Jenny is running a Garment Business. Most of her transactions are cash in nature i.e. immediate payment is received or paid in cash or by cheques. Her Journal is over filled by cash transactions. She wonders if there is any particular type of book which records all her cash transactions. The answer is, Yes!
There is a book of Original Entry, which serves the purpose of both a Journal as well as ledger for cash transactions and that is Cash Book. It is a book in which we record all the cash transactions of the business.Since in almost all business concerns, most of the business transactions are cash in nature. Like cash sales, Cash Purchases, payments of expenses, receipts of incomes, payments of deferred expenses etc, there is a need for a separate book in which all such transactions can be grouped.
Though Cash Book serves the purpose of a separate Cash Journal, It is more a Ledger than a Journal. It is a journal as all the cash transactions are entered in it in the order of time. There is no need to enter a cash transaction in the Journal if you maintain a cash book. It is also a Ledger as It contains a classified record of all the cash transactions.
Format of a Simple Cash Book
Single column cash book has only cash column in it. It records the Cash transactions related to a period . Whenever Cash is received on account of some transaction, It is recorded on the debit ( right ) side of the cash book. When cash is paid, it is recorded on the credit ( Left) side of the cash Book. At the end of the period, both the sides are balanced.
Balancing of a Simple Cash Book
The cash book is balanced at the end of a given period say one month. At the end of the month both the debit and the credit side of the cash book are totaled. The debit side of the cash book shows the total of all the cash receipts during a period and credit side shows all the payments of that period. Since payments of cash cannot exceed the receipts of cash, the debit side always is greater than the credit side. For balancing the cash book, just total both the sides, find the difference and show the difference on the credit side as “by balance carried down”.on the last day of the period. This balance shows the amount of cash in hand in the beginning of the next period. In the next period, this balance is written in the debit side of the cash book as “to balance brought down”.
Lets see an example to understand the whole concept:
Jan 1. Opening balance of cash-$10,000 .
Jan 2. Purchased goods for cash $500.
Jan 5. Purchased furniture, payment made by cheque-$5,000
Jan 7. Cash Sale $3,000.
Jan 8. Paid salaries -$200.
Jan 11.Deposited cash into bank-$3,000.
Jan 18. Withdrawn $250 from bank for office use.
Jan 20 Credit sales of $300
Jan 28. Received dividend $450.
SIMPLE CASH BOOK
To Balance b/d*
To Sales A/C
To Bank A/C
To Dividend A/C
By Purchases A/C
By Salaries A/C
By Bank A/C
By Balance c/d ***
|Feb 1||To Balance b/d*||
*** At the end of the month (or the period for which you are making the Cash Book) , we total both the sides of the Book and write the difference on the credit side of simple cash book because credit side always having a lesser total.
As you see there are no entries for Jan 5 and Jan 20. Because on Jan 5 furniture is purchased by cheque so this entry goes in bank a/c and on Jan 20, credit sale is made.In cash book only cash transactions are recorded.