journals among the books of accounts. It easily lets people know the net cash-outflow or inflow of a financial year. All payments and receipts are recorded in chronological order, so it becomes convenient to trace a transaction on a particular date. The organisation, which has to make many transactions, maintains a cash book in two parts, a cash receipt journal and a cash disbursement journal. So that cash receipt and cash payment transactions are recorded separately.

The payment side of the cash book records the following entries:

• Salary paid
• Expenses paid
• Amount paid to the suppliers
• Taxes paid. 

The receipt side of the cash book contains the following entries:

• Cash sales
• Advance received by a customer
• Interest received 
• Payment received from customers, and so on.

Also Read: Costing: Definition, Objectives, and Advantages

Features of Cash Book

Let’s look into some of the features of the cash book

•  Dual role: 

A cash book works as a journal as well as a ledger. That means if the cash book has been maintained properly, there will be no need to prepare a cash ledger.

•  Dual system: 

The cash book has two sides. One shows increases in cash other shows a decrease in cash.

•  Always debit balance: 

The closing balance of the cash book will always be debit, that is a positive balance. Cash is a part of the current asset, and thus its closing balance will always be debit.

•  Chronological order: 

The entries made in the cash book are date-wise. The transaction that took place first will be entered first in the cash book. It facilitates tracing back a transaction by checking the cash book on the date of the transaction.

•  Cross-verification: 

One can cross-verify the cash book by matching the closing balance of the cash book with the physical cash present. They should always match. If there is any mismatch, there might be some error or mistake.

•  T form: 

Unlike other journal registers like sales and purchases, the cash book is in “T form”, just like a ledger.

•  Transferred to trial balance: 

Because the cash book acts as both; in the journal and ledger, the closing balance of it is directly transferred to the trial balance.

Also Read: What is Double Entry System of Accounting ? Understanding Double Entry System

What Is The Purpose of a Cash Book?

A cash book is a record of the cash transactions of the business. The main purpose of the cash book is the effective management of cash. It provides the necessary information to the users of the cash book, helping in knowing cash balance and cash position on a particular date and time. Cash book helps managers and budget makers in knowing what policies to make regarding cash and how to make those policies.

Cash Book Format 

Cash book format resembles the format of a ledger account. It is divided into two parts. The right-hand side is the debit side which records all the receipts. The left-hand side is the credit side which records all the payment transactions. 

The Elements of The Cash Book

• Date: It is the first column of the cash book. The date of a transaction is recorded in this place. 
• Particulars: It is the second heading after the date. The description of the corresponding transaction type is recorded under this heading. For example, to record a cash sales transaction, one will write “sales” under the particular column. 
• Voucher Number: For cash receipts and cash payments, the organisation issues cash receipts or vouchers. These receipts and vouchers are numbered and recorded in the cash book for reference.
• Ledger Folio Number: The accounts mentioned in their particular columns have separate ledgers. The ledger folio number is the specific number allotted to a particular account. Knowing the ledger number makes it easy to cross-reference. 
• Cash Column: This column records the amounts of the cash receipts and cash payments.
• Bank Column: It is part of double and triple column cash books. In these cash books, cash and bank transactions are recorded. 
• Discount Column: The triple-column cash book has a third column for recording discounts received and discounts given.

Also Read: 3 Golden Rules of Accounting - Golden Rules of Accounts Explained with Examples

Example of a Cash Book

Following are examples of the transactions to be entered into the cash book:

Cashbook

Types of Cash Books

There are different types of cash books for different types of needs and complexities of the business. The two major types of cash books are: General and Petty cash books.

• General cash book

• Single column cash book
• Double Column cash book
• Triple column cash book

• Petty cash book

General Cash Book

It records the cash transactions and works as a book of original entries and ledger. It has further three divisions. Each type fulfils different requirements of the users. Let’s look into the different types of general cash books.

Single Column Cash Book

The single-column cash book only records cash transactions. On its debit and credit side, it records cash payments and cash receipts. It does not include bank transactions. 

The format of a single-column cash book will be something like this. 

Also Read: Difference Between Cost Accounting and Financial Accounting

Double Column Cash Book

Under the double-column cash book, there are two columns to record amounts. Both the debit and credit sides have two amount columns. One is used for recording cash transactions and another one is used for recording bank transactions. Thus, in the double-column cash book, cash and bank accounts are prepared together.  The transactions that affect both cash and bank accounts are known as contra entries. They are separately denoted. The closing balance of the bank column is regularly cross-checked with the bank's closing balance. In case of any difference, an adjustment entry is passed.  The company regularly prepares bank reconciliation statements. 

Triple Column Cash Book

This type of cash book records transactions of three accounts. It has three columns, one for cash, one for the bank, and another one for discounts. Thus maintaining triple column cash book substitutes, cash account, bank account, and discount accounts. 

Petty Cash Book

The petty cash book is a kind of record for small business expenses. They are day-to-day indirect business expenditures that are not directly linked to the main core objective. It records transactions of photocopy, stationery, newspaper, tea, and other miscellaneous expenses. 

Also Read: What Is Vouching in Accounting?

Advantages of Cash Book

Cash Book makes cash management easy and convenient. The following are the advantages of maintaining a cash book:

• The most important advantage of a cash book is that it saves time and labour in maintaining the cash ledger separately. 
• Cash book makes it easy to find errors, mistakes and frauds. By cross-verifying cash in hand with the closing balance of the cash book, one can easily detect mistakes and errors and correct them. Sometimes the mismatch of cash in hand and closing balance might be a result of fraud. 
• A cash book facilitates ascertaining cash balances of any particular date. 
• It records transactions and maintains a chronological order, which helps in tracing back any transaction at any time. 

Conclusion:

Keeping records of business transactions is very important. The properly maintained books of accounts help determine the business's actual position. Cash is the most important and sensitive element of the business. Even a small business requires maintaining proper records of cash flow. Thus maintaining cash book helps in effective cash management; moreover, it saves time and effort in preparing separate cash accounts.
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