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 Kinds of Cash Books
1. What is the requirement of a Cash book?
Cash books are the fundamental measure of every organization or company which wants to work smoothly in the market. The fundamentals of the cash books are very simple and are universal in their application to commerce where the cash receipts and the cash payments are recorded separately for posterity and checking of records whenever the need for checking the accounts or audit of the company is felt necessary.
2. Define the Petty Cash Book and the uses of the Petty Cash Book?
A simple petty cash book is something that is used to record a large number of petty cash transactions. These transactions are extremely large in number but also small in amount and a petty cash book is useful as it keeps the small cash transactions separate from the main cash book which is used to record the bigger transactions and is the petty cash book used for recording daily transactions.
3. What are the different types of Petty Cash Books?
The Petty cash books are generally of two types:
Columnar Petty Cash Book or Analytical Petty Cash Book
The Columnar petty cash book is the book where the money received from the head cashier and the specification of the amount of expenditure for a specified period of an organization are recorded in a chronological manner.
Imprest Petty Cash Book
In the imprest cash book system, the head cashier allocates a particular amount of money to the petty cashier which the cashier uses to meet the expenses of a particular period and the petty cashier submits a statement of expenditures to the head cashier.
4. What is a discount?
Discount is the margin given by the seller to the consumer on the market price where the shopkeeper has reduced the price of a commodity to increase the sale of that particular product. The Discount is a nominal account and the discount given (loss) is entered on the debit side and the discount received (profit) is recorded on the credit side. At the end of this accounting period, both columns are balanced and the closing balances are transferred.
5. What is the use of Cash books for audit of the company?
Cash books are the basic record-keeping entity that keeps the details of all the transactions in a company. In a sense, the Cash books can be said to be the ledger of the company where all the records of the company are stored, and hence they are the most important document for any company which is extremely necessary for their proper functioning. The audits take notice of all the accounts and cash transactions of the company and present the real picture of the finances of the company to its investors and to the outside world.