1. The Cash Book

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

3. 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

4. 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.

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

6. 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.

7. 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.

8. 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

9. 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.

10. 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.

11. 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.

12. 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.

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

14. 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.

15. 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.

16. 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.

17. Three-column cash book

18. 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.

19. 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.

20. 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

21. Discounts allowed
9/7
Cash book 96
Discounts received 26

22. 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.

23. 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

24. 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.