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Cash book or accounting of income and expenses, is the where one made a record of monetary entries and exits, so that a final balance is calculated as the difference between the two.
This method is, therefore, a simple entry of each of the accounts, but without counterpart. In this way, it is indicated when there are income or entrances and exits or exits. By its nature its balance should always be debtor or zero, as there is no parallel entry. It is no longer used and has been replaced by more sophisticated ones.
Origin of the Cash Book
Accounting has been known since ancient times, having been practiced by Phoenician or Roman merchants, among others. Until the fourteenth century this method was the most used, so that operations used to be recorded in a single account. Not existing yet credit markets, this way of accounting was more than enough to manage the cash, suppliers and the customers.
However, it had a number of drawbacks, especially to account for transactions such as loans. These were solved with the creation of the method of Double match, much more appropriate to always be a game and a counterpart. With him, relations between the accounts could be established, something that did not happen before.
Disadvantages of Accounting Method
This method, although simple, had a number of drawbacks or limitations that we show below:
- First, its simplicity. In the complex operations that arose with the debt markets, this method ceased to be valid. You could not relate the accounts, for example, in the granting of a loan and the simultaneous entry of cash.
- It does not allow for adequate control of equity or fixed assets accounts. There was no internal control of the accounts.
- As there were no seats that related two or more accounts, there was no relationship between the newspaper and the major. It was difficult to control increasingly complex operations.
Cash Book examples
Some examples would be the following:
- Payroll accounting. We have as income the same and as outputs, the different expenses or withdrawals of money.
- Cash accounting of former merchants was done by this method. The inputs would be the collections and the outputs the income.
- The accounts of major customers and suppliers of those same merchants, which worked similarly to cash. The tickets were purchases or sales and the outputs were collections or payments.