Cash Book in Accounting

The cash book is a chronological record of the receipts and payments transactions for a business.

The cash book is updated from original accounting source documents, and is therefore a book of prime entry and as such, can be classified as a special journal.

Unlike other special journals such as the purchases journal or the sales journal, the cash ledger book records debit and credit entries in the form of an account, and therefore providing control accounts are not being used in the general ledger, can also be classified as a subsidiary ledger.

Types of Cash Book

Cash book ledgers come in many different forms depending on the requirements of the business. Normally the ledger will have receipts recorded on the left hand side (debit entry) and payments recorded on the right hand side (credit entry).

In a larger business due to the high number of transactions, and the requirement to segregate the duties of accounting staff, the cashbook might be sub-divided into two ledgers or journals referred to as the cash receipts journal, and the cash disbursements journal, also referred to as the cash payments journal.

Irrespective of the number of sub-divisions, each page of the cash book can have a number of formats from single column to multi-column. The most popular formats are the two and three column formats as detailed below.

Single Column Cash Book

The single column cash book uses one column on each side of the cash book. The column records either the receipt of cash on the left hand side (debit), or the payment of cash on the right hand side (credit).

For simplicity, the single cash ledger book diagram below shows only one side of the cashbook, in this case the left hand, receipts side (debit). The right hand, payments side (credit) would be identical in structure and format.

The first three columns in the diagram are the date, transaction description (Desc.), and ledger folio reference (LF). These columns are common to all cashbook formats. The single column referred to in the name of this cash ledger book is the monetary amount of the cash receipt (Cash) highlighted in gray.

The other side of the cash book has the heading ‘Credit’ and shows an identical format with the single column representing the monetary amount of the cash payment.

Two Column Cash Book

The two column cash book uses two columns on each side of the book. Depending on the nature of the business involved the two columns can be used for different purposes.

Cash and Discount Columns

The business can use the additional column to operate as a discounts journal. This columns records details of discounts allowed on the cash receipts side of the cashbook and discounts received on the cash payments side of the cashbook. In this case the second column is headed ‘Discount’.

Again, for simplicity, the two column cashbook ledger diagram below shows only one side of the cashbook, in this case the left hand receipts side (debit) .

The first three columns are the same as the single column cashbook and show the date, transaction description (Desc.), and ledger folio reference (LF). The two columns referred to in the name of this cashbook are the monetary amount of the cash receipt (Cash), and the monetary amount of the discount allowed (Discount) both highlighted in gray.

The other side of the two column cashbook ledger would be headed ‘Credit’ and show an identical format with the two columns representing the monetary amount of the cash payment and the monetary amount of the discount received.

It should be noted that when the cashbook is used as a subsidiary ledger the discount column is still not part of the double entry. The column simply lists the discounts as with any other book of prime entry. Subsequently at the end of the accounting period, the business posts the total of the column to the general ledger discount allowed or received account as appropriate.

Cash and Bank Columns

Alternatively the business can use the additional column of the two column cashbook ledger to operate as a bank journal. The column records details of bank account transactions. In this case the second column has the heading ‘Bank’.

Again, for simplicity, the two column cashbook ledger diagram below shows only one side of the cashbook, in this case the left hand receipts side (debit).

As before the first three columns in the diagram are the date, transaction description (Desc.), and ledger folio reference (LF). The two columns referred to in the name of this cashbook are the monetary amount of the cash receipt (Cash), and the monetary amount of the receipts into the current bank account of the business (Bank), both highlighted in gray.

The two column cash ledger book is sometimes referred to as the double column cash book or the 2 column cash book.

Three Column Cash Book

The three column cashbook uses three columns on each side of the book. This format in effect combines both two column formats discussed above in that it uses the additional columns to record both discounts and bank account transactions.

Again, the three column cash ledger diagram below shows only one side of the cashbook, in this case the left hand receipts side (debit).

As before the first three columns in the diagram are the date, transaction description (Desc.), and ledger folio reference (LF). The three columns referred to in the name of this cashbook are the monetary amount of the cash receipt (Cash), the monetary amount of the bank receipts (Bank) and the monetary amount of the discount allowed (Discount) all highlighted in gray.

The other side of the three column cash ledger would be headed ‘Credit’ and show an identical format with the three columns representing the monetary amounts of the cash payment, bank payment, and discounts received.

The three column cashbook is sometimes referred to as the triple cashbook, treble cashbook or the 3 column cashbook.

Summary

The cash ledger book can act as both a journal and a ledger and comes in various formats. The most common examples are the single, two and three column cashbooks, however, it is possible to have multi-column cash books, such as the petty cashbook, which can be used to provide further analysis of receipts and payments.