Applications of Cash Book

A cash book is a financial notebook that keeps track of all cash receipts and expenditures, including bank deposits and withdrawals. The cash book entries will always be  entered into the general ledger. 

Cash Book

All cash transactions made during an accounting period are documented in chronological order in a cash book  which is set up as a subsidiary to the general ledger. The cash book is frequently divided into two components in larger organizations: the cash distribution journal, which records all cash payments, and the cash receipts journal, which records all cash received into the company. Payments when  made to vendors to lower accounts payable would be recorded in the cash disbursement journal while payments made by customers on outstanding accounts receivable or cash sales would be recorded in the cash receipts journal.

The main purpose of a cash book is to efficiently manage cash by making it simple to ascertain cash balances at any time.it also allows the managers and corporate accountants to successfully budget their cash when needed. Accessing cash information from a cash book is also considerably faster than tracing cash through a ledger.

Cash Account vs. Cash Book

There are a few differences between a cash book and a cash account. The cash book is a distinct ledger that records monetary transactions, whereas a cash account is a general ledger account. A cash book acts as both a journal and a ledger, whereas a cash account is organized similarly to a ledger. A cash book, but not a cash account, requires details or narration regarding the source or usage of funds. 

There are a variety of reasons why a company may use a cash book instead of a cash account to record transactions. Daily cash balances are simple to find and calculate. Verification allows for easy detection of errors, and entries are kept up to date because the balance is checked daily. Cash account balances, on the other hand, are frequently reconciled at the end of the month, following the publication of the monthly bank statement.

Keeping Track of Things in a Cash Book

A cash book’s transactions have two sides: debit and credit. All cash receipts are recorded as a debit on the left side, and all cash payments are recorded as a credit on the right side, by date. If cash flow is positive, the difference between the left and right sides represents the cash on hand balance, which should be a net debit balance. 

The cash register is divided into columns. The cash book is available in three different configurations: single column, double column, and triple column. Only cash receipts and payments are shown in the single-column cash book. Cash receipts and payments, as well as details about bank activities, are displayed in the double-column cash book. All of the foregoing, as well as information concerning purchase or sales discounts, are displayed in the triple column cash book. 

The four column headers of a conventional single column cash book are “date,” “description,” “reference” (or “folio number”), and “amount.” Both the left side, which shows receipts, and the right side, which shows payments, have these headers. The date column contains the transaction’s date. 

The cash book will be in chronological order by transaction because it is updated on a regular basis. The accountant enters a brief summary or narration of the transaction in the description section. The accountant enters the account number for the relevant general ledger account in the reference or ledger folio column. In the final column, the transaction’s amount is recorded. 

Purpose of Cash Book

All cash transactions that are   made during an accounting period are documented in chronological order in a cash book   which is set up as a subsidiary to the general ledger. The fundamental purpose of a cash book is to efficiently manage cash by making it simple to calculate cash balances at any time and allowing managers and corporate accountants to successfully budget their cash. Accessing cash information in a cash book is also considerably faster than tracing cash through a ledger.

Difference Between a Cash Book and a Chequebook

The cash book is frequently divided into two components in larger organizations: the cash distribution journal, which records all cash payments, and the cash receipts journal, which records all cash received into the company. Payments made to vendors to lower accounts payable would be recorded in the cash disbursement journal, while payments made by customers on outstanding accounts receivable or cash sales would be recorded in the cash receipts journal.

Difference Between a Cash Account and a Cash Book

There are a few differences between a cash book and a cash account. A cash book is a distinct ledger that records monetary transactions, whereas a cash account is a general ledger account. A cash book acts as both a journal and a ledger whereas a cash account is organized similarly to a ledger. A cash book  but not a cash account, requires details or narration regarding the source or usage of funds.

Conclusion 

We conclude that the Cash Book is the book in which all cash receipts and payments, including funds placed in the bank and funds withdrawn from the bank, are documented according to the transaction date. There are two sides to every transaction recorded in the cash book: debit and credit.