What is Cash Book in Accounting (with Diagram)

The primary book where transactions regarding cash receipts and payments are recorded in a chronological order of dates with explanations and balance is drawn at the end of the day or a particular period is called cash book.

Among the financial transactions of a concern cash transactions carry much more importance.

That’s why these are recorded in a separate book of account. Since all cash transactions are recorded in this book in the format of ledger account a separate cash account in the ledger is not needed.

The owner can know the accurate cash position of his business from cash book. ‘T’ form cash book contains two sides: left hand side means debit side and the right hand side means credit side.

The debit side stands for cash receipts and the credit sides’ stands for cash disbursements.

All the receipts are recorded in the receipt sides and all cash disbursements are recorded in the payment side of cash book.

At the end of the day or a particular period the totals of receipts and payments are made and the difference of these two totals is shown as balance. This balance indicates the amount of cash in hand of an organization.

Some definitions of famous writers on cash book are mentioned below;

Prof. R.J. Chambers – “Cash Book is a book in which an account is kept of the receipts and disbursements of money.”

John Routley – “The Book Containing the record of all cash passing into and out of a business is called the Cash Book.”

L. C. Croper – “The Cash Book is the book in which a person writes or enters the sums of money received and paid by him.

Features of Cash Book

The features of cash book are as follows;

  1. Since only cash transactions are recorded in cash book it is a special journal.
  2. Cash book serves the purpose of journal and ledger.
  3. Cash book always shows a debit balance.
  4. The balance of cash book always means cash in hand. Balance of cash book and cash of a cash box must be equal.
  5. Non-cash transactions of cash book are transferred to relevant account in the ledger.

Cash Book is both a Journal and a Ledger

Some accountants term cash book as journal and some other term it as ledger. Modem accountants term cash book both as journal and ledger. Reasons for terming cash book as journal are as follows;

  • After occurrence of transactions these are recorded in the cash book in chronological order of dates with explanations like journal.
  • The way in which transactions are posted into ledger from journal is followed in case Of posting transactions to ledger from cash book.
  • As separate special journals are maintained for various transactions similarly cash book is maintained for cash transactions.
  • Cash transactions are recorded in the cash book according to debit and credit.
  • Other than cash book no subsidiary journal is maintained for cash transactions.

For all these features of cash book, it is called journal.

On the other hand the cash book is called ledger because of its following features;

  • The format of cash book is similar to that of ledger account.
  • Like ledger account cash book consists of two sides – debit side and credit side if it is prepared in ‘T’ format.
  • Like ledger accounts, the balance of cash book is determined and transferred to trial balance.
  • Cash book serves the purpose of the cash account. In such case cash account is not prepared in the ledger.

Cash book is called ledger because of its above mentioned characteristics. It is very much evident from the above discussion, cash book is both journal and ledger as it contains all features of journal and ledger and serves purposes of both.

Advantages of Cash Book

  1. Cash receipt and cash payments for a particular period can easily be ascertained from cash book.
  2. Since cash transactions are recorded in cash book, it becomes convenient to find out any cash transaction for future reference.
  3. It avoids journalization of huge cash transactions.
  4. The amount of cash in hand can be ascertained at any time and it can be compared with the cash in cash box. This ensures accuracy of cash book and detects »misuse or misappropriation of cash.
  5. Cash book minimizes time and labor in preparing ledger as it performs the functions of both journal and ledger.
  6. Proper maintaining of cash book influences morality of the cashier which refrains him from stealing cash.

For proper maintaining of cash book, preventive measures are taken to avoid fraud and forgery.

For example;

The officials entrusted with the responsibilities of preparing cash book are seated in a separate room and entrance of unauthorized employees is restricted there.

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