Meaning of Cash Book.
A Cash Book is a special Journal which is used for recording all cash receipts and all cash payments. All cash transactions are first entered in the cash .book and then posted from Cash Book into the ledger. Practically, the Cash Book is substitute for Cash Account in the ledger.
Features of Cash Book
- Only cash transactions are recorded in the Cash Book.
- It performs the functions of both Journal and the ledger at the same time
- All cash receipts are recorded in the debit side and all cash payments are recorded in the credit side.
- All cash transactions are recorded chronologically in the Cash Book.
- It records only one aspect of transaction, Cash.
Types of Cash Book:
The various types of Cash Book from the point of view of uses may be as follows :
- Simple Cash Book or Single Column Cash Book—For recording cash transactions only .
- Two-Column Cash Book (cash book with cash and bank column)—For recording cash and bank transactions.
- Three-Column Cash Book (cash book with cash, bank and discount columns)— For recording cash and bank transactions involving allowed or received on account of discount.
- Petty Cash Book.
Simple Cash Book.
Simple Cash Book appears like an account, with one amount column on each side. The left-hand side records receipts of cash and-the right-hand side the payments. Hence, it is also called a Single Column Cash Book This book also serves the purpose of Cash Account and therefore Cash account is not opened in the ledger. The is as follows :
Two column cash book with cash column and discount column: This cash book has two amount column,, one for cash and the other for discount, on each side. On the debit side all cash receipts and discount allowed are recorded. On the credit side all cash payments and discount received are recorded. Discount columns are periodically totaled but not balanced:
Three column Cash Book (Cash Book with Cash Bank and Discount column B.COM (Pass), 1995, 1996, 2000, 20011: With the development of banking sector, many payments are Made and received through cheque. In such a case, the Cash Book. should have a bank column in addition to the cash and discount column to have a record of Bank Account in the Cash Rook, Such type of Cash Book is known as three column Cash Book:
In Such a Cash Book, cash columns and the bank columns represent Cash Account and Bank Account respectively. So, Cash. Account and Bank Account will not be opened in the ledger.
In regard to the discount columns of a triple column cash book, the following points are worth noting :
The two discount columns (Discount Allowed and Discount Received) on the two sides are two different accounts they bear no relationship with each other.
Unlike cash and bank column (which are balanced at the end of a particular period), these two columns are separate totaled and the aggregate amounts. are transferred to separate ledger accounts i.e., Discount Allowed and Discount Received Account.
Discount may be allowed when the payment is received by cheque. If the cheque is dishonored the discount is written back by passing an entry in the Journal proper for discount.
However, the entry for bank is passed in the cash book. Similarly, discount may be received when payment is made by cheque. If the cheque is dishonored, the discount is written back by passing an entry in the Journal Proper.
Three column Cash Book Some observations
Cheque received and deposited into the bank on the same day. Bank Account is debited directly and Customer Account is credited. The amount is written in the Bank column (Debit side).
Cheque received but deposited into the bank on a later date. The cheque is first recorded in the cash column of the three column cash book. Afterwards, when the cheque is deposited into the bank it will be recorded as if cash is deposited into the bank, that is, Bank Account is to debited and Cash Account is credited.
Cheque received but endorsed in favour of creditor. Cheque is first recorded in the cash column. At the time of endorsement, the party Account to be debited and Cash Account is to be credited.
Dishonor of customer’s cheque. Customer Account is debited and Bank Account is credited. Payment by cheque. Such payments should be credited in the bank column.
Petty Cash Book:
Whatever may be the size of a firm, it generally has to make a large number of small payments relating to severy petty expenses. Examples of these expenses are Carriage, Cartage, Postage, Conveyance, Refreshment etc. It is not advisable to record all these transactions into the Cash Book otherwise the clerical work will increase substantially. Therefore a separate book called Petty Cash Book is maintained by a cashier called the Petty Cashier.
Petty cash book may be maintained by ordinary system or by imprest system: In case of ordinary system of Petty Cash, the petty cashier is given a certain amount of cash and after spending the whole of that amount, he submits the accounts to the Head Cashier. .
Imprest System of Petty Cash: Under this system, the petty cashier is given a fixed sum of money in the beginning of the month or week. He i 3 asked to make petty expenses out of it. At the end of the week or month the actual amount spent by him is checked from the vouchers. The petty cashier is again given an amount equal to the amount spent by him so that in the beginning of the next period (week or month) he has the same amount.
For example, Rs. 1,000 are given to a petty cashier on Jan. 1, he has spent Rs. 930 during the month, he will be paid Rs. 930 again, so that on Feb: 1, he possesses Rs. 1,000 because a. balance of Rs. 70 was already held by him. Under this system defalcation of cash can be minimized since the petty cashier is not allowed to draw cash as and when he desires.