Types of Cash Book

There are three types of cash book: 

1. Simple Cash Book 

2. Two Column Cash Book 

3. Treble/Three Column Cash Book 

4. Petty Cash Book. 

1. Simple Cash Book: 

Simple cash book contains only one amount column on each side (debit and credit) for recording cash receipts and cash payments. 

A format of simple cash book is given below:

For recording transactions in the simple cash book, the foremost step is to understand the rule for recording transactions i.e., which account is to be debited and which account is to be credited.

Rules for Recording Transactions:

Cash book is also a cash account and there are two approaches for recording business transactions in the books of accounts. One is ‘Traditional Approach’ and the other is ‘Equation Based Approach.

Under traditional approach, cash is a real account so that following the rule: ‘Debit what comes in and credit what goes out’, receipt of cash is to be debited (i.e., cash comes in) in the cash book and payment of cash is to be credited (i.e., cash goes out).

Similarly, in the equation based approach, cash is an asset and following the rule: ‘Increase in asset is to be debited and decrease in asset is to be credited’, receipt of cash is debited (i.e., increase in cash) and payment of cash is to be credited (i.e., decrease in cash) in the cash book.

2. Double Column Cash Book (Cash Book with Bank Column) 

Simple cash book with single amount column on either side is maintained if the organization has only cash transactions. However, due to security and legal bindings, sometimes the transactions have to be necessarily routed through banks. The receipt issued by the cashier is the source document for cash receipts.

Any document viz., invoice, bill receipt etc., through which payment has been made, will serve as a source document for payment. These documents, popularly known as vouchers are numbered serially and filed in a separate file for future reference, verification and audit.

Bank facilitates a business enterprise to open current account in which the business enterprise can withdraw amount in excess of what is available in the current account. In that case transactions related to cash and banks are to be recorded separately in a cash book so that at any particular period of time, cash balance available in the cash chest and bank balance available in the bank account can be known immediately.

It is better to record transactions relating to both cash and bank in the same cash book. For this purpose, one more amount column for recording bank transaction is to be added on both sides of the cash book. This is known as bank column. Under bank column of the cash book, cash transactions routed through bank are recorded.

A format of cash book with bank column is given below:

Similar to simple cash book, cash transactions are recorded in the two column cash book. The difference is that here we also record banking transactions i.e., the transactions in which bank is also involved.

Rule for Recording Transactions:

Entries in the cash column are recorded similar to recording transactions in the simple cash book. For recording bank transactions there are two approaches. One is ‘Traditional Approach’ and the other is ‘Equation Based Approach’. Under traditional approach, bank is personal account so that as per the rule: ‘Debit the receiver and credit the giver’, receipt of cash by the bank is to be debited (i.e., debit the receiver) in the cash book and payment of cash by the bank is to be credited (i.e., credit the giver).

However, in the equation based approach, bank is an asset and the rule: ‘Increase in asset is to be debited and decrease in asset is to be credited’, will be followed. If in a transaction, bank column increases, bank column of the cash book is to be debited (i.e., increase in bank) and decrease in bank column is to be credited (i.e., decrease in bank) in the cash book.

3. Treble/Three Column Cash Book

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 the discount account 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 Columns on 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 it becomes a "Treble or Three Column Cash Book".

It must be remembered that the Discount Column in Treble Column Cash Book is not an account. Both the Discount Allowed Account and Discount Received Account are opened in the ordinary Ledger. These columns are memorandum columns only; they help us remember how much discount has been allowed or 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.

Format:

4. Petty Cash Book

Petty cash book is a kind of cash book which records large number of small payments such as conveyance, cartage, postage, telegrams and other expenses under the imprest system. These expenses are repetitive in nature. The procedure becomes cumbersome if all small and repetitive payments are handled by the main cashier and are recorded in the main cash book.

The cash book may become very bulky and the cashier may be overburdened. Applying the rule of ‘management by exception’ the main cashier should not be disturbed for small and petty items.

Big organizations normally appoint one or more cashier known as ‘Petty Cashier’ and assign the handling of petty expenses. Sometimes the work of handling small and petty expenses is assigned to an existing employee who in addition to his normal duties maintains a separate cash book to record these petty and small cash transactions. For this purpose petty cash book is to be maintained by such employee. The petty cashier so appointed for recording the small and petty expenses works on the imprest system.

Format:

Source: http://www.accountingnotes.net/cash-book/top-3-types-of-cash-books-with-specimen/3951