After reading this article you will learn about the format of preparing cash book.
A day book-cum-ledger kept for making entry of the cash transactions as well as posting to the cash and bank accounts is called Cash Book. It is a unique book of account that combines journal and ledger. Cash Book is a journal for making primary entry of all cash transactions.
It is also ledger wherein cash and bank accounts are maintained. More interestingly, in the Cash Book primary entry is passed and posting is made only in one stroke. Since it is journal, posting is necessary for the corresponding debit or credit account. Since it is ledger of cash and bank accounts, no posting for cash and bank accounts is necessary. Like other ledger accounts Cash Book is balanced at a regular interval (say daily or weekly).
Various Types of Cash Book:
Single Column Cash Book:
In this Cash Book entry and posting are made for purely cash transactions. It has only one amount column in each of the debit and credit sides.
See the design of Single Column Cash Book. It is just like any other ledger account in the T-form.
In both the debit and credit sides, it has five columns:
(iii) Voucher No.,
(iv) Ledger Folio, and
In any other ledger account, there is no Voucher No. column, instead there is Journal Folio column. This is so in the Cash Book because it is also a Journal. Reference must be given here about the evidence of occurrence of the transactions. Amount column gives debit or credit amount as per the nature of the transaction.
Double Column Cash Book:
In this Cash Book entry and posting are made for cash and bank transactions. The design of this Cash Book is like the single column Cash Book except that it has two amount columns on both the debit and credit sides.
Triple Column Cash Book:
In this Cash Book three amount columns are maintained on both the debit and credit sides—the first column is for discount, the second for cash and the third for bank.
Single Column Cash Book:
This format of Cash Book is useful when either there is no bank transaction or bank transactions do not occur frequently. Bank account is opened separately for bank transactions, if any.
Given below are the cash transactions of M/s. Mehta Bros, for the first week of January, 2009:
Jan 1. Mehta invested Rs.5,50,000 in business.
Jan 2. Paid for furniture Rs.1,50,000.
Jan 3. Purchased goods Rs.3,75,000.
Jan 4. Sold goods Rs.2,75,000.
Jan 5. Paid to M/s. Jamuna Das Rs.1,25,000 for credit purchase.
Jan 6. Collected Rs.1,75,000 from M/s. Iswarlal Bros, for credit sales.
Jan 6. Paid for postage Rs.110.
Jan 6. Paid for stationery Rs.575.
Jan 6. Paid for wages Rs.2,000.
Jan 7. Paid Rs.7,500 for electrical fittings.
Jan 7. Paid Rs.10,000 for installation of telephone.
Jan 7. Deposited into bank Rs.50,000.
Prepare Single Column Cash Book.
Entries and Postings in Single Column Cash Book
(1) Make the transaction analysis to identify debit and credit accounts.
For a cash transaction one of the accounts must be cash account.
(2) Cash balance is increased by cash receipts. Cash receipts are also called cash inflows. For every cash receipt cash account is debited since it increases cash balance which is an asset. For every cash payment cash account is credited since it decreases cash balance. Cash payments arc also called cash outflows. For all cash receipts postings are made on the debit side of Cash Book using prefix ‘To’. For example, for the transaction dated Jan. 1 of illustration 5.9:
Cash A/c Dr.
To Capital A/c
which is posted on the debit side as To Capital A/c’.
Similarly, for all payments, postings are made on the credit side using prefix ‘By’ with the corresponding debit account. Take the example of payment made for installation of Telephone Fittings on 7th Jan. from Illustration 5.9:
Telephone Deposit A/c Dr.
To Cash A/c
which is posted as ‘By Telephone Deposit A/c’
Likewise ledger postings in the Cash Book too postings are made in the ‘Particulars Columns.’ But likewise in journal entries a narration is added.
(3) For posting on the debit side, i.e. for cash receipts, date of transaction is mentioned in the ‘Date Column’ on the debit side. For credit posting date of transaction is mentioned in the ‘Date column’ on the credit side.
(4) For debit posting reference No. of the evidence of transaction is recorded of the ‘Voucher No.’ column in the debit side and for credit posting that of the credit side.
(5) For debit posting ledger folio Nos. of the corresponding credit accounts are given in the ‘L.F. Column’ of the debit side and for credit posting ledger folio Nos. of the corresponding debit accounts are given in the ‘L.F. Column’ of the credit side.
(6) Amount of the transactions are posted in the ‘Amount Column’ of the debit side for cash receipts, i.e., debit postings and of the credit side for cash payments, i.e., credit postings.
(7) Single Column Cash Book will have always debit balance. It is not possible to spend cash without having cash in hand.
Double Column Cash Book:
In this format of Cash Book, cash and bank transactions are recorded and thus it gives ledger of both the cash and bank accounts. Now-a-days volume of bank transactions of even a small business are so high that Single Column Cash Book is not so useful. A business enterprise pays through cheques and collects money from its customers through cheques. Even a small business enterprise maintains current account with a bank through which it pays and receives.
Entries and Postings in Double Column Cash Book:
(i) All payments by cheque decrease bank balance so these are posted on the credit side and amounts are posted in the bank column. But payments by cash are posted on the credit side with amounts in the cash column.
(ii) All receipts in cash are posted on the debit side with amounts in the cash column. But posting of the receipts by cheque needs little clarification.
If cheques are received and immediately sent to bank for collection, it should be treated as bank transaction and so the amount should be posted on the debit of bank column. However, if cheques are received but endorsed in favour of other, then it should be posted on the debit of cash column on receipt and on the credit of cash column on endorsement.
(iii) When cash is deposited into bank and when cash is withdrawn from bank, both cash and bank accounts come into operation simultaneously. For cash deposit journal entry is:
This means simultaneous debit posting in the bank column but credit posting in the cash column which implies decrease in cash balance but increase in bank balance.
To the contrary, for cash withdrawals journal entry is
This means debit posting in the cash column and credit posting in the bank column. These are called Contra Entry or Contra Posting. Contra means simultaneous debit and credit posting. For Contra ‘C’ mark is put in the Ledger Folio Column.
(iv) Sometimes cheques deposited into bank are dishonoured for many reasons.
Most frequent of such reasons are:
(a) Wrong entry in the cheque, and
(b) Inability of the drawer to make payment.
In any case on receipt of the cheque the following entries are passed:
If the cheque becomes dishonoured, in the first case, the reverse entry is to be passed:
In the second case, the reverse entry would be like this:
(v) Bank charges a small amount for services done by it on behalf of the clients. Necessary entry is:
Also Bank sometimes pays small interest on savings account balance. Necessary entry is:
(vi) Cash column always shows debit balance:
This means cash payments must be less than cash receipts. Incidentally, there may be zero balance in the cash column but bank column may show either debit or credit balance. This means bank receipts may be less than bank payments. This is possible under overdraft arrangement with bank by which bank allows its customers to withdraw up to a certain limit above the deposit.
Ms. Madhumita gives the following information about her cash and bank transactions as on 17th January, 2009:
Balance in hand – Cash Rs.700. Bank Rs.1,47,500.
Paid Carriage Rs.250.
Paid to Ms. Lalita, a supplier. Rs.87,500 by cheque.
Collected Rs.67,500 by cheque from Mr. Ashok and deposited the same into bank.
Collected another cheque of Rs.12,500 from Ms. Razia and kept it for endorsement.
Got information that a cheque of Rs.27,500 collected from Mr. Abhadoot has been dishonoured.
Withdrew cash for office use Rs.15,000 and for personal use Rs.3,000.
Prepare a Double Column Cash Book.