What are Cash Books?
A cash book is defined as a subsidiary accounting book that records only cash transactions. There are thousands of cash transactions that take place in an organization in a given accounting year and it is an extremely tedious and meticulous job to journalize them. The main function of a Cash book is to record the cash transactions which are used as a ledger and a journal to find out about the activities in a firm. The cash receipts are recorded on the debit side while all the cash payments are entered on the credit side.
Types of Cash Books
The cash books can be classified primarily into four different types that are:
1. Simple Cash Books -
These are also known as Single Column Cash Books. They are used to record the cash transactions and the cash receipts (cash that comes in) are entered on the left side while the cash payments are recorded on the right side. As all cash transactions are recorded in one book, there is no need for a cash ledger account.
2. Two Column Cash Books -
In a two-column cash book, there is an additional column provided for recording the specific discount entries which allow the discount transactions to be recorded in the same cash book along with the cash transactions. This cash book is usually maintained by organizations where it is a general practice to give or receive discounts.
3. Three Column Cash Books -
As the name suggests, three-column cash books have three columns; one for cash, one for the discount, and the additional bank columns. For most of the organizations that are now dealing with banking instruments like cheques or bills of exchange along with cash, a bank column in the cash book makes simplified accounting entries.
4. Petty Cash Book -
In each firm, the cash transactions take place in all the departments. These cash transactions are recorded in one of the three cash books but sometimes there are some cash transactions that are for very small amounts. Several of these transactions take place in a single day and are called petty cash transactions. Examples of such transactions are expenses for stationery, postage, food, etc.
FAQs on Types of Cash Books Explained
1. What is a Cash Book and what is its primary role in accounting?
A Cash Book is a special-purpose journal used for recording all transactions involving cash and bank. Its primary role is to act as a book of prime entry, where cash transactions are first recorded chronologically. It uniquely serves a dual purpose, functioning as both a journal and a ledger account for cash, eliminating the need for a separate cash account in the general ledger.
2. What are the four main types of Cash Books?
The four main types of Cash Books are:
Single-Column Cash Book: Records only cash receipts and payments.
Double-Column Cash Book: Has two amount columns on each side, typically for cash and discount, or cash and bank.
Triple-Column Cash Book: Includes three amount columns for discount, cash, and bank transactions.
Petty Cash Book: Used for recording small, miscellaneous expenses.
3. How does a Single-Column Cash Book work?
A Single-Column Cash Book is the simplest type, resembling a standard T-account. It has one amount column on the debit side for all cash receipts and one amount column on the credit side for all cash payments. The difference between the total debits and total credits at any point represents the cash in hand.
4. How does a Double-Column Cash Book improve upon the single-column format?
A Double-Column Cash Book adds a second amount column on each side to record another type of transaction alongside cash. The most common format is the Cash and Bank Column, which allows a business to track both its cash-in-hand and cash-at-bank balances within a single book, making it easier to manage liquidity and prepare for bank reconciliation.
5. What is the purpose of the third column in a Triple-Column Cash Book?
The third column in a Triple-Column Cash Book is for recording cash discounts. The debit side has a 'Discount Allowed' column, and the credit side has a 'Discount Received' column. This allows a business to record transactions involving prompt payment discounts simultaneously with the cash or bank entry, providing a complete record in one place.
6. What is a Petty Cash Book and why do businesses use it?
A Petty Cash Book is used to record numerous small, recurring expenses like postage, stationery, and daily travel. Businesses use it to avoid cluttering the main Cash Book with countless minor entries. This delegation of small payments to a petty cashier improves efficiency and control over miscellaneous expenditures.
7. Is a Cash Book considered a journal or a ledger?
A Cash Book is unique as it serves as both a journal and a ledger. It is a 'book of original entry' (like a journal) because cash transactions are recorded here first. It is also a ledger account because it is balanced to show the final cash/bank balance. For this reason, it is often referred to as a 'Journalised Ledger'.
8. What is a 'Contra Entry' in a Cash Book and when is it used?
A Contra Entry is a transaction recorded on both sides of a Double or Triple-Column Cash Book because it affects both the cash and bank accounts. Such an entry does not affect the overall financial position, only the form of liquid assets. It is used in two main scenarios:
- When cash is deposited into the bank.
- When cash is withdrawn from the bank for office use.
The letter 'C' is marked in the Ledger Folio (L.F.) column to identify it.
9. How is a dishonoured cheque treated in the Cash Book?
When a cheque previously received and deposited is dishonoured by the bank, its entry in the Cash Book must be reversed. The amount of the cheque is recorded on the credit (payments) side of the Cash Book in the bank column. This action correctly reduces the bank balance and re-establishes the customer's account as a debtor.
10. Why is the imprest system considered an effective method for managing a Petty Cash Book?
The imprest system offers strong control over small expenses. Under this system, a fixed sum (the imprest) is given to the petty cashier. At the end of a period, the head cashier reimburses the exact amount spent, bringing the petty cash balance back to the original imprest amount. This process ensures that expenses are reviewed and authorised regularly before funds are replenished.
11. In the age of digital payments, is a Cash Book still relevant for businesses?
Yes, even with digital payments, the principles of the Cash Book remain highly relevant. The bank column of a Cash Book is essentially a record of all digital transactions (UPI, NEFT, card payments). It serves as the primary record for reconciling with bank statements. While physical cash transactions have reduced, the need for a consolidated record of all cash and bank activities for control, accuracy, and financial reporting remains crucial.
