Top 3 Types of Cash Books (With

Specimen)
Here we detail about the three types of cash book, i.e., (1)
Simple Cash Book, (2) Two Column Cash Book, and (3) Petty
Cash Book.
Simple Cash Book:
Simple cash book contains only one amount column on each side
(debit and credit) for recording cash receipts and cash payments.

A format of simple cash book is given below:

For recording transactions in the simple cash book, the foremost step
is to understand the rule for recording transactions i.e., which account
is to be debited and which account is to be credited.

Rules for Recording Transactions:

We know that cash book is also a cash account and there are two
approaches for recording business transactions in the books of
accounts. One is ‘Traditional Approach’ and the other is ‘Equation
Based Approach.

Under traditional approach, cash is a real account so that following the

rule: ‘Debit what comes in and credit what goes out’, receipt of cash is
to be debited (i.e., cash comes in) in the cash book and payment of
cash is to be credited (i.e., cash goes out).

Similarly, in the equation based approach, cash is an asset and

following the rule: ‘Increase in asset is to be debited and decrease in
asset is to be credited’, receipt of cash is debited (i.e., increase in cash)
and payment of cash is to be credited (i.e., decrease in cash) in the
cash book.

Procedure for Recording Transactions:

After knowing the rule for recording a transaction, it is essential for us
to learn the procedure for recording the transactions in the simple
cash book. It can be observed from the above format that the columns
on ‘Receipts Side’ of the cash book are similar to the columns
appearing on ‘Payment Side’.

However, for recording transactions in the cash book

following steps should be taken:
Step 1:
In the ‘Date’ column, the day, month and the year, on which
transaction occurs should be recorded.

Step 2:
In the ‘Particular’ column, the nomenclature of the accounts, from
where cash is received or paid, gets recorded.

Step 3:
In the ‘L.F.’ (Ledger Folio) column, the folio (page number) of the
respective ledger, where the posting of the transaction is made, shall
be recorded.

Step 4:
In the ‘Amount’ column, the actual cash paid or received is recorded.

Step 5:
The last, but not the least, cash book is to be balanced. As already
stated, a separate cash account in ledger is not opened when a cash
book is maintained. Like an account is balanced in the ledger, the cash
book is balanced in the same way. Depending upon the need and size
of the enterprise, the cash book should be balanced daily, weekly or
monthly.

Total of the ‘Amount’ column on both sides of the cash book is

compared and the difference if any, should be entered on the credit
side of the cash book under the ‘Particulars’ column as “By Balance
c/d’. By putting the difference under the amount column both sides of
the cash book become equal.

Now total amount under the ‘Amount’ columns on both side of the
cash book is written opposite to each other. The closing balance shown
as ‘By Balance c/d’ becomes the opening balance for the next period
and is written as ‘To Balance b/d’.
Double Column Cash Book- Cash Book with Bank
Column:
Simple cash book with single amount column on either side is
maintained if the organization has only cash transactions. However,
due to security and legal bindings, sometimes the transactions have to
be necessarily routed through banks. The receipt issued by the cashier
is the source document for cash receipts.

Any document viz., invoice, bill receipt etc., through which payment
has been made, will serve as a source document for payment. These
documents, popularly known as vouchers are numbered serially and
filed in a separate file for future reference, verification and audit.

Bank facilitates a business enterprise to open current account in which

the business enterprise can withdraw amount in excess of what is
available in the current account. In that case transactions related to
cash and banks are to be recorded separately in a cash book so that at
any particular period of time, cash balance available in the cash chest
and bank balance available in the bank account can be known
immediately.

It is better to record transactions relating to both cash and bank in the

same cash book. For this purpose, one more amount column for
recording bank transaction is to be added on both sides of the cash
book. This is known as bank column. Under bank column of the cash
book, cash transactions routed through bank are recorded.

A format of cash book with bank column is given below:

Similar to simple cash book, cash transactions are recorded in the two
column cash book. The difference is that here we also record banking
transactions i.e., the transactions in which bank is also involved.

Rule for Recording Transactions:

Entries in the cash column are recorded similar to recording
transactions in the simple cash book. For recording bank transactions
there are two approaches. One is ‘Traditional Approach’ and the other
is ‘Equation Based Approach’. Under traditional approach, bank is
personal account so that as per the rule: ‘Debit the receiver and credit
the giver’, receipt of cash by the bank is to be debited (i.e., debit the
receiver) in the cash book and payment of cash by the bank is to be
credited (i.e., credit the giver).

However, in the equation based approach, bank is an asset and the

rule: ‘Increase in asset is to be debited and decrease in asset is to be
credited’, will be followed. If in a transaction, bank column increases,
bank column of the cash book is to be debited (i.e., increase in bank)
and decrease in bank column is to be credited (i.e., decrease in bank)
in the cash book.

Procedure for Recording Transactions:

The procedure for recording transactions in the cash book with bank
column is the same as that stated in the case of simple cash book.
Depending upon the reputation or goodwill of the business enterprise,
bank fixes a limit on withdrawals, which is known as credit limit. It
means bank column may either show debit or credit balance
depending upon how receipts and payments made through bank
column of the cash book have affected the credit limit.

Petty Cash Book:

Petty cash book is a kind of cash book which records large number of
small payments such as conveyance, cartage, postage, telegrams and
other expenses under the imprest system. These expenses are
repetitive in nature. The procedure becomes cumbersome if all small
and repetitive payments are handled by the main cashier and are
recorded in the main cash book.

The cash book may become very bulky and the cashier may be
overburdened. Applying the rule of ‘management by exception’ the
main cashier should not be disturbed for small and petty items.

Big organizations normally appoint one or more cashier known as

‘Petty Cashier’ and assign the handling of petty expenses. Sometimes
the work of handling small and petty expenses is assigned to an
existing employee who in addition to his normal duties maintains a
separate cash book to record these petty and small cash transactions.
For this purpose petty cash book is to be maintained by such
employee. The petty cashier so appointed for recording the small and
petty expenses works on the imprest system.

Imprest System:
Under the imprest system, a fixed amount say Rs. 5,000 is given to the
petty cashier for incurring small and petty expenses. This amount is
called imprest money. The petty cashier makes all the payments for
which he is authorized out of the imprest amount. After a specific
period or as soon as he exhausts the full imprest amount, whichever is
earlier, he gets reimbursement for the actual amount spent by him
from the main cashier.

Thus at the beginning of the next period he once again has the full
imprest amount. Keeping in view the quantum of amount involved
and frequency of transactions, reimbursement of amount is made on a
weekly, fortnightly, monthly basis. Sometimes the petty cash system is
operated through the main cash book and in that case petty cash book
is not maintained independently.

Advantages:
(i) Reduces the labour:
Petty cash book is based on the division of labour and works on
imprest system; hence, it reduces the work and labour of main cashier.

(ii) Controls irregular expenses:

One of the famous principles of management is ‘control by exception’
which means that if one person tries to control everything, he may end
up controlling nothing. Based on this principle, a petty cashier is
appointed who can control the irregular expenses. In the absence of
petty cashier, it is very difficult to watch and control the necessities of
incurring any expenses.

(iii) Main cash book does not become over bulky:

Petty cash book helps to keep the main cash book in a compact form
because numerous entries for small and petty items are recorded in
the petty cash book itself.
(iv) Quick payment possible:
In petty cash book, payments for petty items are recorded. Though
they are small, yet they are essential. Sometimes they are so urgent
that they cannot wait for approval of the higher authority. In that case
quick payment is required and this can be made by the petty cashier.

Types of Petty Cash Books:

There are the two methods of preparing petty cash book:
(i) Simple Petty Cash Book

(ii) Analytical Petty Cash Book or Columnar Petty Cash Book

I. Simple Petty Cash Book:

In simple petty cash book there is one column each for recording of
receipt of cash from the main cashier and for payment of petty
expenses. ‘Date’ and ‘Particulars’ column is same for receipts and
payments. In the ‘C.B. Folio’ column, page number of cash book in
which payment to petty cashier is made is to be recorded.

In the particular column heads of the items are to be mentioned. In

‘V .No’ column, voucher number of the transactions are recorded.
‘L.F.’ column shows where the posting of these items have been made
in respective ledgers. ‘Amount’ column shows the money value of the
transactions.

The format of simple petty cash book is as under:

II. Analytical Petty Cash Book:
Analytical Petty Cash Book or Columnar Petty Cash Book is different
from the simple petty cash book in the sense that in this type of petty
cash book, an analytical presentation of cash payment is made. All
petty payments are to be classified into different heads and different
columns are maintained.

The format of the analytical petty cash book is as under:

Explanations to the Various Columns & Balancing the

Analytical Petty Cash Book:
Receipts are recorded in one amount column on the receipts (debit)
side known as ‘Amount Received’ column. However, for recording
receipts and payments the column for date, voucher number and
particulars are common. For recording petty expenses, petty cash book
has one column on the payment (credit) side which is known as ‘Total
Amount’ column.

In this column total of various expenses paid by same voucher and on

the same day are recorded at one place. The total amount column is
followed by number of columns for recording the heads of items which
are most common in the business enterprise.

After allotting the columns to most common heads, one column is

allotted for recording miscellaneous items which are known as
“Miscellaneous’ column. Payments for which a separate column does
not exist are recorded in this column.
The last column is allotted for ‘Remarks’. The nature of payments is
recorded in this column. All amount columns are totaled at the end of
the period. The total amount spent and the amount reimbursed shall
be shown in the total amount column.

Illustration 3: (Petty Cash Book)

Sharma Sports Goods Co. follows the imprest system of petty cash
under which, Rs 6,000 was handed over to the petty cashier as on 1st
March 2011.

The expenses during the month were as follows: