The importance of using a cash book for accounting and cash flow management if you are a small business owner or a sole trader.
What is a cash book?
A cash book is a simplified way of recording all financial dealings, particularly if you receive regular cash-based transactions.
It is effectively a financial journal that allows you to keep a record of everything from cash receipts, disbursements, bank deposits and withdrawals. Simply put – it is written evidence of all monies going in and out of your business.
Whether you purchase a ready-made cash book from a retailer, or simply create your own version via Excel, it is a saving grace for small businesses and the self-employed – and you should be using one.
The Benefits of a Cash Book
There are many benefits of using a cash book, some of which include:
- Transaction reference, which is self-explanatory.
- Minimising the risk of small cash payments ‘slipping through the cracks’ in terms of financial filing.
- Spotting any cash flow errors or miscalculations.
- Keeping track of ‘idle money’.
- Managing daily financial ins and outs in a quick and easy manner.
- Reviewing any consequences of cash transactions.
- Saving time and effort without preparing separate/multiple books.
The Different Types of Cash Books
There are several different types of cash book and as a small business owner or sole trader, you will know what works best for you.
- Single-Entry: this is the simplest format, as it records cash payments and receipts only, and generally contains only one ‘amount’ column on each of the debit and credit sides. Single-entry cash books are very straightforward: your cash receipts will be entered on the debit side, and cash payments are entered on the credit side. Other columns should contain the transaction date, description, a reference, and the respective income/expenditure.
- Double-Entry: naturally, a double entry cash book is a more advanced and complex version. Sometimes known as a two-column cash book, it consists of two columns on each side to record cash and bank transactions. Instead of separating cash and bank accounts, a double-entry cash book allows you to maintain the two accounts simultaneously.
- Three-Column: the three-column cash book employs both the aforementioned features, but also includes additional columns that record bank transactions and discounts.
- Excel: Excel cash books can be created by way of online templates or simply by creating your own version.
Why do I need a cash book?
Keeping on top of your cash flow is important because it allows you to view an exact number of funds available at a glance and at any given time. It will also provide a good understanding of your outgoings, and allows for you to plan and maintain financial endeavours with minimal risk. Small businesses who receive many cash transactions on a regular basis will find a cash book extremely useful, particularly during tax season.
Additional Accounting Support
Keeping on top of your bookkeeping as a SME or sole trader can be time-consuming and tedious – especially if you choose to do it the old-fashioned way (long-hand!)
Employing the use of Xero software, which is entirely cloud-based, allows you to perform all necessary bookkeeping functions, such as payroll and invoicing, as well as enabling you to connect to a live bank feed.