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Before talking about the cash book, we would briefly explain what is cash. Cash is a current asset which consists of items used in day to day financial transactions as medium of exchange. In accounting and finance, cash includes, currency notes made of paper, coins, demand deposits, money orders, checks and bank overdrafts etc.
The following items cannot be treated as cash:
- Dishonored checks
- Post-dated checks
- Postage stumps
- Securities and special investments
- Trade advances to enployees
The cash balance in a business organization is of significant importance due to the following reasons:
- It is readily available to meet current obligations of any business organization.
- It is universally accepted as a mode of payment by creditors.
- The economic activities of any business involve a regular inflow and outflow of cash and cash equivalents.
Cash book
The cash book is used to record receipts and payments of cash. It works as a book of original entry as well as a ledger account. The entries related to receipt and payment of cash are first recorded in the cash book and then posted to the relevant ledger accounts. Moreover, a cash book is a substitute for cash account in the ledger. A company that properly maintains a cash book does not need to open a cash account in its ledger.
Types of cash book
Cash Book Entries
There are four major types of cash book that companies usually maintain to account for their cash flows. These are given below:
- A single column cash book to record only cash transactions.
- A double/two column cash book to record cash as well as bank transactions.
- A triple/three column cash book to record cash, bank and purchase discount and sales discount.
- A petty cash book to record small day to day cash expenditures.
A cash book is a subsidiary ledger in which are stored all cash receipt and cash payment transactions. It is the primary repository of cash-related information for a business. The information in the cash book is periodically aggregated and posted to the general ledger. The information in the cash book is routinely compared to the bank's records via a bank reconciliation to ensure that the information in the book is correct. If not, an adjusting entry is made to bring the cash book into conformance with the bank's information.
The cash book is commonly subdivided into a cash receipts journal and a cash disbursements journal when there are a large number of transactions. Doing so reduces the clutter in a single source document or file. In a smaller business that experiences less transactional volume related to cash, all cash transactions are recorded within a single cash book.
The information in a cash book is entered in chronological order, which makes it easier to research transactions at a later date. A common researching path is to begin with a possible cash issue in the general ledger, and then trace the posting entry back to a specific date range in the cash book.
Cash Book And Bank Reconciliation
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