CASH BOOK
It is customary to every businessman to
have cash transactions, i.e. cash receipts and payments, regardless of the size
of the business organization. If the size of the firm is small, the cash
transactions are in small amounts. In case of large organizations, the
transactions will be in big amount. If cash receipts and payments are recorded
in a separate book, it is known as “Cash Book”. The person who maintains this
book is called a “cashier”. There are
chances for fraud and manipulation of cash. In order to avoid the probable
fraud, all the cash transactions are recorded in the cash book, through which
the closing balance of cash is known.
Importance:
Usually there are
two types of transactions in every business organizations, cash transactions
and credit transactions. Credit transactions are recorded in the respective
subsidiary books. Cash transactions are recorded in the cash book. Cash
transactions are or two types:
1) Cash receipts
2) Cash Payments
Cash receipts
should be shown on the debit side & Cash payments on the credit side of the
cash book. Cash received and paid pertaining to previous transactions are also
recorded. The difference between the debit total and the credit total reveals
the cash balance available with in the firm, no business concern can pay more
than what is receives. It means the payments should not exceed receipts.
Sometimes, the debit and credit may figure the same. When the amounts of
receipts equal the payments, the cash balance with the firm is nil. Cash book
can be used either as a book of original entry or a ledger. It plays the role
of both a ledger and subsidiary book. As cash transactions are first recorded
in this book, it is also called the “Book of final Entry”. Transactions
recorded in the cash book need not be posted in the ledger again. That is way,
it is also called “Book of final Entry”. Cash book should be prepared and
maintained with minimum errors. Cash book helps the firm to have a proper
control on cash.
Characteristics of Cash Book
1) It can also be treated as a subsidiary
book.
2) Like ledger, there are the debit and the
credit columns is cash book.
3) Only cash transactions are recorded.
4) It always shows debit balance but it never
shows the credit balance.
The balance of
cash can be known at any point of time.
Types of Cash Book
Cash book mainly four types 1) Simple cash book
2) Double column cash book
a) Containing cash and discount columns
b) Containing bank and discount columns
3) Triple column cash book
4) Petty cash book
1) Simple Cash book
The simple cash
book is maintained, usually, by newly started business firms, whose trade
activities are limited. Only cash transactions are recorded in this book. So,
it is called “single column cash book”.
Credit transaction (credit purchases
& credit sales) does not recorded in this book.
2) Double Column Cash Book
a) Cash book with cash and
discount column
In this book pertaining to cash and cash discounts are also recorded.
That is way; it is called “Double column cash Book”. In this book expressly
various types of discounts are offered. 1) Trade discount 2) Cash
discount.
v Trade
Discount:
The
discount offered by the seller to the buyer on the price of the goods purchased
is called “Trade discount”. It is shown in the Invoice. It is prepared with the
net amount. It is does not appear either in the cash book or any other Book.
v Cash
Discount:
If a debtor clears his debt before or on the date specified, he may
receive some rebate in the form of cash form the creditor. This is treated as
“cash discount received” by the debtor. This rebate given by creditors is
treated by him as “discount allowed”. This discount always recorded in the cash
book. Along with the cash column,
discount column is maintained on both the debit and credit sides of the book.
Hence this book is called “double column cash book”. The discount column of the
debit side is called” discount allowed” and the discount column of the credit
side is called is called “discount received”.
b) Cash Book with Bank and
Discount Columns
The modern business concerns, for
safety reasons, do not, usually carry out their transactions only in the form
of cash. The transactions are usually carried out through banks. The payments
and receipts are usually made through cheques.
Every day the cash and cheques
deposited in the bank are recorded on the debit side and the cheques drawn are
shown on the credit side. The discount obtained regarding these transactions is
shown on the credit side and the discount allowed is recorded on the debit
side. Usually, the bank column shows a debit balance, but sometimes it can show
a credit balance also. If it shows a credit balance, we call it an overdraft.
3) Triple column Cash Book
(Cash Book with discount,
cash and bank columns)
The
modern organizations, in which the cash transactions are made amounts, deal
with banks regularly to gain the following advantage.
v Cheques received can be deposited in their bank
accounts.
v All payments can be made through cheques.
v Interest can be earned by depositing the cash balance
in the bank.
As the business firms deal largely with banks. They
prepare a cash book containing cash, discount and bank columns. So, this book
is called “Triple column cash book”. As we include a bank column in the cash
book itself, there is no need of opening a bank account in the ledger.
By adding a bank column on both the debit and credit
side of a double column cash book a triple column cash book is obtained. This
book is thus, a mixed record of three accounts. The three accounts are.
Discount account as Nominal A/c
Cash A/c as Real A/c
Bank A/c as personal
A/c
Dr. Proforma of Triple Column
Cash Book Cr.
Important points to be noted while recording the
transactions in the triple column cash book.
a) When opening cash and bank balances are given, they
should be recorded on the debit side of the cash and bank columns when opening
bank balance is given as an overdraft, it should be recorded on the credit side
bank column of the cash book.
b) When cash is received by the firm, it should be recorded
on the debit side cash column of the cash book. In the same way, cash payments
made by the firm are shown in the cash column on the credit side of the cash
book.
c) When cash or cheque is received from debtors
through cash sales or any other sources, it is recorded in the cash column on
the debit side of the cash book. If the cheque Is deposited into bank on the
same day or assumed to be deposited on the same day, it is recorded in the bank
column on the debit side.
d) If any payment is made or a debt is cleared in the
form of cheques, it is recorded in the bank column on the credit side.
e) If discount is involved in cash/bank transactions,
it should be treated as under:
v If discount is allowed by the firm, it is recorded in
the discount column, on the debit side of the cash book.
v If discount is received, it is recorded on the
discount column on the credit side of the cash book.
f) If the cheques sent to bank for collection are
dishonored, these should be recorded in the bank column on the credit side of
the cash book. Similarly, if we receive any information that the cheques issued
by us are dishonored, it should be promptly noted in the bank column on the
debit side.
g) If cash is withdrawn from the bank for the business
use, it should be recorded in the cash column an its debit side and bank column
on the credit side of the cash book. Similarly if we deposit cash into bank it
should be recorded in the bank column and credit the cash column of the cash
book. This type of entry is called contra entry.
h) The cash and the bank columns are balanced
periodically. But, the discount column will not be balanced. These columns are
totaled and the amounts are carried forward to ledger accounts.
i) Contra entry:
If
a transaction requires entries on both the debit and the credit sides
simultaneously, it is called “Contra entry”. Here, both the sides are affected.
Example: when the cheques previously rare deposited now in the bank, they
should be recorded in the bank column on the debit side and he cash column on
the credit side of the cash book. Contra entries do not have ledger folio. To
indicate that in is a contra entry, the alphabet “C” is mentioned in the ledger
folio column on both the debit and the credit sides. “C” means contra entry.
Note: if cash is withdrawn from the bank for the
proprietor’s personal use, then it is not a contra entry.
Usually, the contra entries will appear in the
following occasions.
v When an account is opened with a bank.
v The firm’s cash is deposited in the bank.
v The cash is withdrawn from bank for office use.
v The cheques received from debtors, are deposited in
the bank.
In transactions a & b, the cash balance available
with the firm is decreased, the cash in bank is increased. In transaction “C”,
the cash in the bank is decreased and the cash in the firm is increased.
Note:
1) When cheque received from a debtor is
deposited in the bank on the same day, the entry will be as under:
Bank A/c Dr.
To Debtor
A/c
(Being the cheque received from the
debtor is treated as cash)
2) When the cheque received from a debtor is not
deposited into bank on the same day, two entries are recorded.
v When the cheque
is received:
Cash A/c Dr.
To debtor A/c
(Being the cheque received from
the debtor is treated as cash)
v When the cheques are sent to the bank next day for
collection. (this entry is called contra entry)
Bank a/c Dr.
To Cash A/c
(Being the
cheque deposited in the bank)
Problem:
prepare a triple column cash book in
Vijay & Co., Books.
1996
July 1 Commenced business with cash Rs.19, 000
2 Deposited in Bank of India
4 furniture purchased by
cheque payment Rs. 5,000
6 Electricity deposit paid in
cheque Rs. 3,500
9 Credit purchases from shyam
lal Rs. 20,000
13 wages paid in cash Rs. 6,500
15 Credit Sales to Ratan Rs.
14,000
16 Transport expenses paid Rs.60
18 Cash sales Rs. 6,000
19 Received from Ratan by cheque
of Rs. 13,850
21 Paid to Shyanlal by cheque
Rs. 19,900
22 Ratanlal cheque deposited in
bank
24 cash brought into business on
cheque Rs.10, 000
25 withdraw from bank for office
use Rs. 2,500
28 Rent paid by cheque Rs. 2,000
29 wages paid Rs. 4,000
29 cash sales Rs. 15,600
31 Electricity bill paid Rs.250
31 Rent received by cheque
Rs.6000
Cheque deposited in bank on
the same day.
Petty Cash Book:
In a business where there are
large numbers of small payments the entries are not made in cash book, but in
petty cash book. The petty cashier is given a certain sum of money and all
small payments below a certain limit are made by him. The petty cash book is
maintained just like cash book generally petty cash book is maintained on
Imprest system.
Imprest System:
Under this system a rough
estimate of the small payment for a period of month or week is made and the
head cashier gives the petty cashier the estimated amount. Petty cashier makes
payment and records the transactions in the petty cash book. At the end of the
period the petty cashier balances his book. Then the chief cashier pays him the
amount which he spent, so that original amount of petty cash with which he
started is restored.
Imprest System is very useful
especially if an analytical petty cash book is used. Under this method a
separate column is provided to record each head of petty expense along with a
total column. Every payment is entered in the concerned head of petty expense
and in total column. All the payments made are analyzed in the column of petty
cash book itself, under the different heads of expenses. Hence it is called
analytical petty cash book. It will be on the following lines.
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