What is a cash book, and why do I need one?

The importance of using a cash book for bookkeeping and accounting and cash flow management if you are a small business owner or a sole trader.

What is a cash book?

A cash book is a simplified way of recording all financial dealings, particularly if you receive regular cash-based transactions.

It is effectively a financial journal that allows you to keep a record of everything from cash receipts, disbursements, bank deposits and withdrawals. Simply put – it is written evidence of all monies going in and out of your business.

Whether you purchase a ready-made cash book from a retailer, or simply create your own version via Excel, it is a saving grace for small businesses and the self-employed – and you should be using one.

The Benefits of a Cash Book

There are many benefits of using a cash book, some of which include:

  • Transaction reference, which is self-explanatory.
  • Minimising the risk of small cash payments ‘slipping through the cracks’ in terms of financial filing.
  • Spotting any cash flow errors or miscalculations.
  • Keeping track of ‘idle money’.
  • Managing daily financial ins and outs in a quick and easy manner.
  • Reviewing any consequences of cash transactions.
  • Saving time and effort without preparing separate/multiple books.

The Different Types of Cash Books

There are several different types of cash book and as a small business owner or sole trader, you will know what works best for you.

  • Single-Entry: this is the simplest format, as it records cash payments and receipts only, and generally contains only one ‘amount’ column on each of the debit and credit sides. Single-entry cash books are very straightforward: your cash receipts will be entered on the debit side, and cash payments are entered on the credit side. Other columns should contain the transaction date, description, a reference, and the respective income/expenditure.
  • Double-Entry: naturally, a double entry cash book is a more advanced and complex version. Sometimes known as a two-column cash book, it consists of two columns on each side to record cash and bank transactions. Instead of separating cash and bank accounts, a double-entry cash book allows you to maintain the two accounts simultaneously.
  • Three-Column: the three-column cash book employs both the aforementioned features, but also includes additional columns that record bank transactions and discounts.
  • Excel: Excel cash books can be created by way of online templates or simply by creating your own version.

Why do I need a cash book?

Keeping on top of your cash flow is important because it allows you to view an exact number of funds available at a glance and at any given time. It will also provide a good understanding of your outgoings and allows for you to plan and maintain financial endeavours with minimal risk. Small businesses who receive many cash transactions on a regular basis will find a cash book extremely useful, particularly during tax season.

Additional Accounting Support

Keeping on top of your bookkeeping as a SME or sole trader can be time-consuming and tedious – especially if you choose to do it the old-fashioned way (long-hand!)

Employing the use of Xero software, which is entirely cloud-based, allows you to perform all necessary bookkeeping functions, such as payroll and invoicing, as well as enabling you to connect to a live bank feed.

If you feel you need additional support, we offer plenty of accounting and bookkeeping packages to suit your budget and needs. Speak to us today.

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