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HMRC internal manual

Enquiry Manual

Examining Accounts: Accounting Systems: Cash Book

In spite of its name the cash book is generally a record of payments and receipts from and into the bank account. Receipts are debited here and credited to the appropriate ledger. You should be able to trace them back from bank statements through paying-in books to the cash book entries for cheques and cash received. Payments are credited here and debited to the appropriate ledger. The payments side is written up from the cheque books. Withdrawals of cash will be debited to petty cash account.

Some sales customers will provide a reconciliation with their payments, showing which sales invoices are being paid, discount applied etc. These are known as remittance advices and may be retained.

Cash payments are generally kept out of the cash book which records the cheques drawn for cash. The petty cash book details withdrawals of cash and payments for small expenditure. Details of cash expenditure under various headings will be debited to the appropriate nominal ledger accounts (completing the double-entry for the original credit in the cash book). Cash payments will occasionally be financed by cash sales which do not feature in the main cash book.

After the entries in the cash book have been matched to the bank statements a ‘bank reconciliation’ must be prepared to prove the accuracy of the bank balance in the accounts. Its purpose is to ensure that all entries in the cash book and bank statements have been accounted for.