What Is a Cash Book? How Cash Books Work, Examples

What Is a Cash Book?

A cash book is a financial journal that contains all cash receipts and disbursements, including bank deposits and withdrawals. This is where businesses record cash-related information. Entries are divided into cash payments and receipts and posted in the company’s general ledger.

Key Takeaways

• A cash book is a subsidiary of the general ledger that records all cash transactions during a period.
• The cash book is recorded in chronological order, and the balance is continuously updated and verified.
• Large organizations usually divide the cash book into two parts: the cash disbursement journal and the cash receipts journal.
• A cash book differs from a cash account as it is a separate ledger for cash transactions, while a cash account is within a general ledger.
• There are three types of cash books: single column, double column, and triple column.

How a Cash Book Works

A cash book is set up as a subsidiary to the general ledger, where all cash transactions made in an accounting period are recorded in chronological order. Large organizations divide the cash book into two parts: the cash disbursement journal, which records cash payments, and the cash receipts journal, which records cash received into the business.

The cash disbursement journal includes payments to vendors to reduce accounts payable, while the cash receipts journal includes payments made by customers on outstanding accounts receivable or cash sales.

The primary goal of a cash book is to manage cash efficiently, making it easy to determine cash balances at any point in time and allowing managers and accountants to budget effectively. It is also faster to access cash information in a cash book than through a ledger.

Types of Cash Books

Entities can use several types of cash books, including single-, double-, and triple-column cash books. Here are some key details:

Single-Column Cash Book

The single-column cash book is the easiest to use. Individuals use it to track their own money and finances. Transactions are noted in one column, and the total amount is updated daily.

Double-Column Cash Book

The double-column cash book has two columns, allowing users to keep more detailed notes about their transactions.

Triple-Column Cash Book

The triple-column cash book has three columns and includes additional detailed information, such as purchase or sales discounts.

The petty cash book may be considered a fourth type of cash book, used to record daily petty cash transactions.

Recording in a Cash Book

All transactions in a cash book have two sides: debit and credit. Cash receipts are recorded on the left side as a debit, while cash payments are recorded on the right side as a credit. The balance of cash on hand is the difference between the two sides, usually a net debit balance if cash flow is positive.

A cash book is set up with columns displaying the following headers:

• Date
• Description
• Reference or folio number
• Amount

These headers appear on both the left side showing receipts and the right side showing payments. The date column represents the transaction date.

Transactions are recorded in chronological order, with a short description or narration in the description column. The accountant inputs the related general ledger account number in the reference or ledger folio column. The transaction amount is recorded in the final column.

Cash Book vs. Cash Account

A cash book and a cash account have a few differences. A cash book is a separate ledger for cash transactions, while a cash account is within a general ledger. A cash book serves the purpose of both the journal and ledger, while a cash account is structured like a ledger. Details or narration about the source or use of funds are required in a cash book but not in a cash account.

There are several reasons why a business might use a cash book instead of a cash account. Daily cash balances are easy to access and determine. Mistakes can be easily detected through verification, and entries are kept up-to-date with daily balance verification. Cash accounts, on the other hand, are commonly reconciled at the end of the month after the issuance of the monthly bank statement.

Purpose of a Cash Book

A cash book is set up as a subsidiary to the general ledger, recording all cash transactions made during an accounting period in chronological order. The primary goal of a cash book is to manage cash efficiently, making it easy to determine cash balances at any point in time and allowing effective cash budgeting. Accessing cash information in a cash book is faster than following cash through a ledger.

2 Components of a Cash Book

Large organizations usually divide the cash book into two parts: the cash disbursement journal, recording all cash payments, and the cash receipts journal, recording all cash received into the business. The cash disbursement journal includes payments to reduce accounts payable, while the cash receipts journal includes payments made by customers on outstanding accounts receivable or cash sales.

Difference Between a Cash Book and a Cash Account

A cash book and a cash account differ in a few ways. A cash book is a separate ledger for cash transactions, while a cash account is within a general ledger. A cash book serves the purpose of both the journal and ledger, while a cash account is structured like a ledger. Details or narration about the source or use of funds are required in a cash book but not in a cash account.

The Bottom Line

Keeping records is key to maintaining the financial health and well-being of any business or household. Using a cash book helps manage and account for cash-related transactions, including receipts and payments. Records from a cash book can be transferred to a general ledger and used to update records or file year-end taxes.