Bank Reconciliation Statement

          Bank Reconciliation Statement

It has already been discussed that in business we keep our "Bank Account" in the Cash Book-- as a part of Three Column Cash Book, i.e. Bank Account in the Cash Book means two bank column on the both sides of two column Cash Book. It is made up everyday, and we record in it (Bank Columns) all cheques received from the debtors and all cheques paid or issued to our creditors or suppliers. We shall also have several contra entries every month, recording excess cash paid in or cash drawn out when required for personal or office use. At the end of the month the Cash Book (Bank Column) is balanced and the result is bank balance, (as per Cash Book). Thus the Cash Book (Bank Column) tells us, what is our balance with the bank on a particular date.

In the same way, the bank also keeps a record of our bank account with the title "Depositor's Account" and enters into our account everyday what is paid in and what is drawn out. At the end of any day , the bank will gladly tell us our bank balance (as per bank record). So two reciprocal accounts are kept i.e. Bank Account (Cash Book) in books of the depositor and depositor's accounts in the books of bank. The balance shown by two accounts (Bank A/c and Depositor's A/c) should be equal because when the Bank Account is debited (Bank Column of Cash Book is debited), the depositor's account is credited in the bank books and vice versa. In other words, for each transaction opposite entries are made in two books. So if the Cash Book (Bank Column) shows a debit balance, the depositors account will be show a credit balance and if the Cash Book shows a credit balance, the depositor's account in bank books will show a debit balance.

Usually a copy of Depositor's Account is provided by the bank to the depositor, which is called "Pass Book". This book is written by the bank. After suitable intervals the depositor submits the Pass Book to the bank and the bank in turn returns it to the depositor after recording the transactions therein.

Sometimes instead of providing a Pass Book to the depositor, at certain individuals, usually monthly , the bank send each depositor a "Bank Statement", which is a record of the beginning balance, any increase and decrease that have occurred since the previous statement and the ending of the  depositor's account with the bank.  The Pass Book and Bank Statement serve the same purpose to the depositors.

Features Of Pass Book:

• It is written by the bank, but remains in depositor's possession.
• Money deposited is entered on the credit side and withdrawn on debit side.
• It is recorded on the date when it is actually collected from the debtor's bank.
• It is recorded when it is paid by the bank to the creditor.  
• Its debit balance shows bank overdraft and credit balance shows cash at bank.

What Is Meant By 'Reconciliation'?

If there is a dispute between two friends, or they fail to agree about some matter, the disagreement may temporarily end the friendship between them. When they become friends again we say they have 'reconciled' with one another. Reconciliation is, therefore, resuming of friendly relations as a result of reasonable explanations between them.

In business we often have sets of figures (balances of Cash Book and Pass Book) which apparently disagree with one another, but reasonable explanation for the disagreement will reconcile the two sets of figures and show that, in fact, both are right.

There are three reasons why figures (Cash Book balance and Pass Book balance) do not agree:

•  One party may lack the knowledge of the transaction recorded by the order.
•  There is always an unavoidable delay between one party doing something and the other party knowing about it.
• Errors and mistakes often occur.

If there is any discrepancy between the balance of Cash Book and that of Pass Book, the depositor prepares a statement to explain the causes of discrepancies and to reconcile the two balances. This statement of explanation is called "Bank Reconciliation Statement".

The idea of the Bank Reconciliation Statement is to discover the various things the bank has done in the Pass Book which the cashier was not aware of, put right anything that is wrong and draw up a logical explanation of the remaining differences, which are not wrong but are delayed from begin right by the time-lag.

This statement is generally prepared at the end of the month or the year and it is not necessary when there is no disagreement between the Pass Book and the Cash Book balances. One copy of this statement is also sent to the bank if the bank has made some errors or  mistakes in the Pass Book.

The great advantage of preparing this statement is, if by mistake the Pass Book balance is shown less, the bank may wrongly dishonour our cheques  for insufficiency of funds. As a result, the goodwill of the business will be suffered and our creditors will refuse to accept our cheques in future. By preparing this statement true bank balance can be ascertained. 

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Classification Of Cash Book

            Classification Of Cash Book

Cash Book may be of following three types:

1.Simple Or Single Cash Book.

2.Double Columns Cash Book.

3.Three or Treble Column Cash Book.

Simple Or Single Column Cash Book

It is a cash book in which only one and only cash transaction are recorded. By single column we mean "one amount column" on each side of the Cash Book.One amount column on the debit side in which inflow of cash (cash recieved) is recorded and one amount column on the credit side in which outflow of cash (cash paid) is recorded. It is generally maintained by such business concerns which do not have bank accounts.(small business concerns). 

Balancing The Cash Book

The Cash Book is balanced in the same way as a ledger account. A single Column Cash Book always shows debit balance (Debit side exceeding credit side) because more cash cannot be paid than what we have. To verify the accuracy of the Cash Book, it should be balanced daily (which may be shown in the Cash Book with the red pencil). The balance as per Cash Book must be tally with the actual cash in the cash box. At the end of the period the Cash Book is finally balanced (showing debit balance) and the balance is put on the credit side for the purpose of closing the cash book. This balance will be transferred on the debit side of the cash book as opening balance of the next period.

Double Column Cash Book

Cash A/c and Bank A/c are two busiest accounts in the ledger and they should be removed from the ledger to reduce the volume and size. We have also discussed how Cash A/cis removed from the ledger and instead of it the cash book is kept to record cash transactions.

In the same way no Bank A/c is opened in ledger for recording bank transactions, rather an additional amount column is provided on each side of '' Single Column Cash Book" for recording the bank transactions. One more column for amount is provided on the debit side and one on the credit side of the single Column Cash Book.These two amount column on the debit side and credit side will serve as Bank A/c and so it will not be necessary to open the Bank A/c in the ledger. The Cash Book having two Amount Columns on the both sides is called "Double Column Cash Book".

                       Advantages

The following advantages are derived from Double Column Cash Book.

1.All entries made in "Bank" Double Column Cash Book from a part of double entry system and hence a separate Bank A/c need not be opened in the ledger. It saves time, labour and cost.

2.Both cash transaction and credit transactions are recorded in the same book. So both cash balance and credit balance are easily available from the same book.

Thus it is said that the Double Column Cash Book has two accounts in it, the Cash A/c and the Bank A/c.

Contra Entry

In any account we can only have one half of double entry. An account cannot be debited and credited at the same time. For example , when sell goods for cash , cash received will be recorded on the debit side of the cash Book and goods will posted on the credit side of the Sales A/c. But in Double Column Cash Book and the, we have two accounts Cash A/c and the Bank A/c, so it is possible to have a debit entry and a credit entry at the same time. For example, cash of Rs. 5,000 is deposited into the bank. In this transaction both Bank A/c and Cash A/c are involved and they  will be recorded on the both sides of Double Column Cash Book i.e. on the debit side in the bank column and on the credit side in the cash column.

Thus a transaction in which Cash A/c and Bank  A/c are involved, is recorded on the both sides of Double Column Cash Book, it is called "Contra Entry".

In recording such transactions letter "C" is written in "L.F." column because both aspects of the transaction are recorded and  there is no need to post them into the ledger.

Treble Column Or Three Column Cash Book:

We know, when cash is received from the debtors, discount may be allowed to them. And when cash is paid to creditors, discount may be received from them. It means the cash and the discount are very much related to each other. Another interesting thing is that when the cash is received, the discount is allowed and both cash account and discount account are debited. On the other hand, when the cash is paid, the discount is received and both the cash account and discount accounts are credited in the books of account. Thus in "Double Column Cash  Book another 'amount' column is provided on each side to record discount allowed and discount received". It means the Cash Book now will have three "amount column in each side, i.e. Cash Column, Bank Column and Discount Allowed Column on the debit side and Cash Column, Bank Column and Discount Received Column on the credit side.

It may also be noted that when 'Discount' column is added with both sides of Double Column Cash Book is becomes a "Treble or Three Column Cash Book."

It must be remembered that the Discount Column in Treble Column  Cash Both is not an account. Both the Discount Allowed and Discount Received Account are opened in the ordinary ledger.These three columns are memorandum columns only; they help us remember how much discount has been allowed and received. The totals of discount allowed and discount received columns from two sides of Cash Book are posted in Discount Allowed A/c and Discount Received A/c respectively in the Ledger.

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Some Special Banking Transactions

            Some Special Banking Transactions

 1. When Cash Is Deposited Into The Bank

If cash is deposited into the bank, there will be decrease in our cash balance and increase in the bank balance.

The following entry will be made:

Bank A/c.............................................Dr.XX

            Cash A/c..............................................XX

2. When Cash Is Withdrawn From The Bank

Cash may be withdrawn from the bank for the following purposes:

(a) For Business Use:

If cash is withdrawn from the bank for business purposes, there will be increase in cash balance and decrease in bank balance.

The following entry will be passed:

Cash A/c..................................................Dr.XX

        Bank A/c..............................................XX

(b) For The Private Use Of the Owner:

If cash is withdrawn from bank for the personal use of the owner, 

The following entry will be made:

Drawing A/c...........................................Dr.XX

        Bank A/c.............................................XX.

3. Direct Deposit By A Debtor To The Bank

Sometimes, the debtor instead of playing money to us, directly deposit it to our bank account. Suppose on 10.9.2015, our debtor Mr. Hafeez has deposited Rs. 5,000 direct to our bank account.

The following entry will be passed:

Bank A/c................................................Dr.XX

       Mr. Hafeez A/c.....................................XX.

             (Being amount deposited into the bank)

4.Stopping Payment Of Cheque Issued

After issuing a cheque to a creditor we may stop its  payment for certain reason. In that case we should issue instructions to the bank. This instruction is known as  "Stop order". On receiving the stop order the bank will not honour the cheque if presented by the creditor and the entry passed on issuing the cheque will be reversed. Suppose on 1.1.2015 we issue a cheque for Rs. 5000 to our creditor Mr Faisal and on 2.1.2015 we stop order for the cheque.
The following entry will be passed:

1.1.2015
Mr. Faisal A/c..................................................Dr.XX
        Bank A/c............................................................XX
                         
                          (being cheque issued) 

12.1.2015
Bank A/c...........................................................Dr.XX
       Mr. Faisal A/c.....................................................XX

                   (being payment of cheque stopped)

Note:

Stop order will not be effective, If the bank has paid the cheque before receiving such orders. In case a cheque is lost or stolen, stop order is issued to the bank before somebody find it and get it cashed.

5.Bank Charges Or Incidental Charges

Bank deduct certain amount from our Bank A/c for services rended by it to us .

The following entry will be passed:

Bank Charges A/c.................................................Dr. XX

          Bank A/c...............................................................XX.

Note:

The entries shows increase in bank and decrease in bank balance.

6.Bank Interest:

Bank allows us interest at a fixed rate on the amount lying deposite in Bank A/c. This interest not paid in cash rather it is credited to our account (Transferred to our account).

The following entry will be passed:

Bank A/c.........................................................Dr. XX

       Interest A/c........................................................XX

 Note:

The entry shows increase in our bank balance and increase in our revenue.

7.Standing Orders

Sometimes the bank pays some expenses on our behalf on fixed dates i.e. insurance premium house rent. office rent etc. as per our instructions. For example, the bank pays insurance premium Rs. 1000 as per our instructions on 30.6.2005. 

The entry will be :

3.6.2005

Insurance premium................................................Dr.XX

         Bank A/c..............................................................XX

Again on certain occasions the bank collects dividend on shares, interest on Government securities held by us and credit the amount to our account.

The entry will be:

Bank A/c....................................................................Dr XX

          Dividend A/c..............................................................XX

8.Interest On Overdraft

Generally the bank does not allow withdrawal of money in excess of deposit. But sometimes the bank may allow  such withdrawal in special cases for the sake of depositor's goodwill. In that case our bank A/c will show credit balance and we will become the debtor of bank. Bank charges interest at fixed rate on the excess money(on overdraft ).

The following entry will be pass:

Interest A/c............................................................Dr.XX
       Bank A/c................................................................XX.

Note:

This entry shows increase in our expense and decrease in our bank balance (or increase in our overdraft balance).

 

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Accounting Treatment Of Cheques

          Accounting Treatment Of Cheques

1. Cheques received from Debtors:

 When we receive cheque  from our debtor , we may adopt the following three options:

(a) Deposit with bank.
(b) Endorse to a creditor.
(c) Encash over the counter of debtor's  bank.

                   Deposit with bank 

When a cheque is received from debtor, it may be deposited with the bank for collection from the debtor's bank after recording its details in Paying-in-slip Book. The bank will collect the amount of cheque from the concerned (debtor's) bank and credit it to the account of its customer. Suppose we receive a cheque from our debtor Mr. X for Rs. 1,000 on 5.6.2006 and deposit it into our bank for collection on the same date. The following entry will be passed in our books.

5.6.2006

   Bank A/c..............................Dr. 1,000

            Mr. X A/c.............................1,000

Note:

This entry shows increase in our bank balance (an asset) and decrease in our debtor (an asset).

But if for any reason be cheque cannot be deposited on the same day i.e. 5.6.2006, the cheque will be kept in cash box and will be assumed as a part of cash i.e. so cash A/c will be debited instead into bank. Suppose, the cheque received on 5.6.2006 , deposited on 8.6.2006. The entries will be:

5.6.2006

    Cash A/c..............................Dr. 1,000

          Mr. X A/c.................................1,000

                       (being cheque received)

8.6.2006

     Bank A/c.............................Dr 1,000

           Cash A/c...........................1,000

                       (being cheque deposit into the bank)

Generally the bank does not charge anything for this service (collection of our cheques). But if a cheque received from a debtors of a distant place (an outstation cheque), the bank charge something. The bank deduct his charges from the amount of the cheque and credit the net amount to our account and the following entry will be passed in our books, if the bank charges Rs. 10

10.6.2006

      Bank Charges A/c......................Dr. 10

            Bank A/c...........................10

                 (being collection charges deducted by the bank)

Note:

This entry shows increase in an expense and decrease in the bank balance (an asset). It means net  increase in our bank balance is Rs. 990.

Endorsement to a creditor:

A cheque received from our debtors may be endorsed in favour of a creditor instead of depositing with a bank. In that case the name of the creditor will be written on the back of the cheque under our signature. this process is known as "Endorsement". By this the creditor becomes the legal owner of the cheque and its entitle to receive the amount of the cheque . For example, suppose we receive a cheque for Rs. 1,000 from a debtor Mr. Saleem on 10.1.2006. The entries will be:

10.1.2006

         Cash A/c.............................Dr. 1,000

                Mr. Saleem A/c........................1,000

                              (being cheque received)

12.1.2006

       Mr. Asif A/c..................................Dr. 1,000

                Cash A/c.......................................1,000

                              (being cheque endorsed)

Note:

On 10.1.2015, the cheque has not been deposited into the bank, rather it is kept in the cash box, so Cash A/c is debited. On 12.1.2015, when the cheque is taken out of the cash box and endorsed to Mr. Asif Cash A/c is credited. Thus the two entries show decrease in debtors (asset) and decrease in creditors (liability).

Endorsement over the counter of the bank

A cheque received from a debtor may be presented over the counter of debtor's bank and cash money is received against it. Suppose on 5.1.2005, we receive a cheque from our debtor K. Khan for Rs. 5,000 on Allied Bank Ltd. The Mall Lahore and we encash it over the counter of his bank. The following will be the entry:

5.1.2005

        Cash A/c.........................................Dr. 5,000

                K.Khan A/c.....................................5,000

                      (being cheque received and encashed)

Note:

There will be no entry in Bank A/c, since there has been no change in the bank balance.

                     Dishonour Of Cheque

Sometimes there may be a mistake in writing a cheque or the amount of deposit in bank A/c may be less then the amount of cheque drawn . In such a case the bank will refuse to honour the cheque and the cheque is called "dishonour cheque". The entries to be made in case of dishonour of cheque are given below:

Cheque received from debtors:

(a) If deposited into the bank and return dishonoured:

Suppose on 5.1.2005 we received a cheque from a debtor Mr. Sohail for Rs. 5,000 and is deposited into the bank for collection on the same date. But on 10.1.2015, the cheque is returned dishonoured by the  bank and in turn we return it to Mr. Sohail. The following entries are passed in our books:

5.1.2005

     Bank A/c.............................................Dr. 5,000

              Mr. Sohail A/c...................................5,000

           (being cheque receive and deposit into the bank)

10.1.2005

       Mr. Sohail A/c...................................Dr.5,000

              Bank A/c............................................5,000

               (being cheque returned dishonoured)

Note:

The first entry shows that bank balance has increased and the account of the debtor has been settled (not remain debtor). The second entry shows that Mr. Sohail again has become debtor and the bank balance has reduced.

(b) If endorsed to a creditor and return dishonoured:

Suppose on 10.1.2005 we receive a cheque from amjad for Rs. 1,000 and on 12.1.2005, we endorse it to our creditor Mr. Naeem. But on 15.1.2005, the cheque is dishonoured and received back from Mr. Naeem and we return it to Amjad. The following will be the entries:

10.1.2005 

     Cash A/c..................................................Dr.1,000

           Amjad A/c...................................................1,000

                           

                                (being cheque received )

12.1.2005

      Mr. Naeem................................................Dr. 1,000

            Cash A/c.............................................................1,000

                               (being cheque endorsed)

15.1.2005
       Amjad A/c................................................Dr. 1,000
             Mr. Naeem A/c..............................................1,000

                         (being cheque returned dishonoured)

Note:

The last entry indicates that Amjad has become debtor and Mr. Naseem has become creditor again.

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Opening An Account With A Bank:

Opening An Account With A Bank

Usually all concerns except a few small ones,open an account with a bank. Opening an account with a bank means that a sum of money is kept deposited with a bank and that money can be withdraw by a cheque at any time as and when required. There are three types of accounts that may be opened with a bank :

1. PLS Saving Account 

2. Current Account 

3. Fixed Deposit Account 

     Most of the concerns open current account with the bank , because there is no restriction as to the number and amount of withdrawals of money like PLS saving account. In other words, if current account is kept with a bank, the depositor (account holder) can withdraw the money at his will up to the limits of his deposits with the bank. Generally no interest is allowed with the bank under current account.

How an Account is Opened with a Bank?

To open an account the depositor will have to apply to the bank in the prescribed form and a sum of money. Immediately the bank will open an account in the name of the depositor in his Ledger and credit it with the amount of deposit. Thereafter. the bank will give the depositor the following three books.

Pass Book:

Pass Book is copy of the depositor's account in the bank's ledger which is provided to the depositor. This book is written by the bank, but kept with the depositors. On different dates, the depositor submit the pass book to the bank and the bank in turn return it to the depositor after recording the transactions in it from its Ledger. The depositors can ascertain his bank balance at a glance at any time from his book

Paying-In-Skip Book:

The money is deposited by the account holder into the bank with the help of this book.

Cheque Book:

Whenever the depositor want to draw money from the bank, he signs the cheque and hands it over to the bank. This is known as 'Drawing a Cheque' . The bank pays the sum of money mentioned in the cheque to the depositor or to his nominee and immediately debits the account of the depositor.

 

Thus money can be deposited into the bank by means of paying-in-slip and withdraw by means of a cheque. A cheque may be issued to a creditor instead of paying him cash. On the other hand, we may also receive cheque from our debtors instead of cash.

Advantages of opening An Account with Bank 

The following advantages are obtained by opening a bank account:

1. Money is kept safe-- there is no risk of theft or dacoity.

2. Transaction through a cheque is very convenient and the risk is       reduced to a greater extent.

3. Loan may be taken from the bank on case of need.

4. Money can be remitted from one place to another place very             quickly and at reduced cost.

5. Bank enables its customers to buy goods on credit through letter     of credit. 

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Is Cash Book A Journal Or Ledger

Is Cash Book A Journal Or Ledger?

From the previous 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. The entries in the Cash Book are regarded as one aspect of the Double Entry System - 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".

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."

The Columns of a Cash Book are explained below:

1. Date:

          The date of transaction is written in this column in two lines--in the first line, the year and in the second line, the name of the month followed by actual date.

2. Particular:

             In this column the name of the opposite account is written (the second aspect is cash transaction). Below this is written the narration of the transaction.

3. 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.

4. Amount:

       The amount of the transaction is recorded in this column. The amount of cash received is recorded on the debit side in the amount column and the amount of cash paid is recorded on the credit side in amount column

5. V.NO(Voucher Number):

       The voucher number of each item of receipt and payment is also written. A voucher 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).
        When cash is received from a debtor or customer, generally a receipt or "cash memo" is issued to the debtor which is called Receipt Voucher. Again, when money is paid to a creditor or supplier a receipt is obtained from him which is called "Payment Voucher" , Cash Transaction are recorded in the Cash Book on the basis of Receipt Voucher and Payment Voucher.

                      Types of Cash Book

At the beginning we have discussed that the Cash Book and the Bank Account are two busiest accounts in a Ledger and it will be logical to remove these two accounts from the Ledger to reduce the volume of the Ledger. We have seen that  how Cash A/c is removed from the ledger and instead of it, a Cash A/C is removed from the ledger and where the bank transaction are recorded? it will be discussed under this topic 'types or classes of cash book'.

      We must have a clear idea about transactions with a bank before we discuss about different classes of a Cash Book. In all business concerns cash transactions are numerous . Cash transactions may take place in the following two ways:

 1. By Cash 

 2. By Cheque

    Transactions in cash have been discussed in details in this chapter . so here we discuss about the transactions by cheque. Transactions involving large sums usually take place by cheques. Now let us see what we actually mean by transactions by cheques.

  

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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.

                    

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