Cash Book & Bank Reconciliation

Learning Objective: Prepare cash books and bank reconciliation statements

Every business handles cash and bank transactions daily. A wholesale shop in Birgunj might receive payments in cash, issue cheques, and offer discounts -- all in a single day. The cash book records all these transactions in one place, acting as both a journal and a ledger.

Types of Cash Books

1. Single Column Cash Book

Records only cash transactions. It has one amount column on each side (debit for receipts, credit for payments). Suitable for very small businesses that do not use bank accounts.

2. Double Column Cash Book

Records both cash and bank transactions in two separate columns on each side. Most commonly used by businesses in Nepal that maintain a bank account alongside cash dealings.

3. Triple Column Cash Book

Adds a discount column alongside cash and bank columns. This is useful when a business regularly gives or receives discounts.

Format of Triple Column Cash Book (Receipt Side):

| Date | Particulars | L.F. | Discount (Rs.) | Cash (Rs.) | Bank (Rs.) | |------|------------|------|----------------|------------|------------| | 2081/01/01 | Capital | | -- | 2,00,000 | -- | | 2081/01/05 | Ram (Debtor) | | 500 | 9,500 | -- | | 2081/01/08 | Bank deposit | | -- | -- | 50,000 |

Note: When cash is deposited into the bank, it is called a contra entry -- it appears on both sides of the cash book (credit cash column, debit bank column). These are marked with "C" in the L.F. column.

Bank Reconciliation Statement (BRS)

Sometimes, the cash book bank balance does not match the bank passbook balance. This difference arises because of timing differences in recording transactions.

Common reasons for differences:

• Cheques issued but not yet presented for payment
• Cheques deposited but not yet cleared by the bank
• Bank charges deducted by the bank but not yet recorded in the cash book
• Interest credited by the bank but not yet recorded in the cash book
• Direct deposits by customers into the bank account

BRS Example

Cash book shows bank balance: Rs. 75,000 Bank passbook shows balance: Rs. 82,000

| Particulars | Rs. | |---|---| | Balance as per Cash Book | 75,000 | | Add: Cheque deposited by customer directly | 10,000 | | Add: Interest credited by bank | 2,000 | | Less: Bank charges not recorded | (1,000) | | Less: Cheque issued but not yet presented | (4,000) | | Balance as per Bank Passbook | 82,000 |

Key Term: Contra Entry is a transaction that affects both cash and bank columns of the cash book, such as depositing cash into a bank account.

Summary

• Cash books combine the functions of journal and ledger for cash and bank transactions.
• Single, double, and triple column cash books serve businesses of different sizes and needs.
• A Bank Reconciliation Statement (BRS) explains the difference between cash book and bank passbook balances.
• Timing differences, bank charges, and direct deposits are the most common causes of discrepancy.