Accountancy · Ch 4 — Recording of Transactions - II
Cash Book
Cash Book
A cash book is the single most important subsidiary book in any business. It is a special journal that records only cash and bank transactions. Because every cash transaction has two sides — a receipt and a payment — the cash book is designed as a two-sided account (debit and credit), just like a ledger account. This is why it is called a book of original entry (it is the first place the transaction is recorded) and also serves as the cash account in the ledger. Once a cash book is maintained, you do not need to pass a separate journal entry for cash transactions, and you do not need a separate cash account in the ledger.
The cash book begins with the opening balance of cash (and bank, if a bank column is used) at the start of the period. It is usually prepared on a monthly basis. Every organisation — whether a small shop, a large company, or a non-profit — maintains a cash book because it gives an instant picture of the cash position.
The cash book is both a journal (for recording) and a ledger (for the cash account). This means that when you record a cash receipt on the debit side, you are directly posting the effect to the cash account — no separate ledger posting is needed for cash.
Format of a Simple Cash Book (Single Column)
The simplest cash book has only one column for amount on each side. The debit side records all receipts (increases in cash), and the credit side records all payments (decreases in cash).
| Date | Particulars | L.F. | Amount (₹) | Date | Particulars | L.F. | Amount (₹) |
|---|---|---|---|---|---|---|---|
| Receipts | Payments | ||||||
| To Balance b/d | (Opening) | By (expense/asset) | |||||
| To (source of receipt) | By Balance c/d | (Closing) |
Key points about the format:
- The left side is the debit side (receipts). The right side is the credit side (payments).
- "To Balance b/d" (brought down) is written on the debit side for the opening cash balance.
- "By Balance c/d" (carried down) is written on the credit side for the closing cash balance.
- The total of the debit side must equal the total of the credit side. The closing balance is the balancing figure.
Accounting Treatment (Which Account is Debited/Credited and Why)
The rule is simple and follows the fundamental principle of accounting:
- Cash Receipt: Debit the Cash Book (because cash is an asset, and an increase in an asset is debited). The credit is given to the account that provides the cash (e.g., Capital, Sales, Debtors).
- Cash Payment: Credit the Cash Book (because cash is an asset, and a decrease in an asset is credited). The debit is given to the account that receives the cash (e.g., Purchases, Rent, Creditors).
In the cash book itself, you only record the other account in the "Particulars" column. For example, if you receive cash from a debtor, you write "To Debtors" on the debit side. If you pay rent, you write "By Rent" on the credit side. The cash book's own column (the amount column) automatically takes care of the debit/credit to cash.
Distinction: Cash Book vs. Journal
| Feature | Cash Book | Journal |
|---|---|---|
| What it records | Only cash and bank transactions | All transactions (including credit) |
| Format | Two-sided (debit & credit) like a ledger account | Single-sided (Date, Particulars, L.F., Debit, Credit) |
| Purpose | Serves as both journal and ledger for cash | Only a book of original entry |
| Posting | No separate cash account needed in ledger | Each entry is posted to two ledger accounts |