What is a Cash Book?

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 Books

Here 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 Books

This 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. 

FAQs (Frequently Asked Questions)

1. What Do You Mean by General Ledger?

Ans. 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.

2. What are Cash Receipts and Cash Payments?

Ans. The cash payment account summarizes the cash payments and the receipts of an organisation during an accounting period which does not differentiate between the receipts and payments, they might be of capital or revenue in the nature and records all the cash and bank transactions of both the capital and the revenue nature.

3. What is Cash Disbursement Journal?

Ans. A disbursement is the actually the delivery of the funds from a bank account or from other funds. This is a payment which is made by a company in cash or cash equivalents during a set time period, such as the quarter or year. A bookkeeper records these transactions and posts them to the respective ledgers, such as the general ledger and the accounts payable ledger for their own recordings.