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What is Cash book

Written by Harpreet

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There are number of books maintained for recording business transactions. Some books are statutory in nature while some are essential for proper working of a business. As there are large number of transactions in a business related to cash and bank so for their proper record and to avoid fraud and mistakes there is need of a separate book for such transactions. That need is fulfilled by the book called cash book.

Cash book is just like a cash account. The difference is that it records transactions related to both cash and bank. Cash book follows the rules of real a/c. i.e. debit –increase in value of asset, credit-decrease in value of transaction. This shows that whenever there is increase in the balance of cash and bank due to any receipts they all should be debited in cash book. While when there is decrease in balance of cash and bank due to any payment the transaction should be credited in the book.

Now let us discuss an important concept of cash book i.e. contra entry. A contra entry is described as an entry which is related to both cash and bank a/c. e.g. deposit of cash into bank, withdrawal of cash from bank. As both cash and bank transactions are recorded in same book there is need to overcome the effect of the contra entry. Another entry is passed for this purpose which is an opposite from the real entry. Which means if cash a/c is debited and bank a/c is credited in the real entry; another entry would be to credit cash a/c and debit bank a/c. It should be noted that these contra entries are represented by sign C whish is written in the ledger folio.

After passing all the entries of an accounting year the balance appeared would be called closing balance which should be brought forward for the next year. It should be noted that if payments are more than receipts than the credit side would be more than debit side; then the balance would called balance overdraft.

However it should noted that another book i.e. petty cash book is also maintained for recording petty transactions related to cash. Petty cashier is allotted with a fixed amount at the starting of financial year for the purpose of dealing with all petty transactions. This book is maintained separately for the purpose of prevention of frauds and mistakes.

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