CASH BOOK
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- Introduction to Accounting
- Theory Base of Accounting
- Goods and Services Tax (GST)
- Recording of Transactions - I
- Recording of Transactions - II
- Bank Reconciliation Statement
- Trial Balance and Rectification of Errors
- Depreciation, Provisions and Reserves
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Recording of Transactions - II
Cash Book- Introduction, Features and Advantages:
Objectives
After going through this lesson, you shall be able to understand following concepts.
• Meaning of Cash Book
• Features of Cash Book
• Advantages of Cash Book
• Differentiation between Cash Book and Cash Account
• Cash Book- A Subsidiary and a Principal Book
• Similarities of Cash Book with Journal
• Types of Cash Book
Meaning of Cash Book
As you have already learned that every transaction is first recorded in Journal. But as the business grows, volume of transaction also increases and it becomes practically very difficult to record all the transactions in Journal. So, for all the transactions related to Cash whether it is receipt or payment a separate book is maintained, which is called Cash Book. In Cash Book all the transactions related to receipts of cash are recorded on the left side of the book as Cash Receipts and all the transactions related to cash payments are recorded on the Right Side of the Book as Cash Payments. Balance of Cash or Bank on any day can be calculated by deducting total of Right side (or Payment side) of the book from total of the Left Side (or Receipt side) of the book.
Features of the Cash Book
(1) It records only cash transactions.
(2) All transactions relating to receipt of cash or cheque are recorded on the Left Side of the Cash Book and the transactions related to payment of cash or cheque are recorded on the Right Side of the Cash Book.
(3) Transactions are recorded in the Cash Book as and when they occurred i.e. in chronological order.
(4) It serves both the purpose of Journal as well as Ledger.
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Advantages of the Cash Book
(1) It eliminates duplication of work because when Cash Book is maintained there is no need to record these transactions in Journal and Cash Account is also not required to be prepared. Cash book in itself acts as Journal as well as a ledger.
(2) It records cash as well as bank transactions.
(3) It helps in getting balance of Cash and Bank for any day at any point of time.
(4) It gives a daily summary of Cash transactions in form of Cash received, paid and closing balance of Cash and bank at the end of the day.
(5) Closing cash balance of the Cash Book on any particular day must match with actual cash in hand available. This physical check reduces chances of cash frauds committed by cashiers and employees.
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Differentiation between Cash Book and Cash Account
| Basis | Cash Book | Cash Account |
| Nature | It is a book that records all cash transactions | It is a Ledger Account |
| Purpose | It is called as the Book of Original Entry. As cash transactions are first recorded in the Cash Book and thereafter posted into various Ledgers | It is an Account in which posting is done from the transactions recorded in the Journal |
| Requirement to open Cash Account | When Cash Book is maintained there is no requirement to prepare Cash Account | When cash transactions are recorded in Journal, there is an essential requirement to open a Cash Account |
Cash Book- A Subsidiary and a Principal Book
Cash Book serves dual purpose i.e. Subsidiary Book as well as Principal Book. If Cash book is prepared then all the cash transactions are directly recorded in the Cash Book and there is no need to record these transactions in Journal. On the basis of Cash Book, Ledger Accounts are prepared and therefore, it is called as a Subsidiary Book.
Once, the cash transactions are recorded in the Cash Book there is no need to post them again in the Cash Account. Cash Book in itself represents the Cash and Bank Account, that’s why, it is called as the Principal Book. From this, it can be concluded that Cash Book serves the purpose of both Principal as well as Subsidiary Book.
Similarities of Cash Book with Journal
(1) Transactions (only of Cash nature) are recorded in the Cash Book from the source document just like a journal.
(2) Similar to Journal, transactions in the Cash Book are recorded as and when they occurred i.e date wise/chronological order.
(3) Transactions whether recorded in Journal or in the Cash Book are to be posted to their Relevant Ledger Accounts, with an exception to Cash Account in case of Cash Book.
(4) Both Journal as well as Cash Book contains a separate column of Ledger Folio.
Types of Cash BookThere are four types of Cash Book.
(1) Single Column Cash Book: It records transactions relating to cash only.
(2) Two Column Cash Book: It contains two columns i.e. Cash and Bank Columns on both the sides. It records all transactions relating to Cash as well as Bank.
(3) Three Column Cash Book: It contains three columns i.e. Cash, Bank and discount Columns on both the sides. Discount Allowed Column is shown on the Left Side (or debit side) of the book whereas Discount Received Column is shown on the Right Side (or Credit side) of the Book.
(4) Petty Cash Book: It record expenses involving petty (or small) amount.
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