Importance of a cash book in accounting

Cash book in accounting

Cash book is considered very important in accounting since it is the ultimate asset of an organization, be it a company, government agency, charity or academic institution.  Cash book accounting helps to advance in their agenda, perform tasks and lay the foundation for success. The corporate management establishes solid procedures to monitor the financial records, including cash books and ledgers.

The corporate management establishes solid procedures to monitor the financial records, including the cash books and general ledger book.

Cash book accounting


A cash book is a document in which the cash transactions of corporate accountants and especially the auxiliary and junior accountants, are recorded. These include the money that comes into the vaults of the companies from diverse of clients, bank savings accounts and supplier sources, through discount programs. For example, the outgoing cash flows from suppliers and remittance service providers for the payment of salaries and taxes.

A cash book is similar to a cash journal. In a modern economy where technology is a basic element in corporate accounting, this is more like an electronic record of liquidity operations, rather than a just a book.

Importance of Cash book

Liquidity management in a cash book helps a company to determine the amount of cash that the company has at any given time, either at the end of a day or a week. With this information, the senior executives can quell the doubts that financial commentators might have on the state of liquidity of the company and operational capacity of senior leadership.

For example, the company can point to its cash flow statement to alleviate the concerns of lenders and to reassure the public that is actually dealing with a competitive tedium. Also known as a report of liquidity, cash flow describes the operational characteristics of a company, focusing on the money that the business spent on operating, investing and financing .

How it works

Cash transactions in cash book goes through several processes before ending up in a report of liquidity. Usually, an accountant records the inputs and outputs of money by making a debit and a credit in the cash account. The practice of accounting is different from banking, where debit of money in cash means an increase in the corporate money.

For example, the auxiliary accountant recorded remittances debiting the customers cash account and crediting the account receivable from customers. Then, the cash inflows fall into the trial balance, a report that helps accountants to verify that the total credits are equal to total debits. The third step in the process of financial information leads to the disclosure of cash in the corporate balance sheet, also known as a statement of financial position or statement of financial condition.

Cash Controls

In cash book account, at the corporate level, the heads of department adopt effective cash policies, especially those relating to the supervision of cashbook, to promote accurate reporting and prevent the theft of assets. This is important because the cases of fraud and embezzlement of cash represent a profound betrayal of trust and segment managers are aware of the fact that such events may have regulatory consequences down the road.