Cash Book

A cash book is a part of a company’s bookkeeping and accounting processes. It usually looks like a paper notebook or a computer program where you write down all financial operations taking place in your company that involve cash:

• cash receipts (the cash your company is paid),
• cash disbursements (the cash your company pays),
• bank deposits (how much cash you deposited on your bank account),
• bank withdrawals (how much cash you withdrew from your bank account).

The entries in the cash book are made chronologically. After information on a cash operation is written in the cash book, it is then duplicated into the general ledger to keep track of finances on a larger scale. There are several types of cash books: single column, double column, and triple column.

Here’s an example of a single column cash book for an imaginary jewellery boutique. The “Date” column indicates date of operation, “Details” indicate what was sold or purchased. “Ref” stands for an internal reference and can be indicated in any way necessary; in this case, it’s an imaginary number of transactions. The “Cash” column indicates the exact amount of money paid or spent.

“By bal. b/d” means “by balance brought down” which is the opening balance of a ledger pulled from the previous accounting period. In our case, the accounting period is February 2020 and we are counting the balance on March 1, 2020. So the previous accounting balance here is calculated this way:

By bal. b/d = all money received – all money spent

By bal. b/d = 47,000 – 6,500 = 40,500

£ 40.500 is the balance our imaginary jewellery boutique will start the next month with.

“Bal. c/d” stands for balance carried down as the closing balance of a ledger pushed to the next accounting period. It is used as a balancing line to calculate the closing balance figure. In our case, it is £40,500.

Why do I need to keep a cash book?

1. A cash book lets you see the daily balance of cash on hand or bank balance.
2. A cash book is the primary source of information on any cash operations taking place in the company, thus it can be used to verify the data recorded in the general ledger.
3. A cash book also serves as a backup copy of some of the records in the general ledger.

How do I keep a cash book?

Using a cash book depends on the size of your company.

If you have a small business, then you can use a single-column cash book to write down all the cash operations. Such cash book would have two sides: the left side would reflect debit cash operations, and the right side would reflect credit cash operations.

When a company is paid and receives cash, such receipt is recorded on the left as debit. When a company pays cash, such disbursements are written on the right side as credit. The difference between the sum of balances of the debit side and credit side shows the balance of the cash on hand or on your company’s bank account at any given moment.

If your company is middle-sized or large, then it would be more convenient to divide a cash book into two separate journals:

• the cash disbursement journal to keep records of all cash payments (such as payments made to vendors),
• the cash receipts journal for all cash received into the business (such as money paid by customers).

You should also keep in mind that regardless of the format of your cash book, all operations are recorded in chronological order. The information recorded in the cash book also includes the details of every operation: who paid or was paid, what for, and when.

What are the types of cash books?

The cash book is set up in columns where you write details on any cash transactions. There are 3 commonly used types of cash books: single column, double column, and triple column. The format of the cash book mostly depends on the size of your business.

The single-column cash book shows only receipts and payments of cash. Such a cash book has only one column for debit and credits correspondingly on both sides of the book.

The double-column cash book shows receipts and payments of cash, as well as bank transactions (receipts and payments). Such a cash book has two sides - debit (money received) and credit (money paid). Both of these sides, in turn, have two columns: a column for cash transactions, and a column for transactions made through the bank.

The triple column cash book shows all of the above plus information about purchase or sales discounts. Such a cash book looks exactly like a double-column cash book, except that it has an additional third column on every side reserved for cash discounts.

A cash discount is a discount or incentive given by your company to a customer for paying the dues on/before the due date of the payment (in accordance with the terms and conditions of your company).

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