Cash Book

A cash book is simply a system that helps a small business organize its finances. Every organization needs to maintain precise and organized records of its fiscal activities in order to be able to demonstrate the stability of the organization to investors, shareholders, banks, and any interested party. The cash book shows the flow of money into and out of the company so we can see how its cash resources are being allocated. Being that cash is a liquid form of money, it is of particular import to the success of our ventures. It enables us to pay off creditors, purchase goods, and pay our employees. Without a system in place for tracking the flow of money, it would prove difficult to make objective, informed decisions to grow our companies.

A cash book is akin to a road map to guide our business along a path toward success. This book is one component of what is posted to the general ledger, which is the main company record used to produce the balance sheet and income statement. Therefore, it is an important piece of what aids businesses in acquiring funding from investors, filing tax returns, and preparing financial statements. Furthermore, a cash book enables us to demonstrate to our key stakeholders how cash is being utilized so that they continue to have faith in the organization. Being transparent and accountable to our customers gives them confidence in our business so they will believe in our viability, continue to work with us, invest in us, and recommend us to others.

Internal Auditing Purposes

A cash book essentially notes debit, credit, and running account balance information. There are columns in these accounting books to track the date of the transaction, the amount, the source of the funds received or the recipient of the cash delivered, the running balance of the money on hand, and a more detailed description of why the transaction was made. There are various software programs that help us maintain the most accurate records of the cash receipts and payments that make up this book. At the end of the month when we receive our bank statements, we can reconcile them with the book as a way to conduct a basic internal audit of our funds. In this way, a cash book helps us avoid and identify any misuse of corporate funds due to embezzlement, theft, or other illegal activities.

The use of double entry accounting, in particular, ensures that every cent is accounted for by requiring each transaction to affect at least two accounts. Consequently, if something is amiss our system will be out of balance so we can recognize that there is a problem. It is critical that we find any source of error before an auditor or tax official so we avoid potential legal troubles or fines. The importance of having a balanced book cannot be understated. Fortunately, there are experts that can guarantee that we keep accurate documentation of our cash flow so we avoid potentially expensive errors.

Securing Outside Funding

Maintaining an accurate cash book is the basis for generating the financial statements that allow us to secure financing from banks or other investors. This financing is often necessary to take our ventures to the next level. When we start out, we typically invest a large sum of our own resources to get going. At some point down the line we may need to apply for a bank loan to purchase new equipment or hire additional sales personnel. We will need to write a business plan so we can acquire that funding. One of the components that can make or break a funding request is the financial analysis portion.

The financial analysis section of a business plan provides information on financing our organizations in the present, predicts our future needs for growth, and estimates the operating expenses. To demonstrate our monetary need and ability to pay back a loan requires that we provide accurate records and statements of our financial condition. The cash book is just one part of our organization's finances, but its accuracy is essential to the rest of the system. To avoid the stress and uncertainty of the funding process, we can get assistance from a qualified accounting professional.

Utilizing the services of a skilled bookkeeper ensures that our cash book is correct and maintained on a regular, if not daily, basis. This will guarantee that we can properly manage our finances and that those interpreting the book records can easily capture a precise fiscal picture of the company. It is wise to hire experienced accounting or bookkeeping professionals to handle our company's fiscal details and assist in writing a company plan. Our free service can help you locate low cost providers in your area who can set up your book of account records.