What is a cash book?

Cash Book Definition

A Cashbook is a subsidiary book where both cash and bank transactions are maintained. It is both a
journal and a ledger.

Explanation
It is a ledger in which both cash receipts and cash payments are recorded. The cash
book is regularly reconciled with the bank statements as an internal auditing measure.
Proper maintenance and its reconciliation with bank statements are crucial to a business.
Some business concerns maintain cash book instead of cash receipt journal and cash
payment journal. All cash receipts and payments are recorded in this book. It resembles the
cash account maintained in the ledger. In fact, when a cash book is maintained separately,
there is no need to keep a cash account in the ledger. For all purposes, a cash book is
treated as a cash account, i.e., a part of the ledger.
The cash book is maintained in the form of a ledger account, the receipts being put on the
debit side and the payments on the credit side. This book serves a double purpose. It acts
as a journal or book of prime entry because all cash transactions are recorded in it as and
when they take place. It also acts as a part of the ledger because it contains cash and bank
accounts.

When the ledger clerk gets the cash book, he completes the double-entry by posting the
transactions to other ledger accounts involved in the cash book. The balance of the cash
book is included in the trial balance like a regular ledger account.
Cash book is among the most important books of accounts of the business. It is therefore
placed in the charge of a responsible person who keeps it up to date.
Types/Kinds of cash book
A cash book has the following four types:

1. Single column cash book

2. Double column cash book
3. Three column cash book
4. Petty cash book
Advantages of a cash book
The following are the main advantages of maintaining a cash book:

1. In almost all businesses, the bulk of transactions related to cash receipts and
payments. If we do not maintain a cash book and record all cash transactions in the
journal, unnecessary time and labor would be required for debiting and crediting
cash account in respect of every cash transaction.
 2. in every business concern, the number of cash dealings is usually large and since
cash can be easily stolen by a dishonest employee, the cash record of a business
must be up to date and must be properly supervised by a reasonable person. For
this purpose, it is very essential to keep a cash book for recording cash transactions.
3. Cash book is a book of the original record and a part of the ledger, if all cash
transactions are passed through the cash book, the labor of posting every item of
receipt and payment of cash individually to each account in the ledger is avoided.

Double Column Cash Book | Explained with

Example

Double Column Cash Book has a two account column on both sides of the cash book. it is
three Type shown as below:

1. Discount and Cash Column

2. Bank and Cash Column
3. Discount and Bank Column

Cash Book is an original entry book So we need to record full transaction but in single column cash
book, it is not possible to record properly of those cash transactions which are including discount
account also. So we need a discount and cash column cash book.

For example, Received cash from Pawan for Rs 9900/- and allow discount Rs 100/-.
The journal entry of this transaction will be

Cash A/c Dr. 9,900

Discount A/c Dr. 100

To Pawan a/c 10,000/-

Single column cash book, it not possible to record full transaction because we did not have any
column for recording the amount of discount. So We have to prepare double column cash book.

1. A specimen of Discount and Cash Column are shown below:

Double
Column Cash book with Discount column
2. A specimen of the Bank and Cash Column are shown below:

Double
column Cash book with bank column
3. A specimen of the Bank and Discount Column are shown below:
 Double column Cash book with bank and discount column
The Columns of the Double Column Cash Book are Explained Below:
1. Date:
2. Particulars:
3. Voucher Number (V. NO.):
4. L.F. (Ledger Folio):

All the Above column are same as single column cash book but instead of amount column in the 1st
type of double column cash book, Discount and Cash Column are maintained and in the 2nd type
Cash and Bank column are maintained and in 3rd type bank and discount column are maintained a
shown in above images.

Example No 1 | Discount and Cash Column:

We are taking the same example as the single column to understand easily. We have just made
some of the changes to convert this example into the double column cash book with discount
Column. Changes are shown in bold font.

 01/04/17 Started a business with cash Rs 50,000/-

 04/04/17 Goods purchase worth Rs 10,000/- and payment made immediately get discount Rs
100/-
 07/04/17 Rent paid for the building Rs 1,000/-
 09/04/17 Wages paid for Rs 2,500/-
 11/04/17 Sold goods worth Rs 5,000/- and to receive payment immediately allow discount Rs
100/-
 12/04/17 Purchase goods from Ram & sons Rs 4,000/-
 14/04/17 Commission paid to Rohan Rs 100/-
 15/04/17 Payment received from Ram & sons Rs 3,950 and Allowed discount of Rs 50/-
 16/04/17 Labour charges paid for Rs 250/-
 18/04/17 Furniture purchase for Rs 2,500/-
 21/04/17 Sold goods worth Rs 2,500/- to Ramesh.
 23/04/17 Payment made to Ramesh Rs 2,450 and received the discount of Rs. 50/-
 25/04/17 Freight paid to Rs 300/-.
 29/04/17 An owner withdraw cash from business for personal use Rs1,000.

Note: –
 The basic concept of cash book is that it records only cash transactions of the
concern. Transactions Dated 12/04/17 & 21/04/17 not recorded in cash book because of these are
credit business transactions. Hence, credit transactions are to be recorded in the respective day
books, ie, purchase day book/sales day book. So in the case of a sale on credit, no transaction is
recorded. However, when your customer pays their bill and you deposit their check into the
bank, then you would record the sale. Likewise for credit purchases. When you purchase
something on credit, again, no transaction is recorded. That happens only when you pay the bill.

Solution: –

Double column Cash book with cash and discount column Example

we do not need to balance the Discount column because they both are the different account. On the
debit side of cash book it is discount allowed and on the credit side, it is discount received. So, just
total these both columns.

Example No 2 | Bank and Cash Column:

We are taking the same example as the single column to understand easily. Now just made some of
the changes to convert this example into the double column cash book with Bank Column.we have
bold the changes.

 01/04/17 Started a business with cash Rs 50,000/- and bank balance of Rs 2,00,000/-
 04/04/17 Goods purchase worth Rs 10,000/- and payment made immediately By cheque.
 07/04/17 Rent paid for the building Rs 1,000/-
 09/04/17 Wages paid for Rs 2,500/- by Cheque
 11/04/17 Sold goods worth Rs 5,000/- and to receive payment immediately by cheque
 12/04/17 Purchase goods from Ram & sons Rs 4,000/-
 14/04/17 Commission paid to Rohan Rs 100/-
 15/04/17 Payment received from Ram & sons Rs 4,000/- By cheque.
 16/04/17 Labour charges paid for Rs 250/-
 18/04/17 Furniture purchase for Rs 2,500/-
 21/04/17 Sold goods worth Rs 2,500/- to Ramesh.
 23/04/17 Payment made to Ramesh Rs 2500 by Cheque
 25/04/17 Freight paid to Rs 300/-.
 29/04/17 An owner withdraw cash from the business for personal use Rs1,000.

Solution: –

Double
column Cash book with cash and bank column Example
Example No 3 | Discount and Bank Column:
We are taking the same example as the single column to understand easily. Now just made some of
the changes to convert this example into the double column cash book with Bank & discount
Column. Changes are shown in bold font.

 All the following transactions are made with the bank account instead of the Cash account.
 01/04/17 Started a business with cash Rs 50,000/-
 04/04/17 Goods purchase worth Rs 10,000/- and payment made immediately get discount Rs
100/-
 07/04/17 Rent paid for the building Rs 1,000/-
 09/04/17 Wages paid for Rs 2,500/-
 11/04/17 Sold goods worth Rs 5,000/- and to receive payment immediately allow discount Rs
100/-
 12/04/17 Purchase goods from Ram & sons Rs 4,000/-
 14/04/17 Commission paid to Rohan Rs 100/-
 15/04/17 Payment received from Ram & sons Rs 3,950 and Allowed her discount of Rs 50/-
 16/04/17 Labour charges paid for Rs 250/-
 18/04/17 Furniture purchase for Rs 2,500/-
 21/04/17 Sold goods worth Rs 2,500/- to Ramesh.
 23/04/17 Payment made to Ramesh Rs 2,450 and received the discount of Rs. 50/-
 25/04/17 Freight paid to Rs 300/-.
 29/04/17 An owner withdraw cash from business for personal use Rs1,000.

Solution: –
Double column Cash book with Discount and bank column Example

Three Column Cash Book

A triple column cash book or three column Cash Book is one which consists of three
separate columns on the debit side as well as credit side for recording cash, bank and
discount. The discount column on the debit side of the cash book will record discounts
allowed and that on the credit side discounts received. Discount columns in both side
are not balanced only totaled.

Three Column Cash Book Format

Three Column Cash Book Examples

Example # 1:
From the following transactions write up a three column cash book for Zakir Khan & Co.
2016
June 1 Cash in hand Rs. 2,000 and Bank Overdraft Rs. 1,500.
” 7 Received cash from Riaz & Co. Rs. 190; discount allowed Rs.10.
” 12 Sales by check Rs. 1,000.
” 15 Deposited cash Rs. 1,200 to bank account.
” 20 Paid to Waqas Shahzad Rs. 485; discount received Rs. 15.
” 25 Received check from Salman of Rs. 500 and deposited.
” 27 Paid to Hassan by bank Rs. 300.
” 28 Mr. Salman check of dated 25th has been dishonored due to technical reasons.

Solution:

Example # 2:
For the following transactions, you are required to describe side of cash book (Debit or
Credit) and the column in which amount is entered (Cash, Bank or Discount).
Example # 3:
From the following particulars write up the cash book of Rashid Khwaja Trading Co. for
the month of October, 2016.
October, 2016
1. Cash in hand Rs. 200; Balance overdrawn at Bank Rs. 400.
2. Cash sales Rs. 1,500; Banked cash Rs. 1,200.
7. Paid Habib & co. by check Rs. 150.
10. Received Abdul’s check Rs. 850 and deposited into bank.
14. Paid salaries in cash Rs. 250; bought goods for cash Rs. 140.
16. Drew from Bank for office use Rs. 160.
21. Cash sales Rs. 21; paid wages in cash Rs. 120.
23. Received by check from Aftab Ahmed Rs. 360; Discount Rs. 10.
24. Abdul’s check returned by bank unpaid.
27. Sent a check to Jones for Rs. 175; Discount received Rs. 5.
30. Deposited Aftab’s check.

Solution:

Three Column Cash Book Problems and

Solutions
Problem 1:
On April 1, 2017, Hassan Sajjad Store Cash Book showed debit balances of Cash Rs.
1,550 and Bank Rs. 13,575. During the month of April following business was
transacted. You are required to prepare Cash Book?

April 2017
02 Purchased Office Type-Writer for Cash Rs. 750; Cash Sales Rs. 1,315.
07 Deposited Cash Rs. 500 to bank.
10 Received from A. Hussain a check for Rs. 2,550 in part payment of his account (not
deposited).
16 Paid by check for merchandise purchased worth Rs. 1,005.
20 Deposited into Bank the check received from A. Hussain.
22 Received from customer a check for Rs. 775 in full settlement of his accounts (not
deposited).
24 Sold merchandise to sweet Bros. for Rs 1,500 who paid by check which was
deposited into bank.
26 Paid creditor a Salman Rs. 915 by check.
28 Deposited into Bank the check of customer of worth Rs. 775 was dated 22nd April.
29 Paid wages by cash Rs. 500 and salary Rs. 1,000 by bank.
30 Drew from Bank for Office use Rs. 250 and Personal use Rs. 150.

Solution:

Problem 2:
From the following particulars make cash book of Ghulam Fatima Trading Co. for the
month of November, 2016:
1 Cash balance (Cr) Rs. 2,000; Bank balance Rs. 40,000.
4 Cash sales Rs. 3,700; Credit sales Rs. 1,800 would be received at near future.
6 Paid Ahmed & Bros. by cash Rs. 500; Received cash by debtors Rs. 1,800.
12 Paid to vendor by means of check worth Rs. 2,700.
13 Paid Utility bills in cash Rs. 250; Bought goods by check Rs. 750.
19 Drew from Bank for office use Rs. 160; Personal withdrawal of cash Rs.
1,000.
20 Received a check from Hamid Rs. 2,700 and deposited into the bank.
21 Received by check from Munir Rs. 1,360; Discount Rs. 140 (not deposited).
25 Cash sales Rs. 2,100; Paid wages by bank Rs. 1,500.
28 Deposited Munir’s check into bank.
29 Payment by check to Anees for Rs. 175; Discount received Rs. 25.
30 Munir’s check has been dishonored and return by bank.

Solution:

Problem 3:
Enter the following transactions in the Cash Book with Cash, Bank and Discount column
for A R Khan and Co. for December, 2016 (all figures in Rupees):
Solution:
>> Do Practice Cash book MCQs for conceptual and
theoretical understanding.

Problem 4:
Prepare Petty Cash Book on imprest system from the following particulars for Minha
Shukat Ltd.

September 2016
1. Received for petty cash payments Rs. 1,000
4. Paid for stationery Rs. 140
9. Paid for postage Rs. 80
10. Paid for printing charges Rs. 150
11. Paid for carriage Rs. 125
17. Paid for telegrams Rs. 25
20. Purchased envelops Rs. 30
21. Paid for coffee to office staff Rs. 30
22. Paid for office cleaning Rs. 50
30. Paid to Faiza Munir Rs. 200

Solution:
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When does contra entry come in a double column cash book?

A contra entry comes in a double column cash book when

The cash is withdrawn or deposited into a bank.

If there is a transaction (cash sales and received a ₹1000 cheque for it), what will be
the entry in the cash book? Why?

The entry should be:

Bank Account…. Dr

To Sales Account

No entry in the cash book since the amount will be directly hitting your Bank account.

What should be the cash book entry for Rs 40,000 loan taken from the SBI and
invested in business?

Case 1 :

If personal loan was taken and was invested in business, then the journal entry would be as
follows:

Cash a/c……dr 40,000

To capital a/c 40,000

Cash comes in business so debited

Capital is credited because it indicates increase in liability of business towards owner.

Case 2 :

If loan is taken for business and invested,then journal entry would be as follows:

Cash a/c……dr 40,000

To bank loan a/c 40,000

Cash comes in business so debited

Bank loan represents liability that’s why credited

What is the entry in a cash book for cash withdrawn for
personal use?
In a scenario where the owner withdraws cash from the bank for personal use, the
entries are:

Debit Drawings (Equity Account)

Credit Bank/Cash (Asset account)

A shareholder or director may frequently use the company's money for personal
expenses. These funds would be reimbursed to the company on a future date.

The entries are:

Debit Director/Shareholder Loan Account (Asset or liability account)

Credit Bank (Asset account)