3 – Cash Book

Introduction:

The cash book is a book of accounts in which most transactions are related to cash receipts and payments. These could include the purchase of items for cash, the sale of goods for cash, the payment of costs, or the receipt of revenue. All such transactions are individually recorded in a book known as the cash book. This book helps determine the cash balance at hand or the bank. All cash transactions are directly entered into the cash book, and ledger accounts are generated based on the cash book.

In general, four different types of cash books are prepared. They are as follows:

1. Single-column cash register
2. Cash book with two columns
3. Cash book with three columns
4. Petty Cash Register

3.1 Single-Column Cash Book

This book categorises transactions into two categories: payments and receipts. Receipts and expenses are recorded on the debit and credit sides of the cash book. The cash book’s debit and credit side transactions are prefixed with “To” and “By,” respectively.

Dr                          Pro forma of the Single Columnar Cash Book                 Cr

3.2 Cash Book with Two Columns

It is a different type of cash book that is nothing more than an expansion of the single columnar cash book. The double-columnar cash book divides the enterprise’s operations into cash and bank transactions. It indicates that the company’s complete cash and bank receipts and payments are routed through cash and bank. The business transaction with the bank, whether a cash withdrawal or a cash deposit, records the cash flow from one entity to another via contra entries.

Contra entries are recorded on two occasions: cash withdrawals and deposits.

The cash movement during the cash withdrawal is represented below for easy understanding, which is nothing more than the movement of the asset from bank to firm.

Transaction No. 1: On January 5, 2006, a cash withdrawal of $10,000 was made from the bank, which resulted in the following journal entry:

Cash A/c                           Dr      `10,000

To Bank A/c                                `10,000

(Being cash withdrawn from the bank A/c)

From the above entry, it is understood that the bank is the giver of cash resources from the savings bank account, and cash receipts are made only when cash is withdrawn from the bank.

There are two different angles of cash withdrawal: one in the firm’s dimension and the other in a bank.

Transaction No. 2: Jan 20, 2006: Cash deposits have a similar process to post a contra entry, just opposite to the entry of cash withdrawals. A cash deposit of ‘5,000 `is . in the bank account. The following is the journal entry for the cash deposit:

Bank A/c                           Dr      `5,000

To Cash A/c                                `5,000

(Being cash deposited into the bank account)

Dr                            Pro forma of Double columnar Cash Book                   Cr 

* Overdraft from a bank

The accompanying table of a double-columnar cash book demonstrates the contra-entry process between the firm and the bank.

3.3 Cash Book with Three Columns

It is a subset of the cash book that includes three components of the enterprise’s operations: cash, bank, and discount. This cash book is an extension of the previous one in that it not only enables and combines the firm’s money and bank receipts and payments but also allows and receives discounts.

Proforma of Three Columnar Cash Book

Roop, for example, owes ‘1000 to Muzaffar Nagar’s M/s. Goyal Traders. The firm will give you a 1% discount if payment is made within one month. Roop makes the payment within the time frame specified. As a result, he is given a ’10 reduction and makes a payment of ‘990 to the firm. If no Cash Book is utilised in M/s. Goyal Traders’ books, the following entry must be made in the Journal.

If a Cash Book is utilised, the cash and discount accounts must be recorded on the Cash Book’s debit side. Similarly, if a discount is given for timely payment, such things must be entered on the credit side of the Cash Book, with the amount received or paid in the Amount/Cash column and the discount allowed/received in the discount column.

The trade discount is a discount the company offers to encourage repeat customers to purchase more. The firm only allows this form of reduction on the whole invoice amount. The discount is applied to the gross value of the goods purchased from the firm by the regular client.

Why is the obtained discount added to the credit side?

The rationale for displaying the discount received on the credit side of the cash book is that the discount is only available when overdue due to credit purchases are paid.

3.4 Petty Cash Register

It is a book that the petty cashier keeps, responsible for assisting the business company’s cashier in meeting the minor volume of day-to-day expenses. The cashier usually turns over a set amount of money to the petty cashier to cover minor business costs, such as postal and refreshment charges, based on an early estimate of the daily requirement. The meagre sum handed by the cashier is referred to as petty cash or float. Based on the petty cash book balance presentation, the cashier examines the vouchers and receipts.

The following is a petty cash book proforma:

Analytical Petty Cash Book

Illustration 1: Prepare a cash book from the following:

2021

Solution:

Cash Book

Dr.                                                                                                                   Cr.