Cash Book - Meaning, Features, Advantages and Format of Cash Book

Every business receives cash and pays cash practically every day, all the receipts and payment of cash are recorded in a separate book called the cash book.

In modern times cash includes not only legal tender money likes notes and coins but also other form of money like cheques, bank drafts etc.

Definition:

The book in which all cash transactions (either cash is received or 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 both a book of original entry as well as a book of final entry. All cash transactions are primarily recorded in it as soon as they take place; so it is a journal (a book of original entry). On the other hand, the cash aspect of all 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 the substitute for 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 order of date.

5. The difference between the total of two sides shows 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 credit balance.

Advantages:

Generally cash transactions are numerous. What is credit transaction today, will be cash transactions tomorrow. In other words, all credit transactions are finally settled by cash. If like all other transactions cash transactions are also recorded primarily in Journal, the cash aspect of the transactions 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 ascertained through Cash Book balance.

3. Any mistake in the 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.

Specimen/format of Simple Cash Book:

Columns of the 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 the actual date.

2. Particulars:

In this column the name of the opposite account is written (the second aspect of 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 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 transactions are recorded in the Cash Book on the basis of Receipt Voucher and Payment Voucher.

Thus, a document evidencing cash receipts and payments and forming the basis for making entries in the Cash Book is called Cash Voucher.

 

Source: http://www.accountingexplanation.com/definition_and_explanation_of_cash_book.htm