Let’s say you kept a diary as a kid. It contained your closely guarded secrets, and one day, your friend read its contents. You’d be mad about it sure, but the revelation of your secrets never affected your life in a significant way. That is where the comparison between a secret childhood diary and a business cash book ends. Unlike the diary, the revelation of what your cash book contains would devastate your company. There would be no forgiving because the consequences are much direr. If that piques your interest, then let us explore what a cash book is some more.
To answer that question in-depth, let’s turn our attention to journal entries and general ledgers for a moment. Both are important accounting documents. However, there are some misconceptions about whether cash books are journals or ledgers. The concept of a journal is to record both non-economic and economic sales transactions in chronological order. Most entries involve the purchase, sales, and cash. The reason for recording these financial deals is to trace its impact on the business’s accounts. No matter how little the amount these deals contribute or take away from the account, it can affect the general ledger.
How are journal entries and general ledger related? Without journal entries, a business ledger would have nothing to account for. Before a financial transaction ends up in a general ledger, a bookkeeper or accountant has to record these deals as a journal entry. It is simply put that a journal entry is the entry point of any business transaction before making it into other book accounts. Thus, a general ledger is a book of account that collates recorded transactions from the business journals. Now that the concepts of a general ledger and a general journal are clear, distinguishing a cash book can be easier. A cash book, which is a subsidiary book or book account, is both a ledger and a journal. This book can keep original records of all transactions, which makes a cash book related to a journal entry. Since there is no separate ledger for money, a cash book can be a subsidiary book for cash accounts.
Keeping an eye on every business transaction can be a close-to-impossible task. Since several transactions could happen in a day, it might be difficult to track all of them. But it does not mean you could not do anything to record those transactions. The reason why a cash book exists is to help a business in recording business deals that mostly involve receipts and payment of cash. Hence, you can make another account related to payment and receipt as a cash book.
