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Cash Book

Last updated date: 16th Apr 2024
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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 Cash Book

1. What are the types of cash books?

There are various types of cash books such as Simple cash books, two-column cash books, three-column cash books, petty cash books.

2. What is a cash disbursement journal?

Cash disbursements journals are the journals in which cash payments and cash receipts are recorded, this type of journal helps in recording the cash received in a systematic manner. Cash disbursement journals mainly include those payments that are payable to vendors, this is done to reduce the accounts payable. The concept of a cash disbursement journal is studied in depth in the notes provided by Vedantu, these notes have been curated through extensive research and are based on the latest curriculum set by the CBSE.

3. What is a petty cash book?

Petty cash book goes by the name, as it records even the smallest transactions that take place in a firm or in a company. As there are hundreds of transactions that take place in one day which can be recorded in any format of the cash book, the petty cash book contains transactions of every small amount and therefore are called petty transactions.

4. Where can I find the study material related to cash books?

The study material on cash books can be found by visiting the Vedantu website, These notes prepared by Vedantu’s team act as a reference guide for students who are preparing for their examinations. The notes prepared by Vedantu’s team are based on the latest curriculum set by the Central Board of secondary education, all the notes are available for free and can be downloaded in a PDF format, the PDF format helps students to get a comprehensive understanding of the concept. Students can find other topics related to accounting on Vedantu’s website. The objective is to help students get a good grasp of the concept so that they can perform well in the exams.

5. What are cash receipts and cash payments?

Cash receipts are transactions that are received from cash sales, income from investments, collection from debtors et cetera while cash payments mainly consist of transactions that are paid for cash purchases, payment for expenses, payment to creditors et cetera. Cash receipts and cash payments are included in the cash budget. A cash budget is prepared to forecast the cash requirements, which helps to indicate the surplus or shortage of cash during the budget period.

6. What do you mean by general ledger?

A general ledger represents the record-keeping system for the company's financial data with the recording of debit and credit account which is validated by the trial balance. The general ledger also provides a record for each financial transaction which takes place during the life of an operating company period.

A general ledger, or the GL, means for the keeping of record of the company's total financial accounts. Since, the general ledger is comprised of a company's total financial accounts, this is an instrument for the preparation of the key financial reporting documents such as the balance sheet and the income statement.