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Guide · Invoices, billing and accounts

Daily Cash Book and Trial Balance: A Practical Guide for Small Businesses

By Mufti Abdul Baseer · Published · Updated · 5 min read

In short

A cash book records every rupee that comes in as a debit and every rupee that goes out as a credit. Each day’s closing balance is the opening balance plus the day’s debits minus its credits, and that becomes the next day’s opening balance. At month end, a trial balance checks that the debit and credit totals agree.

What a cash book is

A cash book is a running record of every movement of cash and bank money in a business. Each entry has a date, a description, an amount and a side. It does the work of the cash account in the ledger and the daily diary in one place, which is why it is the first book a small business should keep properly.

It answers one question every day: how much money should there be? If the cash book says there should be a certain amount and the drawer has a different amount, you know the day’s records or the day’s cash are wrong, and you know it the same day.

Debit and credit in a cash book

In a cash book, money coming in is a debit and money going out is a credit. It feels backwards to anyone who thinks of a bank statement, where a credit is money added to your account, but the cash book is kept from the business’s point of view: cash is an asset, and an asset increases on the debit side.

Which side an entry goes on
EventSideWhy
Cash received from a customerDebitCash in hand increases
Bank deposit receivedDebitMoney in the business increases
Payment to a supplierCreditCash in hand decreases
Salary or rent paidCreditCash in hand decreases
Cash withdrawn from the bank to the tillDebit in cash, credit in bankIt moves from one place to another

The closing balance formula

The balance at the end of a day is the balance at its start, plus everything that came in, minus everything that went out. That figure becomes the next day’s opening balance, so nothing is ever retyped and an error cannot hide.

Take the sample book in the daily closing tool. The month opens with a balance of PKR 2,50,000.00. Over the month the debits come to PKR 3,35,000.00 and the credits to PKR 1,67,350.00, so the closing balance is PKR 2,50,000.00 plus PKR 3,35,000.00 minus PKR 1,67,350.00, which is PKR 4,17,650.00.

Daily closing and trial balanceOpen the sample book to see a full month closed day by day.

A daily routine that works

  1. Enter every receipt and payment of the day as it happens, with a short description and a reference such as a voucher number.
  2. At the end of the day, count the physical cash and compare it with the book’s closing balance.
  3. If they differ, find out why before the day is closed. A small difference found today is far easier to trace than a large one found at month end.
  4. Close the day. The closing balance becomes tomorrow’s opening balance.
  5. Keep the vouchers, receipts and bills for the day in one place, in the same order as the entries.

What a trial balance is

A trial balance lists every account with its debit or credit total, and checks that the two sides agree. In the sample month, the cash and bank account closes at PKR 5,85,000.00, and the trial balance’s debit and credit columns each total PKR 5,85,000.00. When they are equal, the book is arithmetically consistent.

It is worth understanding the limit of that check. A trial balance that agrees proves the arithmetic. It does not prove that every transaction was recorded, or recorded against the right head, or recorded for the right amount if the same wrong amount was entered on both sides. It is a strong first check, not a guarantee.

Common errors and how to catch them

  • A transposed figure, such as 5,400 entered as 4,500, which shows as a difference divisible by nine.
  • An entry made on the wrong side, which shows as a difference of twice the amount.
  • A missing entry, which shows when the physical cash does not match the book.
  • A duplicate entry, which shows as an excess in the book over the cash.
  • An entry with no description or reference, which cannot be traced later.

A difference divisible by nine usually means two digits were swapped, and a difference of exactly twice an amount usually means that entry is on the wrong side. These two rules find a surprising number of mistakes quickly.

The month-end routine

  1. Make sure every day in the month has been closed.
  2. Check that this month’s opening balance equals last month’s closing balance.
  3. Run the trial balance and confirm that the debit and credit totals agree.
  4. Look at the largest heads of income and expense and ask whether they look right.
  5. Follow up pending items, such as bills not yet received, and note them for next month.
  6. Take a backup of the book and keep it somewhere other than the computer you use.

Backups

The daily closing tool stores the book in your browser on your own device, and does not upload it. That is private, but it also means that clearing browser data or losing the device loses the book. Download the backup file regularly, keep a copy off the device, and restore it on another computer if you need to.

Common questions

Is a cash book the same as a ledger?
No. A cash book records cash and bank movements. A ledger holds a separate account for each head, such as sales, rent and each customer. The cash book is often kept as the cash account of the ledger.
What if the physical cash does not match the book?
Do not adjust the book to match the cash. Find the difference first: recheck the entries, the arithmetic and the day’s vouchers. If it cannot be traced, record the shortage or excess openly with an explanation.
Does the trial balance prove my books are right?
It proves that the totals are arithmetically consistent, but not that every transaction was recorded or put under the right head.
How often should I close the day?
Every working day. The longer you leave it, the harder it is to find the cause of a difference.

How this guide was prepared

This guide is based on standard double-entry and cash-book practice and on the logic of the daily closing tool on this site. The worked example is the tool’s own sample book, and its figures are calculated by the same code the tool uses. It is general bookkeeping guidance, not accounting or audit advice.

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This guide is general information, not legal, financial or religious advice. Figures are estimates worked out from the sources above and may differ from what applies to you. See the disclaimer. Found a mistake? Tell us.