The book in which all cash transactions (either cash is received or paid) are mainly recorded according to dates, is called ‘Cash Book’. It is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals. It gives detailed information concerning the cash transactions of a company.
In almost all businesses, the volume of transactions related to cash receipts and payments. If we do not preserve a cash book and record all cash transactions in the journal, redundant time and labor would be necessary for debiting and crediting cash account in reverence of every cash transactions. It is one of the main books of account maintained by operating the private and government sector.
Advantages of cash book –
- Saves time and labor
When cash transactions are recorded in the journal a lot of time and labor will be involved. To avoid this all cash transactions are directly away recorded in the cash book which is in the form of a ledger. It can accumulate a lot of money by allowing you to do relatively a bit of the work – work that usually your accountant would do
- To know cash and bank balance
It helps the manager to know the cash and bank balance at any point in time. It is a dependable and established method of recording all financial transactions. In every business apprehension, the number of cash dealings is generally large and since cash can be simply stolen by a dishonest employee, cash record of a business must be up to date and must be appropriately supervised by a sensible person. For this purpose, it is very necessary to maintain a cash book for recording cash transactions.
- Pay VAT or Sales Tax
If you have to pay VAT or Sales Tax the cash book can be set up in such a method that the VAT or Sales Tax etc. amounts are simply recognized in their own column and simply accounted for, to the Tax Department.
- Mistakes and frauds can be prevented
Standard balancing of cash book reveals the balance of cash in hand. In case the cash book is maintained by business apprehension, it can evade frauds. Discrepancies if any can be recognized and rectified.
- Effective cash management
Cashbook provides all information regarding total receipts and payments of the business apprehension at a particular period. Possible to see how the business is going on a month to month basis by looking through the cash book and analyzing the breakdown of income and expenses. So that, effective policy of cash management can be formulated.
Finally, it can be said that Cashbook is a book of the original record and a part of the ledger if all cash transactions are conceded through the cash book, the labor of posting every item of receipt and payment of cash independently to each account in the ledger is avoided.
Cash Book renders the following benefits:
- It prevents the repetition of work in entering cash transaction in the journal and then posting the same into the ledger.
- Daily cash receipts and cash payments are simply ascertained. Cash and Bank transactions can be recorded in the cash book.
- Cash in hand at any time can simply be ascertained through Cash Book balance. It is possible to find out daily cash and bank balance.
- Any fault in the book can be simply detected at the instance of certification of cash.
- Cash book also serves the purpose of a book of original entry as well as a ledger.
- Any defalcation of money can be detected while validating cash.
- Since cash is confirmed day by day, this Book is for all time reserved up-to-date.
- Frauds involving cash are likely to be minimized and where committed are likely to be detected at an early stage.