The Cash Book

The cash book is: a book of prime entry part of the double-entry system the cash and bank accounts brought together

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 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.

Two-column cash book The layout   Cash book Date Details Folio Cash Bank

Example Complete the two-column cash book for the following: 1 March Balance brought down from last month: cash £325; bank £8,640. 2 March Paid insurance £2,000 by cheque. 3 March Cash sales £600. 4 March Purchases by cheque £3,250. 5 March R Hodge paid us £4,250 by cheque. 6 March Bought stationery £40, paying by cash. 7 March Paid wages by cheque £1,350. 8 March P Wilson paid us £600 by cheque for goods previously bought on credit. 9 March Received £2,000 from A Sumner by cheque. 10 March Paid rent £300 by cash.

Explanation Complete the two-column cash book for the following: 1 Cash is an asset thus it will have a debit balance: Bank is also an asset thus having a debit balance. 2 Losing money (insurance) credit. Cheque so record in the bank column 3 Receiving money (Sales) Debit. Cash 4 Losing money (Purchases) Credit. Bank. 5 Receiving money (R Hodge) Debit. Bank. 6 Losing money (Stationery) Credit. Cash . 7 Losing money (Wages) Credit. Bank 8 Receiving money (P Wilson)Debit. Bank. 9 Receiving money (A Sumner) Debit. Bank 10 Losing money (rent) Credit.Cash.

Cash book Date Details Folio Cash Bank 01/03 Balance b/d 325 8,640   Cash book Date Details Folio Cash Bank 01/03 Balance b/d 325 8,640 02/03 Insurance GL 6 2,000 03/03 Sales GL 1 600 04/03 Purchases PL 2 3,250 05/03 R Hodge SL 2 4,250 06/03 Stationery GL 4 40 08/03 P Wilson SL 3 07/03 Wages GL 9 1,350 09/03 A Sumner SL 5 10/03 Rent GL 3 300 11/03 Balance c/d 585 8,890 925 15,490

NB To balance, total the debit and credit sides of the cash columns. The side with the least amount is the side the balance will go on. To get the balance, subtract the two figures. In the example, the debit side total was $925 and the credit side total was $340. The credit side had the least amount, therefore the balance would be placed on this side. To get the balance, both figures were subtracted to get $585. Repeat this for the bank columns.

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.

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.

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.

Discounts 2. Cash discounts These are discounts given for early settlement of an invoice. They are given to encourage early payment.

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.

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.

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.

Three-column 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. 1 July Balances brought forward: Cash £230; Bank 4,560. 2 July Cash sales £450. 3 July The following debtors paid their accounts by cheque each deducting a 5% cash discount: R Jenn £460, S Benny £620 and J Hacker £540. 4 July Paid rent by cheque £700. 5 July Paid wages by cheque £1,300. 6 July We paid the following accounts by cheque, in each case deducting a 2% cash discount: F Jepson £300, D Hudson £400, E Butler £600. 7 July Transferred £500 cash to the bank account. 8 July Bought stationery £60, paying cash.

Explanation. 1 Both Cash and Bank are assets (Debit Balances) 2 Receiving money (sales) Debit Cash. 3 Receiving money Debit Bank. The discount is calculated and placed in the discount allowed column, then subtracted from the total amount. What remains is then placed in the bank column. 4 Losing money (rent) Credit Bank. 5 Losing money (wages) Credit Bank. 6 Losing money Credit Bank. The discount is calculated and placed in the discount received column, then subtracted from the total amount. What remains is then placed in the bank column. 7 Contra entry. Losing (cash) Credit. Bank receiving Debit. 8 Losing money (stationery) Credit Cash.

  Cash Book Date Details Folio Disc Allow Cash Bank Disc Rec’d 1/7 Balances b/d 230 4,560 4/7 Rent GL 2 700 2/7 Sales GL 1 450 5/7 Wages GL3 1,300 3/7 R Jenn SL3 23 437 6/7 F Jepson PL2 6 294 S Benny SL4 31 589 D Hudson PL5 8 392 J Hacker SL8 42 498 E Butler PL6 12 588 7/7 C 500 8/7 Stationery GL8 60 9/7 balance c/d 620 2,810 96 1,180 6,084 26

  Discounts allowed 9/7 Cash book 96 Discounts received 26

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.

For example, if a business on 1 November has a bank overdraft of £1,200,(this is now a liability, therefore it be recorded on the credit side) and a cash balance of £330, then the opening balances in the cash book would appear as follows:   Cash Book Date Details Folio Cash Bank 1/11 balance b/d 330 1,200

Tips 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.