Cash Book

                             CASH BOOK 

We already know that a Ledger is a register in which the different accounts are kept. At least one page in this register is fixed for this account i.e. page for Purchase A/c , a page for Sales A/c , a page for Salary A/c , a page for Rent A/c , a page  for Cash A/c, etc.

As a business grows bigger and bigger , two problems arise for a businessman. Firstly, the ledger becomes thicker and thicker as more and more customers creditors enter into business relationship with the firm. Secondly , some subdivision of work becomes necessary as it is impossible for one clerk  to work with such a huge book.

A natural subdivision of work occurs if we remove from the ledger the two busiest accounts of all the Cash Account and the Bank Account. These two accounts are extremely attractive accounts; hardly a day goes by without hundreds of items being paid or received by a large-scale business. It, therefore, seems logical to remove these two accounts from the ledger and put them into  separate book in the special charge of one person , called the 'Cashier'. Of all the valuable items in which a business deals, cash is the most easily misappropriated item. Many small businessman try to keep the control of the cash themselves. If this is not possible, the cashier may be a trustworthy employee, whose reliability is beyond doubt. Even it is usual to keep precautions against deflection.

We have discussed it before that under the double entry all the transactions (including cash transactions) are first recorded in journal and thereafter posted to the two concerned accounts in the Ledger (including cash A/c . but in practice cash transactions are not recorded in the journal account and no cash account is opened in the Ledger. Instead of it a separate book named  "Cash Book" is maintained for recording cash transactions. Cash transactions are primarily recorded in "Cash Book" instead of journal and thereafter the non-cash aspect of the transaction is posted in the concerned account account in Ledger. As for cash aspect of the transaction is concerned no posting to cash A/c in the ledger is necessary, since the Cash Book itself serves the purpose of the cash A/c. So cash A/c is not opened in the Ledger. For example , goods sold for cash Rs. 1,000. Its cash aspect is recorded in the Cash Book which serves the purpose of both the journal and the Ledger.Thus cash aspect is only recorded in the cash book but not in Cash A/c in the ledger.

The cash book is written more or less on the line of Cash A/c in the Ledger. It has two similar sides like a ledger account left hand side is called debit side and the right hand side is called credit side . The balance of two sides indicates cash in hand. Thus ''Cash Book" is practically a substitute for Cash A/c in the ledger

                         DEFINITION

"The book in which all cash transactions (either cash is received o paid ) are primarily recorded according to dates, is called Cash Book"

                         FEATURES

A Cash Book has the following features:

(1) It plays a dual role. It is a both book of original entry as well as book of final entry.All cash transaction are primarily recorded in it as well as they take place ; so it is a journal (original book of entry). On the other hand , the cash aspect of all the cash transactions is finally recorded in the cash book (no posting in ledger) ; so a Cash Book is also a ledger (a book of final entry).

(2) Only one aspect of cash transaction is posted to the ledger account. The other aspect (i.e. cash aspect) needs no posting in Cash A/c. Since the cash book is substitute for the Cash A/c no Cash A/c is opened in the ledger.

(3) It has two identical sides--left hand side, the debit side and right hand side, the credit side.

(4) All the items of cash receipts are recorded on the left hand side and all items of cash payments on the right hand side in the order of date.

(5) The difference between the total of two sides shows in cash in hand.

(6) Its balance is verified by counting actual cash in the cash box.

(7) It always shows debit balance. It can never show a credit balance.

                       ADVANTAGES

Generally cash transactions are numerous. What is credit transaction today , will be cash transactions tomorrow. In other words , all the credit transactions are finally settled by cash. If like all other transactions cash transactions are also recorded permanently in journal, the cash aspect of the transaction will be required to be posted to Cash A/c, in the ledger separately. This involves much time and labour. This is why , cash transactions are recorded in a separate book named Cash Book. It saves much time and labour.

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 ascertain through Cash Book balance.

(3)  Any mistake in the cash 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.