What is a Cash Book?
A cash book is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals. Entries in the cash book are then posted into the general ledger. Larger firms usually divide the cash book into two parts: the cash disbursement journal that records all cash payments, such as accounts payable and operating expenses, and the cash receipts journal, which records all cash receipts, such as accounts receivable and cash sales.
Breaking Down a Cash Book
A cash book is set up as a ledger in which all cash transactions are recorded according to date. It is a book of original entry and final entry. That is, the cash book serves as the general ledger. There is no need, as in a cash account, to transfer to a general ledger.
Cash Book vs. Cash Account
A cash book and a cash account differ in a few ways. A cash book is a separate ledger in which cash transactions are recorded, whereas a cash account is an account within a ledger. A cash book serves the purpose of both journal and ledger, whereas a cash account is structured like a ledger. Details or narration are required in a cash book but not in a cash account. Finally, cash books use a ledger folio, while cash accounts use a journal folio.
There are numerous reasons why a business might record transactions using a cash book instead of a cash account. Daily cash balances are easy to access and determine. Mistakes can be detected easily through verification, and entries are kept up-to-date, since the balance is verified daily.
Cash Book Format
All transactions in the cash book have two sides: debit and credit. All cash receipts are recorded on the left-hand side, and all cash payments are recorded by date on the right-hand side. The difference between the left and right sides shows the balance of cash on hand, which always shows a debit balance.
The cash book is set up in columns. The date column is the date of the transaction. In the first line, the accountant inputs the year, and in the second line, the accountant inputs the name of the month, followed by the date. In the next column, the accountant inputs the name of the opposite or contra account, along with a small description or narration of the transaction. In the ledger folio column, the accountant inputs the number of the ledger that holds the account and the amount of the transaction. If the transaction comes with a voucher, that column may be added as well.