As we saw in the previous section, a Cash Book records a business’ receipts and payments. Some accountants however, also use the Cash Book to calculate the business’ bank balance and cash balance at the end of each accounting period (e.g. at the end of the month).
Recording opening balances
The cash and bank balances at the start of an accounting period (often referred to as “opening balances”) are recorded in the Cash Book as follows:
- An opening cash balance is recorded in the Cash column on the receipts side of the Cash Book
- An opening bank balance which represents money held in the current bank account at the start of a period is recorded in the Bank column on the receipts side of the Cash Book
- An opening bank balance that represents an overdraft at the start of a period is recorded in the Bank column on the payments side of the Cash Book
Note that when balances are included in a Cash Book, the Receipts side is also referred to as the “Debit side” of the Cash Book and the payments side is also referred to as the “Credit side”.
Once the opening balances are recorded as described above, payments and receipts will then be recorded as normal and as described in the previous section.
Recording closing balances
At the end of an accounting period we will go through the following process to calculate and record the cash and bank balances at the end of an accounting period (known as “closing balances”).
Add up the Cash and Bank columns on both the receipts (or debit) side and the payments (or credit) side but do record these totals in the cash book just yet.
Compare the totals of the Cash columns on the receipts and payments sides. Record an amount in the smaller of the two columns so that they now add up to the same amount. This entry should be dated at the end of the accounting period and be described as the balance carried down (or balance c/d). Then do the same process for the Bank columns on the receipts and payments sides.
Finally, total the columns on both the receipts and payments sides of the Cash Book and bring the cash and bank balances down at the start of the new accounting period. This is done by the recording the balances carried down at the end of the previous accounting period on the opposite side of the cash book. So, for example, a balance carried down on the payments side of the cash book will appear on the receipts side as a balance brought down.
Once you have calculated and recorded the column totals you should check that the totals of the Cash columns on both sides of the Cash Book are the same figure as are the totals of the Bank columns. Note that you cannot complete a cross-add check when balances are included in the Cash Book.
The cash balance brought down will always be recorded on the receipts side of the Cash Book. The bank balance brought down will be recorded on the receipts side of the Cash Book if the business has money in that account and will be on the payments side of the Cash Book of the bank account is overdrawn.