The cash book
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The Cash Book. a book of prime entry part of the double-entry system the cash and bank accounts brought together. The cash book is:. The cash book is set out so that the: debit columns for cash and bank are side by side credit columns for cash and bank are also side by side.

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The Cash Book

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The cash book

The Cash Book


The cash book

a book of prime entry

part of the double-entry system

the cash and bank accounts brought together

The cash book is:


The two column cash book

The cash book is set out so that the:

debit columns for cash and bank are side by side

credit columns for cash and bank are also side by side

The two-column cash book


The folio column

This column is used to identify the name of the ledger and account number where the corresponding part of the double entry has been entered.

Using a folio column speeds up the process of finding the opposite entry in the ledgers.

The folio column


Two column cash book

Two-column cash book

The layout


Example

Complete the two-column cash book for the following:

1March Balance brought down from last month: cash £325; bank £8,640.

2March Paid insurance £2,000 by cheque.

3March Cash sales £600.

4March Purchases by cheque £3,250.

5March R Hodge paid us £4,250 by cheque.

6March Bought stationery £40, paying by cash.

7March Paid wages by cheque £1,350.

8March P Wilson paid us £600 for goods previously bought on credit.

9March Received £2,000 owing from A Sumner.

10March Paid rent £300 by cash.

Example


Tasks

Complete Question 1 on task sheet.

Complete Questions 1–14 from text book, Chapter 10.

Tasks


Three column cash book

The three-column cash book incorporates an additional column at each side for discounts.

There are two types of discounts but only one kind are entered in the double-entry system.

Three-column cash book


Discounts

1.Trade discounts

These are discounts given to companies who trade in the same area or for bulk buying.

They are not recorded in the double-entry system.

Discounts


Example trade discount

Goods normally sell at retail price of £250 each.

The manufacturer sells them to the retailer at a 20% trade discount for buying 10.

The discount is recorded on the invoice

£250 × 10 = 2,500 – 20% (£500) = £2000.

£2,000 is the figure that is used in the double-entry books.

Example: trade discount


Discounts1

2.Cash discounts

These are discounts given for early settlement of an invoice.

They are given to encourage early payment.

Discounts


These discounts are recorded in the double entry system as

Discounts allowed–discounts given to debtors when they pay their accounts early.

Discounts received– discounts received by a business from its suppliers when they pay their accounts quickly.

These discounts are recorded in the double-entry system as:


Discounts2

The discount columns in the cash book are memorandum columns.

At the end of the period they are totalled and the total is transferred into the discounts allowed account and discounts received account in the general ledger.

Discounts


The three column cash book

Discount columns = memorandum columns.

The discount columns are not part of the double-entry system.

These columns are totalled and transferred to the discounts allowed account and discounts received accounts in the general ledger.

The three-column cash book


Contra

A transaction that appears on both the debit and credit sides of the account is called a contra entry.

For example, when cash is taken out of the cash account and put into the bank account, then both entries will be in the cash book.

Contra


Three column cash book1

Three-column cash book


The cash book

Enter the following transactions in the three-column cash book of William Buck. Balance off the cash book and show the discounts accounts in the general ledger.

1July Balances brought forward: Cash £230; Bank 4,560.

2July Cash sales £450.

3July The following debtors paid their accounts by cheque each deducting a 5% cash discount: R Jenn £460, S Benny £620 and J Hacker £540.

4July Paid rent by cheque £700.

5July Paid wages by cheque £1,300.

6July We paid the following accounts by cheque, in each case deducting a 2% cash discount: F Jepson £300, D Hudson £400, E Butler £600.

7July Transferred £500 cash to the bank account.

8July Bought stationery £60, paying cash.


Bank overdraft

A bank overdraft is when a business has taken more money out of its bank account than it has deposited.

If this has occurred then the balance b/d will be shown on the credit side of the account.

Bank overdraft


The cash book

For example, if a business on 1 November has a bank overdraft of £1,200, and a cash balance of £330, then the opening balances in the cash book would appear as follows:


The cash book

If the balance b/d on the bank is a credit then it is a bank overdraft.

You can never have a balance b/d on the credit side of the cash account (it is impossible to physically spend more cash than you have).

Take care with discounts: trade discounts do not appear in the cash book or double-entry accounts.

Cash discounts do appear in the cash book: these are discounts given for early settlement, not necessarily for cash payments.

Tips


Tasks1

Complete Question 2 from task sheet.

Complete Questions 1–6, Chapter 11 of text book.

Tasks


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