Cashbook is the primary book/ journal to record cash payments and receipts. Besides being the book of original entries like Sales and Purchase daybooks, Cashbook is a specialized Journal as this serves as Ledger at the same time, as well.

Like any other Accounting Journal, cash transactions from the source documents i.e. Cash payment/ receipt vouchers are initially recorded into a cash book. However, as both cash payments and receipts are recorded in the same book therefore Cashbook/ Journals have two separate sections, one for payments and the other for the receipts.

All cash receipts are recorded on the left side of the  Cash Journal/ Book, which is called the Debit (Dr.) side. Similarly, cash payments are recorded on the right side of the Journal/ Book, which is denoted as the Credit (Cr.) side. This arrangement of recording transactions in Dr. and Cr. sides of the same document, serves the purpose of Ledgers. This means there is no need to record cash transactions into a separate ledger.

There is another distinct characteristic of the cash book/ journals. In the Single Column Cash books, only cash transactions are recorded, therefore the total of the Debit (left) side will always be greater than the Credit (right) side of the book. This means that the balance at the end of any period can never go negative. This makes sense as you can never have a negative cash balance with you. Either you may cash or not but it can not be negative. 

Another important point to remember is that, as no separate ledger is maintained for cash and the very same journal is satisfying the need of a Ledger, it means that there will be no need for posting balances of the cash book into the ledger, as usually performed in case of other books of prime entry (Sales/ Purchase daybooks). 

This means that it is very important that at each day-end, each column of the cash book shall be totaled, and the balance of the books shall be reconciled with the actual cash available. Further corresponding entries are made in relevant ledgers (Nominal/ General). Otherwise, there are chances that any corresponding entry may remain unrecorded in general or nominal ledgers.

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Cashbook (Single Column)

So from the above paragraphs we cash can summarize the following characteristics of a Cash Book/ Journal;

  • It performs both Journal and Ledger function at the same time
  • Cash receipts are recorded on the Debit (left) side, whereas all the cash payments are recorded on the Credit (right) side of the book. 
  • If only cash transactions are being recorded, then there can never be a credit (negative) balance at any time in a cash book. 
  • Cash books shall be closed daily and book balances are to be reconciled with actual cash available.
  • Every corresponding entry shall be recorded into the relevant ledger at each day’s end.

Types of Cashbooks/ Journals.

Based on its uses, cash books are further classified into three types;

  • Single Column cash books

Single column cash books are used to record only cash transactions (payments/ receipts) 

  • Double Column cash books

Along with the cash transaction, extra columns for cash discounts allowed/ received are added in Double column cash books.

  • Triple Column cash books

With the increase of trade in cheques and through credit cards, the third column for bank transactions is also added on each (Debit/ credit) side of the Triple column cash books.

  • Petty cash books

Small regular expenses are recorded in petty cash books. These always are single-column books.

Single Column Cashbooks

Single-column cash books are the most basic form of a cash book. Only cash transactions are recorded in single-column cash books.

Single Columns cash books are the typical cash books in which payments are recorded on the Credit (Right) side, whereas the receipts are recorded on the Debit (left) side of the books.

Single Column books, like the other type of cash books, shall be totaled at each day’s end and all corresponding entries shall be recorded into relevant ledgers. 

Closing process of cashbooks

As only cash entries are recorded in single column cash books, the debit balance will always be either be greater or equal to the debit column. Cash books shall be closed by entering the balance amount on the credit (right) side with the Words “C/D”  (carried down) or “C/F” (Carried Forward) as described.

Similarly, on the next day, the balance (C/F balance) of the last day shall be entered on the Debit Side of the book with the words “B/D” (brought down) or “B/F” (brought forward) as described. 

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Discounts are a reduction in the price of the products and It is a very common practice of the business to offer discounts to their customers for various reasons mainly to boost sales and encourage customers for early payments.

Trade Discounts

Discount/ reduction in price per unit usually, due to bulk purchasing, is called trade discounts. Credit Purchases entered in Purchase daybooks/ journals are net of trade discounts (after deducting any such trade discounts from purchases). This means that there is an adjustment required for trade discounts while recording purchases or sales in day books/ journals.

Cash Discounts

To encourage early payments from debtors, some suppliers offer discounts, if payments are made before the due date. These types of discounts are called cash discounts. 

The primary purpose of cash discounts is to encourage debtors to pay early and to boost the recovery of outstanding dues. Hence, customers who pay before the due date are eligible for the discount. A reduction in the total amount payable is called a cash discount even if the payment is made through a cheque.

Cash discounts are usually expressed in percentages (%) and the details for eligibility of discount for example periods in which payment is required to be made shall be mentioned on sales invoices. 

Unlike Trade discounts, cash discounts are entered in the general Journal. This means that purchase is recorded at their full amount (without any cash discount) and if cash discount is applicable then:

Creditor/ supplier account is debited and 

The discount received account (income) is credited. 

It is also important to remember that because of the nature of cash discounts, such discounts if received, shall be classified and other income and shall not be considered as main revenue income. 

Similarly, cash discounts allowed shall not be treated as part of Cost of Goods Sold (CoGS) instead treated in other expenses. 

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Double Column CashBooks

From the sections of Sales Day Books, we know that cash discounts allowed needed to be recorded at the time of cash receipts.

Similarly, if cash payments are made before the dues date, there may be some discounts received from the suppliers.

As both discount payments/ receipts are to be recorded at the time of recording cash (payment and receipts) therefore it is useful to add an extra column of discount on both sides of the cash book.

Thus if discounts are received due to the early payment (payment before the due date), It is recorded on the same side i.e Credit (left side) AND 

If discounts are allowed due to the early receipts from the customers, entered in the Dr. (left) side of the cash book.

So at the time of payment, Cash paid and Discount received are entered in the Credit side of the cash book (A Credit Entry), while the total of cash and discount received is recorded in the Debit side of the Supplier Nominal account (Debit Entry). 

A journal entry for the above-stated transaction will be as follows;

Dr. Supplier Account XXX

Cr. Cash Paid XXX

Cr. Discount Received Account XXX

Similarly, if cash discounts are allowed on the early receipt from customers, cash receipts and discounts allowed are entered on the Debit (left) side of the cash book (Debit Entry), whereas a corresponding entry be the total of cash paid and discount allowed is entered in the Credit side of the Customer Nominal Account (Credit Entry). 

A journal entry for the above-stated transaction will be as follows;

Dr. Cash Paid XXX

Dr. Discount Received Account XXX

Cr. Customer Account XXX

At the period end both the columns of Discounts (Allowed and received) are totaled and posted to the Discount Allowed and Discount Received Accounts in General Ledger.

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Cashbook (Double Column)

Triple Column CashBooks

Technology nowadays has made it very safe and convenient to trade through banking channels, instead of loose cash. Almost every retail outlet has the facility to swap or punch in your bank card instead of paying cash. This way of trading is also appropriate, where transactions require larger amounts of currency.

So to incorporate the banking transaction an extra column along with the Cash and discount column can be added on each side into the cashbook.

Bank transfers (receipts and payments) can be done either via cashable banking instruments (e.g. cheques, bank drafts & pay orders) or bank cards (e.g. Debit or Credit cards).

Thus any cash received is entered in the cash column, bank receipt in the bank column, and discount allowed in the discount column on the Debit (left) side of the cashbook.

Similarly, the cash payments are entered in the cash column, payments through cheques and other banking mean in the bank column and the discount received in the discount column on the Credit (right) side of the cashbook.

All columns in the cashbook are totaled at the period end. The debit and credit columns of the cash and bank are balanced against each other. Both the bank and cash accounts are closed by entering the balance amount in the column with the lower value by mentioning C/D or C/F in its description. However, the discount allowed and discount received column are not balanced instead closed separately.

An important point to remember is that a cash account can never have a credit or negative balance (excess amount in credit column). However, if the business has any overdraft arrangements with its bank, the bank columns in the cashbook may have credit balances. This happens if the business has paid more via its bank than it received in the bank. 

Further, as both the cash and bank transactions are being maintained in the same book, there may be some contra entries. For example at the time of cash withdrawals or deposit of excess cash into the bank account. 

At the time of cash withdrawals, the amount is entered into the cash column on the debit side, whereas the same amount is in the bank column of the credit side of the cashbook. 

Although, the net effect for the cashbook will be nil as a debit entry in the cash column is being countered by the credit entry of the bank column. However, this contra entry is necessary to reflect the actual position of both the cash and bank accounts.

Such contra entries shall be denoted by the “C” in the folio column, so all contra entries can be easily traced out. 

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Cashbook (Triple Column)

Petty cashbook

Despite their usefulness and comprehension, Triple column books are not much common among the business because of the following reasons;

  • The number of cash transactions compared to banks is very minimal.
  • The controlling offices (Head offices) where actual books are being maintained are situated at different locations with minimum cash balances at the site. 
  • Due to technological advancements, it is easier, safe, and cost-effective to transact through banking means. 
  • Keeping cash in the bank will either earn you interest or save markup costs in case the business has an overdraft facility. 

Because of the above-stated reason, businesses strive to keep cash transactions at a minimum. Only petty expenses are done through cash. Therefore instead of a complete cashbook, a separate petty cashbook for such expenses is maintained. 

The format of a petty cashbook is similar to the Single column cashbook. We will read more about petty cash in the coming chapters.

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