What's a cash book?
A cash book is one of the books of accounts used to record cash received and payments. Therefore, it is the subsidiary book used uniquely for cash transactions. The day books explained in a previous article are known for credit transactions, while the Journal proper can record both cash and credit transactions.
The cash book (CB) is a double-edged sword. It serves as a book of original entries and a ledger account. Transactions entered in the cash book can serve as the bank accounts and cash accounts of an entity. Companies that use CB are those with large volumes of cash transactions daily. Banks, for example, use it for such reasons.
A cash book is a double-edged document for cash transactions. It serves as a subsidiary book and ledger account.
-- Jeremiah
As a subsidiary book, the cash book is the point of entry for new cash transactions. As a ledger, it keeps the total of cash, bank, and cash discount accounts. Although some writers believe that cash books are different from cash and bank accounts, they are similar to the extent that we can regard them as part of ledger accounts.
Importance of cash book
Cash book is important for the following reasons:
1. It enables the recording of large volumes of daily business transactions.
2. The totals in the book can be used as cash and bank balances of the business.
3. Primarily used for cash transactions. Therefore making it easy for the entity to differentiate between cash and credit items.
4. Cash books form part of the ledger accounts. Its dual role makes it very unique.
5. Control becomes easier, as the management can trace cash transactions to one book.
Types of cash books
There are mainly three types of cash books, thus:
Single column
This cash book has one column for cash transactions. In cases where a business has a cash till and bank account. It will have two separate single-column cash books. One serving for cash account transactions. The other serves as bank account transactions.
Two-column
For two columns CB, the two columns serve for cash and bank transactions. Therefore, any transaction that involves physical cash goes to the cash column. While transactions that are done via the bank will be recorded in the bank column.
Three column
This cash book has a third column for cash discounts. Discount allowed on the debit side and discount received on the credit side. The discount columns are memorandum meaning they are not part of the double entry system.
How cash book works
When a cash transaction takes place in a business, a receipt is issued. This receipt is forwarded to the cashier. He or she will then post the entry to the cash book. After doing that the fund transfer staff will post the second entry to the relevant account. However, with accounting software, the second entry is not required.
For example, the entity makes sales in cash to a customer for N500,000. A receipt is issued to the customer by the sales employee, and a copy of the receipt is sent to the cashier, who enters it in the cash book. With accounting software, a debit is entered in the cash book and a credit to the sales account.
This is also done when cash is paid to suppliers and to other service providers. But in this case, a receipt is received from the supplier, entered in the credit side of the cash book and posted to their respective purchases or expenses accounts, as the case may be.
