Professional Documents
Culture Documents
The cash book brings together the separate cash and bank transactions of a business
into one book. This means that the cash account and the bank account are combined to
form the cash book. The cash book is used to record the book-keeping transactions
which involve the receipt and payment of money both in cash or by cheque. The
main difference that this book has from the other books of original entry is that it
forms an integral part of the double entry system.
Control of cash and money in the bank is very important for all businesses. A shortage
of money may mean that wages and other day-to-day expenses cannot be paid. This
could lead to the failure of the business.
When money is received (either in cash or by cheque) the Cash Book is debited and
the relevant account in the ledger is credited.
When a payment is made (either in cash or by cheque) the Cash Book is credited
and the relevant account in the ledger is debited.
Contra Entries: This is a transaction that affects both the cash account and the
bank account.
Example:
(a) Took Lm50 out of the cash and paid it into the bank:
Dr Bank Column
Cr Cash Column
(b) Withdrew Lm100 cash from the bank for business use.
Dr Cash Column
Cr Bank Column
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A detailed example:
From the following transactions you are required to write up a Two - Column Cash
Book. Balance off at the end of the month.
N.B Jan7 and Jan29 are both Contra Entries but Jan15 is not a contra entry.
Dr Cash Book Cr
Cash Bank Cash Bank
Jan-01 Capital 940 Jan-06 Rent 35
Jan-02 M.Vella 115 Jan-07 Bank © 50
Jan-04 Sales 102 Jan-23 S.Williams 277
Jan-07 Cash © 50 Jan-29 Cash © 120
Jan-15 Sales 40 Jan-30 Wages 118
Jan-29 Bank © 120 Jan-31 Balance c/d 19 748
222 1,145 222 1,145
Feb-01 Balance b/d 19 748
(ii) If the credit side of the bank column is greater than the Debit side of the
bank column the bank balance will represent a bank overdraft.
Sometimes a third column on each side is used to record cash discount, thus forming a
three column cash book.
A cash discount is an allowance offered for quick settlement (e.g. 5% discount for
settlement within five days). Discount Allowed is the discount (reduction in price)
given to customers and this is shown on the debit side of the Three Column Cash
Book. Discount Received is the discount received from suppliers and is shown on the
credit side of the Three Column Cash Book.
Discount Allowed is an expense and discount received is a gain for the business.
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Example
Dr Cash Book Cr
Disc Cash Bank Disc. Cash Bank
May-01 Balance b/d 29 654 May-08 R.Long 5 95
May-02 B.King 3 117 May-11 Cash © 100
May-11 Bank © 100 May-25 Wages 92
May-16 N.Campbell 7 273 May-29 U.Borrow 3 57
May-28 D.Shand 2 38 May-30 A.Allen 11 429
May-31 Balance c/d 75 363
12 167 1,044 19 167 1,044
Jun-01 Balance b/d 75 363
General Ledger
Note that the discount columns are not balanced but they are simply totalled.
The total of each is transferred to the general ledger.
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Exercises:
1. Write up a Two-Column Cash Book from the following details, and balance
off as at the end of the month:
1999
1 Jan : Started in business with Lm1,000 in cash.
4 Jan : Transferred Lm500 of the cash into the bank.
6 Jan : Paid rent Lm50 in cash.
8 Jan : Bought office equipment Lm250, paying by cheque.
11Jan : Cash sales Lm50.
15Jan : Bought goods Lm200, paying in cash.
17Jan : Cash sales Lm75 paid direct into the bank.
19Jan : Cash drawings Lm105
23Jan : Paid sundry expenses Lm35 in cash.
31Jan : Sold goods by cheque for Lm85.
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4. From the following transactions you are required to open a Three-Column
Cash Book.
1999 Lm
1 Feb: Balances brought forward
Cash in Hand 110
Cash at Bank 385
3 Feb: P Galea settles his account Lm100 by cheque after deducting 5 per cent
cash discount.
7 Feb: Paid amount owing to M Busuttil by cheque Lm120 less 2½ per cent
cash discount.
10Feb: Withdrew Lm150 in cash from the bank for business use.
17Feb: A Sammut paid amount owing by cheque Lm160 less 2½ per cent cash
discount.
20Feb: Paid wages by cheque Lm315.
22Feb: Paid amount owing to T Gerada Lm200 by cheque, after deducting 5
per cent cash discount.
25Feb: B Bugeja paid the amount owing by cheque Lm120 less 2½ per cent
cash discount.
28Feb: Paid rent in cash Lm60.
28Feb: Paid the amount owing to A Saliba Lm280 by cheque after deducting
2½ per cent cash discount.
5. The Three-Column Cash Book of the firm for which you work was not kept up
to-
date for one week. The balances on the Cash Book at 25 October 1999 were:
Cash in Hand Lm40
Cash at Bank Lm9236
Total of Discount Allowed column Lm36
Total of Discount Received column Lm20.
The following items have not been dealt with:
28Oct: Paid N Dalli’s account of Lm150 by cheque, taking 2% cash
discount;
28Oct: Lm100 cash from the bank for office use.
29Oct Received and paid into the bank a cheque
from M Rizzo for Lm376.
30Oct: Cash Sales Lm285 paid directly into the bank.
31Oct: Received and paid into the bank a cheque for
Lm185 from M Licari in full settlement of his account of
Lm190.
31Oct: Paid travelling expenses Lm37 in cash.
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6. Enter the following transactions in a Three-Column Cash Book of M Abela
for the month of April:
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