HOW TO PREPARE CASH BOOKS?

WHAT IS A CASH BOOK?

Cash book is a book of prime entry, because all cash transactions are recorded in the Cash book. It is also a Book of Final entry
(i.e. ledger) as cash book itself serves as cash account and bank account. So we don’t have to prepare separate cash account and bank account.

IMPORTANCE OF CASH BOOK

1. In this book we record particulars of receipts and payments of money. 

2. The main objective of cash book is to the balance cash at any given time.

3. The person who maintains this book is known a cashier.

4. It records only one aspect of a transaction i.e. CASH.

5. Cash transactions are mainly of two kinds.

i) Cash receipt (debit side)

ii) Cash payments (credit side)

TYPES OF CASH BOOKS

Cash book can be one of the following types as per the requirement of the business:

 1. Simple cash book. (Only cash column)

2. Two column cash book. (With cash and discount column)

3. Three column cash book. (With cash, discount and bank column) 

4. Analytical petty cash book (imprest system)

In this article I will show you🤗 an example for the first one simple cash book i.e. single column cash book.

1. Simple Cash book: A simple cash book makes a record of only cash transactions. It is like an ordinary cash account. It is maintained by small business concerns. It has two sides 

i) Debit side on left hand side and         ii) credit side on right hand side. 

The Debit side is used for recording cash receipts and Credit side is used for recording cash payments. 

A single column cash book is ruled as follows:  

Example Problem

EXPLANATION: let me first explain you the problem😊:

On Jan 1 business started with cash – cash is coming in business – so debited to cash book – as To capital.

On Jan 2 cash paid into bank – cash is going out of business – so credited to cash book – as By Bank.

On Jan 4 goods purchased for cash – cash is going out of business – so credited to cash – as By Purchase.

On Jan 6 goods are sold for cash – cash is coming into business – so debited to cash book – as To Sales.

On Jan 7 cash paid for stationery – cash is going out of business – so credited to cash book – as By Stationery.

On Jan 9 cash is received from Shashikanth – cash is coming into business – so debited to cash book – as To Shashikanth.

On Jan 13 cash paid to Gopal – cash is going out of business – so credited to cash book – as By Gopal.

On Jan 15 purchase furniture in return paid in cash – cash is going out of business – so credited to cash book – as By Furniture.

On Jan 17 paid cash for advertisement – cash is going out of business – so credited to cask book – as By Advertisement.

On Jan 21 received cash from Prasad Rao – cash is coming into business – so debited to cash book – as To Prasad Rao.

On Jan 23 purchase goods from Malhotra for cash – cash is going out of business – so credited to cash book – as By Purchase. Here you should ignore Malhotra’s name as it is a cash transaction.

On Jan 27 cash is withdrawn by the businessmen for his personal use – cash is going out of business – so credited to cash book – as By Drawings.

On Jan 29 salary is paid to office staff – cash is going out of business – so credited to cash book – as By Salary.

On Jan 30 cash received form Sandeep – cash is coming into business – so debited to cash book – as To Sandeep.

On Jan 31 Rent is paid to landlord – cash is going out of business – so credited to cash book – as By Rent.

Here, how our cash book will be like:

Note: At the end of the month both sides are balanced and here we found debit side total is more than credit side total; there is a difference of 7000 so balance amount is written on credit side as By Balance c/d which is brought forward to the next month as To Balance B/d amounting 7000.

When cash transactions are entered in the cash book, only☝️ one aspect of cash transactions is recorded. To complete the double entry of cash transactions, all items appearing in the cash book should be posted to the respective ledger accounts.

All the items (except the opening cash balance) appearing on the debit side of the cash book have to be posted to the credit side of the respective ledger accounts as “By Cash A/c”. Example on Jan 1 separate ledger is opened for capital account and is credited as By Cash A/c amounting 25,000.  All the items (except the closing cash balance) appearing on the credit side of the Cash book have to be posted to the debit side of the respective ledger account as “To Cash A/c”. Example on Jan 2 separate ledger account is opened for Bank and Bank account is debited as To Cash A/c amounting 20,000.

Now let me give you one☝️ (DIY for your practice ✍let’s see how you will do! 🤗Well I have shared my knowledge with you let’s see did you gained that knowledge?

DO IT YOURSELF (DIY):

(Answer: Balance as on 31 Jan 2018 is 9,100)

(Hint: Credit sales is not recorded in cash book) 

Next time I will teach you how to prepare double column cash book i.e. with a discount and cash column.😃

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