Dot Nepal presents useful notes for the Bank Exam Preparation.
Cash Book and Petty Cash Book
Introduction of Cash Book
- Cash book is the description of cash inflow and outflow of an organization on given period of time.
- It is subdivision of journal and subsidiary book as well.
- Cash book is a ledger of real account. If organization opens cash book than it is not necessary to prepare separate bank and cash ledger.
- Cash book have debit and credit side. Debit side holds for receipt of money but credit side records for payment of money. No credit transaction is entertained under cash book.
- Main objective of cash book is to disclose closing cash and bank balance of the organization along with source and use of cash.
Introduction of Contra Entry
- If single transaction connects the debit and credit side of journal voucher with cash and bank headings than such transaction is called contra entry.
- There are two transactions for the contra entries they are cash deposited into bank from office and cash withdraw from bank for official use.
- Contra entry happens on double column cash book which have cash and bank column than on triple cash book.
Types of Cash Book
For the record keeping of cash and bank related transaction on ledger, following cash book are available;
- Single column cash book
- With cash column only
- With Bank column only
- Double column cash book
- With cash and bank column
- With cash and discount column
- With bank and discount column
- Triple column cash book
Process/Method of making Cash Book
Followings steps should be consider for the preparation of bank cash book.
- First of all choose which one cash book has to be made, generally organization prepare triple column cash book. It is prepare on monthly basis at least.
- It is open with opening cash and bank balance.
- Debit side of cash book records for cash receipt but credit side holds for cash payments.
- Cheque related transaction should be recorded on bank column.
- Cheque received but not deposited into cash should be treated as cash received, so it should be recorded on cash column of debit side.
- Credit transactions are not eligible for the record keeping on cash book.
- Contra entry should entered into both side of cash book if they are double cash book with cash and bank column or triple column cash book.
- Both side of cash book should be equalizing by findings of closing cash and bank balance as balance C/D.
- Closing balance of cash book should be taken as opening balance for the next month.
Format of Triple Column Cash Book
Format of triple column cash book
Importance of Cash Book
- To Know inflow and outflow of cash and bank related transaction,
- For the systematic and scientific record keeping of cash basic accounting transactions,
- To know closing balance of cash and bank,
- To prepare trial balance,
- To support for the preparation of financial statements,
- To make easier for reconciliation activities,
- To create transparency, accountability and responsibility on money related matter.
Limitation of Cash Book
- Cash book have not any clear cut recognition because it is books of original entries and ledger as well,
- It can’t records for credit transactions, so we can’t disclose real financial position of the firm,
- It can’t support to disclose net profit or loss of the firm,
- Determination of tax is impossible from cash book,
- It can’t define operating, investing and financing activities separately.
Petty Cash Book
- A fund established with small amount for the payment of frequently repeated transaction, which are not easy to pay by writing cheque is petty cash book.
- Petty refers to small. In big business firms all payment are made by cheque and all receipt are banked. There are numerous small payments on account of expenses like stationery, coolie hire, refreshment of guests etc.
- Moreover, the main cashier will be overburdened if he makes these small as well as frequent payments. To avoid this inconvenience, such items of expenditure of frequent occurrence are removed to a separate book, known as petty cash book, which maintained by petty cashier.
- Petty cash book is similar to cash book. The receipts of cash are entered in the debit side and all payments are entered in the credit side. Periodic total of each posted to column is posted to respective ledger.
System of petty cash book
The petty cash cashier is given a lump sum amount of cash. After spending the whole amount he or she submits the account to the head cashier.
Under this system, a fixed sum is allocated as sufficient to meet petty cash expenditure for an agreed period of time. At the end of agreed period, the petty cashier submits the account spent. The sum expended by petty cashier is reimbursed, thus making up the balance to the original sum. This system is maintained for the purpose of control of petty cash.
Type of Petty Cash Book
- There are two types of petty cash book one is simple and another one is analytical petty cash book.
- Simple petty cash book is just like a cash book. Any cash which the petty cashier receives will be recorded in the debit column and cash which he pays out will be recorded in the credit column. The date and particulars will be written accordingly.
- But in analytical petty cash book, a separate column is used for each commonly occurring item of expenditure such as postage, stationery, wages etc.