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Cash Book

Kinds of Cash Books

A cash book is like a subsidiary book. It is a special book that will record only one type of transactions – cash transactions. In an organization thousands of cash transactions occur in a year and journalizing them all is tedious work. And so companies maintain cash books. Let us look at the three types of cash books and their functions.

Kinds of Cash Book

A cash book is both a ledger and a journal for all the cash transactions of a company since it performs the function of both. It records all cash receipts on the debit side and all the cash payments of the company on the credit side. Let us now look at the three main kinds of cash book a company may maintain.

1] Simple Cash Books

This is also known as a Single Column Cash Book. This cash book will only record cash transactions. The cash coming in (receipts) will be on the left and the cash payments will be on the right. And since we will record all cash transactions here there is no need for a cash ledger account.

Now since there is only one column we do not record bank transactions in this cash book. Any discounts given will also not feature here. We will record bank and discount transactions in their separate ledger accounts.

Cash books are balanced quite frequently. In fact, most companies balance their cash book daily. One important point to remember is that the cash book can never have a credit balance. Cash books only show a debit balance.

2] Two Column Cash Books

Here instead of one column, we have an additional column for discounts. So along with the cash transactions, we will also record the discounts in the same cash book. So both discounts received and the discount that is given is recorded here. If any organization is in a general practice of giving or receiving discounts this is the preferable option.

Discount is a nominal account – so the discount is given (loss) is on the debit side and discount received (profit) is on the credit side. At the end of the period, we balance both columns and transfer the closing balances.

3] Three Column Cash Books

Kinds of Cash Books - Three Column

(Source: Yourarticlelibrary)

This cash book has the cash, the discount and additionally the bank columns in it. Since the development of banking most firms, these days prefer to deal in cheques or other such bills of exchange. And so having a bank column in your cash book makes things concise and simpler to understand.

So when you receive a cheque and you deposit it in the bank the same day you make the entry in the bank column (the debit side in this case). But say you send the cheque later (not the same day) then this will be a contra entry. A contra entry is transactions that happen between a cash account and a bank account. Ultimately your Cash & Bank balance remains the same, the money just moves around.

4] Petty Cash Book

In a firm, there are usually cash transactions happening in all the departments. These we will record in one of the above formats of cash books. But there are many cash transactions happening for very small amounts. Sometimes there are dozens of such transactions that occur in just one day. These are known as petty transactions. Examples are expenses for postage, stationery, traveling, food bills, etc.

So since the number of such transactions tends to be very high we maintain a separate cash book for them – the petty cash book. Such a cash book is maintained by the petty cashier (who in most cases also handles the petty cash).

Solved Question for You

Q: Prepare a two column cash book from the following entries

  1. Cash in Hand – 15000
  2. Received from ABC – 4800; Discount – 200
  3. Goods bought for cash 1500
  4. Cash paid to LMN – 2400; Discount – 100

Ans: The Two Column Cash Book will be as follows

Cash Book

Sr No Particulars Cash Discount Sr No Particulars Cash Discount Sr No
1 To Bal b/d 15000 1 By Goods Purchase A/c 1500
2 To ABC A/c 4800 200 2 LMN A/c 24000 1000
By Bal c/d 5700
19800 200 25500 1000
To Bal b/d 5700
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