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CHAPTER 9

CASH BOOK

Introduction

In an organization thousands of cash transactions occur in a year and journalizing them all is tedious work. And so, businesses maintain cash books to record all cash transactions.

Cash transactions are straightaway recorded in Cash Book and on the basis of such a record, ledger accounts are prepared. Therefore, it is a subsidiary book. But the Cash Book itself serves as the cash account and the bank account; the balances are entered in the trial balance directly. The cash book, therefore, is part of the ledger also. Hence, it has also to be treated as the principal book.

A Cash Book is a special journal which is used for recording all cash receipts and cash payments. It records all those transactions which are in cash or by Cheques.

If a cash book is maintained, there is no need for preparing a cash account in the ledger. However, the other aspects of the transactions will be recorded in the ledger.

Cash Book serves dual role of journal as well ledger. Cash Book is the book of original entry (Journal) since transactions are recorded for the first time from the source documents. It is a ledger in the sense that it is designed in the form of Cash Account and records cash receipts on the debit side and cash payments on the credit side.

Features of Cash Book

1. Only cash transactions are recorded in the Cash Book.

2. It performs the functions of both journal and the ledger at the same time.

3. All cash receipts are recorded on the debit side and all cash payments are recorded on the credit side.

4. The Cash Book, recording only cash transactions can never show a credit balance.

Kinds of Cash Book

Cash Book can be of several kinds:

Single Column Cash Book - For recording cash transactions only.

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Double (Two) Column Cash Book- For recording cash transactions involving gain or loss on account of discount.

Triple (Three) Column Cash Book- For recording cash and bank transactions involving gain or loss on account of discount.

Petty Cash Book- For recording petty expenses.

Single Column Cash Book

❖ The Single Column Cash Book has one column of amount on each side.

❖ All cash receipts are recorded on the debit (left-hand) side and all cash payments are recorded on credit (right-hand) side.

❖ In fact, it is nothing but a Cash Account. Hence, there is no need to open Cash Account in the ledger.

Double Column Cash Book

❖ This Cash Book has two amount columns one for cash and another for discount on each side.

❖ It is customary in business to allow discount when payment is received from a customer promptly and before due date. It is equally so when payment is made to a creditor before due date.

❖ All cash receipts and discount allowed are recorded on the debit side and all cash payments and discount received are recorded on the credit side of Cash Book.

Triple Column Cash Book

❖ This type of Cash Book is an improvement over the Double Column Cash Book.

❖ In modern times, it is virtually impossible to imagine any business without having dealings with a bank. Most of the transactions relating to receipts and payments of money are made through cheques. So transactions through bank are also recorded in the cash book by adding one more column i.e. bank column on both sides of the cash book.

❖ Therefore, there are three columns on both sides of the cash book i.e. cash, bank and discount columns. That is why this type of cash book is known as Triple Column Cash Book.

❖ Contra Entries: Often cash is withdrawn from bank for office use. In such a case, the amount is entered in the bank column on the payment side and also in the cash column on the receipts side. In the reverse case of cash being deposited in the bank, the

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amount is recorded in the bank column on the receipt side and in cash column on payment side. Against such entries, the letter “C” should be written in the LF column, to indicate these are contra transaction and no further posting is required for them.

❖ Note: If initially cheques received are entered in the cash column and then sent to the bank, the entry is as if cash has been sent to the Bank.

Petty Cash Book

❖ In a firm, there are usually cash transactions happening in all the departments. These we will record in one of the above formats of cash books.

❖ But there are many cash transactions happening for very small amounts. Sometimes there are dozens of such transactions that occur in just one day. These are known as petty transactions. Examples are expenses for postage, stationery, traveling, food bills, etc.

❖ Since the number of such transactions tends to be very high, we maintain a separate cash book for them – the petty cash book. Such a cash book is maintained by the petty cashier (who in most cases also handles the petty cash).

Solution

Example: Enter the following transactions in a Simple Cash Book:

Solution

Cash Book

Dr.

Cr.

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Example

Enter the following transactions in Cash Book with Discount and Bank Columns. Cheques are first treated as cash receipt.

Solution

Cash Book

Dr.

Cr.

YouTube Link for Lecture:

Channel Name:

Lateef’s Commerce Academy

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Visual elements included in this PDF

The PDF has substantial visual/tabular material on pages 37 and 38:

Page 37:
A worked Simple Cash Book example with the original transactions followed by a complete Cash Book solution, divided into Dr. / Receipts and Cr. / Payments.

Page 38:
A worked Cash Book with Discount and Bank Columns, showing separate Discount, Cash, and Bank columns on both the debit and credit sides, including the contra-entry marks “C” and the closing balances.

I have preserved the amounts and entries from the page images rather than relying only on the extracted text.