ACCOUNTING FOR CASH

1.      The cash book
The cash book is often a book of prime entry. It is used to record receipts and payments of cash into the business bank account.
The cash book has two sides, a side for receipts of money and a side for payments. Both sides have a number of columns so that cash receipts and payments can be analysed to make it easier to construct journals for double entry.

A business can analyse the amounts received and paid in any way it chooses.
 

2.      Types of cash book
The cashbook records all the transactions that involve receipts and payments of cash and deposits in and withdrawals from the bank in a chronological order. The debit side represents the receipts side and the credit side represents the payments side.
There are four basic types of a cash book.

·         Single column cash book
A simple cash book or a single column cash book is just like an ordinary account that carries one amount column on each side. The left hand side is for recording receipts of cash and the right hand side is for recording payments of cash. It is balanced just like any other ledger account.

·         Two column cash book
The double column cash book has two columns i.e. the cash column and the bank column on both the sides of the cash book. All the cash receipts and cash payments are recorded in the cash columns and all the deposits in and withdrawals from the bank are entered in the bank columns accordingly.

·         Three column cash book
Many businesses maintain a Three-column cash book instead of the Two-column cash book. The only difference is the extra column that is meant to record cash discount.


3.      Cash receipts
Cash from cash sales is banked on a regular basis. It is entered as a cash receipt in the cash book when it has been banked.
Cash might be received from a credit customer in a number of ways. Usually payment is made by cheque or by bank transfer. Payments by cheques must be banked on a regular basis. When a cheque is received it is entered into the cash book as a cash receipt.
On a periodic basis the receipts side of the cash book is summed and totals posted to the general ledger. Amounts received from credit customers are also recognised in the customer’s personal account in the receivables ledger must also be adjusted.
The additional column on the cash receipts side of the cash book is for recording discounts allowed. This is nothing to do with cash as such but the discounts might be recorded here so that the business is able to keep track of it. Such a record is described as being a memorandum (reminder).
The cash received from individual customers and the discounts allowed to individual customers must be credited to their individual accounts in the receivables ledger.


4.      Cash payments
Cash payments are recorded in a similar way to cash receipts. Payments are recorded in both the general ledger and (if the payment is to a supplier) in the account of the supplier in the payables ledger.
The additional column on this side is for recording discounts received and it is a memorandum column in the cash book.
The cash paid to individual suppliers and the discounts received from individual suppliers will be debited to their individual accounts in the payables ledger.


5.      Petty cash Book

Definition of petty cash
Petty cash is cash (notes and coins) held by a business to pay for small items of expense, in situations where it is more convenient to pay in notes and coin than to pay through the bank account. Petty cash might be used, for example, to pay for bus fares, taxi fares, tea and coffee for the office, and so on.

Recording petty cash transactions
When petty cash transactions take place, for example petty cash is spent on tea and coffee for the office, the entity needs to record both an expense, and a reduction in the asset “petty cash”.
These entries are made in the main ledger accounts as follows:

Petty Cash

Although the amounts involved in petty cash are, for most businesses, very small, the “cash in the tin” is one of the easiest assets to be stolen or “lost”.
Usually the responsibility for looking after the petty cash is assigned to an accounts clerk who will pay out any cash to a person as long as that person is able to present an invoice for an amount spent or sign a note to say that they have received cash. The accounts clerk will also maintain a petty cash book. This is a book of prime entry and is summarised and posted to the general ledger on a periodic basis,


6.      Imprest system
A very common petty cash system is called the imprest system. Under this system a set amount is established (say Rs.10,000). This set amount is called the imprest.
At any moment in time, the petty cash balance plus the amounts on invoices and notes should sum to the imprest. Periodically the invoices are removed and replaced by cash to re-establish the imprest in cash.


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