Maintaining Cash Book

RATIONALE

Schools must keep records of every transaction in a cashbook. This session will show you how to do this. The
cashbook is the centre-piece of your financial records and the one that auditors will scrutinize closely. To master
this skill requires considerable practice. The session therefore explains how to maintain cash book.

DEFINITION

 Cash Book is the one in which all the cash receipts and cash payments including the funds that are deposited
in the bank and funds which are withdrawn from the bank are recorded according to the date of the
transaction.

 All the transaction which is recorded in the cash book has the two sides i.e., debit and credit.

 The difference between the sum of balances of the debit side and credit side shows the balance of the cash
on hand or bank account. Cash book plays a dual role as it is the book of the original entry of the company
as well as book the final entry.

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INTRODUCTION

 Every school should maintain a cashbook (also known as a ledger book). This is a day-to-day record of all
financial transactions.

 Maintaining a cashbook is one of the most challenging financial management tasks faced by a head teacher.
Nevertheless, without a properly maintained cashbook it is impossible to ensure high quality financial
management.

 The skill of keeping a cashbook can only be mastered through worked examples and repeated practice.

 Accounting books for this purpose are available at most stationers. Records must be kept for both bank
transactions and cash transactions.

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GUIDELINES FOR KEEPING ACCOUNTING RECORDS

 A photocopiable cashbook template is provided at the end of this manual.

 This format keeps simultaneous records when school funds are received and when they are expended.

 Keep in mind the following guidelines when completing a cashbook using this format:
 Write on the first open line. Do not leave any lines open as this leaves room for fraud.
 The cashbook should be updated daily and reported upon quarterly to the SMC and District.

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GUIDELINES FOR KEEPING ACCOUNTING RECORDS

 Receipts (income) should be recorded towards the left hand side of the page.

 Payments (expenditure) should be recorded just to the right of the receipt section.

 When cash is received, it should be recorded first as Received as Cash, but then should promptly be
deposited in the bank

 When cash is deposited into the bank, this is recorded as a receipt to the bank and a payment from cash on
the same line.

 When cash is withdrawn from the bank this is recorded as a receipt to cash and a payment from the bank on
the same line.

 The amount of each purchase should be recorded also in one of the four Budget Category (Vote) columns,
towards the right of the page.

 Ensure that only one transaction is recorded per line.

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GUIDELINES FOR KEEPING ACCOUNTING RECORDS

 If you make a mistake, rule a line across the whole line. Rewrite the whole line and put your initials next to
the change. In accounting, never use correction fluid as this increases the possibility of fraud.

 Try to record transactions in the order in which they happen (chronologically). However this will not always
be possible. Sometimes you will not discover that a transaction has happened until later.

 This will often be the case with bank charges, interest payments, or if someone makes a direct deposit into
your account without your knowledge.

 In practice you will record transactions in your cash book in the order that you find out about them.

 In the cashbook system which we are recommending here, are six different kinds of transaction.

 These are illustrated on the next page together with the correct way of recording them:

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TYPES OF CASH BOOK FORMATS

There are three types of cash book formats which are the following:

 Single Column
Single column cash-book contains only the cash transactions done by the business. Single column cash-book
has only a single money column on debit and credits both sides. It does not record the transaction-related which
involves banks or discounts. The transactions which are done on credit are not recorded while preparing the
single column cash –book.

  Double Column
Double column cash-book contains has two money column both on the debit side as well as the credit side. One
column is for the transactions related to the cash and the other column is for the transactions related to the bank
account of the business.  So, under double-column cash-book, not only cash transactions but transaction
through the bank is done by the business is also recorded. The transactions which are done on credit are not
recorded while preparing the double column cash –book.

 Triple Column
It is also referred as three-column cash book format and it is most exhaustive form which has three columns of
money on both receipt and payment sides and record transactions pertaining to the cash, bank and the discounts.
This book is maintained generally by the large firms that do transactions in cash mode as well as through the
bank and frequently allows and receives cash discounts.

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EXAMPLE OF TRANSACTION RECORDED IN CASH BOOK

Date Transactions

1-Jun Initial capital contribution. Cash : $100,000 an Bank $100,000

2-Jun Paid for Advertisement $ 500 from check
4-Jun Raw material purchased from Mr. A of $ 10,000 by paying cash
4-Jun Purchased stationery for cash worth $ 550
7-Jun Raw material purchased from Mr. B of $ 20,000 on credit
9-Jun Goods sold to the customer for $15,000 by cash

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ADVANTAGES
 It helps in saving time and labor as in case of recording cash transactions in the journal, huge time and labor
are required whereas, in case of cashbook, cash transactions are recorded straight away that is in form of the
ledger.

 Management can know the balances of cash and bank at any time. It helps in effective cash management.

 Cashbook is balanced regularly which helps in avoiding frauds. Also, discrepancies if any arises can be
found and rectified.

IMPORTANT POINTS

 Cash book plays a dual role as it is the book of the original entry of the company as well as book the final
entry.

 It has two of the identical sides i.e., left-hand side (debit side) and the right-hand side (credit side)

 The difference between the total of the two sides gives cash in hand or bank account balance.

 The transactions which are done on credit are not recorded in this book.

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CONCLUSION

 Cash book is a separate book of accounts in which all the cash transactions of the company are entered with
respect to the corresponding date and it is different from the cash account where posting is done from the
journal.

 There is no requirement to transfer the balances to the general ledger which is required in case of the cash
account.

 Entries are then posted to the corresponding general ledger.

 Cash book has two sides i.e., left-hand side and the right-hand side where all the receipts in cash are
recorded on the left side whereas all the payments in cash are recorded on right side.

 Cash book helps in effective cash management as management can know the balances of cash and bank at
any time and take the necessary decisions accordingly.

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 End of Slides

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