Chapter 8 The Cash Book

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. Double Entry used: 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. Example: (a) Paid Rent in Cash: Dr Rent Account (In the General Ledger) Cr Cash Book (Cash Column) (b) Received by cheque from A.Jones: Dr Cash Book (Bank Column) Cr A.Jones (Sales Ledger) 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. Jan 1 : Jan 2 : Jan 4 : Jan 6 : Jan 7 : Jan15 : Jan23 : Jan29 : Jan31 : Started business with Lm940 in the bank. Received cheque from M.Vella Lml15. Cash Sales Lm102. Paid Rent in cash Lm35. Took Lm50 out of the cash and paid it into the bank. Cash sales paid direct into the bank Lm40. Paid cheque to S.Wllliams Lm277. Withdrew cash from the bank for business use Lm120. Paid wages in cash Lml18.

N.B Jan7 and Jan29 are both Contra Entries but Jan15 is not a contra entry.

Dr Cash Jan-01 Jan-02 Jan-04 Jan-07 Jan-15 Jan-29 Capital M.Vella Sales Cash Sales Bank

Cash Book Bank 940 115 Jan-06 Jan-07 Jan-23 Jan-29 Jan-30 Jan-31 Rent Bank S.Williams Cash Wages Balance c/d

Cr Cash 35 50 277 120 118 19 222 748 1,145 Bank

102 50 40 120 222 19 1,145 748

Feb-01 Balance b/d

Note (i) Lm19 relates to Cash in hand. Lm748 relates to Cash at Bank. (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 From the following details prepare a Three Column Cash Book: May1: Balance brought down from April: Lm Cash Balance 29 Bank Balance 654 B.King pays us by cheque Lm117, after having deducted Lm3 cash discount. The business pays R.Long account of Lm100 by cheque less 5% cash discount. Withdrew Lm100 cash from the bank for business use. N.Campbell pays us Lm273 by cheque after deducting Lm7 cash discount. Paid wages in cash Lm92. D.Shand pays us in cash Lm38 after deducting Lm3 cash discount. The business pays U.Barrow his account of Lm60 by cheque less 5% cash discount. The business pays A.Allen by cheque Lm429 after deducting Lm11 cash discount. Cash Book Bank 654 May-08 117 May-11 May-25 273 May-29 May-30 May-31 1,044 363 General Ledger Dr May-31 Discount Allowed Account 12 Cr Cr Bank 95 100 57 429 363 1,044

May2: May8: May11: May16: May25: May28: May29: May30:

Dr Disc May-01 May-02 May-11 May-16 May-28 Balance b/d B.King Bank N.Campbell D.Shand 3 100 7 2 12 Jun-01 Balance b/d 38 167 75 Cash 29

R.Long Cash Wages U.Borrow A.Allen Balance c/d

Disc. 5

Cash

92 3 11 19 75 167

Total for month

Dr

Discount Received Account May-31 Total for month

Cr 19

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. Write up a Two-Column Cash Book from the following transactions. 1999 Lm April 1: M. Borg commenced business with capital in cash 2,500 April 1: Paid cash into bank 2,200 April 12: Cash sales 520 April 13: Paid cash into bank 500 April 15: Paid rent by cheque 70 April 24: Paid cash for stationery 30 April 27: Paid B. Calleja by cheque 1,600 April 28: Received cheque from L. Saliba 100 April 30: Paid light and heat by cheque 80 April 30: Paid carriage in cash 100 Enter the transactions in a Two-Column Book. 1999 1 Oct: Balances brought down: Cash in hand Cash at bank 3 Oct: Bought goods for cash 4 Oct: Paid cash into bank 7 Oct: Cash sales 8 Oct: Paid cash into bank 17 Oct: Paid sundry expenses in cash 24 Oct: J. Farrugia paid his account by cheque 27 Oct: Paid R .Scicluna by cheque 28 Oct: Cash sales 29 Oct: Paid stationery by cheque 30 Oct: Withdrew cash from the bank for business use 31 Oct: Paid rent by cheque 31 Oct: Paid light and heat by cheque Lm 200 4,000 180 200 570 600 40 1,500 3,000 350 200 300 400 300

2.

3.

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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 2 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 2 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 2 per cent cash discount. 28Feb: Paid rent in cash Lm60. 28Feb: Paid the amount owing to A Saliba Lm280 by cheque after deducting 2 per cent cash discount.

5.

The Three-Column Cash Book of the firm for which you work was not kept up todate 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 Dallis 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. You are required to update the cash book.

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6.

Enter the following transactions in a Three-Column Cash Book of M Abela for the month of April: Apr 1: Balances b/f : Lm Cash in Hand 200 Bank Overdraft 140 Received Lm195 in cash from A. Saliba. Paid Lm170 into the bank from cash Withdrew Lm50 by cheque for personal use. Received cheque form R.Debono in settlement of his account for Lm600 less 2% cash discount. Withdrew Lm350 from bank for office cash. Paid wages Lm336 in cash. Cash sales Lm218 Paid electricity in cash Lm63. Paid L .Bugeja by cheque his account for Lm300 less 2 per cent cash discount.

Apr 4: Apr 7: Apr12: Apr17: Apr24: Apr25: Apr27: Apr27: Apr28:

7. 1999 Mar 1 Mar 2 Mar 4 Mar 6 Mar 8 Mar 10 Mar 12 Mar 15 Mar 18 Mar 21 Mar 24 Mar 27 Mar 31

A three-column cash book is to be written up from the following details, balanced off, and the relevant discount accounts in the general ledger shown. Balances brought forward: Cash Lm230; Bank Lm4,756. R. Bartolo paid us by cheque Lm150, deducting 5%cash discount. Paid rent by cheque Lm120. J.Callus lent us Lm1,000 paying by cheque. We paid by cheque N. Saliba Lm300 deducting 2% cash discount. Paid motor expenses in cash Lm44. H. Mallia pays his account of Lm77 by cheque Lm74, deducting Lm3 cash discount. Paid wages in cash Lm160. C. Vella paid his account of Lm260 less 5% cash discount. Cash withdrawn from the bank Lm35 for business use. Cash drawings Lm12. Bought fixtures paying by cheque Lm650. Received commission by cheque Lm88.

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