Lesson
Learn how cash and bank transactions are recorded in one special book.
Understand how a business tracks cash and bank money movement clearly.
Concept explanation
Cash Book is a special book where cash and bank transactions are recorded.
Every business receives and pays cash or bank money many times.
Instead of searching many journal entries, Cash Book keeps all cash and bank transactions in one place.
Simple line: Cash Book records cash and bank money movement.
Example: if Riya receives cash from sales, pays rent in cash, deposits cash into bank, or pays by cheque, these transactions can be recorded in the Cash Book.
Suppose Riya runs a stationery shop.
Every day she may receive cash from customers, pay rent, pay salary, buy goods in cash, deposit cash into bank, withdraw cash from bank, and pay suppliers by cheque.
If all these are scattered everywhere, it becomes difficult to know how much cash is available.
It also becomes difficult to know how much money is in bank.
Cash Book helps show how much cash came in, how much cash went out, and whether cash records are correct.
Riya runs a small stationery shop.
Day 1: she starts business with cash Rs.50,000.
Day 2: she buys goods for cash Rs.10,000.
Day 3: she sells goods for cash Rs.5,000.
Day 4: she pays shop rent Rs.3,000.
Day 5: she deposits Rs.20,000 into bank.
Question: how will Riya know how much cash is left?
Answer: she can use the Cash Book.
Cash received = Rs.50,000 + Rs.5,000 = Rs.55,000.
Cash paid = Rs.10,000 + Rs.3,000 + Rs.20,000 = Rs.33,000.
Cash balance = Rs.22,000.
Cash Book helps Riya know cash balance quickly.
Cash Book is special because it works like both a journal and a ledger.
It works like a journal because cash and bank transactions are first recorded in it.
It works like a ledger because it also shows the balance of cash and bank.
Simple line: Cash Book is both a book of original entry and a ledger account.
Cash Book has two sides.
Debit side records money received.
Credit side records money paid.
Cash received goes on the debit side.
Cash paid goes on the credit side.
Bank money received goes on the debit side.
Bank money paid goes on the credit side.
Cash deposited into bank affects both cash and bank columns.
Cash withdrawn from bank also affects both cash and bank columns.
Memory line: money coming in goes to debit side. Money going out goes to credit side.
Single Column Cash Book records only cash transactions.
Single column examples are cash sales, cash rent payment, and cash purchase.
Simple line: single column means only cash column.
Double Column Cash Book records cash and bank transactions.
Double column examples are cash deposited into bank, payment by cheque, cash received, and bank received.
Simple line: double column means cash plus bank.
Triple Column Cash Book records cash, bank, and discount.
Triple column examples are receiving money from customer and allowing discount, or paying creditor and receiving discount.
Simple line: triple column means cash plus bank plus discount.
Contra entry means a transaction between cash and bank.
Examples are cash deposited into bank and cash withdrawn from bank for office use.
It is special because both Cash and Bank are in the same Cash Book.
Example: deposited cash into bank Rs.10,000.
Bank increases and Cash decreases.
Simple entry idea: Bank A/c Dr. Rs.10,000 / To Cash A/c Rs.10,000.
In Cash Book, Bank column appears on debit side and Cash column appears on credit side.
Memory line: contra entry happens between Cash and Bank.
In many Cash Books, contra entries are marked with C.
Cash discount is given or received when payment is made early or in full settlement.
Discount Allowed means the business gives discount to customer.
Discount Allowed is an expense or loss.
It usually appears on the debit side discount column.
Discount Received means the business receives discount from supplier or creditor.
Discount Received is income or gain.
It usually appears on the credit side discount column.
Example: received Rs.9,500 from Raju in full settlement of Rs.10,000. Cash received is Rs.9,500 and Discount Allowed is Rs.500.
Example: paid Amit Rs.4,800 in full settlement of Rs.5,000. Cash paid is Rs.4,800 and Discount Received is Rs.200.
Petty Cash Book is used for small daily expenses.
Examples are tea, postage, stationery, small repairs, local transport, and courier.
Small expenses happen often.
Recording them separately keeps the main Cash Book cleaner.
Simple line: Petty Cash Book records small expenses.
Visual flow
Cash or bank transaction
Cash Book
Cash/Bank balance
Ledger/Trial Balance
Final Accounts
Solved examples
Example 1
Cash Book effect: Debit side cash column Rs.50,000.
Cash came into business.
Example 2
Cash Book effect: Credit side cash column Rs.10,000.
Cash went out.
Example 3
Cash Book effect: Credit side cash column Rs.3,000.
Cash went out for expense.
Example 4
Cash Book effect: Debit side bank column Rs.20,000. Credit side cash column Rs.20,000.
Bank increases and cash decreases.
This is a contra entry.
Example 5
Cash Book effect: Debit side cash/bank column Rs.9,500. Debit side discount allowed column Rs.500 if using triple column Cash Book.
Money was received from Raju.
Discount was allowed to customer.
Example 6
Cash Book effect: Credit side cash/bank column Rs.4,800. Credit side discount received column Rs.200 if using triple column Cash Book.
Money was paid to Amit.
Discount was received from creditor.
Avoid these
Practice prompts
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After learning Cash Book, understand why Cash Book bank balance and bank statement balance may differ.
Continue to Bank Reconciliation Statement