Definition
A two-column cash book is a type of cash book used in accounting to record all cash and bank transactions. Unlike the three-column cash book, it does not provide a column for discounts allowed and received. Instead, it only features columns for cash and bank transactions, making it simpler to manage for businesses that don’t frequently engage in discounting.
Examples
Example 1:
A retail store maintains a two-column cash book that records cash sales and cash purchases. The cash column is used to log all cash transactions, while the bank column is utilized for transactions involving bank accounts.
Example 2:
A consulting firm keeps a two-column cash book where it records fee receipts in the cash column and payments to suppliers or for operational expenses in the bank column.
Frequently Asked Questions
What are the main components of a two-column cash book?
The two main components are:
- Cash Column: Records all transactions involving direct cash.
- Bank Column: Records all transactions conducted through the company’s bank account.
Why choose a two-column cash book over a three-column cash book?
A two-column cash book is usually chosen by smaller businesses that do not frequently deal with discounts. It simplifies the recording process and makes it easier to manage financial transactions.
How is the two-column cash book balanced?
Balancing involves summing the receipts (debits) and payments (credits) in both the cash and bank columns and noting the balance carried forward to the next period.
Can discounts be recorded in a two-column cash book?
No, discounts allowed and discounts received are not recorded in a two-column cash book. Such transactions would need to be recorded separately in a discount ledger or within the general journal.
How often should a two-column cash book be updated?
It should be updated regularly—preferably daily or weekly—to ensure accurate financial records and easy reconciliation of cash and bank statements.
Related Terms
Three-Column Cash Book
A three-column cash book includes columns for cash, bank, and discounts (both allowed and received), offering a more comprehensive recording of all transactions.
General Ledger
The primary accounting record where all financial transactions are posted after being recorded in subsidiary books like the two-column cash book.
Cash Flow Statement
A financial statement that provides aggregate data regarding all cash inflows and outflows a company receives. It encompasses activities related to operating, investing, and financing.
Bank Reconciliation Statement
A document that matches the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Differences are identified and reconciled to maintain accurate records.
Online Resources
Suggested Books for Further Studies
- “Principles of Accounting” by Belverd E. Needles, Marian Powers
- “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper
- “Financial Accounting: Tools for Business Decision Making” by Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso
- “Horngren’s Financial & Managerial Accounting” by Tracie Nobles, Brenda Mattison, and Ella Mae Matsumura
Accounting Basics: “Two-Column Cash Book” Fundamentals Quiz
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