Before talking about the cash book, we would briefly explain what is cash. Cash is a current asset which consists of items used in day to day financial transactions as medium of exchange. In accounting and finance, cash includes currency notes made of paper, coins, demand deposits, money orders, checks and bank overdrafts etc.
The following items cannot be treated as cash:
- Dishonored checks
- Post-dated checks
- Postage stumps
- Securities and special investments
- Trade advances to enployees
The cash balance in a business organization is of significant importance due to the following reasons:
- It is readily available to meet current obligations of any business organization.
- It is universally accepted as a mode of payment by creditors.
- The economic activities of any business involve a regular inflow and outflow of cash and cash equivalents.
The cash book is used to record receipts and payments of cash. It works as a book of original entry as well as a ledger account. The entries related to receipt and payment of cash are first recorded in the cash book and then posted to the relevant ledger accounts. Moreover, a cash book is a substitute for cash account in the ledger. A company that properly maintains a cash book does not need to open a cash account in its ledger.
Types of cash book
There are four major types of cash book that companies usually maintain to account for their cash flows. These are given below: