August 10, 2020

SB-Accounting

Accounting + Finance Blog

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One important accounting records and books are the cash book. When a business carries out any activity that involves cash, the entry point in the books of account is the cash book. But what is a Cashbook? How is double-entry applied in the cash book?

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Meaning of cash book?

A cash book is a book of accounts where all cash transactions are recorded.

There are two types of transactions. Cash and credit transactions. The cash book deals with cash transactions alone. More detail about the cash book is explained in another article.

In practice, especially with computer-based accounting software, there is no book called cash book. What is usually found is a cash account and a bank account. As a result, the focus is on the two-column cash book.

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Applying double entry principle

The double entry principle states that for every debit entry, there is a corresponding credit entry.

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Cashbook applied the double-entry principle in it. That is as an account in a firm’s book. If you debit the cash book, you have to credit another related account. Also, if you credit the cash book, you have to debit a related account.

For example, if a firm makes sales for cash. It will debit the cash book and credit sales account.

Another example is when an entity buys stationeries. It will debit the stationeries account and credit cash book.

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Posting in the cash book

Posting in a cash book is quite simple. A cashbook usually has two sides. There is the receipt side and the payment side.

So, if cash is received by the entity, it is posted to the receipt side. When cash is paid, it is entered in the payment side.

Note that cash includes physical cash, cash at bank and cash transferred via the internet.

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Illustration

Titi sells footwears. In the week ending July 17. Here are the transactions that took place.

Posting transactions in a cash book

Solution

Posting transactions in a cash book

From the solution above, remember that any receive of cash goes to the receipt or debit side, while payment of cash goes to the payment or credit side. On July 13, there were sales of 200,000  and posted to the side.  July 14 Tayo was paid cash of 70,000 Naira and it is posted on credit side book.

To solve a cashbook question, you need to note the principle, debit cash received and credit cash paid.

Note that there are other ways to present the cash book.

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