Cash Transactions: Concept, Meaning, Objectives and Importance – Accounting


Cash Transactions: Concept, Meaning, Objectives, and Importance

Cash Transactions: Concept, Meaning, Objectives and Importance - Accounting

Concept of cash Transactions

All financial transactions are ultimately settled in cash. Some transactions are settled immediately after purchase and sale and the rest are after a few days. In fact, business transactions are settled sooner or later either in cash or through the bank. Usually, small sums are settled in cash and large sums are settled through the bank. There is a greater chance of misappropriating cash while performing cash and banking transactions. cash can be misappropriated by showing no record-less record of cash receipts. Similarly, it can be misappropriated by showing more or fictitious records of payments. Hence, in order to have proper information and control over cash and banking transactions, every business maintains a separate cash book.

Meaning of Cash Transactions

Cash transactions refer to cash receipts and payments. The receipts of cash from various sources and payments of cash on various heads are important routine transactions of a business. The main sources of cash receipts are the sale of goods and services, sale of old assets, contribution of capital, loan borrowed, interest, rent, commission, and other receipts from customers. The main heads of payments are purchase of goods, wages, rent, stationery, interest on loan borrowed, drawing, repayment of liabilities, advertising, and payment to suppliers.
Cash transactions refer to the act of receiving cash from various sources and paying cash on different heads. It also includes the amount of cheque and draft not yet deposited. Further, the amount of cheque endorsed to the supplier is also treated as a cash transaction.

A banking transaction refers to all receipts and payments made through the bank. It is an inconvenient and risky affair to get and make payments of large sums directly in cash. A modern business operates a bank account to settle all receipts and payments. It issues cheques for making payments and accepts cheques for getting amounts. It may also instruct its bank to pay and collect amounts on its behalf. In fact, the bank is treated by the business as its agent for collecting all receipts and making all payments. Except for the balance in a petty cash account, no cash balance is maintained in the office of a modern business.


Banking transactions refer to the act of receiving and making payments through the bank. A cheque is used as one of the important means of settling accounts through a bank.

Objectives and Importance of Cash Transactions

A business must have strict financial rules and an accounting system to perform, record, report, and control cash and banking transactions. Proper recording and accounting of cash and banking transactions are important to achieve the following objectives:
  • To have a systematic and permanent record of all cash and banking transactions in a separate book.
  • To obtain reliable and detailed information on all cash receipts and payments easily and immediately.
  • To keep effective control over misappropriation of cash and banking transactions. To know the main sources and heads of payment of cash.
  • To know cash and bank balances.
  • To help to prepare cash budget and to avoid the possibility of having excess or shortage of cash.
  • To make the cashier and other concerned officers accountable for all cash and banking transactions.


The main objectives of maintaining a proper record of cash and banking transactions are to have a permanent record, obtain information regarding sources and payments, know about cash and bank balances, and keep effective control over the misappropriation of cash.


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