Cash Book: one book for all cash and bank money

1. Why split the journal into special books?

Many transactions of a business are repetitive: cash received, cash paid, goods bought on credit, goods sold on credit. Each group of similar transactions is recorded in its own book. These books are called special journals, day books or subsidiary books. NCERT discusses these books:

Special books save time, make division of labour possible (different people can write different books at the same time) and make the records easier to check. The last three lessons of this chapter cover the petty cash book, the other special books and the journal proper.

2. What is a cash book?

The cash book is special because it does two jobs at the same time:

• It is a book of original entry (like a journal): cash transactions are written here first, date-wise, straight from the source documents (cash memo, receipt, voucher).
• It is also the Cash Account (like a ledger): it has a debit side (receipts) and a credit side (payments) and it is balanced exactly like a ledger account.

So when a cash book is kept, cash transactions are not journalised again, and no separate Cash Account (or Bank Account, if a bank column is kept) is opened in the ledger.

3. Single column cash book

When a business has only cash transactions (no bank account, or bank matters are kept elsewhere), it keeps a cash book with one amount column on each side.

Receipts are written with “To” and the name of the account from which cash came (To Sales A/c, To Mohan’s A/c). Payments are written with “By” and the name of the account for which cash was paid (By Rent A/c, By Purchases A/c).

4. Posting the cash book to the ledger

Since the cash book itself is the Cash Account, we only need to post the other side of each entry. The rule is a simple mirror:

Why? Cash came from Mohan, so Mohan gave the benefit and is credited. Cash went for rent, so Rent received the benefit and is debited. Two examples from the cash book above:

The folio column shows “CB” (Cash Book page) so that anyone can trace the entry back.

5. A little banking before the bank column

Most businesses keep a current account in a bank. Banks usually pay no interest on a current account and may charge a small fee for services (bank charges). A few words you must know:

• Pay-in-slip: the form filled while depositing cash or cheques. Its counterfoil, signed by the bank cashier, comes back to you as a receipt.
• Cheque: a written order to your bank to pay a fixed sum. A bearer cheque is paid to whoever holds it. If the word “bearer” is cut, it becomes an order cheque, paid only to the named person (or to whom he orders, after identification).
• Crossed cheque: two parallel lines across the cheque. It cannot be cashed at the counter; money goes only through a bank account. With “A/c Payee only” written between the lines, it can be deposited only in the payee’s own account. With a bank’s name between the lines (special crossing), it is paid only through that bank.
• Endorsement: signing on the back of an order cheque to transfer it to someone else. A bearer cheque is transferred just by handing it over.
• Overdraft: when the bank allows you to withdraw more than you have deposited. Your bank balance then becomes a liability.

6. Double column cash book (Cash + Bank)

When bank transactions are many, a separate Bank amount column is added next to the Cash column on both sides. Now the same book shows cash in hand and cash at bank at any time, and no Bank Account is opened in the ledger.

6.1 Contra entries: the letter “C”

Some transactions happen between cash and bank only:

• Cash deposited into bank: bank goes up (Bank column, receipts side, “To Cash A/c”) and cash goes down (Cash column, payments side, “By Bank A/c”).
• Cash withdrawn from bank for office use: cash goes up (Cash column, receipts side, “To Bank A/c”) and bank goes down (Bank column, payments side, “By Cash A/c”).

Both sides of such a transaction are inside the cash book itself. Such entries are called contra entries, and the letter C is written in the L.F. column of both lines. “C” tells the accountant: do not post this to the ledger, both effects are already here.

6.2 Cheques received

• Deposited the same day: record directly in the Bank column (receipts side).
• Deposited on a later day: on the day of receipt, treat the cheque as cash: Cash column, receipts side. On the day of deposit, pass a contra entry: Bank column receipts (To Cash A/c) and Cash column payments (By Bank A/c).
• Cheque dishonoured (returned unpaid, usually because the customer’s account lacks funds): write the amount in the Bank column on the payments side against the customer’s name. This undoes the earlier receipt and makes him a debtor again.

6.3 Bank’s own entries

If the bank charges interest, commission or service charges, record them in the Bank column on the payments side (By Bank Charges A/c / By Interest A/c). If the bank credits your account (interest or dividend collected by the bank, money received directly by UPI or NEFT), record it in the Bank column on the receipts side.

6.4 Balancing the bank column

The cash column always has a debit balance. The bank column usually has a debit balance (money in the bank = asset), but it can have a credit balance when there is an overdraft. An opening overdraft is written on the payments side as “By Balance b/d”.

7. Cash discount and the cash book

Cash discount is a reduction given for paying promptly. The cash book records only the money that actually moves. The discount part is recorded through the journal proper (NCERT’s approach), so that the customer’s or supplier’s account is fully settled.

8. Posting the double column cash book

• Every item on the receipts side (except C entries and balances) is credited to its ledger account: “By Cash A/c” or “By Bank A/c”, depending on the column used.
• Every item on the payments side (except C entries and balances) is debited: “To Cash A/c” or “To Bank A/c”.
• Contra (C) entries are ignored while posting.

For example, from Verma Mobile Store’s book: Sales A/c is credited “By Cash A/c 22,500” (Apr 4) and “By Bank A/c 9,400” (Apr 20); Anil’s A/c is credited “By Cash A/c 7,500” (Apr 11) and debited “To Bank A/c 7,500” (Apr 25), so he is again a debtor for ₹7,500.

9. Exam tips

• Always write the name of the business, “Cash Book”, “Dr.” and “Cr.” at the top. Prefix receipts with “To” and payments with “By”.
• Write “C” in the L.F. column on both lines of a contra entry. Missing “C” loses marks.
• Show the balance c/d and the next month’s balance b/d; examiners check both.
• Read each line for the words cheque, UPI, NEFT, through bank: they decide the column.