NIOS Public Exam

Accountancy (224) | Module II: Lesson 7

Official Textbook Study Guide: Cash Book (Code: 224en07)

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Official NIOS Syllabus Notes (1,000–2,500 Word Content Guarantee)

Strictly compiled from Chapter 7 textbook text: Meaning, dual status, Simple Cash Book, Bank Column Cash Book, Contra Entries, Petty Cash Book (Imprest System), and specialized banking transactions.

Word Count: ~1,880 Words 5 Major Sections
Major Section 7.1

1. Concept, Meaning & Dual Status of Cash Book

Definition & Essential Character of Cash Book

Cash Book: A Cash Book is a book of accounts maintained exclusively for recording all transactions involving the receipt and payment of cash. It is one of the principal books of original entry (subsidiary books). As a business expands and transactions multiply, entering all transactions directly in the general journal becomes inconvenient, cumbersome, and time-consuming. Consequently, transactions are classified by nature, and cash transactions are separated into the Cash Book.

The Unique Dual Character: The Cash Book occupies a unique position in accounting because it is both a Subsidiary Journal and a Principal Ledger.

  • As a Book of Original Entry (Journal): Cash transactions are recorded in it directly for the very first time in chronological order, accompanied by supporting voucher details. Hence, no cash transactions need to be recorded in the General Journal.
  • As a Ledger Account: The format of a cash book resembles a ledger account (having Debit and Credit sides). When a Cash Book is maintained, no separate Cash Account or Bank Account is opened in the ledger. The Cash Book itself serves the purpose of the Cash Account and Bank Account.

Real-World Case Example (From Textbook Section 7.1)

Suppose you receive your first salary in cash from your employer, and you also collect money previously lent to a friend as a personal loan. You subsequently spend portions of this money purchasing a mobile phone and clothing, attending a movie with friends, and buying toys for your nephew. By noting every single cash inflow (receipts) and cash outflow (payments) in a personal diary or notebook, you can calculate your net cash remaining at the end of the month and compare it with the actual physical cash in hand. When maintained systematically by an enterprise, such a record is designated as the Cash Book.

Core Types of Cash Books in NIOS Curriculum

Depending on the organizational size and transaction volume, businesses prepare three distinct types of Cash Books:

1. Simple Cash Book

Contains only one amount column on each side; records strictly cash receipts and payments.

2. Bank Column Cash Book

Contains two amount columns (Cash and Bank) on both debit and credit sides; handles contra entries and cheques.

3. Petty Cash Book

Maintained by a petty cashier under the Imprest System to handle repetitive small day-to-day office expenses.

Exam Tip for Public Examination: If an MCQ asks whether the Cash Book is a journal, a ledger, or both—always choose "Both Subsidiary Journal and Ledger". Remember that maintaining a cash book eliminates the need to open a separate Cash Account in the ledger.
Major Section 7.2

2. Simple Cash Book: Format, 6-Step Preparation & Rules

Architectural Structure of a Simple Cash Book

A Simple Cash Book (Single Column Cash Book) records only cash receipts and cash payments. It has two sides:

  • Debit Side (Dr. / Left Hand Side): Dedicated strictly to recording all Cash Receipts.
  • Credit Side (Cr. / Right Hand Side): Dedicated strictly to recording all Cash Payments.
1. Date Column

Records the accounting year, month, and date of the transaction in strict chronological order. Year and month are written once at the top of the column for the respective batch.

2. Particulars Column

Records the corresponding account name. On the debit side, the account from which cash is received is written prefixed with 'To'. On the credit side, the account for which cash is disbursed is written prefixed with 'By'.

3. Voucher Number (V. No.) Column

Records the serial number of the documentary evidence (cash receipt slip, invoice, payment voucher) supporting the authenticity of the transaction.

4. Ledger Folio (L.F.) Column

Records the exact page number of the ledger book where the corresponding personal, real, or nominal account is posted.

5. Amount (₹) Column

Debit amount column records the actual monetary sum of cash received. Credit amount column records the actual monetary sum of cash paid out.

The 6 Official Steps in Preparing and Balancing a Simple Cash Book

  1. Record Receipts: On the debit side in the Particulars column, write the name of the account from which cash is received.
  2. Record Payments: On the credit side in the Particulars column, write the name of the account for which cash is paid.
  3. Enter Amounts: Enter received cash sums in the debit amount column; enter paid cash sums in the credit amount column.
  4. Compare Totals at Period End: Total the debit side and compare it with the total of the credit side. The difference is entered on the credit side as 'By Balance c/d'.
  5. Debit Side Supremacy: In a Simple Cash Book, the debit side total is generally greater than (or equal to) the credit side total, because an entity can never pay out more cash than it possesses in hand. Writing Balance c/d makes both totals equal.
  6. Carry Forward to Next Period: The closing credit balance (Balance c/d) becomes the opening cash balance for the succeeding period, written on the debit side as 'To Balance b/d'.
Critical Rules: Non-Cash Transactions & Cash Discount

• Total Exclusion of Credit Transactions: Credit transactions are NEVER entered in the Cash Book. For example, credit sales to customers (e.g., sold goods to Rohit for ₹6,000 in Illustration 4 or sold goods to Y for ₹4,800 in Illustration 3) are completely omitted from the Cash Book and routed to the Sales Book.

• Cash Discount Accounting (Illustration 2 Note): When cash is received from a debtor after allowing a cash discount (e.g., received ₹3,000 from Ramesh after allowing ₹200 discount), only the actual cash received (₹3,000) is entered in the Simple Cash Book. The discount allowed of ₹200 cannot be recorded in a single-column cash book; it must be recorded separately in Journal Proper via the entry: Discount Allowed A/c Dr. ₹200 / To Ramesh ₹200.

Standard Textbook Illustration: Simple Cash Book of M/s Ashok Traders (Dec 2011)

Debit (Receipts) Side Credit (Payments) Side
Date Particulars V.N. L.F. Amount (₹) Date Particulars V.N. L.F. Amount (₹)
2011 Dec 01 Balance b/d - - 30,000 2011 Dec 08 Insurance Premium A/c - - 2,500
Dec 05 Tanvi - - 12,000 Dec 10 Furniture A/c - - 7,000
Dec 14 Sales A/c - - 16,500 Dec 18 Purchases A/c - - 26,000
Dec 25 Sales A/c - - 18,700 Dec 22 Yash - - 3,200
Dec 28 Bank A/c - - 6,000
Dec 30 Rent A/c - - 4,000
Dec 31 Salary A/c - - 7,000
Dec 31 Balance c/d (Balancing Figure) - - 21,500
Total 77,200 Total 77,200
2012 Jan 01 Balance b/d - - 21,500
Exam Tip: Never write a credit balance (`Balance b/d` on the credit side) for physical cash in hand. Cash in hand is a tangible asset and its physical disbursement can never exceed the total receipts available.
Major Section 7.3

3. Two-Column (Bank Column) Cash Book & Contra Entries

Rationale & Architecture of Bank Column Cash Book

In modern commerce, almost all enterprises conduct substantial business through commercial banks. Rather than maintaining an independent bank journal or opening a separate Bank Account in the ledger, an enterprise adds an additional 'Bank Column' on each side of the Simple Cash Book.

Rules of Entry:

  • Cash Receipts: Recorded in the Debit Cash Column.
  • Payments in Cash: Recorded in the Credit Cash Column.
  • Bank Deposits & Cheques Received: Recorded in the Debit Bank Column.
  • Cheque Payments & Bank Withdrawals: Recorded in the Credit Bank Column.
🔄 The Doctrine of Contra Entry (Signified by 'C') L.F. = (C)

When a business transaction simultaneously affects both Cash Account and Bank Account, both accounts are present within the same Cash Book. Under the double entry system, one account is debited and the other is credited. Such an internal transfer transaction recorded on both sides of the Cash Book simultaneously is known as a 'Contra Entry'. To alert the bookkeeper that no subsequent posting to the ledger is needed, the capital letter '(C)' is inserted in the Ledger Folio (L.F.) column on both sides.

Case A: Cash Paid into Bank (Deposit)

• Bank balance increases: Debit side, Bank Column, write 'To Cash A/c' (L.F. = C).
• Cash in hand decreases: Credit side, Cash Column, write 'By Bank A/c' (L.F. = C).

Case B: Cash Withdrawn from Bank for Office Use

• Cash in hand increases: Debit side, Cash Column, write 'To Bank A/c' (L.F. = C).
• Bank balance decreases: Credit side, Bank Column, write 'By Cash A/c' (L.F. = C).

Note on Personal Drawings: Cash withdrawn from the bank for the proprietor's domestic or personal use is NOT a contra entry. It is recorded on the credit side in the Bank Column as 'By Drawings A/c' because the second account involved is Drawings Account, which must be posted to the ledger!

Accounting Techniques for Cheque Transactions (Section 7.3)

1. Cheques Received and Deposited on Same Date: Entered immediately on the Debit side in the Bank Column with the debtor/payer's name in the Particulars column.
2. Cheques Received but Not Sent to Bank Immediately: Textbook prescribes: Such crossed cheques should be kept securely under lock and key and entered directly into the Bank Column on the debit side on the next day when they are actually dispatched to the bank. (Treating them as cash on receipt day requires an unnecessary contra entry next day).
3. Endorsement of a Cheque: If a cheque received from a debtor is not deposited in the bank but is transferred/endorsed to a creditor on the same day, it is recorded in the Debit Cash Column on receipt and simultaneously recorded in the Credit Cash Column on endorsement.
Major Section 7.3 (B)

4. Bank Overdraft, Dishonour of Cheques & Balancing Procedure

Balancing the Two Columns: Cash vs. Bank

At the close of an accounting period, both columns on each side must be independently balanced:

  • Balancing Cash Column: Total of the Debit Cash Column will always be greater than or equal to the Credit Cash Column. The balancing figure is written on the credit side as 'By Balance c/d' and carried down to the debit side as 'To Balance b/d'.
  • Balancing Bank Column (Favourable Balance): When the Debit Bank Column total exceeds the Credit Bank Column total, there is cash at bank. The difference is placed on the credit side as 'By Balance c/d'.
  • Balancing Bank Column (Bank Overdraft): When the Credit Bank Column total exceeds the Debit Bank Column total, the enterprise has withdrawn more funds than its deposits under a bank credit facility. This is a Bank Overdraft (a liability). First total the Credit Bank Column, enter the balancing figure on the Debit side as 'To Balance c/d', and carry it forward below the total to the Credit side as 'By Balance b/d'.
Dishonour of Cheques

(a) Customer Cheque Dishonoured: When a deposited cheque is returned unpaid by the bank, enter the amount in the Bank Column on the Credit side, writing the customer's name in Particulars. (Any bank charges incurred are added to the customer's debit).
(b) Firm's Own Cheque Dishonoured: If a cheque issued to a supplier is returned unpaid, enter the amount in the Bank Column on the Debit side, writing the creditor's name.

Bank Charges & Direct Deposits

• Bank Charges: The bank debits the account for service fees, issuing cheque books, or SMS alerts. Recorded in the Bank Column on the Credit side as 'By Bank Charges A/c'.
• Direct Collections / Deposits: Dividends, interest collected by bank, or debtors paying directly into bank are entered in the Bank Column on the Debit side as 'To Dividend A/c' or 'To Debtor A/c'.

Real-World Case Example (Illustration 6 - Ratan's Cash Book)

In June 2012, Ratan opened with Cash in hand ₹12,000 and Cash at Bank ₹1,80,000. On June 20, he deposited ₹20,000 cash into the bank (Contra entry: Dr Bank ₹20,000 / Cr Cash ₹20,000). On June 24, he withdrew ₹35,000 cash from the bank for business use (Contra entry: Dr Cash ₹35,000 / Cr Bank ₹35,000). On June 26, he withdrew ₹4,000 in cash for personal use (Cr Cash ₹4,000, By Drawings A/c — NOT a contra entry). At the end of June, the closing balances were: Cash in hand ₹34,600 and Bank balance ₹1,45,300.

Exam Tip: Whenever an exam problem presents an opening Bank Overdraft (e.g., Terminal Exercise 11: "Cash in hand ₹2,780, Bank overdraft ₹3,125"), place Cash in hand on the Debit side as 'To Balance b/d' (Cash column ₹2,780) and Bank Overdraft on the Credit side as 'By Balance b/d' (Bank column ₹3,125).
Major Section 7.4

5. Petty Cash Book & The Imprest System

Definition & Purpose of Petty Cash Book

In every commercial establishment, dozens of trivial, repetitive cash payments occur daily—such as conveyance, taxi fare, bus fare, cartage, postage stamps, telegrams, speed post/courier, refreshments for clients, office cleaning, and stationery. If the Head Cashier records each trivial ₹10 or ₹25 disbursement in the main Cash Book, the book becomes congested, and the Head Cashier is overburdened.

To alleviate this burden, organizations appoint an assistant known as the Petty Cashier, who maintains a distinct book of account called the Petty Cash Book.

⚙️ Working Principle of the Imprest System

The Petty Cash Book is almost universally operated under the Imprest System (from the French word meaning advance):

  1. Initial Advance (Imprest): At the beginning of a period, the Head Cashier advances a predetermined sum of money (e.g., ₹500 or ₹1,000) called the Imprest Amount to the petty cashier.
  2. Disbursement against Vouchers: The petty cashier pays for minor expenses out of this fund and secures a petty receipt/voucher for each payment.
  3. Submission of Vouchers: When the fund is nearly exhausted or at the close of the period, the petty cashier presents the classified voucher file to the Head Cashier.
  4. Reimbursement: The Head Cashier audits the vouchers and reimburses the exact sum spent (e.g., ₹412). This restored sum brings the petty cashier's available cash right back to the original fixed imprest level (e.g., ₹88 unspent balance + ₹412 cash reimbursement = ₹500 initial imprest).

Analytical Columnar Classification (Illustration 7 Model)

The Petty Cash Book features a single total payment column followed by several analytical expense columns to categorize costs automatically:

Date (2012) Particulars Receipt Amt (₹) Conveyance Cartage Postage Telegram Refreshment Courier Total Payments (₹)
Jan 01 Cash (Imprest Advance) 500 - - - - - - -
Jan 01 Conveyance - 130 - - - - - 130
Jan 02 Refreshment - - - - - 45 - 45
Jan 03 Postage Stamps - - - 45 - - - 45
Jan 15–17 Courier & Telegram - - - - 25 - 35 60
Jan 18–28 Cartage, Conv., Ref., Courier - 21 69 - - 28 14 132
Total Expenses Disbursed 500 151 69 45 25 73 49 412
Jan 28: Balance c/d (Unspent) Balancing Figure (500 - 412) 88
Feb 01 Cash Reimbursed by Head Cashier 412 Restores Total Cash in Hand back to ₹500 Imprest
Exam Tip: Under the Imprest System, the amount reimbursed to the petty cashier at the end of the period is ALWAYS equal to the actual amount spent during that period, thereby bringing the fund back to its original fixed opening amount.