The cash book is the central record of all the money that comes into and goes out of your business - often referred to as cashflow.
To complete your cash book, you'll need to collect and hold on to:
- cheque book stubs
- cancelled cheques
- bank paying-in books
- bank statements
- copies of your own invoices
- receipts and delivery notes
- your suppliers' invoices
- receipts for all cash purchases, till rolls, etc
- remittance advice slips from customers
- copies of payments made or received using online banking systems
- credit or debit card statements
- credit and debit card transaction slips/vouchers
A separate record for sales and purchases (receipts and payments) is sensible. Once you have a turnover of more than £85,000, the VAT registration threshold, it will help you calculate your VAT liability - the difference between the VAT you reclaim and your total VAT on sales.
Cash book templates
See the example spreadsheets below:
Cash book for sales
|Bank pay-in amounts|
Cash book for purchases and expenses
|Date||Supplier||Amount paid||Paid cash||Paid cheque||Paid credit/debit card|
Recording the type of expense - business related or personal - will help when filling in your annual tax and VAT return (if registered for VAT). You will need to be able to distinguish between 'allowable' expenses and 'non-allowable' expenses.
Check the individual entries in your cash book with the bank statement to pick up items paid directly into your bank account. If you pay by cheque, you should also check that these have been properly credited by your suppliers.
Cash book summary
The cash book summary reconciles the totals from the cash book sales and cash book purchases and expenses. It helps you check what your opening and closing balances are and helps you monitor how your business is performing.
Cash book summary (reconciliation)
|Opening cash balance (A)|
|Cash receipts (B)|
|Cash banked (C)|
|Cash payments (D)|
|Closing cash balance (E)|
|Opening cheque account balance (F)|
|Total value of pay-ins for period (G)|
|Total value of payments for period (H)|
|Closing cheque account balance (I)|
To reach the closing cash balance (E), the calculation is (A + B) - (C + D) = E.
To reach the closing cheque account balance (I), the calculation is (F + G) - H = I.
The closing cash balance (E) should always equal the cash in hand. If it does not the discrepancy should be investigated. It may be because of an unentered receipt or payment.
The closing cheque account balance (I) should always equal the balance on the bank statement at the close of business on the same day as the cheque account is made up to, after allowing for unpresented cheques or bankings.
Small, simply structured businesses may find the cash book above sufficient. However, keeping sales and purchase ledgers as shown later in this guide will enable you to record sales, purchases on credit, and keep track of amounts owed to you from sales and by you for purchases. This will make it easier for cashflow management.
Many businesses choose to use accounting software to help them manage accounts more efficiently. It can make the process quicker and more straightforward. Using accounting software can also make the process of e-filing (submitting records electronically) very simple. See computerising financial records.
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