Financial Accounting the Impact on Decision Makers, Accounting Software for Various Business Segments, Accounting Software, Accounting software is computer software that records and processes accounting. Accounting software is typically composed of various modules like customer, supplier, invoicing

Financial Accounting Tutorial Home Page

Cash Book

In any business, perhaps, the largest number of transactions of one nature must relate to cash and bank. It is so because every transaction must, ultimately, result in a cash transaction. Now if every cash transaction is to be recorded in journal, it will involve an enormous amount of labor in debiting or crediting cash or bank account in the ledger for each transaction. Therefore, it is convenient to have a separate book, the cash book, to record such transactions. Maintaining of cash book removes the necessity of having cash and bank accounts in the ledger. This book enables us to know the balance of cash in hand and at bank at any point of time.

Cash book consists of cash and bank accounts taken out of ledger and maintained separately; thus it is a substitute of ledger for cash and bank accounts. It is also a book of original entry because cash and bank transactions are not recorded in any other subsidiary book.

Types of cash book

The type of cash book to be used by any business will depend upon its nature and requirements. It may be anyone of the following:

(a) Single column cash book (cash column).

(b) Double column cash book (cash and discount columns).

(d) Bank cash book (bank and discount columns).

Generally, each business will use anyone of the above types of cash book along with "petty cashbook" which is maintained on memorandum basis.

Distinction between cash A/c and Cash book

Actually cash book is a perfect substitute of cash account. In both, cash transactions are recorded date wise in order of occurrence. Cash balance as on any date can be ascertained by balancing both on any day desired. Yet there are some differences between the two as given below:

Cash account

1. Is an account in the ledger.

2. Cash account is part of the ledger. Cash account is opened in the ledger in which posting is done from some book of original entry i.e. journal

3. In cash account posting is not followed by narration.

4. It only records one aspect of transaction involving cash and bank.

Cash book

1. Is a separate book of accounts forming part of accounting system.

2. Cash book records entries directly from transactions and these is no need for a book of prime entry.

3. In cash book entries are followed by narration also.

4. It records both the aspects of this transaction in cash and bank columns to complete double entry posting.

Single Column Cash Book

It has only one. column on each side for amount In fact, it is written just like cash account in the ledger (being real account what comes in is debited; what goes out is credited). This form of 'cash book has the same ruling as that of a ledger account There is no need of having a cash account in the ledger. The purpose is ably served by cash book itself. Posting from debit (receipt) side of the cash book is done to the credit side of concerned accounts and from the credit side of cash book to the debit side of concerned accounts.

Balancing

The cash book is balanced in the same manner as a ledger account. As more cash cannot be paid then what we have, therefore the cash balance (if any) must always be a debit balance. Therefore, the receipts column will always be bigger than the payments column. The difference will be written on the credit side as "By balance c/d". The totals are then entered in the two columns opposite one another and then on the debit side the balance is written as "To balance b/d". It shows the cash balance in hand in the beginning of the next period. To verify the accuracy of the entries made, the cash book should be balanced frequently (preferably daily). The balance as per cash book must tally with the actual cash in hand.

Double Column Cash Book

As the phenomenon of offering and accepting cash discount is intimately associated with the act of receipt and payment of cash, therefore, the utility of cash book increases if the columns of discount are also provided in it. Cash book having additional columns for discount is known as double column cash book.

Triple Column Cash Book

These days it is difficult to carryon any business without having dealings with the bank. Normally bulk of its funds is kept by the business at a bank in a current account where frequent withdrawals and deposits are permitted. Bank transactions, i.e.. payments into and out of bank are more numerous than cash transactions. Therefore, it is appropriate as well as convenient that cash book should have one additional column on each side to record moneys deposited at bank arid payments out of the hank. The additional advantage to having this type of cash book is that bank account is not required to be maintained in the ledger.

Before we explain the method of writing up the triple column cash book you should be familiar with the concept of 'contra entries'. Also note carefully the treatment of cheques received and issued by the business.

Contra Entries

In the three column cash book there will be some cross or contra entries i.e.. transfer of money from cash to bank (amount deposited) and vice versa (amount withdrawn from bank for office use). In all such cases both entries occur in the cash book and no ledger entry is required. This is indicated by a contra sign (C) in the folio column indicating thereby that the double entry aspect of this transaction is complete and it requires no posting to the ledger. Treatment of cheques in a triple-column cash book is explained below:

1. Cheques received and deposited in the bank on the same day: When the cheques received from the debtors are deposited in the bank on the day of receipt itself the entry is recorded in the bank column on the debit side of the cash book therefrom debtor's account receives credit.

2. Cheques received but deposited in the bank on a later date: At the time when cheque is received it is recorded in the cash column on the debit side of the cash book and the date on which it is deposited in the bank, Two steps are required:-

(i) Enter the same in the cash column on the credit side of the cash book "By Bank A/c" and

(ii) Enter it in the bank column on the debit side of the cash book' 'To Cash A/c". Thus it assumes the form of Contra entry on the day of depositing the cheque into bank received earlier.

However, if there is no information as to the date of deposit of the cheque, it should beassumed that the cheque was deposited in the bank on the date of receipt.

3. Cheques received and endorsed in favor of some creditor :- On receipt, cheque is recorded in the cash column on the debit side and at the time of endorsement the same is recorded in cash column on credit side, By Creditors Ale.

4. Bearer cheques may be en cashed at the counter of the bank or it may be deposited in the bank. In case it is encashed it should be recorded in the cash column on the debit side, in case it is deposited in the bank the same should be recorded in the bank column on the debit side of the cash book.

Cash book is a Journalized ledger

Often a question is asked whether cash book is a journal or ledger? It is journal in the sense that all cash transactions are primarily recorded in the cash book with narration and therefore, these are posted to the relevant accounts in the ledger. Cash book is also ledger in the sense that it serves the purpose of cash account and bank account (in case of triple column cash book). No separate cash account is opened in the ledger where cash book is in existence. Thus cash book is a unique combination of journal and ledger. It is popularly known as journalized ledger.

Similarities of Cash book with journal

(1) Cash transactions are recorded in the cash book at the time of origin i.e. primary book.

(2) Transactions are recorded date-wise.

(3) Transactions from cash book posted to the relevant accounts (except cash account) in the ledger.

(4) Cash book contains ledger folio as in the journal.

(5) Narration is given for each entry.

Similarities of Cash book with ledger

(1) Form of cash book resembles With ledger. Two sides left hand side is the debit side (receipts) Right hand side is the credit side (payments).

(2) Words "To" and "By" are used as in the ledger.

(3) No separate cash account and bank account are required in the ledger. Thus cash book is the book of final entry entry for cash and bank transactions.

(4) Cash and bank columns of the cash book are periodically, balanced just like ledger accounts.