A cash book is a subsidiary book in which both cash and bank transactions are maintained. A cash book is both a journal and a ledger. Both cash receipts and cash payments are recorded in a cash book. The cash book is also regularly reconciled with the bank statements as an internal auditing measure. Cash books are important because their proper maintenance and reconciliation with bank statements are fundamental for a business. Some businesses maintain cash books instead of cash receipts journals and cash payments journals. This is because all cash receipts and payments are recorded in a cash book. It resembles the cash account maintained in the ledger. In fact, when a cash book is maintained separately, there is no need to keep a cash account in the ledger. For all purposes, a cash book is treated as a cash account (i.e., a part of the ledger). The cash book is maintained in the form of a ledger account, where receipts are put on the debit side and payments on the credit side. This book serves a double purpose. It acts as a journal or book of prime entry because all cash transactions are recorded in it as and when they take place. It also acts as a part of the ledger because it contains cash and bank accounts. When the ledger clerk receives the cash book, they complete the double-entry process by posting the transactions to other ledger accounts involved in the cash book. The balance of the cash book is included in the trial balance like a regular ledger account. As this explanation indicates, the cash book is among the most important books of accounts in modern business. It is, therefore, placed under the charge of a responsible person who keeps it up to date. There are four main types of cash books: There are three main advantages to maintaining a cash book.Cash Book: Definition
Cash Book: Explanation
Types of Cash Books
Advantages of Cash Books
If a cash book is not maintained and cash transactions aren’t recorded in the journal, unnecessary time and labor would be required to debit and credit the cash account for every cash transaction.
Since cash can be easily stolen by dishonest employees, the cash record must be up to date and properly supervised by a reasonable person.
For this purpose, it is essential to maintain a cash book to record all cash transactions accurately and systematically.
If all cash transactions pass through the cash book, we can avoid the substantial labor needed to post every item (receipts and payments of cash) individually to each account in the ledger.
Cash Book FAQs
The cash book is used to record all cash receipts and payments. This includes bank, petty cash, sales tax, etc. The cash book is both a journal and ledger account. It contains debits and credits which are double-entry Bookkeeping entries. Debits represent increases of value or asset accounts while credits represent decreases in value or liability accounts.
A cash book contains receipts and payments of cash, credit sales, etc. It will show the date of the transaction, name of the customer (if any), account to be debited (positive amount) or credited (negative amount). The balance at the end of the day is put into the ledger as a cash account.
The cash book contains two vertical columns. One column will show debits and other for credits. The first line of each entry shows date, name of customer (if any), account to be debited (positive amount) or credited (negative amount). The net amount is shown at the end of each column.
Cash book verification: It is essential for a business to ensure that all items recorded in the cash books and ledgers match with each other. This process is known as “verification” or “book balance”.
The cash books are opened in order to record all the transactions of money received and paid by a business concern on daily basis. Cash statements list all debits and credits for a specific period, such as a month or year.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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