Cash Book

Cash Book

Cash book is a book in which all transactions relating to cash receipts and cash payments are
recorded. It starts with the cash or bank balances at the beginning of the period. Generally, it
is made on monthly basis. This is a very popular book and is maintained by all organisations,
big or small, profit or not-forprofit. It serves the purpose of both journal as well as the ledger
(cash) account. It is also called the book of original entry. When a cashbook is maintained,
transactions of cash are not recorded in the journal, and no separate account for cash or bank
is required in the ledger.

Advantages of Cash Book

A cash book has simplified the entry cash transactions for accounting purpose to a great extent.

Following are the various other benefits of maintaining a cash book:

Traces Mistakes: The balance of the cash book can be verified by matching it with the actual
cash in hand; thus, mistakes and errors can be easily detected.

Daily Record: The cash transactions are recorded promptly in a cash book daily, which helps
in maintaining a regular record of the cash receipts and payments.

Ascertain Receipts and Payments: The cash receipts and the payments made in cash on a
specific date can be easily determined with the help of a cash book.
Identifies Default: Any default, theft, failure in payment or cash evasion can be easily
identified while verifying the cash book balance with the actual cash balance.

Determines Cash in Hand: It provides a clear picture of the remaining balance or cash in hand
left with the organization.

Saves Time, Cost and Labour: Recording the cash transactions first in a journal and then
posting it in the cash account of the ledger is a hefty task.

A cash book initiates creating of a single book of accounts and thus saves a lot of time, efforts
and expense incurred while preparing these two separate books.

Types of Cash Book

A cash book varies based on its complexity and the needs and requirements of the business.
Following are the two major categories into which a cash book can be bifurcated:

General Cash Book

The cash book, which serves as a journal for the first recording of the cash transactions and
also replaces the cash account in a ledger, is called a general cash book.

It is further subdivided into three different categories:

Single column Cash Book

The single column cash book records all cash transactions of the business in a chronological
order, i.e., it is a complete record of cash receipts and cash payments. When all receipts and
payments are made in cash by a business organisation only, the cash book contains only one
amount column on each (debit and credit) side.

Double Column Cash Book

This type of cashbook has two columns, viz., cash column and discount column.
Usually cash discount is allowed or received when payment is made. So, it is necessary
to record this fact at the same place where the cash transaction is recorded.

This type is similar to Simple Cash Book, except that one additional column on each
side is provided for recording cash discount. As discount is a nominal account, discount
 allowed being a loss is shown on the debit side and discount received being a gain is
shown on the credit side.\

Three Column Cash Book.

In modern times, banking habit has become so widespread and is so convenient and safe that a
large number of payments of big concerns are made and received through cheques. In such
cases, the Cash Book with bank column in addition to the cash and discount columns is found
convenient. Such type of cashbook is known as three-column cashbook. In such a Cash Book,
cash columns and bank columns represent cash a/c and bank a/c respectively.
Contra Entries:

When a transaction affects both the sides of the Cash Book, such a transaction is entered on
both the sides and is called as contra entry. For example, when cash is deposited into bank, it
is entered in the debit side of the Cash Book by writing “To Cash” and entering the amount in
the bank column.

The other entry is on the credit side by writing “By Bank” and entering the amount in the Cash
column.

When the cash is withdrawn from the bank, the reverse entry is made, i.e., by writing “To
Bank” in the debit side and entering the amount withdrawn in the cash column and the other
entry is on the credit side by writing “By Cash” and entering the amount in the bank column
of the Cash Book. Entering the letter “C” in the L.F. column indicates such entries.

As the double entry is complete for such transactions in the Cash Book itself, no further posting
is required in the ledger.

Rules for recording transactions in the Cash Book:

1. All items of cash receipts are entered in the cash column of the receipt side; cash payments
in the payment side. Discount allowed on the debit side and discount received on the credit side
of the Cash Book [in the discount columns].

2. When cheques are received from customers and deposited immediately they are entered in
the bank column of the Cash Book [debit side]. If they are sent to the bank at a later date, it
becomes deposit of money into bank and, therefore, a ‘contra’ entry.

It is shown on the bank column on the debit side and cash column on the credit side.

2. If cheques are received by the business and endorsed to creditors, they are taken into
cash columns as cash receipt and cash payment.

Illustration 3:

Enter the following transactions in a three-column Cash Book and find out the balances
as on 16th January, 2002:
 Illustration 4:

Make out a Cash Book with discount, cash and bank columns.
Solution:

Problem 1:

On April 1, 2017, Hassan Sajjad Store Cash Book showed debit balances of Cash Rs. 1,550
and Bank Rs. 13,575. During the month of April following business was transacted. You are
required to prepare Cash Book?
April 2017
02 Purchased Office Type-Writer for Cash Rs. 750; Cash Sales Rs. 1,315.
07 Deposited Cash Rs. 500 to bank.
10 Received from A. Hussain a check for Rs. 2,550 in part payment of his account (not
deposited).
16 Paid by check for merchandise purchased worth Rs. 1,005.
20 Deposited into Bank the check received from A. Hussain.
22 Received from customer a check for Rs. 775 in full settlement of his accounts (not
deposited).
24 Sold merchandise to sweet Bros. for Rs 1,500 who paid by check which was deposited
into bank.
26 Paid creditor a Salman Rs. 915 by check.
28 Deposited into Bank the check of customer of worth Rs. 775 was dated 22nd April.
29 Paid wages by cash Rs. 500 and salary Rs. 1,000 by bank.
30 Drew from Bank for Office use Rs. 250 and Personal use Rs. 150.

Solution:

Problem 2:
From the following particulars make cash book of Ghulam Fatima Trading Co. for the month
of November, 2016:

1. Cash balance (Cr) Rs. 2,000; Bank balance Rs. 40,000.

4 Cash sales Rs. 3,700; Credit sales Rs. 1,800 would be received at near future.
6 Paid Ahmed & Bros. by cash Rs. 500; Received cash by debtors Rs. 1,800.
12 Paid to vendor by means of check worth Rs. 2,700.
13 Paid Utility bills in cash Rs. 250; Bought goods by check Rs. 750.
19 Drew from Bank for office use Rs. 160; Personal withdrawal of cash Rs. 1,000.
20 Received a check from Hamid Rs. 2,700 and deposited into the bank.
21 Received by check from Munir Rs. 1,360; Discount Rs. 140 (not deposited).
25 Cash sales Rs. 2,100; Paid wages by bank Rs. 1,500.
28 Deposited Munir’s check into bank.
29 Payment by check to Anees for Rs. 17
30 Munir’s check has been dishonored and return by bank.

Solution
Problem 3:
Enter the following transactions in the Cash Book with Cash, Bank and Discount column for
A R Khan and Co. for December, 2016 (all figures in Rupees):
Petty Cash Book

In every organisation, a large number of small payments such as conveyance, cartage, postage,
telegrams and other expenses (collectively recorded under miscellaneous expenses) are made.
These are generally repetitive in nature. If all these payments are handled by the cashier and
are recorded in the main cash book, the procedure is found to be very cumbersome. The cashier
may be overburdened and the cash book may become very bulky. To avoid this, large
organisations normally appoint one more cashier (petty cashier) and maintain a separate cash
book to record these transactions. Such a cash book maintained by petty cashier is called petty
cash book. The petty cashier works on the Imprest system. Under this system, a definite sum,
say Rs. 2,000 is given to the petty cashier at the beginning of a certain period. This amount is
called imprest amount. The petty cashier goes on making all small payments out of this imprest
amount and when he has spent the substantial portion of the imprest amount say Rs.1,780, he
gets reimbursement of the amount spent from the head cashier. Thus, he again has the full
imprest amount in the beginning of the next period. The reimbursement may be made on a
weekly, fortnightly or monthly basis, depending on the frequency of small payments. (In
certain cases, the petty cash system is operated through the main cash book itself. In such
instances, the petty cash book is not maintained independently.) The petty cash book generally
has a number of columns for the amount on the payment side (credit) besides the first other
amount column. Each of the amount columns is allotted for items of specific payments, which
are most common. The last amount column is designated as ‘Miscellaneous’ followed by a
‘Remarks’ column. In the miscellaneous column those payments are recorded for which a
separate column does not exist. In the ‘Remarks’ the nature of payment is recorded. At the end
of the period, all amount columns are totaled. The total amount column l shows the total amount
spent and to be reimbursed. On the receipt (debit) side, there is only one amount column.
Columns for the date, voucher number and particulars are common for both receipts and
payments.

Imprest System:

Under the imprest system, a fixed amount say Rs. 5,000 is given to the petty cashier for
incurring small and petty expenses. This amount is called imprest money. The petty cashier
makes all the payments for which he is authorized out of the imprest amount. After a specific
period or as soon as he exhausts the full imprest amount, whichever is earlier, he gets
reimbursement for the actual amount spent by him from the main cashier.

Thus at the beginning of the next period he once again has the full imprest amount. Keeping in
view the quantum of amount involved and frequency of transactions, reimbursement of amount
is made on a weekly, fortnightly, monthly basis. Sometimes the petty cash system is operated
through the main cash book and in that case petty cash book is not maintained independently.

Advantages:

(i) Reduces the labour:

Petty cash book is based on the division of labour and works on imprest system; hence, it
reduces the work and labour of main cashier.
(ii) Controls irregular expenses:

One of the famous principles of management is ‘control by exception’ which means that if one
person tries to control everything, he may end up controlling nothing. Based on this principle,
a petty cashier is appointed who can control the irregular expenses. In the absence of petty
cashier, it is very difficult to watch and control the necessities of incurring any expenses.

(iii) Main cash book does not become over bulky:

Petty cash book helps to keep the main cash book in a compact form because numerous entries
for small and petty items are recorded in the petty cash book itself.

(iv) Quick payment possible:

In petty cash book, payments for petty items are recorded. Though they are small, yet they are
essential. Sometimes they are so urgent that they cannot wait for approval of the higher
authority. In that case quick payment is required and this can be made by the petty cashier.

Types of Petty Cash Books:

There are the two methods of preparing petty cash book:

(i) Simple Petty Cash Book

(ii) Analytical Petty Cash Book or Columnar Petty Cash Book

I. Simple Petty Cash Book:

In simple petty cash book there is one column each for recording of receipt of cash from the
main cashier and for payment of petty expenses. ‘Date’ and ‘Particulars’ column is same for
receipts and payments. In the ‘C.B. Folio’ column, page number of cash book in which payment
to petty cashier is made is to be recorded.

In the particular column heads of the items are to be mentioned. In ‘V .No’ column, voucher
number of the transactions are recorded. ‘L.F.’ column shows where the posting of these items
have been made in respective ledgers. ‘Amount’ column shows the money value of the
transactions.
The format of simple petty cash book is as under:

II. Analytical Petty Cash Book:

Analytical Petty Cash Book or Columnar Petty Cash Book is different from the simple petty
cash book in the sense that in this type of petty cash book, an analytical presentation of cash
payment is made. All petty payments are to be classified into different heads and different
columns are maintained.

The format of the analytical petty cash book is as under:

Explanations to the Various Columns & Balancing the Analytical Petty Cash Book:

Receipts are recorded in one amount column on the receipts (debit) side known as ‘Amount
Received’ column. However, for recording receipts and payments the column for date, voucher
number and particulars are common. For recording petty expenses, petty cash book has one
column on the payment (credit) side which is known as ‘Total Amount’ column.

In this column total of various expenses paid by same voucher and on the same day are recorded
at one place. The total amount column is followed by number of columns for recording the
heads of items which are most common in the business enterprise.

After allotting the columns to most common heads, one column is allotted for recording
miscellaneous items which are known as “Miscellaneous’ column. Payments for which a
separate column does not exist are recorded in this column.

The last column is allotted for ‘Remarks’. The nature of payments is recorded in this column.
All amount columns are totaled at the end of the period. The total amount spent and the amount
reimbursed shall be shown in the total amount column.

Illustration 3: (Petty Cash Book)

Sharma Sports Goods Co. follows the imprest system of petty cash under which, Rs 6,000 was
handed over to the petty cashier as on 1st March 2011.

The expenses during the month were as follows:

Problem 4:
Prepare Petty Cash Book on imprest system from the following particulars for Minha Shukat
Ltd.

September 2016
1. Received for petty cash payments Rs. 1,000
4. Paid for stationery Rs. 140
9. Paid for postage Rs. 80
10. Paid for printing charges Rs. 150
11. Paid for carriage Rs. 125
17. Paid for telegrams Rs. 25
20. Purchased envelops Rs. 30
21. Paid for coffee to office staff Rs. 30
22. Paid for office cleaning Rs. 50
30. Paid to Faiza Munir Rs. 200