The cash book consists of a cash account and bank account put together in one book. In a cash book, debit and credit columns of both the accounts are shown together as shown below. The bank account contains all the information about the transactions made by cheques, and cash account deals with the transactions done in cash.
There are 3 kinds of cash books
- Single column cash book (Contains just the cash column)
- Double column cash book (contains cash and bank columns)
- Triple column cash book(contains Discount, cash and bank columns )
- Petty cash book (used to record minor expenses)
| Date Details | Cash | Bank | Date Details | Cash | Bank |
| Debit | Debit | Credit | Credit |
Every firm/ company has a bank account, which is maintained by their respective banks. At the end of a speicifc period or on demand, the bank sends them a copy of their bank account data so they can enter it in their books, this financial document is known as “Bank statement”. The business tallies the recorded data in the bank statement with the data in “bank account” portion of their cash book to make sure their are no errors.
You might come across a transaction with the words “cash paid into bank”. As you can also infer from the literal meaning of the statement, the transaction implies that your cash account is being credit (decreasing) as cash is deposited into bank and so, the bank account is being debited(increasing). Exactly opposite is done for withdrawal of cash from your bank account (Bank : credited, cash debited).
Note: in transactions where whole of the cash received is directly deposited into bank immediately, they can be treated in the same manner as cheque received i.e it can directly be debited to bank column.
Concept of Discount
Cash discounts
Businesses prefer prompt payments of their accounts by customers. In order to promote quick payments businesses reduce the sum of money to be payed. The reduction in sum of money to be paid is called “Cash discounts”. In short, cash discount refers to the allowance given for early payments. Even if the payments are made using a cheque or directly transferred to bank, it is still called “Cash discount”.
For example
Mr daniyal owes a business X $100. If he pays within this week, he will receive 5% cash discount. Mr daniyal pays the business X on time using cheque.
The transactions would be recorded in the books of Business X as
Dr Cr
Bank account $ 95
Mr.Daniyal’s account $95
Cash discount allowed $5
Mr.Daniyals’s account $5
Triple column cash book would appear as :
| Details | Discount | Cash | Bank | Details | Discount | Cash | Bank |
NOTE : Cash discount received are always credited into the discount account and cash discounts allowed are always debited into it.
Petty cash book
Businesses set aside some amount of money for minor expenses so they do not affect the total profits earned, at the end of the period
The money reserved is Debited and the expenses are credited (each one individually). At the end of period, the totals of debit and credit sides are compared and the difference noted.
Format of petty cash book is as follows:
Dr Cr
| Amount | L/F | Date | Amount | EX 1 (Name) | EX 2
(Name) |
EX 3
(Name) |
EX 4
(Name) |
EX 5
(Name) |
EX 6
(Name) |
Ex = Expense e.g stationary, travelling , postage, cleaning, etc