How to write up and balance a cash book

The cash book records all the money a business receives and pays. Receipts go on the left, which is the debit side. Payments go on the right, which is the credit side.

It does two jobs. It is a book of prime entry, where a transaction is first written down. It is also the Bank account in the ledger.

Three words describe the layouts you will meet.

Two column cash book

Two columns on each side: one for cash, meaning notes and coins, and one for the bank account.

Analysed cash book

Extra columns that sort each amount by type, such as trade receivables, cash sales or wages. Each column is posted as one total.

Contra

Money moved between the cash column and the bank column, such as cash paid into the bank.

This guide uses the bank columns only. The method is the same for every layout.

Write the cash book up as the money moves, in date order. Balance it at the end of the period.

1. Start with the balance b/d, which is the balance brought down from the period before. Money in the bank goes on the debit side.
2. Write each receipt on the debit side: the date, who it came from and the amount.
3. Write each payment on the credit side: the date, who was paid and the amount.
4. At the end of the period, add up each side. The balance b/d is part of its side.
5. Take the smaller total from the larger. The difference is the balance.
6. Write the balance on the smaller side as balance c/d, which means carried down. Both sides then add up to the same total.
7. Start the next period with the same figure on the opposite side, as balance b/d.
8. Post the other half of each entry to the ledger. A receipt is credited to another account. A payment is debited to another account.

Some items reach the bank before they reach you: bank charges, direct debits, standing orders and money a customer pays straight in. Enter them from the bank statement, or the cash book will be missing them.

Willow Lane Dog Grooming starts September with £1,725.00 in the bank. Ignore VAT in this example.

The receipts side adds up to £3,310.00, including the balance brought down. The payments side adds up to £1,915.00. The difference is £1,395.00.

The payments side is the smaller one, so the balance c/d is written there. Both sides then show £3,310.00.

On 1 October the £1,395.00 is brought down on the debit side. A debit balance means there is money in the bank.

Each line has already been posted to Bank, because the cash book is the Bank account. The other half of each entry is still to be made.

The receipt from Greyfriars Kennels is also credited to its own account in the sales ledger. The payment to Otterburn Supplies is also debited to its own account in the purchases ledger.

A receipt written in the cash book is already a debit to Bank. A payment written in it is already a credit to Bank. So the cash book total is not posted to a Bank account again.

Only the other half is still to be made. Every receipt is a credit somewhere else, and every payment is a debit somewhere else.

A receipt from a credit customer has no VAT to record. Its invoice went through the sales day book, and the VAT was recorded then. A cash sale is different: the cash book is the first place its VAT is recorded.

When the payments side is the larger one, the balance c/d is written on the receipts side and brought down on the credit side. A credit balance in the bank column is an overdraft: the business owes the bank.

• Writing receipts on the credit side because the bank statement calls them credits. The statement is written from the bank's side. In your cash book, money in is a debit.
• Posting the cash book total to a Bank account in the ledger. The cash book is the Bank account, so that would count it twice.
• Leaving the balance b/d out when adding up its side.
• Writing the balance c/d on the larger side. It goes on the smaller side, to make the two totals equal.
• Recording VAT again when a credit customer pays. It was recorded when the invoice was raised.
• Leaving out bank charges, direct debits and standing orders. No document arrives on the day they are paid, so take them from the bank statement.

• Both sides show the same total.
• The balance b/d is the same figure as the balance c/d, on the opposite side.
• The side of the balance b/d fits the bank account: a debit balance when there is money in it, a credit balance when it is overdrawn.
• Every line has been posted once to another account, on the opposite side to its side in the cash book.
• The balance can be reconciled to the bank statement.

The last check is the strongest, because the bank statement is a record made outside the business. Reconcile the cash book to it every time a statement arrives.