CashBook

Savita Mahendru

Asst Lecturer in Commerce�HRMMV

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• A person after passing his/her senior secondary examination started a grocery store. The transactions were limited in number and he/she maintained only one register to record them i.e., Journal. As the business grows, the number of business transactions increases. Recording all the transactions only in the Journal becomes very inconvenient and cumbersome. It needs to be divided into many books. There are various kinds of books that are maintained where the transactions will be recorded in these books according to their nature, such as Cash book for cash transactions, Sales Book for credit sales; Purchases Book for credit Purchases and so on. Out of these books, Cash Book plays a significant role because it records large number of cash items of a business concern. In this lesson you will learn about Cash Book, its meaning and preparation

CASH BOOK : MEANING AND SIMPLE CASH BOOK

• On your birthday you got gift in the form of cash from your parents, grand parents and some of your relatives. In the meantime, you got back some money that you have given to your friend as a loan. You spent this money in buying books and clothes. You went to see movies with your friends. You purchased some toys for your niece. As per habit you noted down all receipts and payments in your note book. At the end of the month, you calculated the balance of cash in hand and tallied it with the actual cash balance with you. You may maintain separate book to record these items of receipts and payments, this book is known as Cash Book.
• Cash Book is a Book in which all cash receipts and cash payments are recorded. It is also one of the books of original entry. It starts with the cash or bank balance at the beginning of the period. In case of new business, there is no cash balance to start with. It is prepared by all organisations. When a cash book is maintained, cash transactions are not recorded in the Journal, and no cash or bank account is required to be maintained in the ledger as Cash Book serves the purpose of Cash Account.

Cash Book : Types and Preparation

Cash Books may be of the following Types:

• Simple Cash Book
• Bank Column Cash Book
• Petty Cash Book

Simple Cash Book

• A Simple Cash Book records only cash receipts and cash payments. It has two sides, namely debit and credit. Cash receipts are recorded on the debit side i.e. left hand side and cash payments are recorded on the credit side i.e. right hand side. In this book there is only one amount column on its debit side and on the credit side. The format of a Simple Cash Book is as under:

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Column-wise explanation is as follows :

• Date : In this column Year, Month and Date of transactions are recorded in chronological order.
• Particulars : In this column, the name of the account in respect of which cash has been received or payment has been made is written. Account pertaining to the receipts of cash is recorded on the debit side and those pertaining to cash payments on the credit side.
• Ledger Folio : In this column, it records the page number of the ledger book on which relevant account is prepared.
• Amount : In this column, it records the amount received on debit side and cash paid on its credit side

Preparation of Simple Cash Book

• Cash Book is in a way, a cash account with debit and credit side and Cash account is an asset account, so the rule followed is ‘Increase in assets to be debited and Decrease in asset is to be credited’. This implies that Cash Book is a book where all the receipts in terms of cash are recorded on the debit side of the Cash Book and all the payments in terms of cash are recorded on its credit side. This means:

• On the debit side in the particulars column, the name of the account, for which cash is received is recorded. Similarly, on the credit side, the name of account for which cash is paid, is recorded. In the amount column the actual cash paid or received is recorded. At the end of the month, cash book is balanced.
• The cash book is balanced in the same manner an account is balanced in the ledger. The total of the debit side of the cash book is compared with the total of the credit side and the difference, if any, is entered on the credit side of the cash book under the particulars column as ‘balance c/d’.
• In case of Simple Cash Book, the total of debit side is always more than the total of the credit side, since the payment can never exceed the available cash. The difference is written in the amount column and total of the both sides of the cash book becomes equal.
• The closing balance of the credit side becomes the opening balance for the next period and is written as Balance b/d on the Debit side of the Cash Book for the following period.

Posting of Cash Book in the Ledger

• As we know that cash receipts are shown on debit side of Cash Book and the cash payments are shown on the credit side of Cash Book. Account appearing on the debit side of the Cash Book is posted on the credit side in the relevant ledger.
• Similarly, account appearing on the credit side of Cash Book is posted on the debit side of the relevant ledger. Cash Book in itself is a Cash account, so no separate cash account will be maintained in the ledger.

BANK COLUMN CASH BOOK

• When the number of bank transactions is large in an orgnisation, it is necessary to have a separate book to record bank transactions. Instead of having a separate book to record bank transactions, a column is added on each side of the Simple Cash Book.
• This type of cash book is known as Bank column Cash Book. All payments into bank are recorded on the debit side and all withdrawals/payments through the bank are recorded on the credit side of the cash book. The format of a Bank column cash Book is as under :

Preparation of Bank Column Cash Book

• In Bank column Cash Book, the cash transactions are recorded in a similar manner as are recorded in the Simple cash book.
• The difference is that Bank column cash book records transactions relating to Bank also.
• There are some special business transactions which need special treatment in the Bank column of the Cash Book:

(i) Opening balance

(ii) Receipts of cheques

(iii) Contra entries

(iv) Endorsement of cheques

(v) Bank charges

The treatment given to these special transactions is as under :

Opening Balance

• The opening cash and bank balances are recorded on the debit side of the cash book. Sometimes a businessman withdraws excess amount from the bank (from his bank account) and the closing bank balance of a month is a credit balance. This balance amount is called ‘Bank overdraft’. It is written on the credit side of the bank column of the cash book as opening balance. For example, if a business firm has ` 12,000 as cash in hand and `15,000 as overdraft (credit balance) in the bank, it will be recorded as under:

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Receipt of Cheques

• All cash receipts are entered in the cash column and cheques received in the bank column of Cash Book. If the cheques deposited in bank on the same date, it is entered on the debit side of bank column of the cash book. If the cheques received from customer are not deposited in the bank on same day, they are included in cash and written on the debit side in the cash column of cash book. For example: On May 2, 2014 a cheque received from Tarun for ` 7,000 and deposited on same date.

Contra Entries

• When there is a transaction that relates to both cash and bank, this will be written on one side of Bank Column and on other side of Cash Column, Such transactions are known as ‘Contra entries’. In case, cash is withdrawn from bank for office use, it is entered on the credit side of bank column and also in the debit side of cash column of the cash Book. In case, cash is deposited in the bank, the amount is recorded on the debit side of bank column and on the credit side of cash column of the cash book. The letter ‘C’ is written in the LF column on both sides against these entries. These entries are not to be posted into ledger. For example: On May 15, 2014 Cash withdrawn from bank for office use is `2,000. In this case the transaction recorded is as under:

Endorsement of Cheques

• When cheque received from customer is given to some other party i.e. endorsed, on receipt, it is recorded on the debit side of cash column. On endorsement of cheque, the amount is recorded on the credit side of the cash column of Cash Book. For example, on May 22, 2014 a cheque of ` 8,000 is received from M/s J.P Traders. On May 27,2014 it was endorsed in favour of M/s Kapila Traders. In this case the transaction recorded is as under:

Bank Charges

• If bank charges any interest, outstation cheque collection charges etc., are entered on the credit side of the Bank column of the Cash Book. Similarly, if bank gives interest, collects commission etc., these will be recorded on the debit side on the Bank column of Cash Book.

PETTY CASH BOOK : MEANING AND NEED

• In big business organisations, a large number of repetitive small payments such as, for conveyance, cartage, postage, telegrams, courier and other expenses are made. These organisations appoint an assistant to the Head Cashier. The appointed cashier is known as petty cashier. He makes payments of these expenses and maintains a separate cash book to record these transactions. Such a cash book is called Petty Cash Book. The petty cashier works on the imprest system. Under this system, a definite sum, say ` 4000/- is given to the petty cashier at the beginning of the period. This amount is called imprest money. The petty cashier meets all small payments out of this imprest amount, At the end of the period say one month he presents the account to the Head Cashier and gets reimbursed from the Head Cashier. Suppose out of ` 4,000 he has spent ` 3,850 by the end of the month. He will get ` 3,850 from the head cashier. Thus, again he has the full imprest amount in the beginning of the next period. The process of reimbursement can be weekly, fortnightly or monthly depending upon the frequency of small payments. The Petty Cashier is authorised to sanction and disburse small payments. Assignment of the task of making of petty expenses to a person and the maintenance of petty cash book by him reduces the burden of the Head Cashier.

• The petty cash book has a number of columns for the amount on the payment side. Each of the amount columns is allotted to items of specific payments, which are common. The last column is allotted for miscellaneous payments. At the end of the period, all amount columns are totalled. The total of the amount paid shown in column 5 is deducted from the column 1. At the opening of the month the total amount paid in the previous month is reimbursed by the Head Cashier

Format of a Petty Cash Book is given as under: