What Is a Cash Book? How Cash Books Work, With Examples

What Is a Cash Book?

A cash book is a financial journal that contains all cash receipts and disbursements, including bank deposits and withdrawals. Entries in the cash book are then posted into the general ledger.

How a Cash Book Works

A cash book is set up as a subsidiary to the general ledger in which all cash transactions made during an accounting period are recorded in chronological order. Larger organizations usually divide the cash book into two parts: the cash disbursement journal, which records all cash payments, and the cash receipts journal, which records all cash received into the business.

The cash disbursement journal would include items such as payments made to vendors to reduce accounts payable, and the cash receipts journal would include items such as payments made by customers on outstanding accounts receivable or cash sales.

The primary goal of a cash book is to manage cash efficiently, making it easy to determine cash balances at any point in time, allowing managers and company accountants to budget their cash effectively when needed. It is also much faster to access cash information in a cash book than by following the cash through a 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 general ledger. A cash book serves the purpose of both the journal and ledger, whereas a cash account is structured like a ledger. Details or narration about the source or use of funds are required in a cash book but not in a cash account.

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, as the balance is verified daily. By contrast, balances in cash accounts are commonly reconciled at the end of the month after the issuance of the monthly bank statement.

Recording in a Cash Book

All transactions in a cash book have two sides: debit and credit. All cash receipts are recorded on the left-hand side as a debit, and all cash payments are recorded by date on the right-hand side as a credit. The difference between the left and right sides shows the balance of cash on hand, which should be a net debit balance if cash flow is positive.

The cash book is set up in columns. There are three common versions of the cash book: single column, double column, and triple column. The single-column cash book shows only receipts and payments of cash. The double-column cash book shows cash receipts and payments as well as details about bank transactions. The triple column cash book shows all of the above plus information about purchase or sales discounts.

A typical single column cash book will have these four column headers: “date,” “description,” “reference” (or “folio number”), and “amount.” These headers are present for both the left side showing receipts and the right side showing payments. The date column is the date of the transaction.

Because the cash book is updated continuously, it will be in chronological order by transaction. In the description column, the accountant writes a short description or narration of the transaction. In the reference or ledger folio column, the accountant inputs the account number for the related general ledger account. The amount of the transaction is recorded in the final column.

Examples of Cash Book Format