Cash Book

Definition: Cash Book implies a subsidiary book, wherein all cash inflows and outflows made by the entity are recorded datewise, in chronological order. It is called the book of original entry, as the transactions are recorded as and when they occur, right from the source documents.

Cash book is similar to the cash account in the sense that on the debit side of the book, entries relating to cash receipts are to be made, whereas, on the credit side of the account, cash disbursements are entries are made. So, it acts like both a journal, as well as a ledger. Basically, there are three kinds of cash book, discussed as under:

Simple Cash Book

Simple Cash book is one that appears like an ordinary account, wherein the left-hand side in the particulars column, cash inflows are entered As against, on the right-hand side, cash outflows are indicated in the particulars column. It is also known as single column cash book because it has only one amount column on each side.

The balancing of simple cash book is carried out just like other ledger accounts, i.e. first and foremost, the amount columns of each side are totalled separately, then the difference between the two is ascertained and entered on the side where the amount falls short.

Here, one thing should be kept in mind that the total of receipts column is always higher than the total of payments side, so the difference is entered as “By Balance c/d” on the credit side.

Double-Column Cash Book

As the name suggests, a double column cash book is one that has two amounts column on each side, either for:

• Cash and Discount: In the cash column cash receipts and disbursements are entered, whereas the discount column is made for discount received (on the credit side) and discount allowed (on the debit side), if any, is recorded. The column for a discount is just memorandum column and so, they cannot be used as a discount account.
  
• Cash and Bank: When along with cash inflows and outflows, there is another amount column on each side for the amount deposited and withdrawn from the bank in the cash book, then also it is called as a double column cash book

The cash column is balanced as in case of single column cash book, while the discount columns are only totalled, they are not balanced. The total discount column on the debit side indicates the total discount allowed to the customers, whereas the total discount column on the credit side represents the total discount received from creditors.

The bank column is balanced just like the cash column and the balance is termed as bank balance. However, the entity can have an overdraft, i.e. withdraw more amount from the current account than deposited in the bank. In that case, the credit side would obviously be higher than the debit one, and so the difference will be recorded as “To Balance c/d”, indicating the credit balance.

Three-Column Cash Book

In this cash book, you will find, three amount column for discount allowed, cash receipts and bank deposits on the debit side, and discount received, cash payments and bank withdrawals from the current account, on the credit side. The balancing of three column cash book is done in the same way, as discussed in the double-column cash book.

• Contra Entries: There are instances when the entity withdraws cash for business purposes. So, for these entries amount is written in the bank column for the withdrawal, i.e. on the credit side and in the cash column for the receipt, on the debit side. In the same way, when cash is deposited in the bank, the amount is entered in the cash column on the credit side for disbursement, and in the bank column, on the debit side for cash deposited. These entries are indicated by writing letter ‘C’ in the ledger folio column.

One of the benefits of cash book is that cash account and bank account are prepared at the same time and so, it is easy for the users to get the details regarding cash in hand, and bank balance, in a cursory glance. Moreover, it is quite easy to verify contra entries, in the cash column and bank column.