Name: ____________________

Date: _____________________
Accounting Notes
Chapter 4: Cash Book
1. Why is it necessary to divide ledger into sections?
- to make it more convenient to use as the same type of accounts can be kept together
- the task of maintaining the ledger can be divided between several people
- enables checking procedures (in the form of control accounts) to be introduced
- may reduce the possibility of fraud
2. Why is it cash book a book of prime entry as well as a ledger?
- since the cash book is part of the double entry system, it represents ledger accounts for
both cash and bank. It is, however, also a book of prime entry because it is one of the books
in which transactions should be recorded before being entered in the ledger and it is written
up from documents.
3. Explain what is meant by a contra entry in cash book?
- contra entry appear on both sides of the cash book, debited to one account and credited to
the other, and money may be withdrawn from the bank to place in the cash or surplus cash
is paid into the bank.
4. What are differences between direct debit and standing order?

Direct debit Standing order

- when a person notifies the bank that - when a person instructs the bank to pay a
permission has been given for a named fixed sum at fixed intervals to another
person to collect an amount directly from person
their bank account

- recurring payments where the amounts - a fixed sum at fixed intervals is paid
and dates are varied

- e.g_______________ charges are paid - e.g.__________(fixed amount) is paid

monthly monthly

5. What are the similarities of direct debit and standing order?

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6. What is the difference between credit cards and debit cards?
- when a person uses a debit card, the money comes directly from his/ her bank account.
When a person uses a credit card, the credit card company pays the person to whom money
is owed and the cardholder pays some or all of the money back to the card company
(usually at monthly intervals).
7. What are the differences between bank loan and bank overdraft?

Bank loan Bank overdraft

- bank loan provides medium or long-term - occurs when more has been paid out of
finance for a business the bank than was put into the bank
account

- it is a fixed amount which is paid into the - the amount of borrowing may vary on a
business bank account daily basis

- it must be repaid by an agreed date - it could be paid back in any time,

whenever the money is available

- interest at a fixed rate is payable on the - interest at a fluctuated rate is payable on

total amount borrowed the remaining amount owed

8. Explain what is meant by a dishonoured cheque.

- it is a cheque received which the trade receivables’’ bank refuses to pay because of an
error on the cheque. E.g. no signature, no date, the amount in words and the amount in
figures do not agree.
9. Explain why a business may allow its credit customers cash discount?
- to encourage customers to pay their accounts promptly
10. Explain how trade discount is different from cash discount.
- Trade discount is a reduction in the price of goods when goods are purchased, rather than
when payment is made and is often dependant on the quantity purchased.
- to encourage customers to buy in bulk.
11. Explain why there could be a credit balance on a bank account but not on the cash
discount.
- it is because it is impossible to have negative cash in the bank