CASH BOOK

CASH BOOK

The Cash Book is a sub-division of the book of original entry recording transactions
involving receipts or payments of cash. All cash transactions are first entered in the
Cash Book and then posted from Cash Book into the ledger.

FEATURES

1. Only Cash transactions are recorded in the Cash Book.

2. It performs the functions of both journal and the ledger at the same time.
3. All cash receipts are recorded in the debit side and all cash payments are
recorded in the credit side.
4. It records only one aspect of a transaction, i.e. Cash.
5. All cash transactions are recorded chronologically in the Cash Book.
6. The Cash Book, recording only cash transactions, can never show a credit
balance.

KINDS OF CASH BOOK

i Single Column Cash Book

ii Cash Book with Cash and Bank columns
iii Cash Book with cash, Bank and Discount Columns

PETTY CASH BOOK

Almost all businesses are to spend small sums of money for variety of small regular
expenses, e.g., purchasing newspaper, pins, etc. For this, a Petty Cash Fund is
established by transferring a small amount of cash from Head cashier to a person who
is designated to be responsible for it – the Petty Cashier. The petty cashier will record
all the transactions in a separate book called Petty Cash Book.

SYSTEMS OF PETTY CASH

1. ORDINARY SYSTEM OF PETTY CASH: Under this system, the petty cashier is
given a lump sum amount of cash. After spending the whole amount, he submits
the account to the head cashier.
2. IMPREST SYSTEM OF PETTY CASH: Under this system, a fixed sum or float is
allocated as sufficient to meet petty cash expenditure for an agreed period of
time. At the end of the agreed period, the petty cashier submits the account of
the amount spent by him. The sum expended by the petty cashier is reimbursed,
thus making up the balance to the original sums.
ANALYTICAL PETTY CASH BOOK

The most advantageous method of recording petty cash payment is to enter them in the
Analytical Petty cash book. In the Analytical Petty Cash Book a separate column is used
for each commonly occurring item expenditure such as postage, stationery, travelling,
wages, etc. When a petty expense is recorded in the right-hand total payment column,
immediately the same amount is recorded in the appropriate analysis column. At the
end of a particular period, all the analysis columns are added and posted to the debit
side of the respective accounts.

The following points are worth noting:

a. The pages are not divided down the center, major space is provided for credit
side and the debit side contains only two columns – money column and cash
book folio column.
b. The chief item of receipt is the original imprest. Other items include the money
collected from private telephone calls, sale of old newspapers, etc.
c. Money disbursed are recorded in the credit side and then analysed out into
number of analysis columns which serve as collection columns for a large
number of small items. Thus all the stationery is collected in the ‘Stationery’
column.
d. Certain payments cannot be added together in the above way, for example, small
payment to creditors. A special column is provided, under the heading ‘Ledger
Account’ to record these type of payments. These items are posted separately to
their respective accounts in the ledger.

BALANCING OFF THE PETTY CASH BOOK

At the time of balancing off the Petty Cash Book, a line is drawn right across the figures
on the credit side and all the columns are added up. Then the analysis columns only are
closed with a double line, the total column being left open.

The balance of petty cash in hand is find out after deducting the total of the payment
column in the credit side from the received column in the debit side. This is inserted in
the credit column, the book is balanced and the balance is brought down.

EXERCISES

1. Record the following transactions in a suitable cash book of Mr. P. Basu and
show the closing balances of cash and bank.
2008 Rs
Jan 1 He had cash in hand 50,000
2 Opened a Bank Account 30,000
 2 Received from Mr. T. Bose 4,000
3 Paid to Mr. N. Gopal in cheque 500
3 Purchase made in cash 1,000
3 Paid rent 250
3 Withdrawn from Bank 3,000
4 Cash Sales 5,000
4 Received a cheque from Sunil Ranjan 10,000
4 Paid wages 200
4 Purchased furniture in cash and paid by cheque 4,000
4 Cash purchases 3,000
5 Deposited the cheque received from Mr. Sunil Ranjan
5 Withdrawn from Bank for personal use 3,000
5 Paid Electricity Bill 52
5 Paid Rates and taxes 100
5 Purchases made in cash 7,000
5 Cash Sales 12,000
5 Sold to Sree Nagarjun 5,000
5 Purchased from Mr. Nemai Bose 2,000
7 Received a cheque from Sree Nagarjun and sent to Bank 3,000
7 Paid railway freight 250
7 Purchased stamps and stationery 25
7 Deposited in Bank Account 300

2. Prepare a triple Column Cash Book from the following transactions and bring
down the balance for the start of next month:
2008 Rs
Nov 1 Cash in hand 2,500
1 Cash at Bank 10,000
2 Paid into bank 1,000
5 Bought furniture and issued cheque 2,000
8 Purchased goods for cash 500
12 Received cash from Mahindar 980
Discount allowed to him 20
14 Cash Sales 4,000
16 Paid to Amarnath by cheque 1,450
Discount received 50
19 Paid into Bank 400
23 Withdrawn from Bank for Private Expenses 600
24 Received cheque from Patel 1,430
Allowed him discount 20
 26 Deposited Patel’s cheque into Bank ----
28 Withdrew cash from Bank for Office use 2,000
30 Paid rent by cheque 800

3. Shri P. Sharma, maintains a columnar Petty Cash Book on the imprest system.
The imprest amount is Rs 400. From the following information write up the Petty
Cash Book for the 1st week of January, 2008.
2008 Rs
Jan 1 Bought stamps 50
1 Paid bus fares 4
2 Paid postages 10
2 Bought envelopes 30
2 Paid for refreshment 14
3 Paid V. Srivastava, a creditor 62
3 Collection from private telephone call 10
4 Paid for postage 20
5 Paid R. Smith, a creditor 105
6 Paid train fares 45
7 Restored imprest