In this article, we will learn in-depth about the cash book, including its definition, important features, importance, and much more.
What is Cash Book
The transaction can take place both in cash and on a credit, in a business organization. They are recorded in different books depending on the nature of the transaction. Cash transactions are usually recorded in the cash book.
The cash book shows the amount of cash that a business organization has. So, now we know what is the meaning of the cash book?
A cash book is a book in which all cash transactions in a business organization are recorded in chronological order after analyzing the debit and credit of all transactions.
According to the Oxford Dictionary of Accounting “Cash book is a book in which bank and cash transactions are recorded.”
In general, cash refers to paper notes or metal coins. However, in addition to paper notes or metal coins, cheques, bank drafts, pay orders, money orders, etc. are considered to be cash in accounting.
A book in which a business organization’s daily cash received and payment transactions are recorded is called a cash book.
There are two sides to the cash book. The left side is called the “Debit side”, and the right side is called the “Credit Side”. This book records all kinds of cash receipts on the debit side and all types of cash payments on the credit side.
The Cash Book is both a journal and a ledger. It usually, publish debit balances. Because cash payments can never be more than cash receipts.
Features of Cash book
Generally, the Business organization maintains a cash book to keep track of any cash transactions in the business. It has a lot of features. They are discussed below.
- An important feature of the cash book is that it only records cash and bank transactions. It does not record any credit transactions
- One of the main features of a cash book is that it records all transactions in chronological order.
- It has two sides. The Debit side records cash receipts and the credit side records cash payments transactions.
- One of the key features of a cash book is its initial or opening balance. The debit side of the cash column displays the opening debit balance of cash and the credit side of the bank column displays the opening credit balance of cash. The cash column always shows the debit balance.
- Cash payments can never be greater than cash receipts. As a result, cash books usually show a debit balance. However, if the total amount of the debit side (receipts) is equal to the total amount of the credit side (payments) in the cash book, the balance is zero.
- In the cash book, the cash or bank transactions (receipts and payments) are recorded in chronological order at the time of their occurrences, that’s why it is called the Journal. Again, its format is similar to that of the Ledger and the balance is taken out like those of Ledger. So the cash book is both Journal and Ledger.
- Another important feature of the cash book is that the cash transactions are recorded in it transferred directly from the cash book to their relevant Ledger account.
- The balance of the cash book is transferred directly to the Trial Balance. Therefore, it is not necessary to store any cash account in the Ledger Book.
- Cash transactions are recorded in a cash book or a special book, i.e. a cash book, without being recorded in a journal book.
- The balance of the cash book is equal to the organization’s cash fund. So any day, the calculation of the balance of the cash book can be compared in conjunction with the cash fund.
- The Cash Book is written through the Debit Credit Analysis. Consequently, a financial transaction cannot be called a business transaction without a debit credit.
- Cash transactions are written directly in the cash book, so a brief explanation is required in the cash book to know the nature of the transaction.
It is said from the above discussion that the features mentioned above are shown in the Cash Book. Its balance can be transferred directly to the trial balance. In order to prepare the final account, it is not necessary to record a ledger called a cash account individually.
You can also read: short questions and answers-Cash Book
Importance of Cash Book
In the current accounting system, the importance of the cash book is immense. Cash transactions are more likely to result in transactions occurring within an organization. With the exception of cash transactions, all business organization activities will be stopped.
The importance of a cash book is as follows:
- The total cash receipts and payments of the business are easily known at any time from the cash book.
- The amount of cash in hand may be known at any time without having to count the cash box if the cash book is properly maintained.
- Since the Cash Book is both a Journal and a Ledger, it is possible to take advantage of both the Journal and Ledger from the Cash Book.
- Since all cash transactions are recorded in one place in the cash book, it is not difficult to obtain any information about the cash transaction in the future.
- It is very easy to calculate the amount of cash in hand at any time from the cash book, and it can be compared to the money in the cash box so that the accuracy of the account and any kind of fraud can be easily caught.
- The cash book may also be used to preserve the initial and accurate accounts of cash transactions. Maintaining cash books can help prevent labor and time loss.
- Cash security can be ensured as the cash balance of the cash book must be reconciled with the cash balance of the fund.
- It’s easy to detect any errors, as all cash transactions are recorded in the cash book.
- The cash book shows the amount of money that’s lying idle in the business. As a result, idle cash can be invested at any time in any other business.
- Since all types of cash transactions are recorded in the Cash Book, any cash transaction information relating to expenses is available from the Cash Book at any time in the future.
- As soon as cash transactions are completed, they can be recorded directly in the cash book without entering the journal book. As a result, the organization does not need to prepare a lot of journal entries.
- If the cash book is maintained properly, the preparation of the Journal and Ledger may be avoided.
- All the owners of the business give strict orders to the accountants to balance cash funds on a daily basis in the business. As a result, a business organization can find out the amount of its cash on a daily basis.
- It is therefore essential that the organization monitors the liquidity situation and preserves the cash book in order to know the amount and consequences of the cash transactions.
Example or Sample of Cash Book
The sample of the cash book is as follows.
You can also Read: