What is a cash book?
Cash Book Definition
It is a ledger in which both cash receipts and cash payments are recorded. Cash book is regularly reconciled with the bank statements as an internal auditing measure. Proper maintenance and its reconciliation with bank statements are crucial to a business.
Some business concerns maintain cash book instead of cash receipt journal and cash payment journal. All cash receipts and payments are recorded in this book. It resembles the cash account maintained in the ledger. In fact, when a cash book is maintained separately, there is no need to keep a cash account in the ledger. For all purposes, a cash book is treated as a cash account, i.e., a part of the ledger.
The cash book is maintained in the form of a ledger account, the receipts being put on the debit side and the payments on the credit side. This book serves a double purpose. It acts as a journal or book of prime entry because all cash transactions are recorded in it as and when they take place. It also acts as a part of the ledger because it contains cash and bank accounts.
When the ledger clerk gets the cash book, he completes the double entry by posting the transactions to other ledger accounts involved in the cash book. The balance of the cash book is included in the trial balance like a regular ledger account.
Cash book is among the most important books of accounts of the business. It is therefore placed in the charge of a responsible person who keeps it up to date.
Types/kinds of cash book
A cash book has the following four types:
- Single column cash book
- Double column cash book
- Three column cash book
- Petty cash book
Advantages of a cash book
The following are the main advantages of maintaining a cash book:
- In almost all businesses, the bulk of transactions related to cash receipts and payments. If we do not maintain a cash book and record all cash transactions in the journal, unnecessary time and labor would be required for debiting and crediting cash account in respect of every cash transactions.
- in every business concern, the number of cash dealings is usually large and since cash can be easily stolen by a dishonest employee, cash record of a business must be up to date and must be properly supervised by a reasonable person. For this purpose, it is very essential to keep a cash book for recording cash transactions.
- Cash book is a book of the original record and a part of the ledger, if all cash transactions are passed through the cash book, the labor of posting every item of receipt and payment of cash individually to each account in the ledger is avoided.