Cash Book

In this post, we will learn about the Cash Book.

Cash Book

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Cash

Cash is a current asset which consists of items used in day-to-day financial transactions as a medium of exchange. In accounting and finance, cash includes currency notes made of paper, coins, demand deposits, money orders, checks and bank overdrafts, etc.

The following items cannot be treated as cash: Dishonored checks, Post-dated checks, Postage stamps, Securities and special investments like Trade advances.

Cash Book

• The cash book is used to record receipts and payments of cash.
• A cash book is that unique book of accounts which fulfils the objective of both, a journal and a ledger.
• Like a journal, it is the first book which records all the cash transactions of the business.
• It is a ledger as it contains a classified record of all cash transactions. The balances of the cash book are recorded in the trial balance and the balance sheet.

Features of Cash Book

• Journal as well as Ledger
• Substitution for Cash Account
• Dual Entry
• Two Identical Sides
• Always have Debit Balance
• Date wise Entry
• Verifiable

Advantages of Cash Book

• Traces Mistakes
• Daily Record
• Ascertain Receipts and Payments
• Identifies Default
• Determines Cash in Hand
• Saves Time, Cost and Labour

Vouchers

• For Every entry made in the cash book there must be a proper voucher.
• Vouchers are documents containing evidence of payment and receipts.
• When money is received generally a printed receipt is issued to the payer but counterfoil or the carbon copy of it is preserved by the cashier. The copy receipts are called debit vouchers, and they support the entries appearing on the debit side of the cash book.
• Similarly when payment is made a receipt is obtained from the payee. These receipts are known as credit vouchers.
• All the debit and credit vouchers are consecutively numbered. For ready reference the number of the vouchers are noted against the respective entries. A column is provided on either side of the cash book for this purpose.

Discount

Discount refers to a deduction from the usual selling price of a product or service that is offered to customers as an incentive to encourage them to make a purchase. There are several types of discounts, including cash discounts, quantity discounts, trade discounts, and seasonal discounts. A cash discount, for example, is a reduction in the amount of the invoice that a customer is required to pay if they pay the bill within a specified period of time, such as 10 days from the date of the invoice. Quantity discounts, on the other hand, are offered to customers who purchase large quantities of a product, while trade discounts are offered to members of a particular industry or trade.

Types of Discount

There are two types of Discount:

1. Trade Discount
2. Cash Discount

Basis For Comparision	Trade Discount	Cash Discount
Meaning	Invoice	A deduction in the amount of invoice allowed by the seller to the buyer in return for immediate payment is cash discount.
Purpose	To facilitate a bulk sales.	To facilitate a prompt payment.
Invopice	It is shown in invoice as a deduction itself.	It is not shown in invoice.
When allowed?	At the time of purchase.	At the time of payment.
Allowed to all customers	Yes	No
Entry in books	No	Yes
Vary with	Time period, when payment is made.	Quantity of goods purchased or amount of purchases made.

Bank Account

A bank account is a financial account maintained by a bank on behalf of a customer. It is a record of transactions between the bank and the customer, including deposits, withdrawals, and other banking activities. Bank accounts provide customers with a secure place to store their money and enable them to access it easily through various means, such as ATM withdrawals, online banking, and checks. Different types of bank accounts include savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs). Bank accounts may also earn interest on the balance, depending on the type of account and prevailing interest rates.

Contra Entry

A contra entry, also known as a contra voucher, is an accounting entry that involves two transactions that occur simultaneously and affect the same account. It is essentially an offsetting entry that nullifies the effect of an earlier transaction. Contra entries are typically used to record transactions such as cash deposits or withdrawals, bank transfers, and adjusting entries.

For example:

1. Cash received from debtors and deposited into bank
2. Cash withdrawn from bank for office use

When cash is deposited into Bank, Cash balance will decrease but Bank balance will increase.

The transaction “Cash deposited into Bank” will have two side effects on Cash Book. In the debit side of cash book, we will debit bank column, where as in credit side we will credit cash column. This is called contra entry.

An entry which is made on both sides of a cash book is called Contra entry. In the dual entry accounting system, a Contra Entry is an entry which is recorded to reverse or offset an entry on the other side of an account. If a debit entry is recorded in an account, it will be recorded on the credit side and vice-versa.

Bank Reconciliation Statement

A bank reconciliation statement is a financial document that compares an entity’s bank statement balance with its own record of bank transactions. The purpose of preparing a bank reconciliation statement is to identify any discrepancies between the two records and explain the reasons for those differences. It helps to identify any errors or omissions made by the bank or the entity, such as missing deposits or unauthorized withdrawals. By reconciling the bank statement with the entity’s own records, it ensures the accuracy and completeness of the entity’s financial statements.

Types of Cash Book

There are two types of Cash Book:

1. General Cash Book
2. Petty Cash Book

1. General Cash Book

A General Cash Book is a book used to record all cash transactions of a business. It contains a record of all cash received and all cash payments made by a business during a specified period. The book is usually divided into two sections: the cash receipts section and the cash payments section.

In the cash receipts section, all cash received by the business is recorded, including cash sales, collections from debtors, and any other cash receipts. In the cash payments section, all cash payments made by the business are recorded, including payments for purchases, salaries, expenses, and any other cash payments.

The General Cash Book is an important tool for monitoring a company’s cash flow and is used to prepare the cash flow statement. It is also useful for reconciling bank statements and detecting any discrepancies or errors in the cash transactions recorded.

General Cash Book has three parts:

1. Single Column Cash Book: A single column or simple cash book is that type of cash book which is used to note down only the cash transactions.
2. Double Column Cash Book: A double column cash book records two types of transactions under two separate columns. Here, one is compulsorily cash column, and the other can be either a discount column or a bank column.
3. Triple Column Cash Book: This type of cash book records transactions related to three different types of accounts, i.e., cash, bank and discount. Thus, it substitutes the creation of cash account, bank account, discount received and discount allowed in the ledger.

2. Petty Cash Book

Petty cash book is a type of cash book that is used to record minor regular expenditures such as office teas, bus fares, fuel, newspapers, cleaning, pins, and causal labor etc. These small expenditures are usually paid using coins and currency notes rather than checks. The person responsible for spending petty cash and recording it in a petty cash book is known as petty cashier.

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