Cash book: Meaning, Purpose and Prominent Types

types of cash book

Cash books are the basic record-keeping entity that keeps the details of all the transactions in a company. 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. As the title implies, this cash journal is used for extremely minor payments that occur within a company. These transactions might happen multiple times every day and are repetitious in nature, putting an unnecessary strain on the main cash book. Daily stationery, postage, and meal bills are among some instances of such trades.

A petty cash book is maintained to record small expenses such as postage, stationery, and telegrams. This type of cashbook has two columns, viz., cash column and discount column. Usually cash discount is allowed or received when payment is made. So, it is necessary to record this fact at the same place where the cash transaction is recorded. 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’.

What Are the Two Components of a Cash Book?

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. In simple petty cash book there is one column each for recording of receipt of cash from the main cashier and for payment of petty expenses. ‘Date’ and ‘Particulars’ column is same for receipts and payments.

types of cash book

The cash books are opened in order to record all the transactions of money received and paid by a business concern on daily basis. Cash statements list all debits and credits for a specific period, such as a month or year. Both cash receipts and cash payments are recorded in a cash book. The cash book is also regularly reconciled with the bank statements as an internal auditing measure. In addition to detailing cash and bank transactions, a triple-column or three-column cash book shows additional information about sale and purchase discounts. It is mostly used by firms that avail of massive cash discounts.

Cash book: Accounting

Let’s look into the different types of general cash books. A cash book is a record of the cash transactions of the business. The main purpose of the cash book is the effective management of cash.

  • On the credit side, however, debit transactions are reflected as deductions and are exponentially updated as your list builds up.
  • The petty cashier makes all the payments for which he is authorized out of the imprest amount.
  • This could include money that is received, paid out, and even deposited into or withdrawn from a bank account.
  • Sharma Sports Goods Co. follows the imprest system of petty cash under which, Rs 6,000 was handed over to the petty cashier as on 1st March 2011.

Small businesses can manage cash flow better if they know how to calculate it and what to focus on. A cash flow analysis will provide an accurate view of your business’s finances. Cash flow can be challenging because income is sporadic, but expenses are recurring. Here’s a simple three-step process for working through an analysis of your cash flow. Here, $6350 in H13 represents the total expenses out of $11000.

Cash Book: Definition, Types, Example, Format

In the ‘L.F.’ (Ledger Folio) column, the folio (page number) of the respective ledger, where the posting of the transaction is made, shall be recorded. In the ‘Date’ column, the day, month and the year, on which transaction occurs should be recorded. The transaction that took place first will be entered first in the cash book. It facilitates tracing back a transaction by checking the cash book on the date of the transaction. The closing balance of the cash book will always be debit, that is a positive balance.

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A cash book is one of the most important journals among the books of accounts. It easily lets people know the net cash-outflow or inflow of a financial year. All payments and receipts are recorded in chronological order, so it becomes convenient to trace a transaction on a particular date. The organisation, which has to make many transactions, maintains a cash book in two parts, a cash receipt journal and a cash disbursement journal. So that cash receipt and cash payment transactions are recorded separately.

What Is the Difference Between a Cash Book and a Cash Account?

Similarly, when cash is paid out it is recorded on the credit or right hand side of the cash book. It has just one column each for debit and credit for writing down all the cash transactions. On the debit side, a firm can record any cash that it has at the beginning of the month or any income it receives. Small businesses often use this type of cash book to record and track cash inflow and outflow.

Estimating what your cash flow will be in the near term allows you to make adjustments now. For example, you can offer a 2% discount if you get the payment within 10 days of invoicing. Controlling your accounts receivables is one of the best ways to get customers to pay faster. Find where the bulk of your cash is going, which could be loan payments or inventory. The second step involves looking at your cash flow and identifying trends.

The petty cashier makes all the payments for which he is authorized out of the imprest amount. After a specific period or as soon as he exhausts the full imprest amount, whichever is earlier, he gets reimbursement for the actual amount spent by him from the main cashier. After knowing the rule for recording a transaction, it is essential for us to learn the procedure for recording the transactions in the simple cash book. It can be observed from the above format that the columns on ‘Receipts Side’ of the cash book are similar to the columns appearing on ‘Payment Side’. The triple-column cash book has three columns for recording cash, bank, discount received and discount given. The opening balance of cash in hand and cash at the bank are recorded on the debit side in the cash and bank columns, respectively.

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