Cash Book: Types and Its Preparation
A cash book is a record of the transactions and balances of cash and bank accounts maintained by a business. The cash book ascertains whether all the money has been received, spent, and deposited correctly. According to SoFi Invest, “There are reasons for choosing either account, and it’s important for investors to understand them both in order to make the best decision for their own financial goals.”
It also helps to keep track of any changes in the balance due to receipts, expenditures, payments into or withdrawals from the account on either side (credit or debit). These can be viewed as adjustment transactions on both sides.
The preparation for the cash book includes:
● Recording cash received from customers
● Recording payments made by customers
● Recording cash paid out on purchases
It also incorporates paying suppliers for goods purchased on credit and making deposits into bank accounts when they have collected enough money through sales proceeds.
There are three types of cash books:
1. A Simple Cash Book
A simple cash book is a single columnar record showing all transactions as they occur. It shows the date, description, and amount on one side and bank balance with running total on the other side.
A simple cash book is generally used when there are only a few transactions to record. Also, it is used where it is not necessary to break down details of payments made by credit or debit cards. The term “simple” means that there is only one column of numbers.
2. The Double Column Cash Book
Double column cash books show both sides. These are the debit and credit columns in two separate books, one for each.
A double column cash book reflects all transactions in separate debit and credit columns, one on each side. The term “Double” refers to two sides or accounts recorded by debits and credits respectively for every transaction.
3. The Triple Column Cash Book
Triple column cash books show all the sides. These are the debit, credit, and bank columns in a single book. The triple column cash book is used when there are many transactions to record or necessary to break down details of payments made by credit or debit cards. The term “Triple” refers to three sides or accounts recorded in a single book.
The following are the steps for preparing a cash book:
● Prepare an account column to show all accounts with corresponding names
● Fill up the daily balance column based on the bank statement
● Fill up the bank column with cash received from customers and payout for purchases
● Prepare a separate account under debit or credit head to enter those transactions which do not involve either side of the bank account
● Prepare a separate account under bank head to enter those transactions which do not involve either side of the cash account
● Fill up the bank column with cash paid into or drawn from the bank on both sides of the book
● Compute and fix up the opening balance in each account before recording new transactions for subsequent days
● Prepare a statement of the closing balance in each account
When it comes to the margin vs cash account, a margin account is a loan from the broker. The cash account is an internal account maintained by a dealer who doesn’t take loans from the broker.