Reviewed by Jan 05, 2021| Updated on
As a successor to the general ledger, a cash book is formed in which all cash transactions made within an accounting period are reported in sequential order. More substantial organisations generally split the cash book into two parts: the cash disbursement journal recording cash payments and the cash receipts journal recording all cash earned by the company.
The cash disbursement report will include items, such as payments made to retailers to minimise accounts payable, and things like payments received by consumers on accrued accounts receivable or cash transactions would be included in the cash receipts journal. In some respects, a cash book and a cash account are different.
A cash book is a separate ledger in which cash transactions are registered, while a cash account is a general ledger account. A cash book serves both journal and ledger purposes, while a cash account is organised like a ledger. In a cash book, information or narration about the source or use of funds are needed, but not in a cash account.
There are several reasons why a company should report transactions using a cash book rather than a cash account, i.e. natural exposure and assurance of the daily cash balances.
Mistakes can be easily found by verification, and entries are kept up-to-date as the balance is checked daily. For cash accounts, balances are usually reconciled at the end of the month after the monthly bank statement is released.