Prof. S P Bansal Vice Chancellor Maharaja Agrasen University, Baddi

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S P Bansal Vice Chancellor Maharaja Agrasen University, Baddi Prof YoginderVerma Pro Vice Chancellor Central University of Himachal

1 Paper: 02, Accounting & Financial Analysis Module: 10, Cash Book: Meaning, Features, Advantages, Types and Petty Cash book Principal Investigator Co-Principal Investigator Paper Coordinator Content Writer Prof. S P Bansal Vice Chancellor Maharaja Agrasen University, Baddi Prof YoginderVerma Pro Vice Chancellor Central University of Himachal Pradesh. Kangra. H.P. Dr. O.P Verma Department of Commerce Himachal Pradesh University shimla Ms. Deepika Gautam Assistant Professor St.Bede s College Department of Commerce & Management

Items Description of Module Subject Name Management Paper Name Accounting & Financial Analysis Module Title Cash Book Module Id Module No-10 Pre- Requisites Special Purpose Book Cash Book Objectives

2 Items Description of Module Subject Name Management Paper Name Accounting & Financial Analysis Module Title Cash Book Module Id Module No-10 Pre- Requisites Special Purpose Book Cash Book Objectives To learn how Cash Book serves dual role of a ledger as well as journal Keywords Cash, discount, petty expenses, contra entry QUADRANT-I 1. Module-10 Cash Book: Meaning, Features, Advantages, Types and Petty Cash book 2. Learning objectives 3. Introduction 4. Features & Advantages of Cash Book 5. Types of Cash Book: (i) One column cash book (ii) Two column cash book (iii) Three column cash book 6. Petty cash book (i) Meaning (ii) Advantages (iii) System of petty cash book 7. Cash Book: A Journal or a Ledger? 8. Important terminologies: (i) Contra entry (ii) Cash discount 9. Summary 10. Self Evaluation INTRODUCTION Every business enterprises use the cashbook to keep record of the different cash receipts and payments that travel through a company in a particular period. An accountant records the cashbook transactions chronologically as they occur within the debit or credit columns. Cash book is a book which consists of all the cash transactions. Cash book in general is considered as a book of original entry as well as final entry as it serves twin role of a ledger as well as journal. Cash book is the account which keeps track of all the cash transactions of the business as cash book is a part of Ledger. Cash book consists of Cash Account and Bank Account. Cash Account is an Asset account or Real Account and thus, any increase in

3 Cash or Bank Account is debited to the account and; any decrease in Cash or Bank account is credited to the account. Cash Book always shows a debit balance FEATURES OF CASH BOOK: A Cash Book has the following features: 1. Only Cash transactions are recorded in cash book. 2. It plays a twin role as it is both a book of original entry (Journal) as well as a book of final entry. 3. All cash transactions are primarily recorded in it as soon as they take place that is why it is considered as a book of original entry. On the other hand, the cash aspect of all cash transactions is finally recorded in the Cash Book. 4. A Cash Book is also a Ledger this is one of the reasons to consider it as a book of final entry. 5. Only one aspect of cash transaction is posted to the ledger account. 6. Since the Cash Book is the substitute for Cash A/c, no Cash A/c is opened in the ledger. 7. It has two equal sides one is left hand side, which is called as the debit side and the other side is right hand side (credit side). 8. All the cash receipts of the business are recorded on the debit side of cash book and all the payments related items on the credit side of cash book. 9. The difference between the total of left hand side and right hand side shows cash in hand. 10. The balance of cash book can be verified by accountant by counting actual cash in the cash box. 11. Cash book always shows debit balance. It can never show credit balance. 12. Unlike any other account, cash book is balanced daily. ADVANTAGES: Generally cash transactions are numerous. What is credit transaction today will be cash transactions tomorrow. In other words, all credit transactions are finally settled by cash. If like all other transactions cash transactions are also recorded primarily in Journal, the cash aspect of the transactions will be required to be posted to Cash A/C, in the Ledger separately and this becomes time consuming exercise and expensive, this is for the reason company s prefer to record all cash transactions in a separate book named Cash Book. It is time saving and cheap. Besides this the Cash Book renders the following benefits: 1. Daily cash receipts and cash payments are easily ascertained. 2. Cash in hand at any time can easily be ascertained through Cash Book balance. 3. Any mistake in the book can be easily detected at the time of verification of cash. 4. Any defalcation of money can be detected while verifying cash. 5. Since cash is verified daily, Cash Book is always kept up-to-date. Cash Book: A Journal or a Ledger? From the above discussion it appears that the Cash Book is the substitute for the Cash Account. In fact, no separate Cash Account is opened in the Ledger, Cash Book serves the purpose of the Cash Account. In the cash book entries can be regarded as one aspect of the Double Entry System whereas the other aspect is posted to the Ledger in the concerned account.

4 L.C. Cropper remarked "Every entry in the Cash Book makes one half of a double entry; the other half of the double entry appears on the opposite side of some account in the Ledger."From this angle, 'Cash Book is a Ledger'. Similarity of cash book with ledger: (i) Form of cash book resembles with ledger. (ii) Words To and By are used in the ledger. (iii) No separate cash and bank account are required in the ledger. (iv) Cash and bank columns of the cash book are periodically balanced just like ledger accounts. On the other hand, all cash transactions are primarily recorded in the Cash Book in order of date and thereafter posted to the concerned ledger accounts. Judging from this angle, 'Cash Book is a Journal'. Thus we see that a Cash Book is the 'mixture of Journal and Ledger'. According to Spicer & Pegler, "the Cash Book is actually a ledger account, but owing to the large number of entries made therein, it is kept in a separate book, called a Cash Book, which is used also as a book of prime entry." Similarity of cash book with journal: (i) Cash transactions are recorded in the cash book at the time of origin (ii) Transactions are recorded date-wise (iii) Cash book contains ledger folio as in the journal (iv) Narration is given for each entry Specimen of Simple Cash Book: Date Particulars V. No. L. F. Amount Date Particulars V. No. L. F. Amount The Columns of the Cash Book are Explained Below: Date: The date on which transaction is occurred is to be written in this column. In the first line, the year and in the second line, the name of the month followed by the actual date. Particulars: In this column the name of the opposite account is written (the second aspect of cash transaction) along with the narration of the transaction. L.F. (Ledger Folio): The page number of the Ledger where the concerned (opposite) account has been opened, is written in this column. This will help to locate the account from the Ledger. It may be noted that in a Ledger account J.F. is written as reference, while in a Cash Book L.F. is written. It is so, because cash transactions are not recorded in any Journal. Amount: The amount of the transaction is recorded in this column. The amount of cash received is recorded on the debit side in amount column and the amount of cash paid is recorded on the credit side in amount column.

5 V. NO. (Voucher Number): The voucher number of each item of receipt and payment is also to be written as voucher number is necessary for each item of receipt and payment. Generally, a voucher has a serial number and this number-is written in this column (V. No). Bottom line difference between a Cash Book and a Cash Account: In fact, Cash Book is a substitute for a Cash Account. Yet there are some differences between the two, which are given below: Cash Book 1. It is a separate book in which cash transactions are directly recorded. 2. It serves the purpose of both journal and ledger. 3. Narration is required. 4. A column for Ledger Folio is provided. Cash Account 1. It is an account in a Ledger in which posting is made from journal. 2. It serves the purpose of a Ledger only. 3. Narration is not required. 4. A column for Journal Folio is provided. TYPES OF CASH BOOK: 1. One- Column Cash Book 2. Two-Column Cash Book: (i) With Cash and Discount column (ii) With Cash and Bank column (iii) With Bank and Discount column 3. Three Columnar Cash Book 4. Petty cash Book Let us discuss each one in detail: 1. One -Column Cash Book This is the simplest form of Cash Book and is used in businesses where payments are made and received mostly in cash and where usually no cash discount is received or given. However, if there are any discount or cheque transactions, it is recorded in a separate account in the ledger. The ruling of a one column Cash Book is like an ordinary cash account. Example: Record the following transactions in a single column cash book: April 1 Cash in hand 6,500 April 3 Purchased goods for cash 685 April 4 Paid to Rishi 95

6 April 6 Deposited in to bank 4,000 April 6 Paid for office stationary 465 April 15 Sold goods for cash 2,500 April 22 Paid Salary 400 April 30 Paid in to bank 2,500 Solution: Date Receipts L.F Amount Date Receipts L.F Amount April 1 April,15 To balance b/d To Sales a/c 6,500 2,500 By Purchases a/c 685 April,3 April,4 April, 6 April,6 April, 22 April, 30 April, 30 By Rishi By Bank a/c By stationary By Salary a/c By Bank a/c By Balance c/d 95 4, , ,000 9, Two-Column Cash Book: This type of cash book has two columns, viz., cash column and discount column. Usually cash discount is allowed or received when payment is made. So, it is necessary to record this fact at the same place where the cash transaction is recorded. This type is similar to Simple Cash Book, except that one additional column on each side is provided for recording cash discount. As discount is a nominal account, discount allowed being a loss is shown on the debit side and discount received being a gain is shown on the credit side. Example: Enter the following transactions in a cash book, having cash and discount columns. September.1 Balance in hand 2,500 September. 5 Purchased furniture for cash 750 September. 7 Received from Verma & Co 980 September. 7 Discount allowed 20 September 10 Paid to Bihari 290 Discount received 10

7 September 27, Paid Salary 50 September 28, Paid rent 380 Solution: Date Receipts L.F Discount Cash Date Receipts L.F Discount Cash September 1 2,500 September,5 750 September To balance b/d To Verma & co September, 10 September. 27 September, 28 September, 30 By Purchases a/c By Bihari By Salary By Rent By Balance 1,780 c/d 20 3, , Three-Column Cash Book: These days, it is difficult to carry on any business without having dealings with the bank. Normally, bulk of its funds is kept by the business at a bank in a current account where frequent withdrawals and deposits are permitted. Bank transactions are numerous than cash transactions. Therefore it is appropriate as well as convenient that cash book should have on additional column on each side to record money s deposited at bank and the payment out of the bank. Example: April. 1 Cash in hand 9,000 April. 1 Deposited in to bank 4,000 April. 2 Purchased Furniture 1,000 April. 4 Cash purchases, issued cheque 2,500 April. 8 Received cheque from Gautam on account 3,250 April, 10 Cash sales received cheque 1,270 April,15 Paid for refreshment 275 April, 25 Paid electricity by cheque 300 April, 28 Received cheque from Suresh and endorsed the same to Verma 400

8 April,30 Paid advance income tax by cheque 575 April, 30 Deposited in to bank, balance of cash in excess of Rs 300 Solution: Date Receipts L.F Discount Cash Bank Date Receipts L.F Discount Cash Bank, To 9,000, April,1 Balance April, 1 By Bank C 4,000 b/d April, 1 To cash a/c C 4,000 April, 2 1,000 April,8 To 3,250 Gautam April,4 2,500 April, 10 To Sales 1,270 a/c April, 275 To April, Suresh April,25 28 To cash C 400 April,30 3,425 April, 28 April, 30 April, 30 April,30 By Furniture a/c By purchase a/c By Refreshment By Electricity By Suresh By Drawings By Bank By Balance c/d C 3, ,570 May, 1 To Balance b/d 9,400 11,945 9,400 11, , Petty Cash book: Petty means small. Every business has to make payments involving smaller amount, e.g., carriage, cartage, postage, telegrams, etc. Such payments, by their very nature cannot be made by cheques. It is usual for the business units to maintain a separate cash book to record small payments only. Such acsh book is known as Petty Cash Book. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. In most cases, the petty cash book is an actual ledger book, rather than a computer record. Thus, the book is part of a manual record-keeping system. (This will be discuss in detail later on). There are two primary types of entries in the petty cash book, which are a debit to record cash received by the petty cash clerk (usually in a single block of cash at infrequent intervals), and a large number of credits to reflect cash withdrawals from the petty cash fund. These credits can be for such transactions as payments for meals, flowers, office supplies, stamps, and so forth. When the amount of petty cash on

9 hand declines to near zero, as is caused by withdrawals for various expenditures, the petty cash clerk then obtains additional cash from the cashier, and records this cash influx as a new debit. The petty cash clerk also turns in a copy of his or her petty cash book to the general ledger accountant or cashier, who creates a journal entry to record how the cash in the petty cash drawer was used. The petty cash book is a useful control over petty cash expenditures, since it forces the petty cash clerk to formally record all cash inflows and cash outflows. To ensure that this is an effective control, the petty cash book should be reviewed periodically by an internal auditor to see if the net total amount of cash available as per the book matches the actual amount of cash on hand in the petty cash drawer. If not, the petty cash clerk may require additional training. The petty cash book has declined in importance, as companies are gradually eliminating all use of petty cash, in favor of using company credit cards. Advantages of Petty Cash Book: 1. Petty cash book is a simple form of recording petty expenses. 2. This book is simple to prepare. 3. The chief cashier s precious time and energy is saved by assigning. 4. The main cash book and petty cash book are separated from each other on the basis of nature of items to be recorded therein. 5. The posting from the petty cash book is very easy. Systems of Petty Cash book There are two systems on the basis of which cash is given to the petty cashier: (i) Ordinary System of Petty Cash (ii) Imprest System of Petty Cash Specimen of petty Cash Book Amount Received (Rs) C.B.F. Date Particulars V.No. L.F. Amount Paid (Rs) Opening Date To Balance b/d To cash /Bank By various Expenses Closing Date By Balance c/d Next Opening Date By Balance b/d Important points to be remembered while recording transactions in the Cash Book: 1. All items of cash receipts are entered in the cash column of the receipt side and all the cash payments in the payment side. 2. Discount allowed to be recorded on the debit side and discount received on the credit side of the Cash Book in the discount columns.

10 3. When cheques are received from customers and deposited on the same date they are entered in the bank column of the Cash Book. If they are sent to the bank at a later date, it becomes deposit of money into bank and, therefore, a contra entry. 4. If cheques are received by the business and endorsed to creditors, they are taken into cash columns as cash receipt and cash payment. 5. Two entries are made in the Cash Book on the same page at the same time. The double entry for each transaction is complete. There will be no more postings of these entries to the ledger and these contra entries are indicated by a sign c in the folio column. Some important items: 1. Contra Entries: These entries are made to record: (a) When money is withdrawn from the bank for office use: It is recorded in cash column on its debit side by writing Bank account in the column of particulars and in bank column of the same cash book but on its credit side by writing Cash account in the column of particulars. (b) When money is taken from Office cash and deposited into bank: When cash is deposited into bank, it is recorded in the bank column of the cash book on its debit side by writing Cash account in the column of particulars and in the cash column of the same cash book but on its credit side by writing Bank account in the column of particulars. 2. Cash Discount: A cash discount is a deduction from the amount due. It is given to encourage prompt payment of debts. Cash discount which is given by the trader to its customers is known as Discount allowed. Cash discount is allowed to the customers to encourage prompt payment of their debts. Discount allowed is recorded in the discount column on the debit side of the triple column Cash Book and posted individually to the credit side of the debtors accounts to which they relate. Cash discount received by the trader from its supplier is known as Discount received. The trader ends up paying less by the amount of discount received. Discount received is recorded in the discount column on the credit side of the triple column Cash Book and posted individually to the debit side of the creditors accounts to which they relate. SUMMARY: Cash book is considered as a book of original entry as well as final entry and Cash Book serves dual role of a ledger as well as journal. It is the account which keeps track of all the cash transactions of the business. Cash book always shows debit balance. It can never show credit balance and it helps to ascertain daily cash receipts and cash payments. The amount of cash received is recorded on the debit side in amount column and the amount of cash paid is recorded on the credit side in amount column. The date of transaction in cash book is written in two lines. There are different types of cash book viz., Simple cash book, two column cash book, three column cash book and petty cash book. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. When cheques are received from customers and deposited on the same date they are entered in the bank column of the Cash Book. If they are sent to the bank at a later date, it becomes deposit of money into bank and, therefore, a contra entry.

11 A cash discount is a deduction from the amount due and it is given to encourage prompt payment of debts.

Prof. S P Bansal Vice Chancellor Maharaja Agrasen University, Baddi

Paper: 02, Accounting & Financial Analysis Module: 09, Journal, Subdivision of Journal and Ledger Posting Principal Investigator Co-Principal Investigator Paper Coordinator Prof. S P Bansal Vice Chancellor