Cash Book, Cheques and Bank draft

Cash book in detail:

Now if we talk about cash book, it is of three types;

·        Single Column Cash Book.

·        Double Column Cash Book.

·        Triple Column Cash Book.

Single column Cash Book--       

In Single Column Cash Book only cash transaction are recorded in the books. All the cash receipts are recorded in the left side and all cash payments are recorded in right side. There is also a column of ledger folio to support the basis of evidence that is, to record the page on which the respective ledger has been recorded.

Double Column Cash Book--

In the Double Column Cash Book apart from cash transaction, transactions by cheque are also being recorded in it. Thus it contains two column cash and bank apart from ledger folio column.

In this double column cash book we need to understand some important concepts:

Cheque:

Bank generally provides it depositor a cheque book containing 20 or more pages of cheque it allows depositor to withdraw money from bank or to give payment to the creditors.

In Negotiable Instrument Act cheque is defined as “an unconditional order, drawn upon a specified banker, signed by the maker, directing the banker to pay on demand a certain some of money only to the order of a person or to the bearer of the instrument”.

From the above definition it is clear that:

·        Cheque is an order.

·        There are three parties in the cheque 1) Maker, 2) Drawee and 3) Payee.

·        Maker is the person who draws cheque.

·        Drawee is the bank on which the cheque is drawn.

·        And Payee is the person who is named in the cheque for receiving payment.

Now there are two types of cheque:

Bearer Cheque and Order Cheque—let’s learn about them:

Bearer Cheque:

Bearer cheque is like cash- any person who presents the cheque in banks counter can get the payment. Means bank has no obligation to ascertain that the payment is made to the right person.

Order Cheque:

Unlike bearer Cheque, in order cheque bank has obligation to ascertain that the payment in made to the right person. And in this cheque, order is given to make payment to the specific person.

2. Bank Draft:

Bank Draft is the most important service done by the bank. In the bank draft, Banks make payment on the behalf of the payer and it is guaranteed by the issuing bank. What bank does is, immediately debits the amount in payers account and therefore has no risk. Thus the payee gets some surety once bank draft has been issued.  On the one hand bank has no risk for this service and on the other hand, bank charges fees for that service. Thus, payer, payee and banker all are benefited by this service.

This was how I explained about cash book and its related topics. I you have any question regarding these concepts please write on the comment box below.

Sub division of ledger and Cashbook--a Journalised ledger

Sub division of Ledger:

Today we are going to talk about sub division of ledger. Generally there are numerous ledger balances in any business so it’s necessary to categorize these ledgers so that one can get the account balances from different category of the ledgers. Suppose you have the business of Doll and lot of dolls are stored in a warehouse randomly in this case you will definitely like to categorize your dolls like plastic dolls, woolen dolls, cotton dolls, so that you can get to know how many dolls you have in each categories in the similar way all the ledgers are divided into five categories Debtors ledger, Creditors ledger, General ledger, Nominal ledger and Cash book so that you can get to know the balances from each type.

Let’s learn in detail:                  

Debtors ledger:

It contains ledger account of all the parties to whom goods are sold on credit. The total of balances on this ledger will give ‘sundry debtor’ for trial balance and balance sheet.

Creditors ledger:

It contains the ledger balances of all the parties from whom goods are purchased on credit. The total of balances on this ledger will give ‘sundry creditor’ for trial balance and balance sheet.

General ledger:

It contains all the real accounts such as Building, plant& machinery, office equipment etc.

Nominal Accounts:

It contains all those accounts which are normally looked upon as income and expenses such as rent, insurance, discount received and allowed, etc it also include purchase return, sales return, depreciation , purchase, sales etc.

Cash book:

It records all the cash and bank ledger accounts. Sometimes triple column cash book is made to record discount allowed or received in it.

Is Cashbook a journal or ledger?      

From the above definition it is interesting to note that cash book is both journal and ledger.

To understand this point, first we need to understand why cash book is prepared? In business cash transactions are huge and it is not possible to record journal entry for each cash transaction therefore it was decided to record cash transaction directly in one book called Cash Book.

It is called the book of original entry because cash transactions are first entered directly in cash book. Moreover, narration is recorded after each entry—the same thing we do in journal and last ledger folio column is also maintained in cash book-again the same thing we do in journal so from these angle cash book is journal.

Every transaction has dual aspect which we called double entry system the first one we write in one ledger account and other one we write in the opposite side of another ledger account –the same thing we do in cash book. Suppose, sales transaction has been taken place in cash, we would record “to sales” in debit side of cash book and “by cash” in credit side of sales account. So from this angle cash book is a ledger.

Thus the above explanation proved that cash book is a journalized ledger.

These was how I explained about ledger sub division and cash book in my next post we will understand in detail about cash book. If you have any question regarding this topic, please write in the comment box below.