A cash book is defined as a subsidiary accounting book that records only cash transactions. There are thousands of cash transactions that take place in an organization in a given accounting year and it is an extremely tedious and meticulous job to journalize them. The main function of a Cash book is to record the cash transactions which are used as a ledger and a journal to find out about the activities in a firm. The cash receipts are recorded on the debit side while all the cash payments are entered on the credit side.
Types of Cash Books
The cash books can be classified primarily into four different types that are:
1. Simple Cash Books –
These are also known as Single Column Cash Books. They are used to record the cash transactions and the cash receipts (cash that comes in) are entered on the left side while the cash payments are recorded on the right side. As all cash transactions are recorded in one book, there is no need for a cash ledger account.
2. Two Column Cash Books –
In a two-column cash book, there is an additional column provided for recording the specific discount entries which allow the discount transactions to be recorded in the same cash book along with the cash transactions. This cash book is usually maintained by organizations where it is a general practice to give or receive discounts.
3. Three Column Cash Books –
As the name suggests, three-column cash books have three columns; one for cash, one for the discount, and the additional bank columns. For most of the organizations that are now dealing with banking instruments like cheques or bills of exchange along with cash, a bank column in the cash book makes simplified accounting entries.
4. Petty Cash Book –
In each firm, the cash transactions take place in all the departments. These cash transactions are recorded in one of the three cash books but sometimes there are some cash transactions that are for very small amounts. Several of these transactions take place in a single day and are called petty cash transactions. Examples of such transactions are expenses for stationery, postage, food, etc.