Cash Book

A business has so many cash transactions that recording each one in the journal would be clumsy. So cash is given its own special book — the cash book. The cash book is unique: it is both a journal and a ledger. It is a journal because cash transactions are first recorded in it, and a ledger because it also serves as the cash account (no separate cash account is opened).

Like any account it has two sides: the debit side records receipts (cash coming in) and the credit side records payments (cash going out). Because you cannot pay out more cash than you have, the cash book always shows a debit balance or nil — never a credit balance.

There are several types by the number of amount columns:

• Single column cash book — one amount column on each side, recording only cash transactions. It is exactly like a cash account.
• Double column cash book — two amount columns on each side. The common form has a cash column and a bank column, recording both cash and bank transactions together. (Another form pairs cash with a discount column.)

The double (cash + bank) column book is very practical because most firms keep money both in hand and at the bank. A cheque received and a cheque paid both run through the bank column; notes and coins run through the cash column.

The triple column cash book has three amount columns on each side: discount, cash and bank. It is the most complete cash book, recording cash transactions, bank transactions and the cash discount allowed/received, all together.

• The discount column on the debit side records discount allowed (an expense, given to debtors who pay us).
• The discount column on the credit side records discount received (a gain, from creditors we pay).
• Important: the discount columns are not balanced — they are only totalled. The debit total is posted to Discount Allowed A/c and the credit total to Discount Received A/c.

A key idea here is the contra entry. When money moves between cash and bank of the same business — cash deposited into the bank, or cash withdrawn from the bank for office use — both the debit and the credit are inside the cash book itself. Such an entry is marked with the letter "C" in the L.F. column and is called a contra entry.

• Cash deposited into bank: Bank column (Dr side) and Cash column (Cr side) — written as "To Cash" on the debit side and "By Bank" on the credit side.
• Cash withdrawn from bank for office use: the reverse — Cash column (Dr) and Bank column (Cr).

Because both effects are already inside the cash book, a contra entry needs no further posting to the ledger — that is what the "C" signals.

Every office has many small payments — postage, stationery, conveyance, tea, cartage. Passing each through the main cash book would clutter it. So a separate petty cash book is kept by a petty cashier to record these small day-to-day expenses.

The petty cash book usually has an analytical (columnar) format: one column receives the money, and several analysis columns classify the payments (postage, printing & stationery, conveyance, sundries, etc.). At period-end each column is totalled and posted to the relevant expense account — saving the main ledger from dozens of tiny entries.

The petty cashier is funded through the imprest system:

• The main cashier gives the petty cashier a fixed sum (the imprest amount) for a period, say Rs 2,000 for a month.
• The petty cashier spends it on small items and keeps the vouchers.
• At the end of the period, the main cashier reimburses exactly what was spent, restoring the balance back to the original imprest amount.

So if Rs 1,700 was spent out of Rs 2,000, the petty cashier is given Rs 1,700 to start the next period again with Rs 2,000. The beauty of the imprest system is control: the petty cashier never holds more than the fixed amount, every payment is vouched, and the reimbursement equals the total expenses — making fraud and overspending easy to spot.