A Cash Book is a book of original entry used to record all transactions involving cash and bank. It records cash receipts, cash payments, deposits into the bank, withdrawals from the bank, and in some cases discount allowed and discount received.
The Cash Book serves two purposes at the same time. It works as a book of original entry because cash and bank transactions are recorded in it first, and it also works as a ledger account because separate cash and bank balances can be maintained directly in the Cash Book.
In simple words, whenever money comes into or goes out of a business, the transaction can be recorded in the Cash Book.
The Cash Book is important because cash and bank transactions occur frequently in every business. Maintaining a separate Cash Book makes it easier to track the movement of money.
The main purposes of a Cash Book are:
A Cash Book has several important features:
All transactions involving physical cash receipts and payments are recorded in the Cash Book.
When a Cash Book contains a bank column, deposits and withdrawals through the bank are also recorded.
Transactions are recorded according to their date, making it easy to track financial activity.
The Cash Book has a debit side for receipts and a credit side for payments.
The Cash Book normally shows the available cash balance after recording transactions.
A simple Cash Book generally has two sides:
Debit Side → Receipts
Credit Side → Payments
A basic format is:
| Date | Particulars | L.F. | Amount (₹) | Date | Particulars | L.F. | Amount (₹) |
|---|---|---|---|---|---|---|---|
| Receipts | Payments | ||||||
The left side records money received by the business, while the right side records money paid by the business.
Cash Books can be classified into different types depending on the number of columns maintained.
The major types are:
A Single Column Cash Book contains only one amount column on each side for recording cash transactions.
It records only:
It does not separately record bank transactions or discounts.
Suppose a business receives ₹20,000 in cash from a customer.
The transaction is recorded on the debit side of the Cash Book.
If the business pays ₹5,000 for office expenses, it is recorded on the credit side.
The balance represents the cash available with the business.
A Double Column Cash Book contains two amount columns on each side.
Depending on the requirements of the business, these columns may represent:
The most common format includes Cash and Bank columns.
If a business receives ₹50,000 directly into its bank account, the amount is recorded in the Bank column on the debit side.
If the business pays ₹10,000 by cheque, the amount is recorded in the Bank column on the credit side.
A Triple Column Cash Book contains three amount columns on each side:
This type of Cash Book provides more detailed information about cash, bank, and discounts.
Suppose a business receives ₹10,000 from a customer and allows a discount of ₹500.
The receipt is recorded in the Cash/Bank column, while the discount allowed is recorded in the Discount column.
Similarly, when a supplier allows the business a discount, the discount received is recorded in the appropriate column.
A Petty Cash Book is used to record small and routine expenses of a business.
Examples include:
A separate petty cash system saves time and reduces the burden of recording many small transactions in the main Cash Book.
Cash receipts are recorded on the debit side of the Cash Book.
Examples include:
The business receives ₹25,000 from a customer.
Cash Book Entry:
Debit Side → Cash Received → ₹25,000
The cash balance increases by ₹25,000.
Cash payments are recorded on the credit side of the Cash Book.
Examples include:
The business pays ₹8,000 as office rent.
Cash Book Entry:
Credit Side → Rent → ₹8,000
The cash balance decreases by ₹8,000.
A Contra Entry occurs when a transaction affects both the cash and bank columns of the same Cash Book.
Common examples include:
Suppose ₹20,000 cash is deposited into the business bank account.
Cash decreases → Credit Cash Column
Bank increases → Debit Bank Column
This is recorded as a Contra Entry.
Suppose ₹10,000 is withdrawn from the bank for business use.
Cash increases → Debit Cash Column
Bank decreases → Credit Bank Column
This is also a Contra Entry.
The Cash Book is balanced regularly to determine the amount of cash and bank balance available with the business.
For example:
Total Cash Receipts = ₹1,00,000
Total Cash Payments = ₹65,000
Therefore:
Closing Cash Balance = ₹1,00,000 − ₹65,000 = ₹35,000
The closing balance represents the cash available with the business.
A business normally cannot have a negative physical cash balance. However, a bank column may show a credit balance when the business has an overdraft, depending on the accounting arrangement.
| Cash Book | Cash Account |
|---|---|
| It records cash transactions in detail. | It is a ledger account for cash. |
| It can include cash, bank, and discount columns. | It generally records cash transactions only. |
| It serves as both a book of original entry and a ledger. | It is a ledger account. |
| Cash transactions are recorded directly in it. | Transactions are posted from the journal or other books. |
| It provides a running cash balance. | It provides the cash account balance. |
Suppose the following transactions take place:
The Cash Book will record:
| Particulars | Amount |
|---|---|
| Capital | ₹1,00,000 |
| Cash Sales | ₹30,000 |
| Total | ₹1,30,000 |
| Particulars | Amount |
|---|---|
| Rent | ₹10,000 |
| Salary | ₹15,000 |
| Balance c/d | ₹1,05,000 |
| Total | ₹1,30,000 |
Therefore, the closing cash balance is:
₹1,30,000 − ₹25,000 = ₹1,05,000
The Cash Book follows the principles of the double-entry system. Every cash transaction has a corresponding effect on another account.
For example, when rent of ₹10,000 is paid:
Rent A/c Dr. ₹10,000
To Cash A/c ₹10,000
In the Cash Book, the payment appears on the credit side, while the corresponding expense is represented through the relevant account.
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