Cash Book In any business, there will be numerous transactions relating to cash i.e. receipts and payments of cash.

On receipt of cash, the cash account is debited and on payment the cash account is credited. Cash Account can be prepared straightaway without journalizing the transactions. By doing so, much of clerical labor involved in making the journal is saved. Since cash transactions will be numerous, it is better to keep a separate book to contain only the cash account. This book is known as Cash Book.

Types of Cash Book

Single column cash book (Simple cash book) Cash Transactions are recorded in chronological order Cash receipts on the debit side Cash payments on the credit side Difference is the cash in hand

Double column cash book Discount and cash columns Only cash discount but not trade discount

Three column cash book Discount, cash and bank columns

Format of Single Column Cash Book Simple Cash Book: It is also known as the single column cash book. A simple Cash Book is ruled exactly like Ledger Account. Thus the format of the Cash book looks like this

Cash Book Dr RECEIPTS PAYMENTS Cr

Date

Particulars

L.F.

Amount (Rs.)

Date

Particulars

L.F.

Amount (Rs.)

Example of Single Column Cash Book Example: Enter the following transactions of Rajesh in single Column Cash Book. 2002 Jan. 1. Commenced business with 2, 00,000 2. Paid cash into bank 4. Purchased goods for cash 4. Sold goods for cash 5. Paid for stationary 7. Received from Arun 8. Paid to Gopal 10. Purchased office furniture Solution to the Example Solution: Cash book RECEIPTS Dr. Date Particulars L.F. Amount (Rs.) Date Particulars L.F PAYMENTS Cr. Amount 1,50,000 20,000 15,000 500 25,000 10,000 4,000

2002 Jan.

1 To Capital A/c 4 To Goods A/c 7 To Arun A/c

2,00,000 2002 15,000 Jan. 25,000

2 4 5 8 10

By Bank A/c By Goods A/c By Stationary A/c By Gopal A/c By Office Furniture A/c 31 By Balance c/d

1,50,000 20,000 500 10,000 4,000 55,500

Feb

1 To balance b/d

2,40,000 55,500

2,40,000

Format of Double Column Cash Book

Normally cash discount is allowed to customers who pay promptly. However, no cash discount is allowed unless payment is received from the customer. Similarly, no cash discount is received unless payment is made to suppliers. Cash discounts accompany cash receipts from customers and payments to suppliers. Thus, it is convenient to record discount received or discount allowed with cash payment or cash receipt. This can be done by adding one amount column on each side of the cash book to record discount. Discount allowed is recorded on the debit side and discount received is recorded on the credit side. One should note that the discount columns are not balanced but merely totaled. Format of a double column cash book Date Particulars LF Discount Cash Date (Rs) Particulars LF Discount Cash (Rs)

Format of Triple Column Cash Book

Modern business transactions with a bank are more than cash transactions. Money at bank is as good as cash in hand. Thus it is advantageous to have a column for banking transactions on each side of the Cash Book. This column will record Payments into the bank Payments out of the bank. Inclusion of bank column in the Cash Book results in three column Cash Book. Payments in cash will be entered in the cash column on the credit side and the receipts of cash will be entered in the cash column of the debit side. Payments out of bank are represented by the cheques issued by the firm which are entered in the bank column on the credit side. Payments into the bank are represented by cash or cheques paid into the bank account which are entered in the bank column on the debit side. When cash is withdrawn from bank for office use, it is entered in the cash column on the debit side, saying To Bank and it must also be entered in the bank column on the credit side, saying, By Cash. Similarly, when cash is deposited in the bank, the amount is entered in the bank column on the debit side and in the cash column on the credit side. These entries are known as contra entries. The letter C is written in the column of ledger folio (L.F.) to indicate the contra transaction. The double entry is completed in the Cash Book itself.

As it was said earlier the discount columns are merely totaled and are not balanced. The other two columns are balanced separately. It should be noted that the total in the cash column on the debit side will always be higher than the total in the cash column on the credit side. The difference is written in the cash column on the credit side. Such difference represents cash in hand. Normally, the total of the bank column on the debit side is bigger than the total of the bank column on the credit side. The difference is cash at bank and should be written in the bank column on the credit side. However, sometimes it may be possible that the bank column on the credit side is more than the column on the debit side. This means that the payments have exceeded the receipts. The difference represents money overdrawn, i.e. Bank overdraft. This amount is written in the bank column on the debit side. The closing balances become the opening balances for the next period. In case of a bank overdraft, the opening balance is written in the bank column on the credit side as By balance b/d. Posting in the Cash Book: The particulars column on the debit side of the Cash Book indicates the amount on whose account the money was received. Similarly, the particulars column on the credit side indicates the amount on whose account the payment is made. When a person is allowed discount his/her account is credited with the total of the amount received from him/her and the discount allowed to him/her. Format of a three column cash book Date Particulars LF Discount Cash Bank Date Particulars LF Discount Cash Bank (Rs) (Rs)

Example of Three Column Cash Book Example: Prepare a triple column Cash Book from the following transactions of Madhura Enterprises for the Month of January, 2002.

2002 Cash in hand Jan 1 Cash at bank 2 5 8 12 Paid into bank Brought furniture and issued cheque Purchased goods for cash Received cash from Mohinder

2,500 10,00 1,000 2,000 500 980

Discount allowed to him 14 16 19 23 24 Cash sales Paid to Amarnath by cheque Discount Received Paid into Bank Withdrawn from bank for private use Received cheque from Patel Allowed him discount 28 31 Withdrawn cash from bank for office use Paid rent by cheque

20 4,000 1,450 50 400 600 1,490 20 2,000 800

Solution to the Example Date Particulars LF Dis. Cash Bank (Rs.) (Rs.) (Rs.) 2002 Jan. 1 2 12 14 19 24 28 To Balance b/d C To Cash A/c To Mohinder A/c C To Sales A/c To Cash C Account To Patel A/c To Bank A/c Date Particulars LF Dis Cash Bank (Rs.) (Rs.) (Rs.) 2002 Jan 2,500 10,000 2 1,000 5 8 20 980 4,000 16 400 19 1,430 23 20 2,000 28 31 31 40 9,480 12,830 7,580 5,980 By Bank C By Furniture By Purchase A/c By Amarnath C A/c By Bank A/c By Drawings C A/c By Cash A/c By RentA/c By Balance c/d 1,000 2,000 500 50 1,450 400 600 2,000 800 5,980

7,580 50 9,480 12,830

Feb.1 To Balance b/d

Subsidiary Books The other subsidiary books used in an organization Purchase Book: Purchases of goods are entered in a register, namely, Purchase Book. Here, the ruling is that only credit purchases of goods dealt in the firm or raw materials and stores used by the firm are entered in the Purchase Book. Cash purchases are not entered in the Purchases Book. Also, credit purchases of things other than goods and materials have to be dealt with especially in accounts and hence these must not be entered in the Purchase Book. The total of the purchase book is posted to the debit of Purchases Account. Names of suppliers appear in the purchase book. Purchase Returns Book: It is also called Return Outwards Book. A separate book is maintained to record the purchase returns. The book in which the purchase returns are entered is the Purchase Returns Book. The total of Purchase Returns Book is credited to the Purchase Returns Account. Sales Book: Sales of goods are entered in a register, namely, Sales Book. Only goods sales on credit are entered in the Sales Book. Credit sales of things other than the goods have to be dealt with especially in accounts; hence, these must not be entered in the Sales Book. Cash sales are not entered in the Sales Book. The total of the Sales Book is credited to Sales Account. Sales Returns Book: The name of the book in which the sales returns are recorded is called Sales Returns Book. It is also called Returns Inwards Book. The total of Returns inwards Book is debited to Returns Inwards Account. Bills Receivable Account: The bills receivable of an enterprise consist of promissory notes and bills of exchange. A bill of exchange is a promise to pay the amount specified therein on the expiry of the period for which the bills is drawn. Bill of receivable is treated as the bill receivable by the seller and as bill payable by the buyer. The Bills Receivable book is used to record all promissory notes given or bills of exchange accepted by customers. Bills Payable Account: The bills payable consists of all promissory notes given or bills of exchange accepted by the business in respect of amounts owe to its suppliers. The Bills Payable Book is used to record all such promissory notes given or bills of exchange accepted by the business. Journal Proper: All those transactions for which no special journal is maintained are recorded by passing journal entries. The book maintained to record these transactions is called journal proper. It is also called general journal.