The cash book

Almost any set of accounting records involves the receiving and paying out of money, sometimes cheques, sometimes cash and sometimes both. If there are only a very few entries, it may all be recorded in the bank account and cash account in the nominal ledger, but due to the number of entries it is usual to maintain a separate cash book. Sometimes bank and cash are combined in one book and sometimes two books are kept.

As the cash books are a medium of posting to the nominal ledger they are books of prime entry. Sometimes the cash book is just a posting medium and sometimes a running balance is maintained as an integral part of the system.

The cash book will have two sides, one for payments and one for receipts.

The following is an example of the payments side of a cash book maintained for bank entries.

The total of £398.79 would be credited to the bank account in the nominal ledger (remember payments out of a bank account are credits). Various accounts are debited and these are identified by the folio numbers.

In reality there may be hundreds of entries or perhaps many more. The posting may be made easier by analysing the payment amounts over extra columns. If there are three entries for bank charges, only the total of the bank charges need be posted, rather than three individual items.

The following exceptionally simple illustration shows how three extra columns could be added in support of the above five payments.

This means that only three debits need be posted instead of five. In a significant business the reduction in the number of postings might be very large.

There will be a corresponding side for the receipts, but as the principles are the same it is not necessary to show an illustration. The next example (see page 32) shows a full cash book balanced at the month end.

The folios identify the accounts to be posted as the opposite side of the double entry. Various identification systems may be encountered but you will probably have no difficulty realising that SL means sales ledger and that PL means purchase ledger.

This is a completed cash book for the month of September and the book has been ruled off and balanced. The balancing may be done at any time but once a month is typical. It is done by adding the columns and writing in the difference on the side that has the smaller of the two figures. This is expressed as the balance carried down. The two columns then add to the same amount.

The balancing figure is then transferred to the other column and becomes the opening balance in the next period.

In the example the balance brought down (bid) on 1 September is on the receipts side which means that there is money in the bank and no overdraft. This is still the position when the account is balanced on 30 September.

The four figure numbers before the names on the payments side are cheque numbers. This is optional and will assist when the bank reconciliation is done.

Following (see page 34) is an extremely simple example of a cash book that combines both cash entries and bank entries. It shows receipts and payments for both and it is balanced for both. For the sake of simplicity the pence have been omitted and only the pounds are shown.

Finally it should be mentioned that -cash books sometimes incorporate discount columns. This is for discounts deducted by customers because they have paid within the permitted period, and for discounts deducted from payments by the business for the same reason. In practice, as you may know, settlement discount is often deducted although the settlement terms have not been properly observed. Policing the system causes many practical problems and dilemmas. Sales managers are often reluctant to have their customers annoyed by requests for additional payments.