What is a Cash Book?
A Cash Book is an Original Entry (or Prime Entry) book in which all cash and bank transactions are documented chronologically. When the business is small, it is easy to record every transaction in a single book called a ‘Journal’. Journal is also known as the book of original entry. But gradually when the business expands, it becomes inconvenient to record such a large number of transactions in a single book. As a result, a separate book is required for recording cash transactions. It is known as a ‘Cash Journal’ or a ‘Cash Book’.
The main features of Cash Book are as follows:
- All cash receipts are transferred to the debit side of the Cash Book, while payments are recorded on the credit side.
- The balance of cash in hand and at the bank is calculated by subtracting total payments from total receipts.
- As a result, Cash Book allows the business to know the balance of cash in hand and at the bank at any time of the year.
- In cash book, only cash and bank transactions are documented and no credit transactions are recorded.
- It functions as both a journal and a ledger at the same time.
Types of Cash Book:
Mainly, there are two types of Cash Book:
1. Simple Cash Book or Single Column Cash Book
2. Double Column or Two Column Cash Book
Apart from these two, Petty Cash Book is also maintained.
1. Simple Cash Book or Single Column Cash Book
The format of a Simple Cash Book is similar to an ledger account, with one amount column on each side. The left-hand side of the cash book is called Debit Side and it records cash receipts and the right-hand side of the cash book is called Credit side and it records cash payments.
Format for the simple cash book is as follows:
Columns of a Simple Cash Book :
1. Date: This column contains the date, month, and year of the transaction.
2. Particulars: This column contains the name of the account for which cash has been received or paid.
3. Journal Folio (J.F.): This column keeps track of the journal page number where the posting of this amount has been made.
4. Amount: This column records the actual amount of cash receipts on the Dr. side, while cash payments are recorded on the Cr. side.
Here, Debit side represents the receipts side and Credit side represents the payments side.
Balancing of Single-column Cash Book
Cash Book is balanced like a ledger account represents:
- The total of the Debit column of the cash book should always be greater than the total of the payments i.e. Credit column.
- The difference is recorded on the credit side as ‘By Balance c/d’.
- The closing balance becomes the opening balance for the next month and is recorded on the debit side as ‘To Balance b/d’.
Illustration:
In the Cash Book of M/s Paramjeet Enterprises for the month of June 2022, record the following transactions:
Solution:
2. Double Column or Two column Cash Book:
For a Double Column or Two Column Cash Book, there are two columns to record amount on both sides. One column is to record transactions related to cash, and another column records transactions related to banks. So, one is the cash column and the other is the bank column. A two-column cash book is prepared when both cash and bank transactions happen in the business.
Format for the double-column cash book is as follows:
Columns of a Double Column Cash Book represent:
1. Date: This column contains the date, month, and year of the transaction.
2. Particulars: This column contains the name of the account for which cash has been received or paid.
3. Journal Folio (J.F.): This column keeps track of the journal page number where the posting of this amount has been made.
4. Cash: This column records the actual amount of cash receipts on the Dr. side, while cash payments are recorded on the Cr. side.
5. Bank: This column records the amount received through the bank on the Dr. side, while payments made through the bank are recorded on the Cr. side.
Balancing of Double-column Cash Book
- Cash Columns always indicate a Debit Balance: Cash columns are balanced exactly in the same way that single-column cash books are balanced. Cash Column always has a debit balance for the reason that cash payments can never go beyond cash in hand. As a result, the amount will be shown on the credit side as ‘By Balance c/d’.
- The Bank Column may indicate either a Debit Balance or a Credit Balance: The bank column is also balanced like a cash column. But The bank column may indicate either a debit or a credit balance, unlike the cash column. An overdraft occurs when the total of the bank column on the credit side exceeds the total of the bank column on the debit side. Or it can be said that cash withdrawn from the bank exceeds cash deposited into the bank. In this case, the difference will be written as “To Balance c/d” on the debit side. If the total of the debit side exceeds the total of the credit side, the difference is written as “By Balance c/d” on the credit side.
Illustration:
In the Cash Book of M/s Kiran Traders for the month of March 2022, record the following transactions:
Solution:
*C denotes Contra Entry i.e. transaction involving both Cash and Bank.
Petty Cash Book:
The term “petty” is taken from the French word “petit,” which means “small.” In every sort of business, a number of small payments are done on a regular basis, such as transportation, refreshments, cartage, postage, stationery, and so on.
- If the main cashier records all these petty payments in the main Cash Book, he will be more burdened with the work and the Cash Book will also become voluminous.
- Petty Cashiers are assigned the task of making small payments and recording them in a separate book called “Petty Cash Book.”
Simple Petty Cash Book:
A Simple Cash Book is identical to a Simple Petty Cash Book. The difference between both of the cash books is that the columns of ‘Particulars’ and ‘Date’ are the same for the receipt and payment sides.
- Cash received from the main cashier is shown in the ‘Amount Received Column’ on the left-hand side of the cash book.
- Cash paid for petty expenses is shown in the ‘Amount Paid Column’ on the right-hand side of the cash book.
- The date and particulars of each transaction are shown in the common column of ‘Date’ and ‘Particulars’.
Format for the simple petty cash book is as follows:
Following is the explanation of the columns of a Simple Petty Cash Book:
1. Amount Received: The cash received from the main cashier is recorded in this column. It also contains the opening balance of petty cash.
2. Cash Book Folio: This column keeps track of the page number in the main Cash Book where all the payments to the petty cashier are shown.
3. Date: This column records the date on which cash has been received from the main cashier and all the petty expenses paid.
4. Particulars: Details of cash collected from the main cashier, payment of petty expense, and opening and closing balances are shown in this column using words like ‘to’ and ‘by’.
5. V.No.: This column contains the serial number of the voucher that certifies the payment of cash in regard to petty expenses.
6. Amount Paid: The amount spent for petty expenses is recorded in this column.
Illustration:
From the following information, prepare a Simple Petty Cash Book for the month of October, 2022.
Solution: