State the importance and features of cash books
Cash book records all the transactions related to cash in an organization. Transactions are recorded according to their type (debit or credit). These are recorded in chronological order. Cash book can be both a journal and a ledger
Features of cash book
The features of cash book are explained below −
- Act as both journal and ledger − Cash books records transactions as it happens and posts the transactions.
- Substitution − It serves as an alternative for cash accounts.
- Dual entry − Cash book has two sides namely, debit side and credit side.
- Identical − Debit side (total) = credit side (total).
- Debit balance − Business will always be left with debit cash balance to meet daily expenses.
- Entries − All debit and credit entries are entered date wise.
- Cross check − Debit cash balance is cross checked with actual cash in hand (calculated).
- It records only cash transactions (both cash and bank).
- Records the transactions in chronological order.
- Opening the debit balance on the debit side shows the debit balance of cash and opening the credit balance on the credit side (bank column) shows the credit balance of cash.
- Transactions recorded in cash book are directly transferred to respective ledger
- Cash book balance = organizations cash fund.
- Financial transactions are called business transactions, if they are written through the debit credit analysis.
Importance of cash book
The importance of cash book is as follows −
- Matching − Actual cash in hand and cash book balance are verified, so errors and recording mistakes are minimized.
- Maintains daily record − Transactions (cash receipts and cash payments) are recorded on a daily basis.
- Easy determination − Transactions made on a particular date are easily determined.
- Default identification − Payment failure or cash evasion are identified easily by verifying the cash book balance with actual cash balance.
- Cash in hand − Gives remaining amount or cash in hand of an organization.
- Time saving − Not only time, it saves expense and efforts in preparing separate books.
- Detection of error is easy.
- Business cash receipts and payments are known easily.
- Accurate accounts related to cash transactions can be maintained.
- It also shows idle money in business.
- Consequences of cash transactions can be known.
Published on 08-Jul-2021 08:02:36