What is a cash book?

Before talking about the cash book, we would briefly explain what is cash. Cash is a current asset that consists of items used in day-to-day financial transactions as a medium of exchange. In accounting and finance, cash includes currency notes made of paper, coins, demand deposits, money orders, checks, bank overdrafts, etc.

The following items cannot be considered cash in a business organization:

• Dishonored checks
• Post-dated checks
• Postage stumps
• Securities and special investments
• Trade advances to employees

The cash balance in a business organization is of significant importance due to the following reasons:

1. It is readily available to meet the current obligations of a business organization.
2. It is universally accepted as a mode of payment by creditors.
3. The economic activities of any business involve the regular inflow and outflow of cash and cash equivalents.

Cash book

The cash book is used to record receipts and payments of cash. It works as a book of original entry as well as a ledger account. The entries related to receipt and payment of cash are first recorded in the cash book and then posted to the relevant ledger accounts. Moreover, a cash book is a substitute for a cash account in the ledger. A company that properly maintains a cash book does not need to open a cash account in its ledger.

Types of cash book

There are four major types of cash book that companies usually maintain to account for their cash flows. These are given below:

1. A single-column cash book to record only cash transactions.
2. A double/two-column cash book to record cash as well as bank transactions.
3. A triple/three-column cash book to record cash, bank and purchase discount, and sales discount.
4. A petty cash book to record small day-to-day cash expenditures.