Maintaining a detailed cash book is a vital bookkeeping and accounting process that every business should understand and undertake. Cash books help businesses manage their finances efficiently, helping budget for the future by accurately tracking finances as they change. They also allow businesses to access their cash information quicker than going through a general ledger.
A general ledger contains all of the information required to prepare financial statements, outlining accounts for assets and liabilities, owners’ equity, expenses, and revenues. ‘Accounts’ in this sense aren’t necessarily separate bank accounts, they describe different categories of finance, like asset accounts, liability accounts, operating expense accounts, revenue accounts, cash accounts, and so on.
What is a cash book?
A cash book in accounting records all cash transactions in detail. This is different from a cash account, which is an account that appears in a general ledger. A cash account is structured more like a ledger whereas a cash book is able to operate as both a journal and a ledger. A cash book is a book of prime entry and can be classified as a special journal. Plus, since it records credit and debit entries in the form of an account, it can act as a subsidiary ledger.
This means that a cash book contains more detail than a cash account.
A cash book will detail all cash receipt and payment transactions for a business in chronological order, but can also include bank account transactions, which we’ll explain further below.
Here, “cash” describes any immediate cash payment for a good or service. This doesn’t just include transactions with bank notes and coins – it can also cover things like market stock transactions – so long as the payment is immediate. Debit payments count as cash as the money is immediately removed from the account, while transactions like credit purchases, cheques, and money orders count as bank account transactions.
Recording transactions through a cash book as opposed to a cash account means it’s easier to track and monitor cash balances, and easier to identify mistakes or errors, because they provide more detail. Cash books are generally updated and verified on-the-go, unlike cash accounts which are usually reconciled once a month.
Types of cash book in accounting
There are a number of different types of cash books that a business can use. The simplest is a single column cash book.
In a single column cash book, receipts will be recorded on the left, and payments or cash disbursement is recorded on the right. Receipts are referred to as ‘debit entry’ and payments as ‘credit entry.’ A debit describes an accounting entry that results in an increase in assets or a decrease in liabilities for a company’s balance, while credit describes the opposite.
Larger companies might choose to divide their cash book into two separate journals – a cash receipt book and a cash disbursement book. A cash disbursement book details all payments made to vendors, and the cash receipt book displays all payments made to the business.
In a two-column or double column cash book, the additional column may be used to record details for discounts allowed on the cash receipts side, and for discounts received on the cash payments side. The second column might also be used to record bank account transactions in addition to the cash transactions usually recorded in a cash book.
A three-column cash book records all three – cash transactions, purchase and sale discounts, and bank account transactions.
Meanwhile, a petty cash book is used to record minor day-to-day cash spending. You can use a petty cash book to monitor small expenses like tea and coffee in the office, printer paper, or stationary supplies. Many organisations use the Imprest system as a petty cash book.
Cash book template
There are many ways you might choose to structure your cash book, but you can use the cash book example below as a guide:
Ledger Folio Reference (LF)
This table represents one side of a three-column cash book, let’s say for debit entries/receipts. The same table structure would be mirrored on the other side for credit entries/payments. A Ledger Folio shows the page number that the entry appears in the general ledger. The Cash, Bank, and Discount sections are where you would enter the amounts for each respective transaction. A single or double-column cash book would be identical, but without a column for Bank, Discount or both.
Cash books help ensure better visibility and accuracy when it comes to company spending, which helps with financial planning and budgeting, and will help streamline accounting processes like mandatory tax audits. It’s especially important to keep a close eye on spending with so many organisations working remotely – without being able to physically see each and every transaction take place, a cash book helps keep everything in check.
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