What is difference between cashbook and ledger?

Answer 1

• Cashbook and ledger are both accounting records used to track financial transactions, but they serve different purposes and have distinct characteristics:

1. Cashbook:

   • A cashbook is a subsidiary accounting book used to record all cash and bank transactions of a business.
   • It primarily deals with cash and bank accounts, making it a simple and focused record.
   • Entries in a cashbook are typically recorded on a daily basis and include details of receipts and payments.
   • It provides a real-time view of a company's cash and bank balances.
   • A cashbook is considered a part of double-entry bookkeeping, as it records transactions in a balanced way, ensuring that debits equal credits.

2. Ledger:

   • A ledger, also known as the general ledger, is the primary book of accounts that summarizes and categorizes all financial transactions.
   • It includes various accounts, such as assets, liabilities, equity, revenue, and expenses.
   • The ledger is used to post entries from subsidiary books like the cashbook, sales journal, and purchase journal, categorizing them into specific accounts.
   • Transactions in the ledger are typically summarized and posted periodically, such as monthly or annually.
   • The ledger provides a comprehensive overview of a company's financial position and performance.

In summary, the key difference between a cashbook and a ledger is that a cashbook focuses specifically on cash and bank transactions, whereas a ledger is a broader and more comprehensive record that contains all accounts and summarizes all financial transactions of a business. The ledger is essential for preparing financial statements and gaining insights into the overall financial health of a company.