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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 : Started business with Lm940 in the bank.


Jan 2 : Received cheque from M.Vella Lml15.
Jan 4 : Cash Sales Lm102.
Jan 6 : Paid Rent in cash Lm35.
Jan 7 : Took Lm50 out of the cash and paid it into the bank.
Jan15 : Cash sales paid direct into the bank Lm40.
Jan23 : Paid cheque to S.Wllliams Lm277.
Jan29 : Withdrew cash from the bank for business use Lm120.
Jan31 : Paid wages in cash Lml18.

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

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
May2: B.King pays us by cheque Lm117, after having deducted Lm3 cash
discount.
May8: The business pays R.Long account of Lm100 by cheque less 5% cash
discount.
May11: Withdrew Lm100 cash from the bank for business use.
May16: N.Campbell pays us Lm273 by cheque after deducting Lm7 cash
discount.
May25: Paid wages in cash Lm92.
May28: D.Shand pays us in cash Lm38 after deducting Lm3 cash discount.
May29: The business pays U.Barrow his account of Lm60 by cheque less 5%
cash discount.
May30: The business pays A.Allen by cheque Lm429 after deducting Lm11
cash discount.

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

Dr Discount Allowed Account Cr


May-31 Total for month 12

Dr Discount Received Account Cr


May-31 Total for month 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.

2. 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

3. Enter the transactions in a Two-Column Book.


1999 Lm
1 Oct: Balances brought down:
Cash in hand 200
Cash at bank 4,000
3 Oct: Bought goods for cash 180
4 Oct: Paid cash into bank 200
7 Oct: Cash sales 570
8 Oct: Paid cash into bank 600
17 Oct: Paid sundry expenses in cash 40
24 Oct: J. Farrugia paid his account by cheque 1,500
27 Oct: Paid R .Scicluna by cheque 3,000
28 Oct: Cash sales 350
29 Oct: Paid stationery by cheque 200
30 Oct: Withdrew cash from the bank for business use 300
31 Oct: Paid rent by cheque 400
31 Oct: Paid light and heat by cheque 300

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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.

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
Apr 4: Received Lm195 in cash from A. Saliba.
Apr 7: Paid Lm170 into the bank from cash
Apr12: Withdrew Lm50 by cheque for personal use.
Apr17: Received cheque form R.Debono in settlement of his
account for Lm600 less 2% cash discount.
Apr24: Withdrew Lm350 from bank for office cash.
Apr25: Paid wages Lm336 in cash.
Apr27: Cash sales Lm218
Apr27: Paid electricity in cash Lm63.
Apr28: Paid L .Bugeja by cheque his account for Lm300 less 2 per cent
cash discount.

7. 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.
1999
Mar 1 Balances brought forward:
Cash Lm230; Bank Lm4,756.
Mar 2 R. Bartolo paid us by cheque Lm150, deducting 5%cash discount.
Mar 4 Paid rent by cheque Lm120.
Mar 6 J.Callus lent us Lm1,000 paying by cheque.
Mar 8 We paid by cheque N. Saliba Lm300 deducting 2% cash discount.
Mar 10 Paid motor expenses in cash Lm44.
Mar 12 H. Mallia pays his account of Lm77 by cheque Lm74, deducting Lm3 cash
discount.
Mar 15 Paid wages in cash Lm160.
Mar 18 C. Vella paid his account of Lm260 less 5% cash discount.
Mar 21 Cash withdrawn from the bank Lm35 for business use.
Mar 24 Cash drawings Lm12.
Mar 27 Bought fixtures paying by cheque Lm650.
Mar 31 Received commission by cheque Lm88.

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