Introduction
A cash book can be defined as a financial journal which contains all the cash receipts and disbursements. Cash Book also includes bank deposits and bank withdrawals. The entries that come in the cash book are then posted into the general ledger.
In the cash book entries, the daily cash receipts and cash payments are easily and smoothly analysed. The Cash in hand at any point of time can be easily ascertained through the Cash Book balance. Also, any mistake in the book can be easily detected at the time of verification of the cash. Any defalcation of money from the business can even be detected while verifying cash book.
Working of the Cash Book
A cash book is said to be a set up of the subsidiary to the general ledger, where all the cash transactions are made during an accounting period. The cash recordings are recorded in a chronological manner. Larger business concerns generally divide the cash book into two parts.
The cash disbursements journal – Cash Disbursement Journal records all the cash payments and the cash receipts journal, which helps in recording the cash received into the business. The cash disbursement journal consists of such items as payments payable to vendors, which is done to reduce the accounts payable. The cash receipts journal consists of the payments that are made by the customers on the outstanding accounts receivable or the cash sales.
The prior goal of a cash book is to manage the cash efficiently, it is easy to determine the cash balances at any point which will allow the managers and the company accountants to budget the business’s cash effectively when the need comes. This is much faster to access the cash information in a cash book than by following the cash through a ledger.
Types of Cash Book
A cash book is both a ledger and also a journal. The book is for all the cash transactions required for a company since this performs the function of both the ledger and journal. The cash book records all the cash receipts on the debit side and all the cash payments of the company on the credit side. To know the four main kinds of cash book which a company may maintain, we need to delve deeper in its types:
1. Simple Cash Books- This is also known as the Single Column Cash Book. This cash book will only be recorded for the purpose of cash transactions. The cash that is coming in is known as the receipts which will be on the left and the cash payments are recorded on the right. As all the cash transactions are recorded here, there is no need for an extra ledger account.
2. Two Column Cash- BooksHere we have an additional column for the discounts. Thus, along with the cash transactions, we are also required to have discounts in the same cash book. Hence both the discounts received and the discount which is given here is recorded. The organizations who are in a general practice of giving or receiving the discounts, this type of cash book is the preferable option.
3. Three Column Cash- BooksThis cash book has three columns, consisting of the - cash, the discount and the additional column as the bank columns in it. With the development of banking most of the firms, these days prefer to deal in cheques or with the bills of exchange. Thus, having a bank column in the same cash book makes things concise and simpler to record and function.
4. Petty Cash Book- The firm usually has cash transactions which are happening in all the departments. The cash transactions are then recorded in one of the above formats of the cash books. But there are a lot of cash transactions which are recorded for every small amount. Even the dozens of such transactions that occur in just one day are also recorded here. These are known as the petty transactions.
More about Cash Book
It is defined as a financial book of records in which cash receipts, disbursements, are recorded. It also includes the record of bank deposits and withdrawals. The entries made in the cash book are posted into the ledger account. The concept of cash book is taught in class 11, in the accounts stream in chapter 4 called recording of transactions. This chapter is extremely important as after reading this chapter in-depth and referring to Vedantu‘s notes on cash book, students will be able to know what is the need for special purpose books, they will learn to record transactions in the cash book and how to post them in the ledger, they will learn what is a petty cash book and how to prepare a petty cash book, they will be able to record the transactions in the special-purpose book, they will be able to post entries in the special-purpose book as well as in the ledger, also they will learn the most important part of accounting that is how to balance the ledger accounts.
The balance in the cash book is updated and verified continuously and it is recorded in chronological order.
Large industries and firms divide the cash book into two parts in order to make accounting much easier and efficient, the two parts that the cash book is divided into are– the cash disbursement journal and the cash receipts journal.
There is a difference between a cash book and a cash account, a cash book is a separate ledger in which all the cash transactions are recorded, while a cash account is an account within a general ledger.
Cash books are of three types – single column, double column, triple column.
The cash disbursement journal includes items such as payments that are made to vendors in order to reduce accounts payable, a cash receipts journal includes items such as payments that are made by customers on accounts receivable or cash sales.
Cash books are updated continuously. This is done in order to manage cash efficiently which makes it easier to determine cash balances at any point whenever necessary. This allows the company heads or the company accountants to keep a systematic record to budget their cash.
Cashbook is an easier way to retain information about budget cash rather than by the following cash through a ledger.
Key Elements Whose Knowledge is Needed to get a Comprehensive Understanding of Cash Book:
Posting
Daybooks
Cash books
Single column cash book
Double column cash book
Petty cash book
Balanacing of cash book
Purchases/ journal book
Purchases Return (Journal) Book
Sales (Journal) Book
Sales Return (Journal) Book
Journal Proper
Balancing the Accounts
FAQs on Detailed Cash Book Format
1. What exactly is a cash book and what is its main purpose in accounting?
A cash book is a special journal where all transactions involving cash are recorded. This includes both cash receipts (money coming in) and cash payments (money going out). Its primary purpose is to provide a clear and up-to-date record of the company's cash and bank balances at any given time.
2. What are the essential columns you would find in a detailed cash book format?
A detailed (three-column) cash book format is divided into two sides: the debit (receipts) side and the credit (payments) side. Each side contains the following essential columns:
- Date: The date of the transaction.
- Particulars: A brief description of the transaction.
- Ledger Folio (L.F.): The page number of the corresponding ledger account.
- Discount: Records discount allowed (debit side) or discount received (credit side).
- Cash: Records all physical cash transactions.
- Bank: Records all transactions made through the bank account.
3. What are the different types of cash books a business might use?
Businesses can use several types of cash books depending on the volume and nature of their transactions. The main types are:
- Single Column Cash Book: Records only cash transactions.
- Two-Column Cash Book: Has columns for both cash and discount.
- Three-Column Cash Book: Includes columns for cash, bank, and discount, recording all three types of transactions.
- Petty Cash Book: Used to record very small, routine expenses like stationery or postage.
4. How is a three-column cash book different from a two-column cash book?
The key difference is the addition of a Bank column on both the debit and credit sides. While a two-column cash book only tracks cash and discount transactions, a three-column cash book allows a business to record transactions involving cash, bank, and discounts all in one place. This makes it more comprehensive for businesses that frequently use banking services.
5. What does 'contra entry' mean in a cash book, and why is it important?
A contra entry is a transaction that involves both the cash and bank accounts, such as depositing cash into the bank or withdrawing cash from the bank for office use. It is unique because it is recorded on both sides of the three-column cash book. It is important because it correctly updates both the cash and bank balances simultaneously without needing a separate ledger posting, which keeps the accounts accurate and self-contained.
6. In what situations would a business use a petty cash book instead of its main cash book?
A business uses a petty cash book to manage very small, frequent expenses like postage, stationery, or daily travel. This is done to avoid cluttering the main cash book with numerous minor entries. It usually operates on an imprest system, where a fixed amount is given to a junior cashier to manage these small payments, making expense tracking more efficient.
7. How can a cash book be considered both a journal and a ledger?
A cash book is unique because it serves a dual role. It is considered a book of original entry (like a journal) because cash transactions are recorded here first. It also acts as a ledger because it maintains the final Cash Account and Bank Account. This means a separate Cash Account or Bank Account is not required in the general ledger, simplifying the accounting process.
8. What is the significance of balancing a cash book at regular intervals?
Regularly balancing the cash book is a crucial control measure. Its significance lies in:
- Verifying accuracy: It helps to check the book balance against the actual physical cash in hand.
- Error detection: It allows for the early detection of any mistakes or omissions.
- Financial oversight: It provides management with a clear picture of the company's cash position for making timely decisions.
