What is a Cash Book?

The difference between the sum of balances of the debit and credit sides shows the cash balance on hand or bank account. Cashbook plays a dual role as it is the book of the original entry of the company and the book of the final entry.

Types of Cash Book Formats

There are three types of cash book formats which are the following:

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#1 – Single Column

Single column cash-book contains only the cash transactions done by the business. Single column cash book has only a single money column on debit and credits on both sides. It does not record the transaction-related, which involves banks or discounts. The transactions done on credit are not recorded while preparing the single-column cash–book.

#2 – Double Column

The double-column cash book contains two money columns both on the debit and the credit sides. One column is for the transactions related to the cash, and the other column is for the transactions related to the business’s bank account. So, under the double-column cash book, the business also records cash transactions and transactions through the bank. But on the other hand, the transactions on credit are not recorded while preparing the double column cash–book.

#3 – Triple Column

It is also referred to as a three-column cash book format, and it is a complete form with three columns of money on both receipt and payment sides and records transactions about the cash, bank, and discounts. This book is generally maintained by the large firms that do transactions in cash mode and through the bank and frequently allow and receive cash discountsCash DiscountsCash discounts are direct incentives and discounts provided by any company to their customers in exchange for paying their bills on time or before the due date. This is a common practice, and the discount may differ from one company to the next depending on the terms and conditions.read more.

Cash Book Format

Mr. X started the business in the month of June-2019. He invested the capital of $200,000, in which the cash contribution is $100,000, and the rest of $100,000 he deposited in the business bank account of a business. On June 19, the following transactions took place in the business. Prepare the necessary double-column Cash Book using the data given below:

Solution:

Advantages

  • It helps save time and labor, as in the case of recording cash transactions in the journal, tremendous time and labor are required, whereas, in the case of a cashbook, cash transactions are recorded straight away in the form of the ledger.Management can know the balances of cash and bank at any time. It helps in effective cash managementCash ManagementCash Management refers to the appropriate collection, handling, & disbursement of cash for ensuring financial stability & avoiding insolvency risk. read more.Cashbook is balanced regularly, which helps in avoiding fraud. Also, discrepancies, if any, arise and can be found and rectified.

Limitations

  • It may take a lot of time to start and maintain this book.In the case of a large organization, maintaining it involves high costs

Important Points

  • Cash-book plays a dual role as it is the book of the company’s original entry and the final entry.It has two the identical sides, i.e., the left-hand side (debit side) and the right-hand side (credit side)The difference between the total of the two sides gives cash in hand or bank account balance.The transactions which are done on credit are not recorded in this book.

Conclusion

The cash book is a separate book of accounts in which all the company’s cash transactions are entered concerning the corresponding date, and it is different from the cash account where posting is done from the journal. There is no requirement to transfer the balances to the general ledger, which is required in the case of the cash account. Entries are then posted to the corresponding general ledger.

Cash-book has two sides, i.e., the left-hand side and the right-hand side, where all the receipts in cash are recorded on the left side, whereas all the payments in cash are recorded on the right side. Therefore, Cashbook helps in effective cash management as management can know the balances of cash and bank and take the necessary decisions accordingly.

This article has guided what Cash Book is and its definition. Here we discuss three types of cash book formats in accounting, examples, advantages, & limitations. You can learn more about accounting from the following articles –

  • Petty Cash BookExamples of BookkeepingCash Receipt Format