Paper: 02, Accounting & Financial Analysis

Module: 10, Cash Book: Meaning, Features, Advantages, Types

and Petty Cash book

Prof. S P Bansal
Principal Investigator Vice Chancellor
Maharaja Agrasen University, Baddi

Prof YoginderVerma
Co-Principal Investigator Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.

Dr. O.P Verma

Paper Coordinator Department of Commerce
Himachal Pradesh University shimla

Ms. Deepika Gautam

Content Writer Assistant Professor St.Bede‟s College
Department of Commerce & Management
 Items Description of Module
Subject Name Management
Paper Name Accounting & Financial Analysis
Module Title Cash Book
Module Id Module No-10
Pre- Requisites Special Purpose Book Cash Book
Objectives To learn how Cash Book serves dual role of a ledger as well as journal
Keywords Cash, discount, petty expenses, contra entry

QUADRANT-I

1. Module-10 Cash Book: Meaning, Features, Advantages, Types and

Petty Cash book
2. Learning objectives
3. Introduction
4. Features & Advantages of Cash Book
5. Types of Cash Book:
(i) One column cash book
(ii) Two column cash book
(iii) Three column cash book
6. Petty cash book
(i) Meaning
(ii) Advantages
(iii) System of petty cash book
7. Cash Book: A Journal or a Ledger?
8. Important terminologies:
(i) Contra entry
(ii) Cash discount
9. Summary
10. Self Evaluation

INTRODUCTION

Every business enterprises use the cashbook to keep record of the different cash receipts and payments
that travel through a company in a particular period. An accountant records the cashbook transactions
chronologically as they occur within the debit or credit columns. Cash book is a book which consists of
all the cash transactions. Cash book in general is considered as a book of original entry as well as final
entry as it serves twin role of a ledger as well as journal. Cash book is the account which keeps track of
all the cash transactions of the business as cash book is a part of Ledger. Cash book consists of Cash
Account and Bank Account. Cash Account is an Asset account or Real Account and thus, any increase in
Cash or Bank Account is debited to the account and; any decrease in Cash or Bank account is credited to
the account. Cash Book always shows a debit balance

FEATURES OF CASH BOOK:

A Cash Book has the following features:

1. Only Cash transactions are recorded in cash book.
2. It plays a twin role as it is both a book of original entry (Journal) as well as a book of final entry.
3. All cash transactions are primarily recorded in it as soon as they take place that is why it is
considered as a book of original entry. On the other hand, the cash aspect of all cash transactions
is finally recorded in the Cash Book.
4. A Cash Book is also a Ledger this is one of the reasons to consider it as a book of final entry.
5. Only one aspect of cash transaction is posted to the ledger account.
6. Since the Cash Book is the substitute for Cash A/c, no Cash A/c is opened in the ledger.
7. It has two equal sides one is left hand side, which is called as the debit side and the other side is
right hand side (credit side).
8. All the cash receipts of the business are recorded on the debit side of cash book and all the
payments related items on the credit side of cash book.
9. The difference between the total of left hand side and right hand side shows cash in hand.
10. The balance of cash book can be verified by accountant by counting actual cash in the cash box.
11. Cash book always shows debit balance. It can never show credit balance.
12. Unlike any other account, cash book is balanced daily.

ADVANTAGES:

Generally cash transactions are numerous. “What is credit transaction today will be cash transactions
tomorrow”. In other words, all credit transactions are finally settled by cash. If like all other transactions
cash transactions are also recorded primarily in Journal, the cash aspect of the transactions will be
required to be posted to Cash A/C, in the Ledger separately and this becomes time consuming exercise
and expensive, this is for the reason company‟s prefer to record all cash transactions in a separate book
named Cash Book. It is time saving and cheap. Besides this the Cash Book renders the following benefits:

1. Daily cash receipts and cash payments are easily ascertained.

2. Cash in hand at any time can easily be ascertained through Cash Book balance.
3. Any mistake in the book can be easily detected at the time of verification of cash.
4. Any defalcation of money can be detected while verifying cash.
5. Since cash is verified daily, Cash Book is always kept up-to-date.

Cash Book: A Journal or a Ledger?

From the above discussion it appears that the Cash Book is the substitute for the Cash Account. In fact, no
separate Cash Account is opened in the Ledger, Cash Book serves the purpose of the Cash Account. In
the cash book entries can be regarded as one aspect of the Double Entry System whereas the other aspect
is posted to the Ledger in the concerned account.
L.C. Cropper remarked "Every entry in the Cash Book makes one half of a double entry; the other half of
the double entry appears on the opposite side of some account in the Ledger."From this angle, 'Cash
Book is a Ledger'.
Similarity of cash book with ledger:
(i) Form of cash book resembles with ledger.
(ii) Words To and By are used in the ledger.
(iii) No separate cash and bank account are required in the ledger.
(iv) Cash and bank columns of the cash book are periodically balanced just like ledger accounts.

On the other hand, all cash transactions are primarily recorded in the Cash Book in order of date and
thereafter posted to the concerned ledger accounts. Judging from this angle, 'Cash Book is a Journal'.
Thus we see that a Cash Book is the 'mixture of Journal and Ledger'.

According to Spicer & Pegler, "the Cash Book is actually a ledger account, but owing to the large
number of entries made therein, it is kept in a separate book, called a Cash Book, which is used also as a
book of prime entry."
Similarity of cash book with journal:
(i) Cash transactions are recorded in the cash book at the time of origin
(ii) Transactions are recorded date-wise
(iii) Cash book contains ledger folio as in the journal
(iv) Narration is given for each entry

Specimen of Simple Cash Book:

Date Particulars V. No. L. F. Amount Date Particulars V. No. L. F. Amount

The Columns of the Cash Book are Explained Below:

Date: The date on which transaction is occurred is to be written in this column. In the first line, the year
and in the second line, the name of the month followed by the actual date.

Particulars: In this column the name of the opposite account is written (the second aspect of cash
transaction) along with the narration of the transaction.

L.F. (Ledger Folio): The page number of the Ledger where the concerned (opposite) account has been
opened, is written in this column. This will help to locate the account from the Ledger. It may be noted
that in a Ledger account J.F. is written as reference, while in a Cash Book L.F. is written. It is so, because
cash transactions are not recorded in any Journal.

Amount: The amount of the transaction is recorded in this column. The amount of cash received is
recorded on the debit side in amount column and the amount of cash paid is recorded on the credit side in
amount column.
V. NO. (Voucher Number): The voucher number of each item of receipt and payment is also to be written
as voucher number is necessary for each item of receipt and payment. Generally, a voucher has a serial
number and this number-is written in this column (V. No).

Bottom line difference between a Cash Book and a Cash Account:

In fact, Cash Book is a substitute for a Cash Account. Yet there are some differences between the two,
which are given below:

Cash Book Cash Account

1. It is a separate book in which cash 1. It is an account in a Ledger in which
transactions are directly recorded. posting is made from journal.
2. It serves the purpose of both journal and
ledger. 2. It serves the purpose of a Ledger only.
3. Narration is required. 3. Narration is not required.
4. A column for Ledger Folio is provided. 4. A column for Journal Folio is provided.

TYPES OF CASH BOOK:

1. One- Column Cash Book

2. Two-Column Cash Book:
(i) With Cash and Discount column
(ii) With Cash and Bank column
(iii) With Bank and Discount column
3. Three Columnar Cash Book
4. Petty cash Book

Let us discuss each one in detail:

1. One -Column Cash Book

This is the simplest form of Cash Book and is used in businesses where payments are made and received
mostly in cash and where usually no cash discount is received or given. However, if there are any
discount or cheque transactions, it is recorded in a separate account in the ledger. The ruling of a one
column Cash Book is like an ordinary cash account.

Example: Record the following transactions in a single column cash book:

2014

April 1 Cash in hand 6,500

April 3 Purchased goods for cash 685

April 4 Paid to Rishi 95

April 6 Deposited in to bank 4,000

April 6 Paid for office stationary 465

April 15 Sold goods for cash 2,500

April 22 Paid Salary 400

April 30 Paid in to bank 2,500

Solution:

Date Receipts L.F Amount Date Receipts L.F Amount

2014 To balance b/d 6,500 2014 By Purchases a/c 685
April 1 April,3
April,15 To Sales a/c 2,500 April ,4 By Rishi 95
April, 6 By Bank a/c 4,000
April,6 By stationary 465
April, 22 By Salary a/c 400
April, 30 By Bank a/c 2,500
April, 30 By Balance c/d 855

9,000 9,000

2. Two-Column Cash Book:

This type of cash book has two columns, viz., cash column and discount column. Usually cash
discount is allowed or received when payment is made. So, it is necessary to record this fact at the
same place where the cash transaction is recorded. This type is similar to Simple Cash Book, except
that one additional column on each side is provided for recording cash discount. As discount is a
nominal account, discount allowed being a loss is shown on the debit side and discount received
being a gain is shown on the credit side.

Example: Enter the following transactions in a cash book, having cash and discount columns.

2014

September.1 Balance in hand 2,500

September. 5 Purchased furniture for cash 750

September. 7 Received from Verma & Co 980

September. 7 Discount allowed 20

September 10 Paid to Bihari 290

Discount received 10
 September 27, Paid Salary 50

September 28, Paid rent 380

Solution:

Date Receipts L.F Discount Cash Date Receipts L.F Discount Cash
2014 To balance 2,500 2014 By 750
September 1 b/d September,5 Purchases
September 7 To Verma 20 750 a/c
& co September, By Bihari 10 290
10
September. By Salary 50
27
September, By Rent 380
28
September, By Balance 1,780
30 c/d
20 3,250 10 3,250

3. Three-Column Cash Book:

These days, it is difficult to carry on any business without having dealings with the bank. Normally, bulk
of its funds is kept by the business at a bank in a current account where frequent withdrawals and deposits
are permitted. Bank transactions are numerous than cash transactions. Therefore it is appropriate as well
as convenient that cash book should have on additional column on each side to record money‟s deposited
at bank and the payment out of the bank.

Example:

2014

April. 1 Cash in hand 9,000

April. 1 Deposited in to bank 4,000

April. 2 Purchased Furniture 1,000

April. 4 Cash purchases, issued cheque 2,500

April. 8 Received cheque from Gautam on account 3,250

April, 10 Cash sales received cheque 1,270

April,15 Paid for refreshment 275

April, 25 Paid electricity by cheque 300

April, 28 Received cheque from Suresh and endorsed the same to Verma 400
 April ,30 Paid advance income tax by cheque 575

April, 30 Deposited in to bank, balance of cash in excess of Rs 300

Solution:

Date Receipts L.F Discount Cash Bank Date Receipts L.F Discount Cash Bank
2014, To 9,000 2014,
April,1 Balance April, 1 By Bank C 4,000
b/d
April, 1 To cash C 4,000 April, 2 By 1,000
a/c Furniture
April,8 To 3,250 a/c
Gautam April,4 By purchase 2,500
April, To 1,270 a/c
10 Sales By
a/c April, Refreshment 275
To 400 15 By 300
April, Suresh April,25 Electricity
28 To cash C By Suresh 400
3,425 April, By
April,30 28 Drawings 575
April, By Bank C 3,425
30 By Balance 300 8,570
c/d
April,
30
April,30

9,400 11,945 9,400 11,945

May, 1 To
Balance 300 8,570
b/d

5. Petty Cash book:

Petty means small. Every business has to make payments involving smaller amount, e.g., carriage,
cartage, postage, telegrams, etc. Such payments, by their very nature cannot be made by cheques. It is
usual for the business units to maintain a separate cash book to record small payments only. Such acsh
book is known as Petty Cash Book. The petty cash book is a formal summarization of petty cash
expenditures, sorted by date. In most cases, the petty cash book is an actual ledger book, rather than a
computer record. Thus, the book is part of a manual record-keeping system. (This will be discuss in detail
later on).

There are two primary types of entries in the petty cash book, which are a debit to record cash received by
the petty cash clerk (usually in a single block of cash at infrequent intervals), and a large number of
credits to reflect cash withdrawals from the petty cash fund. These credits can be for such transactions as
payments for meals, flowers, office supplies, stamps, and so forth. When the amount of petty cash on
hand declines to near zero, as is caused by withdrawals for various expenditures, the petty cash clerk then
obtains additional cash from the cashier, and records this cash influx as a new debit. The petty cash clerk
also turns in a copy of his or her petty cash book to the general ledger accountant or cashier, who creates a
journal entry to record how the cash in the petty cash drawer was used. The petty cash book is a useful
control over petty cash expenditures, since it forces the petty cash clerk to formally record all cash
inflows and cash outflows. To ensure that this is an effective control, the petty cash book should be
reviewed periodically by an internal auditor to see if the net total amount of cash available as per the book
matches the actual amount of cash on hand in the petty cash drawer. If not, the petty cash clerk may
require additional training. The petty cash book has declined in importance, as companies are gradually
eliminating all use of petty cash, in favor of using company credit cards.

Advantages of Petty Cash Book:

1. Petty cash book is a simple form of recording petty expenses.

2. This book is simple to prepare.
3. The chief cashier‟s precious time and energy is saved by assigning.
4. The main cash book and petty cash book are separated from each other on the basis of nature of
items to be recorded therein.
5. The posting from the petty cash book is very easy.

Systems of Petty Cash book

There are two systems on the basis of which cash is given to the petty cashier:
(i) Ordinary System of Petty Cash
(ii) Imprest System of Petty Cash

Specimen of petty Cash Book

Amount C.B.F. Date Particulars V.No. L.F. Amount
Received Paid
(Rs) (Rs)
XXX Opening Date To Balance b/d XXX
XXX To cash /Bank XXX
By various XXX
Expenses
XXX Closing Date By Balance c/d XXX
XXX Next Opening By Balance b/d
Date

Important points to be remembered while recording transactions in the Cash Book:

1. All items of cash receipts are entered in the cash column of the receipt side and all the cash
payments in the payment side.
2. Discount allowed to be recorded on the debit side and discount received on the credit side of the
Cash Book in the discount columns.
 3. When cheques are received from customers and deposited on the same date they are entered in
the bank column of the Cash Book. If they are sent to the bank at a later date, it becomes deposit
of money into bank and, therefore, a „contra‟ entry.
4. If cheques are received by the business and endorsed to creditors, they are taken into cash
columns as cash receipt and cash payment.
5. Two entries are made in the Cash Book on the same page at the same time. The double entry for
each transaction is complete. There will be no more postings of these entries to the ledger and
these contra entries are indicated by a sign “c” in the folio column.

Some important items:

1. Contra Entries:

These entries are made to record:

(a) When money is withdrawn from the bank for office use: It is recorded in cash column on its debit
side by writing „Bank account‟ in the column of particulars and in bank column of the same cash
book but on its credit side by writing „Cash account‟ in the column of particulars.
(b) When money is taken from Office cash and deposited into bank: When cash is deposited into
bank, it is recorded in the bank column of the cash book on its debit side by writing „Cash
account‟ in the column of particulars and in the cash column of the same cash book but on its
credit side by writing „Bank account‟ in the column of particulars.

2. Cash Discount:

A cash discount is a deduction from the amount due. It is given to encourage prompt payment of debts.
Cash discount which is given by the trader to its customers is known as Discount allowed. Cash discount
is allowed to the customers to encourage prompt payment of their debts. Discount allowed is recorded in
the discount column on the debit side of the triple column Cash Book and posted individually to the credit
side of the debtors accounts to which they relate. Cash discount received by the trader from its supplier is
known as Discount received. The trader ends up paying less by the amount of discount received. Discount
received is recorded in the discount column on the credit side of the triple column Cash Book and posted
individually to the debit side of the creditors accounts to which they relate.

SUMMARY:

Cash book is considered as a book of original entry as well as final entry and Cash Book serves dual role
of a ledger as well as journal. It is the account which keeps track of all the cash transactions of the
business. Cash book always shows debit balance. It can never show credit balance and it helps to
ascertain daily cash receipts and cash payments. The amount of cash received is recorded on the debit side
in amount column and the amount of cash paid is recorded on the credit side in amount column. The date
of transaction in cash book is written in two lines. There are different types of cash book viz., Simple cash
book, two column cash book, three column cash book and petty cash book. The petty cash book is a
formal summarization of petty cash expenditures, sorted by date. When cheques are received from
customers and deposited on the same date they are entered in the bank column of the Cash Book. If they
are sent to the bank at a later date, it becomes deposit of money into bank and, therefore, a „contra‟ entry.
A cash discount is a deduction from the amount due and it is given to encourage prompt payment of
debts.