Cash Book: Definitions, types and usage in financial accounting

[ecis2016.org] A cash book is a financial journal that is used to systematically keep track of cash receipts and payments.

What is a cash book?

A cash book contains financial reports and transactions like cash receipts and disbursements, bank credit and debit. It is a financial journal that helps organise finances and systematically keep track of transactions.

You are reading: Cash Book: Definitions, types and usage in financial accounting

Details of cash book

A cash book contains all the cash transactions made by an individual or enterprise within an accounting period. These transactions are then listed sequentially for convenience. Most enterprises or organisations like to split the cash book into two sections:

• Cash disbursement journal listing all cash payments: All reports on payments made to retailers, payments received by consumers and things like accrued accounts receivable or cash transactions.
• Cash receipts journal counting the cash earned by the company.

However, please note that a cash book and a cash account are different in several aspects.

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Cash book: How are transactions recorded? 

All financial transactions present and recorded in a cash book have two sections:

• Debit
• Credit

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All cash receipts which mark the withdrawal of funds are placed on the left-hand side of a cash book as debit. All cash payments are recorded on the right-hand side and marked as credit. The difference between the two sides can be found in the balance of cash on hand. If the cash flow is positive, the balance will be a net debit balance.

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Cashbook types

Cash books are usually set up in columns. There are three common versions of the cash book. 

Single column cash book

1 column: Single column cash books will only display and record credit and debit of cash transactions. 

Double column cash book

2 columns: The double line columns will show both cash payments and bank transactions done cashlessly. 

Triple column cash book

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3 columns: The three-column cash book will record cashless and cash transactions along with some extra information like discounts and transaction details.

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Are cash books and cash accounts the same?

A cash book is an entirely separate ledger which is dedicated to recording cash transactions. However, a cash account is a general ledger account which records all kinds of financial transactions. A cash book can do the job of both a journal and a ledger for accounting. On the contrary, a cash account is like an accounting ledger. In a cash book, information about the source or use of funds must be noted. However, in a cash account, no such requirements are demanded.

A cash book is more suitable for reporting transactions due to its natural exposure and recording of daily cash flows. Any mistakes in accounting can be easily identified and the balance sheet can be updated and checked regularly for discrepancies. In the case of cash accounts, records are usually checked only once at the close of the month, after the monthly bank statement is released.

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