In modern practice it is customary to speak of the cash book as distinct from the journal, and this naturally leads those unfamiliar with bookkeeping to think that some radical difference exists between the two books. This, however, is not the case, for a cash book is neither more nor less than a special form of journal devoted to cash entries, and might, therefore, properly be called a cash journal, just as a journal devoted to sales entries is called a sales journal.
In practice, the term "Cash Journal" is usually restricted to the columnar form of cash book, an example of which is shown in Form 3. The use of this name has caused some confusion and has sometimes been made an excuse for bringing into this record items which do not refer to cash. Considered in the light of accounting history, this practice is a step backward rather than forward. Our forefathers brought the record of all their transactions into one book - a journal, i.e., a "day-book" - from which they posted to the ledger; but after years, centuries in fact, it was found advantageous to eliminate cash items from the journal and record them in a cash book. This idea has been further developed and expanded until today we find cash journals, sales journals, purchase journals, and many others. It should be observed, however, that all such books have one aim in common, namely, to start the work of analysis as entries are made, and thus segregate each distinct class of entry in an appropriate record. Whenever a departure is made from this principle and entries relating to all kinds of transactions are crowded into one record, we are clearly returning to those methods which science and experience have taught us should be abandoned.
INTEREST & DISCOUNT
Form 3. General Cash Book.
The actual form of cash book used in any particular instance must depend upon the nature of the business. There are, however, a few rules which apply in almost all cases. One of these requires that the cash book be a bound book and not of the loose-leaf form. A dishonest cashier may, of course, make changes in a bound book, but it presents more difficulties than a loose-leaf book, and gives the auditor a far better opportunity of discovering any irregularity and particularly any carelessness on the part of the cashier which may have occurred.
There is one exception to the rule above mentioned, which applies to a concern that has two offices at different points, as for example, an English concern which operates both in England and in the United States. In such a case the home office frequently desires a monthly transcript of the cash book, and it is then entirely proper to have the cash book in loose-leaf form, arranged with duplicate pages, printed on thin paper, and ruled on one side only, so that by the use of carbon paper the alternate sheets give a copy of the original writing. This is easily secured by the use of the typewriter or of a hard pen, and it saves the labor of rewriting the entire cash book. At the end of each month the duplicate sheets are taken out and sent to the home office. They then pass beyond the control of the bookkeeper, and should any question involving them arise in the future, they are always at hand for reference.
Another general essential for the cash book is the use of special columns. It is almost invariably found that such a book is most convenient for the bookkeeper, the management, and the auditors. The number of columns depends, of course, upon the nature of the business, the main point being that every account which is used often should have a column allotted to it, as indicated in Form 3.
In the case of a large company handling a considerable number of active subdivisions, it is often convenient to have a cash book containing forty or fifty columns. It is then advisable to enter the receipts in one volume and the payments in another - an arrangement which presents many advantages, as two bookkeepers can work on the books at the same time, and the auditors can examine one volume without interfering with work on the other.
The cash book should be written up and balanced each day, the debit side being entered from the receipt books, and the credit side from the check stubs, check register, or voucher list.
The rule that all incoming cash items be entered at least daily, should be invariably observed, and the total cash received should be deposited in the bank each day. In this way the cashier is at once relieved of all further responsibility as to the custody of that particular cash, and the auditor can very quickly check each day's receipts with the amount shown in the bank pass-book. This is probably the most important of all rules for the keeping of cash books.
When such a cash book as is shown in Form 3 is used, each of the bank accounts is kept in it, and no cash or bank accounts need be kept in the ledger (except occasional or special bank accounts outside the usual current business), the cash book balance being carried direct to the trial balance. A fastidious bookkeeper may claim that the ledger should show each and every account, and for the sake of completeness may add a cash account to his ledger, the total receipts and disbursements being posted once a month. Such a ledger account has the advantage of furnishing a statement of monthly receipts and disbursements, which is sometimes of value.
It may be noted that one of the chief objects in having the bank column in the cash book is to avoid the necessity for a check register. With the cash book so arranged, and a good system of voucher checks, either in duplicate or with stubs, the register may safely be dispensed with.
It is not an uncommon practice for agents who sell properties, especially subdivision properties, to deduct their commissions from the remittances they make to the home office. In an office where many such transactions occur, it is convenient to use a column on the debit side of the cash book in which to write such deducted commissions. If this is done, the two amounts - cash received and commissions - should be credited to the customer; and at the end of the month the total of the commission column must be treated as a journal entry and debited to Commission account, being omitted, of course, from the cash book totals of receipts. This method is similar to that followed by many mercantile houses in connection with the discounts allowed to customers.
It is a better practice to have the agent remit his collections in full and receive a check for his commissions; but the enforcement of such a rule in face of an established practice might handicap the selling force.