What it means
The cash book is the oldest and simplest accounting record. A shopkeeper who writes down what came in and what went out each day is keeping one.
Its purpose is to record the movement of money completely and promptly, so that the business knows how much it has, where it came from and where it went, and so that every transaction can be traced. Traditional forms varied by the number of columns.
A single-column cash book records cash only. A two-column cash book adds a bank column, so that receipts and payments by cheque or transfer are recorded alongside physical cash, with contra entries when cash is banked or withdrawn.
A three-column cash book adds discount columns, recording settlement discounts allowed to customers and received from suppliers at the time of the payment they relate to. Analysed cash books add columns for the categories of receipt and payment (sales, rent, wages, purchases), so that period totals for each category can be posted to the ledger in one entry rather than transaction by transaction.
A petty cash book, often kept on the imprest system, records small cash payments separately. The cash book plays a dual role that distinguishes it from other books of original entry.
Sales and purchases day books are journals only; their totals are posted to ledger accounts. The cash book is both a journal and the ledger account for cash and bank, so it is part of the double-entry system directly: its debit side records the debits to cash, and each entry's other side is posted to the relevant ledger account (a credit to a customer's account for a receipt, a debit to an expense or supplier account for a payment).
In software, the same structure exists under different names. The bank account in the general ledger is the cash book; the bank feed supplies the entries; the matching process assigns each to its ledger account; and the reconciliation compares the software's balance with the bank's.
The discipline is identical: every item, once, in date order, with a category, and a balance that agrees with the bank. Beyond recording, the cash book is a control document.
Its balance should be reconciled with the bank statement regularly; unreconciled differences signal errors or misappropriation. Its analysis columns make unusual items visible.
Its sequential record makes gaps and alterations detectable. Auditors examine it for the completeness of receipts (has every sale that was paid in cash reached the book) and the validity of payments (does each payment have an authorised supporting document).
For a small business the cash book, properly kept and reconciled, is most of the accounting system.
In practice
Real-world examples.
Example
A market trader keeps a single-column cash book in a notebook and reconciles it to the cash tin each evening.
Example
A charity's treasurer keeps an analysed cash book with columns for donations, grants, events, and each category of expenditure, from which the annual accounts are prepared.
Example
A company's accounting software imports 2,000 bank lines a month into its cash book and auto-categorises 90% of them by rules.
Think of it
“A cash book is a dedicated record of all cash in and cash out-your cash tracking journal.
Formula
Calculation
Cash Book Closing Balance = Opening balance + Total receipts minus Total payments (separately for the cash column and the bank column)
Contra entry: cash banked = credit cash column, debit bank column, same amount (net effect nil on total cash)
Worked example. A café keeps a two-column cash book. Opening balances on Monday: cash in till $300; bank $4,850.
Monday:
- Cash sales $920 (debit cash)
- Card sales settled to bank by the processor, net of fees $1,340 (debit bank); fees $28 recorded as an expense
- Paid milk supplier from till $85 (credit cash)
- Paid bakery by transfer $310 (credit bank)
- Banked $900 of cash from the till (credit cash $900; debit bank $900: contra)
Tuesday:
- Cash sales $780 (debit cash)
- Card sales $1,510 (debit bank)
- Wages paid by transfer $1,200 (credit bank)
- Window cleaner paid from till $40 (credit cash)
- Banked $700 (contra)
Balances:
- Cash column: $300 + $920 minus $85 minus $900 + $780 minus $40 minus $700 = $275
- Bank column: $4,850 + $1,340 minus $310 + $900 + $1,510 minus $1,200 + $700 = $7,790
Controls: the till is counted at close on Tuesday and holds $275, agreeing with the cash column. The bank balance on Wednesday morning shows $7,090, which differs from the book by $700: the Tuesday banking was made after the branch cut-off and appears on Wednesday, a timing difference that clears. The analysed totals posted to the ledger for the two days: sales of $1,700 cash and $2,850 card net of fees (Monday's $28 fee is recorded as an expense, and Tuesday's when the processor's statement arrives), purchases $395, wages $1,200, cleaning $40.
Had the till count on Tuesday shown $235, the $40 shortfall would need explanation: an unrecorded payment, a wrong change, or something worse; the cash book makes the shortfall visible on the day rather than at year end.Case study
Seen in the real world.
A small hotel had kept a cash book for decades, but the owner's son, taking over, replaced it with a spreadsheet updated "when there was time", typically at the end of each month from bank statements. Cash takings from the bar were counted, spent on small purchases and banked irregularly, with no record of the payments made from the till. Within a year the accountant preparing the annual accounts could not reconstruct cash sales, estimated them from bar stock purchases, and the tax authority challenged the estimate, assessing additional tax and penalties of $14,000 on the basis that undeclared cash sales were likely.
The son reinstated the cash book, in software this time: a daily till record with cash sales, card sales and every payment from the till listed and receipted; a bank feed with same-day categorisation; a weekly reconciliation of both to the count and the statement; and a rule that nothing was paid from the till without a slip. The next year's accounts were prepared in a week rather than three months, the accountant's fee fell by a third, and the tax authority's follow-up enquiry closed with no adjustment. The son's comment was that his father's ledger had not been an old-fashioned habit but the reason the business had never had a tax problem.
Watch out
Common mistakes.
- Writing up the cash book from bank statements at month end rather than recording transactions as they happen, which loses cash payments and makes reconciliation impossible.
- Paying expenses from cash takings without recording them, so that both sales and expenses are understated.
- Failing to reconcile the cash column to a physical count and the bank column to the statement, which removes the cash book's value as a control.
Questions
People also ask.
Is the cash book part of the ledger or a journal?
Both. It is the book of original entry for cash transactions and also serves as the ledger account for cash and bank.
What is a contra entry in the cash book?
An entry that appears on both sides, such as cash banked (credit cash column, debit bank column). It moves money between cash and bank without changing the total.
Do businesses still keep a cash book?
Yes, though usually as the bank and cash accounts in accounting software fed by bank data. The name survives in many systems and the function is unchanged.
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