Every business is required to record all of its cash transactions. The different cash payments and receipts are maintained in the cash book. A cash book serves a twin role, that of functioning as a book of original entry and final entry. 

So, how is a cash book prepared? More importantly, what is the importance of a cash book in accounting? 

How to Set Up a Cash Book

The best way to keep track of your cash transactions is with assistance from a professional and experienced accountant that will know where to look and would notice any errors that might occur. Hireling this type of professional directly can be wildly expensive and isn’t optimal for any company, regardless of the size.

Currently, most companies opt to outsource the task of accounting to an outside professional that is not only able to do the task quickly, proficiently, and for a reasonable fee, but with the advantages of freelancers you will be able to select a professional that is experienced in the exact field your company works in. This way the freelancer accountant will be knowledgeable about the specific cash flows of the industry, and where any pitfalls might be.

For the task of structuring and balancing a cash book, you will want to hire a regular accountant, or possibly a bookkeeper that will be able to maintain your cash book easily and who will externalize any risks of making errors and corrections to the freelancer themselves.

Structure of a Cash Book

If you want to document your cash transactions neatly and consistently, you should start by learning the structure of a cashbook. Any entries made in a cash book should provide this information:

  • The date of the cash transaction
  • A receipt number for allocating the document to the transaction
  • Summary or description of the transaction
  • Receipt and currency of the cash revenue or expense
  • Provision for tax rates such as sales tax
  • The present current cash balance and debit balance

How does Cash Book Accounting Work?

Cash book accounting is one of the easiest financial tasks, even for individuals who have zero knowledge of accounting. All you need to get started is to have the right cash book template. With this in hand, you can then begin to record all the cash transactions received or spent in the respective columns. Do not forget to balance your cash book balance at the end of each day. Also, you should always record data alongside their relevant documents. When making entries in your cash book, keep the following in mind:

  • The cash book should only be used to record cash transactions
  • You should enter the precise date of the operation as well as the opening balance of the previous accounting period
  • Any cash that the business receives falls under ‘revenue', and any cash that is paid out falls under ‘expenditure'
  • All the transactions should be recorded in order, that is, on the specific day they occur
  • Your cash balance should never go below 0

Importance of Cash Book in Accounting

A cash book forms an integral part of accounting. It is with the help of a cash book that firms can track every small cash purchase, which could otherwise, slip through the cracks. That said, a cash book should make up part of the company's petty cash fund. To put it simply; a petty cash fund represents money set aside for trivial transactions that can be made using a check or credit card. Some retailers and vendors don't like using cash or credit cards, so it's crucial for businesses to have petty cash funds when transacting with them.

Benefits of a Cash Book

Every organization or individual performs tons of transactions on a daily basis. If you had to record each of these transactions in a journal and then later transfer them to a ledger, you’d spend too much time and effort. Another pitfall of recording cash transactions in your journal is that it does not indicate the exact amount of money you have at the end of the day, week or other accounting periods. A cash book was invented to overcome this and more hurdles.  

A Time-Saver

With a cash book, you won’t have to record any of your cash transactions in the journal first. Instead, you will record these transactions directly in your cash book, for transferring later to advanced financial statements. This process saves you a significant amount of time.


In addition to saving time, you also keep your energy and effort, which you can devote to other core tasks.

Prevent misappropriation

One of the main culprits of funds embezzlement is the failure to record transactions accurately and on time. With a cash book, you can consistently record all your cash receipts and payments and the exact time for these transactions. Through this process, the likelihood of misappropriating funds is minimized.

Easy identification of errors

A cash book is a crucial document for the bank reconciliation process. If there is a discrepancy between your bank balance and the closing balance in your company ledger, you can refer to your cash book and check whether you’ve made any errors. Common errors include omitting a transaction or accounting for a transaction twice.

Determine your company’s cash status

In case you are planning to borrow funds from a lender or investor, one of the things they will want to know is your cash position. An investor wants to know whether your firm relies exclusively on debt and just how much money is available to run day-to-day operations. By preparing a cash book, you’ll have all this information at your disposal.

Challenges in Maintaining a Cash Book

The greatest challenge in using a cash book is determining which transactions to include in it and which transactions to leave out. If you’re not familiar with or have hired employees who are not well-versed with accounting, they may end up recording non-cash transactions. 

Another limitation is the likelihood of making errors. Your company's cash book is vulnerable to accounting errors because of the lack of secondary documentation to track transactions. As mentioned earlier, a cash book eliminates the need for recording cash transactions in the company journal. On the downside, this means there’s no way to refer to previous transactions and identify errors when discrepancies arise. 

Because of the high probability of error, most companies opt to have an outsourced professional that will ensure the structure and validity of the cash book and who will keep additional track of the transactions.

Keeping Check Book in Order

A cash book is a document highlighting all the cash receipts and payments transacted by a business within a particular period. This document is divided into two main sections: the debit and credit side. Any transaction involving the receipt of money is recorded on the debit side while payments are credited. A cash book is important in accounting because it gives business owners an easy way of tracking all their cash transactions. It also minimizes the risk of misappropriation of funds and helps to define the cash position of a company.

If you want to keep your cash book in order, it would be best to hire an outside professional that will be able to keep track of all of the transaction and who will have enough experience not to make any errors. Thankfully, selecting such a professional now is easy, as you can get a personalized quote from a multitude of professionals with just a few steps using the platform.

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