Cash Book: Definition, How It Works & Types

KEY TAKEAWAYS

• A cash book is a type of journal used to track the transactions between a business and its bank.
• There are three types of cash books: single column, double column, and triple column.
• Cash books are important because they allow businesses to track their finances in a detailed and organized way.
• It is essential for businesses to keep track of their finances to comply with the law.

What is a Cash Book?

Cash books are used to track the transactions between a business and its bank. They are an important part of effective cash management. This could include money that is received, paid out, and even deposited into or withdrawn from a bank account. Depending on how the transactions are recorded, a cash book can be either a debit or credit book.

Businesses or individuals can both use cash books. Businesses may use a cash book to track their income and expenses. Individuals may use a cash book to track their finances. Cash books come in a single column and can have an additional column.

How does a Cash Book Work?

When money is received, it is recorded in the cash book as a debit. When money is paid out, it is recorded as a credit. This is the simplest way that a cash book works. However, there are different types of cash books which can be more complicated.

There are a few different types of cash books which all work slightly differently. The next section of this article will discuss more about each one.

Recording Transactions in a Cash Book

When recording transactions in a cash book, many things need to be considered. These include the date, the description, the amount and more. The date is the date of the transaction. The description is what the transaction is for. For example, if money has been received, the description might be  “Received in cash from client for a service.” The amount is the amount of the transaction.

In order for a cash book to be accurate and up-to-date, it is important to record all transactions as soon as they happen. This includes both cash payments and cash receipts. If money is received on Monday, but not recorded until Wednesday, the cash book will be inaccurate.

Here are some other common questions surrounding cash book transactions.

What is Cash Balance in a Cash Book?

The balance of cash in a cash book is the total amount of money that is currently in the account. This includes both the money that has been deposited and the money that has been withdrawn. The cash flows will change with every transaction that is recorded in the petty cash book.

How do you Record Daily Cash Balances in a Cash Book?

The balance of cash in a cash book can be recorded in 2 ways. 

1. The first way is to simply write the total amount of cash that is currently in the account. 
2. The second way is to show the net cash balance. This is the total amount of cash that is currently in the account, minus any outstanding debts.

Different Types of Cash Books

There are three main types of cash books:

1. Single column
2. Double column
3. Triple column 

A detailed cash book has its own unique way of recording transactions. Keep reading to learn which type would make the most sense for you or your business.

#1: Single Column Cash Book

A single column cash book is the simplest type of cash book. Transactions are recorded in a single column and the total amount of money received or paid out is updated at the end of each day. This type of cash book is mostly used by individuals who are tracking their personal finances.

Pros:

• Simple to use
• All transactions are recorded in a single column
• Updates the total amount of money received or paid out at the end of each day

Cons:

• Does not track individual transactions in depth
• Can be difficult to track payments of cash and receipts over time

#2: Double Column Cash Book

A double column cash book is similar to a single column cash book, but it has two columns instead of one. This type of cash book is used by businesses who want to track each individual transaction in more detail. Double column cash books will show things like bank transaction details.

Pros:

• Tracks individual transactions in more depth
• Better for small businesses
• Updates the total amount of money received or paid out at the end of each day

Cons:

• More complex than single column cash book
  

#3: Three Column Cash Book

A triple column cash book is the most complex type of cash book. It has three columns instead of one or two. This type of cash book is used by businesses who want to track each individual transaction in the most detail possible. Triple column cash books will show all of the details from single and double column cash books plus some additional details. These would include things like purchase discounts, cash sales information and more.

Pros:

• Tracks individual transactions in the most detail possible
• Shows all of the details from single and double column cash books
• Best for businesses with strict accounting needs

Cons:

• More complex than double column cash book or triple column cash book
• Will likely need accounting software to track

Difference between a Cash Book and a Pass Book

The main differences between a cash book and a pass book are how they track payments in cash and receipts, and who tracks them. A cash book format will track all of the money that is deposited and withdrawn from the account. Cash books are typically kept by the business or individual.

A passbook, on the other hand, is typically kept by the bank and provided to the customer. Passbooks will track all of the payments and receipts that have been made to and from the account. This includes a payment of cash made by the customer and payments made by the bank.

Why are Cash Books Important?

Cash books are important because they allow businesses to track their finances in a detailed and organized way. This information can be used to make important decisions about the future of the business. Additionally, cash books can be used to create financial statements. These will provide a detailed overview of the business’ financial health.

All of this information is very important for accounting and tax records. It is essential for businesses to keep track of their finances in order to stay compliant with the law.

Summary

A cash book is an important tool for businesses to help track their finances. They allow businesses to keep track of payments and receipts in a detailed way. This can be used to make important decisions about the future of the business. Additionally, cash books can be used to create financial statements. These provide a detailed overview of the business’s financial health. Companies need to keep track of their finances using a cash book for these reasons.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.