Cash Books and Cash Budgets

What is a Cash Book?
The Cash Book is a record of all your business transactions that involve the payment and receipt of cash. If the Cash Book is properly written up it can provide valuable information to help in the running of the business and gives your accountant the necessary data for completion of reports and financial accounts.

The Cash Book records all the transactions that run through your bank account. The cash receipts section records all the deposits, and the cash payments section records all the payments.

All these transactions are confirmed by the bank statement that you receive. Everything that goes through the bank account must show up in your Cash Book in one section or the other and is later reconciled with your bank statement.

Advantages and Disadvantages of a Cash Book

The advantages of a Cash Book are:

  • Reliable and proven method of recording all financial transactions

  • It can save a lot of money by allowing you to do quite a bit of the work - work that normally your accountant would do

  • If you have to pay Sales Tax then the cash book can be set up in such a way that the Sales Tax amounts can be easily identified in its own column and easily accounted for to the IRS

  • Possible to see how the business is going on a month to month basis by looking through the cash book and analysing the breakdown of income and expenses

The disadvantages of a Cash Book are:

  • If your Sales Tax is based on an invoice basis then it is possible to calculate the Sales Tax from the cash book alone.

  • The writing up of a manual cash book is slightly outdated because of the use of computerised software. Sometimes writing up an offline or non computerised cashbook is not as cost effective but this depends on the type of business and its size.

  • It can take a lot of time to start and maintain. If the business is large then it is a cost that should be taken into account.

  • For the cash book to really be of use it needs to be transferred into financial statements which are the only reports that can show how the business is going and this involves extra time.