What is a Cash Book?
A book in which all the cash receipt and cash payments including the funds that are deposited in the bank and funds which are withdrawn from the bank are recorded according to date of the transaction is known as the Cash book in accounting. All the transaction which is recorded in the cash book has the two sides i.e., debit and credit.
The difference between the sum of balances of the debit side and credit side shows the balance of the cash on hand or bank account. Cash book plays a dual role as it is the book of the original entry of the company as well as book the final entry
Types of Cash Book Formats
There are three types of cash book formats which are the following:
#1 – Single Column
Single column cash-book contains only the cash transactions done by the business. Single column cash-book has only a single money column on debit and credits both sides. It does not record the transaction-related which involves banks or discounts. The transactions which are done on credit are not recorded while preparing the single column cash –book.
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#2 – Double Column
Double column cash-book contains has two money column both on the debit side as well as the credit side. One column is for the transactions related to the cash and the other column is for the transactions related to the bank account of the business. So, under double-column cash-book, not only cash transactions but transaction through the bank is done by the business is also recorded. The transactions which are done on credit are not recorded while preparing the double column cash –book.
#3 – Triple Column
It is also referred as three-column cash book format and it is most exhaustive form which has three columns of money on both receipt and payment sides and record transactions pertaining to the cash, bank and the discounts. This book is maintained generally by the large firms that do transactions in cash mode as well as through the bank and frequently allows and receives cash discounts.
Example of Cash Book Format
Mr. X started the business in the month of June-2019. He invested the capital of $200,000, in which the cash contribution is $100,000 and rest $100,000 he deposited in the business bank account a business. During the month of June 19, the following transactions took place in the business. Prepare the necessary double-column Cash book using the data as given below:
| Date | Transactions | |
| 1-Jun | Initial capital contribution. Cash : $100,000 an Bank $100,000 | |
| 2-Jun | Paid for Advertisement $ 500 from check | |
| 4-Jun | Raw material purchased from Mr. A of $ 10,000 by paying cash | |
| 4-Jun | Purchased stationery for cash worth $ 550 | |
| 7-Jun | Raw material purchased from Mr. B of $ 20,000 on credit | |
| 9-Jun | Goods sold to the customer for $15,000 by cash | |
| 10-Jun | Paid $ 200 for the office expenses in cash | |
| 13-Jun | Goods sold on credit worth $ 11,000 to Mr. C | |
| 15-Jun | Received a check worth $ 11,000 for the goods sold on credit on 13-July-2019 to Mr. C. | |
| 18-Jul | Raw material purchased $ 10,000 by paying through check | |
| 21-Jun | Withdrew from bank $ 15,000 for business | |
| 25-Jun | Goods sold on credit worth $ 5,000 | |
| 30-Jun | Paid rent by check of $ 7,500 | |
| 30-Jun | Paid the salaries to staff of $ 17,000 in cash |
Solution:
Advantages
- It helps in saving time and labor as in case of recording cash transactions in the journal, huge time and labor are required whereas, in case of cashbook, cash transactions are recorded straight away that is in form of the ledger.
- Management can know the balances of cash and bank at any time. It helps in effective cash management.
- Cashbook is balanced regularly which helps in avoiding frauds. Also, discrepancies if any arises can be found and rectified.
Limitations
- It may take a lot of time for starting and maintaining this book.
- In the case of the large organization, maintaining it involves large costs.
Important Points
- Cash book plays a dual role as it is the book of the original entry of the company as well as book the final entry.
- It has two of the identical sides i.e., left-hand side (debit side) and the right-hand side (credit side)
- The difference between the total of the two sides gives cash in hand or bank account balance.
- The transactions which are done on credit are not recorded in this book.
Conclusion
Cash book is a separate book of accounts in which all the cash transactions of the company are entered with respect to the corresponding date and it is different from the cash account where posting is done from the journal. There is no requirement to transfer the balances to the general ledger which is required in case of the cash account. Entries are then posted to the corresponding general ledger.
Cash book has two sides i.e., left-hand side and the right-hand side where all the receipts in cash are recorded on the left side whereas all the payments in cash are recorded on right side. Cash book helps in effective cash management as management can know the balances of cash and bank at any time and take the necessary decisions accordingly.
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