CASH BOOK

The cash book is merely the cash account removed from the ledger and bound in a separate book for the sake of convenience.

Cash transactions are usually numerous in any business concern; it is therefore to secure efficiency in work that a separate book is used to record all cash transaction.

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Cash book – a journal or ledgerCash book has a dual role : (journal)

• Journals are divided into various subsidiary books and cash book is one of those.

• All the entries are posted in the cash book first and ledger entries are posted there from.thus it act as a subsidiary to the ledger.

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Continued….

• Cash book as a ledger:

• It contain a condensed and classified record of all the transaction.

• The ruling of the cash book does not differ from that of ledger.

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Advantage of maintaining a cash book

• It prevents duplication of work

• Both cash and bank transactions can be recorded in the cash book.

• Provides trader with the daily cash and bank balance

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Types And Structures Of The Cash Book(single column cash book)

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Rules for preparing a cash book

• Debit the cash book (cash column) by all the cash and cheques received, except:

1 Payment made direct to the bank, interest received by bank.

2 Cash and cheques paid into the bank on the same day as received.

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Continued…..

• Debit all the cash book (bank column) with all the amount paid into the bank or received by the bank.

• Credit the cash book (cash column) with all payment in cash, and with any cheques received from the customer (debtors) and endorsed over to customers

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Continued…..

• Credit the cash book (bank column) with :

1 All payments by cheques drawn on the bank.

2 All payment made by the bank on order to pay, other than by drawing of cheque.

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Continued…..• Contra entries ( i.e. payments from office cash to the

bank and vice – versa, written as C in the folio column)

1 payments from the office to the bank : when paying money out of the office cash book into the bank “ To Cash Rs….”, since bank balance increases, and credit the cash column “ By Bank Rs….”, since the cash gets reduced.

2 payments from the bank to the office : when drawing money from the bank for office purpose , debit the cash column “ To Bank Rs….” , since the office cash increases, and credit the bank column “By Cash Rs….”, since the bank balance gets reduced

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Dishonored cheques:

• The balance in the bank is reduced by the amount of the dishonored cheque.

• The amount of the cheque must be entered into the bank column on the credit side of the cash book

• Thus, 10th April, By K. Sen…., cheque dishonored Rs: 2500/- ( example)

• The corresponding entry will be shown on the K. Sen. A/C as he owes that amount.

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Drawings by the proprietor

• Drawing are made by the proprietor of the firm.

• Drawing are made for personal use.

• Drawings are credited to the cash book and debited to the drawing account.

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Bank loans and overdrafts

• Bank makes a loan, the amount of the loan must be debited in the bank column of the cash book, and be posted to the credit of a bank loan account, opened by the borrower in the general ledger.

• Interest is payable on the full amount of the loan whether used or not, this interest is credited to the bank in the bank column and debited to a bank interest account in the general ledger

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Continued…..• Overdraft means a person is allowed to

withdraw money up to his stated limit for a limited period of time.

• The amount will appear as a credit balance in the bank column of the cash book.

• Interest charged by the bank will be treated in the same way as in bank’s loan interest

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Illustration

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Single column recording cash and bank transaction separately

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Triple column cash book

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