WHAT IS A CASH BOOK?

The cash book is a subdivision of the book of original entry, recording transactions involving receipts or payments of cash. All cash transactions are first entered in the cash book and then posted from cash book into ledger. Cash book is maintained in the form of a ledger with narration. Practically, the cash book is a substitute for cash account in the ledger.

WHAT ARE THE DIFFERENT TYPES OF CASH BOOK?

THE CASH BOOK CAN BE OF THE FOLLOWING TYPES:

1. SINGLE COLUMN CASH BOOK or simple cash book: For recording cash transactions only. 2. DOUBLE COLUMN CASH BOOK or cash book with cash and bank column: For recording cash and bank
transactions.

3. TRIPLE COLUMN CASH BOOK or cash book with cash and bank column: For recording cash and bank transactions
involving loss or gain on account of discount.

4. PETTY CASH BOOK: For recording petty expenses and

receipts. The detailed descriptions of the above are given as follows: 1. Single column cash book: this cash book makes a record of only cash transactions it is just like any other account. In the cash book, all cash receipts are recorded on the left hand side (Debit side) and all cash payments are recorded on the right hand side (Credit side).

2. Double column cash book: this cash book is one, where both
cash and bank transactions are shown in the columnar fashion. The bank account maintained by the enterprise is a Personal Account. Here, the Golden Rule of debit and credit applicable to personal account should be followed.

3. Three column cash book: this is the most exhaustive cash

book, which has three amount columns on both sides viz, bank, cash, and discount. It is used by large business houses which make and receive payments in cash and by cheques and which receives and allows cash discounts. The discount allowed by the business is maintained on the left hand side viz, (Dr. side) and discount received by the business is maintained on the right hand side viz, (Cr. side) of the cash book.

4. Petty cash book: this is maintained by the business to record

petty cash expenses of the business such as postage, cartage, stationery, cleaning charges etc. In every business, there are many payments like the above which are of small amounts. In case all these transactions are recorded in the main cash book, there recording will be inconvenient and will consume a lot of valuable time of the cashier.

WHAT ARE CONTRA ENTRIES?

As we know, a three columnar cash book contains columns both for cash and bank transactions. An accounting transaction involves 2 accounts and there may be a transaction where both cash account and bank account are involved. Since, in the Ledger there are no separate cash account and bank accounts, therefore, no posting will be done from the cash book to the ledger in case of such a transaction. This transaction will be recorded on both sides of the same cash book. For example, if cash is withdrawn from the bank (say Rs.1000). The accounts involved are the CASH ACCOUNT and BANK ACCOUNT. In the cash book on the Debit side, the amount will be put in cash column against the words TO BANK while on the credit side of the cash book, the amount will

be written in the bank column against the words BY CASH. Such an accounting entry which is recorded on both the Debit and Credit sides of the cash book is known as CONTRA ENTRY. In order to give a hint to the ledger keeper, that no posting is required for such an entry, the word C is put in the Ledger Folio column on both the sides of the cash book. Hence, for the example discussed above, the cash book will be shown as:

Date

Particulars To Bank

L.F C

Cash 10000

Bank

Date

Particulars By Cash

L.F C

Cash

Bank 10000

WHAT IS THE PURPOSE OF THE DISCOUNT COLUMN MAINTAINED IN THE CASH BOOK?
DISCOUNT: Discount is a reduction from a stated amount. In general,
it is the difference between a face value and a lower amount paid or received. It should be noted that as the cash column of the cash book serves both the functions of a book as well as an account but, discount column does not serve the function of a discount account. There are 2 kinds of discounts:

a.Trade Discount b. Cash discount

In the cash book, we only deal with the cash discount.

CASH DISCOUNT: Cash Discount is allowed to encourage a debtor

to pay off his debt within a specified period. If the debtor settles his account within a given time period, he is entitled to reduce his bill by the agreed amount. A separate discount column has to be opened in the ledger in which total debits and credits from cash book are posted. Two separate discount accounts are kept in the ledger, one for discount allowed on the Debit side of the cash book ie, the discount allowed by the business to the outsiders and the other is discount received on the Credit side of the cash book ie, the discount received by the business from outsiders. The accounting entries are as follows:

1) When cash discount is allowed: Cash/Bank Account Dr. Discount allowed Account Dr. To Debtors Account Cr. 2) When cash discount is received: Creditors Account Dr. To Cash/Bank Account Cr. To Discount received Account Cr. Discount is recorded in the books of accounts when the payment is made within the specified period