Cashbook is a special-purpose book which is used to record all transactions relating to cash receipts and cash payment in chronological order.
In this book receipts and payments of coins, notes, cheques, drafts, postal orders, etc. are recorded.
When the books of original entry are sub-divided, cash transactions are not recorded in the journal.
Importance of Cash Book:
The following are the importance of the cash book:
A) Helping in cash management: Cashbook is maintained by every business, whether big or small in size.
It is simply because every business must be very cautious about its cash management.
B) Helping in ascertaining true cash position: The cash book gives the true position of cash transactions.
At any time the balance of cash as shown by the cash book must agree with the physical balance of cash in hand in the cash box.
C) Helpful in preventing embezzlement: The maintenance of cash book helps in preventing embezzlement and manipulation.
Unless the cash book is maintained, the business will be dark about the daily cash position.
D) Serves as documentary evidence: Cashbook serves as documentary evidence for the available cash balances because the actual cash balance is compared by the cash balance as shown by cash book daily.
Features of Cash Book :
The following are the features of cash book:
A) Primary and subsidiary book: Cashbook is a subsidiary book of account and a daybook. It is also the first book of entry of all cash transactions.
B) Recording of cash transactions only: All the cash transactions involving receipt and payment of cash during the period are recorded in this book.
C) Substitute of cash account: As a matter of fact is a substitute for cash account in the ledger because where cash book is maintained, no cash account is opened in the ledger.
D) Dual purpose: It serves the function of both a journal and a ledger at the same time.
E) Recording in chronological order: All cash receipts and payments are recorded in chronological order I.E according to the date of occurrence.
F) No credit balance: The cash book records only cash transactions and therefore, it cannot show any credit balance.
Advantages of Cash Book:
The following are the advantages of a cash book:
A) Ascertainment of daily cash transactions: Since all cash transactions are recorded in the cash book, it is easy to ascertain the cash receipt and cash payment on a daily basis.
B) Ascertainment of cash balance: Cash balance can be known at nag time by ascertaining the balance of the cash book at the point of time. There is no need for calculating the actual cash in the box.
C) Guard against defalcation: The balance of cash assistance shown by the cash book can be verified with the physical balance of cash I’m the cash box.
D) Rectification of errors: Any mistake or error can be detected at the time of verification of the cash book.
If there is a difference between the actual cash in the cash box and the balance as per cash book, it means there are some errors.
Different types of cash book:
The following are the different kinds of cash book:
1) Single column cash book: Single column cash book is a cash book that has only one column on both sides for recording only cash receipts and cash payments.
2) Double column cash book: Double column cash book is a cash book which has two columns for recording the amount of both sides.
3) Triple column cash book: Triple column cash book is one that has three columns on each side for recording discount, Cash and bank transactions.
4) Multiple columns cash book: The cash book, on both sides of which a number of columns are provided for recording the amount according to the need of the organization.
5) Petty cash book: A cash book maintained for recording the payments relating to petty expenditure.
Difference between Cashbook and cash account:
1) Cashbook is a subsidiary book meant for recording cash transactions.
A cash account is an account appearing in the ledger.
2) Cashbook serves the purpose of both the journal and ledgers at the same time.
The cash account serves the purpose of the ledger account only.
3) Ledger folio is recorded in the cash book.
Journal folio is recorded in the cash account.
4) It is a book of primary and final entry.
It is an account for the final entry only.
Is cash book a journal or a Ledger:
Sometimes a question arises whether cash book is a journal or a Ledger? It is a journal since the transactions are recorded in it for the first time from the source documents.
The cash book also a Ledger in the same sense that it serves the purpose of a cash account also.