What Is a Cash Book and How Is It Maintained?

A cash book is an accounting record that chronologically tracks all transactions involving cash and bank accounts. It functions as both a book of original entry, where transactions are first recorded, and as a ledger account for cash. This dual nature provides a detailed, running balance of the cash position without needing to consult the general ledger. By documenting every cash receipt and payment, it creates a clear record for managing cash flow and financial oversight.

Types of Cash Books

The format of a cash book can be adapted to a business’s needs, depending on the volume and complexity of its transactions. Each type provides a different level of detail for tracking cash and bank activities.

Single-Column Cash Book

The single-column cash book is the most basic format, featuring one amount column on the debit (receipts) side and one on the credit (payments) side. This type is used exclusively for recording physical cash transactions. Its simplicity makes it suitable for very small businesses or organizations with a low volume of cash dealings.

Double-Column Cash Book

A double-column cash book adds a second amount column to both the debit and credit sides to record bank transactions. This structure allows a business to track its cash-in-hand and cash-at-bank balances simultaneously within one record. This format provides a more comprehensive view of a company’s liquid funds.

Triple-Column Cash Book

The triple-column cash book adds a third column on each side to account for cash discounts. The debit side column records “discounts allowed” to customers, while the credit side column records “discounts received” from suppliers. This format is useful for businesses that frequently offer or receive settlement discounts, integrating these items directly into the cash record.

Petty Cash Book

A petty cash book is a record used to manage small expenses that are impractical to pay by check or card, such as postage or office supplies. It operates on an imprest system, where a fixed amount of cash is advanced to a custodian. As the fund is used, expenditures are recorded, and the fund is periodically reimbursed to its original amount, with expenses charged to the appropriate accounts.

How to Maintain a Cash Book

Maintaining a cash book requires recording all transactions accurately and chronologically. The book is divided into two sides: the left-hand debit side for all incoming cash and deposits, and the right-hand credit side for all payments and withdrawals.

Each entry must include the transaction date, a description (particulars), and the amount. For example, cash received from a customer is entered on the debit side. When paying a utility bill, the details are recorded on the credit side.

A contra entry, found in double or triple-column cash books, represents the movement of funds between cash and bank accounts, such as depositing cash into the bank. Since the transaction involves both cash and bank columns, it is recorded on both sides of the cash book.

For a cash deposit, the bank column is debited and the cash column is credited, with a reference ‘C’ noted to indicate it is a contra entry. This process ensures the internal transfer does not incorrectly appear as new income or an external expense, maintaining the overall financial balance.

Balancing and Bank Reconciliation

At the end of an accounting period, the cash book must be balanced to verify accuracy and establish closing balances. This process involves totaling the debit and credit columns separately. The total of the credit side (payments) is then subtracted from the total of the debit side (receipts).

The resulting figure is the closing balance, representing the cash-in-hand or cash-at-bank. This closing balance is entered on the credit side to make the totals of both sides equal. It is then carried forward as the opening balance on the debit side for the next accounting period.

After balancing the cash book, a bank reconciliation is performed by comparing the book’s bank columns with the bank statement. This comparison identifies and accounts for discrepancies between the two records. Differences often arise from timing issues, like unpresented checks or deposits not yet credited by the bank.

Common reconciling items include bank charges, interest earned, or direct customer payments not yet recorded in the cash book. Adjusting entries are made in the cash book for these items. A bank reconciliation statement is then prepared to show how the cash book balance is reconciled with the bank statement balance.