ABFA1173 Principles of Accounting

Lecture 2: The Cash Cycle (Cash Book) sell

buy
Types of business transactions
Business transactions can be classified into two types:
i) Cash term: Payment is made/collected immediately upon purchase/sale.
ii) Credit term: Payment is mafe/collected at a future date.
Types of purchases and sales: sell
buy
i) Trade purchase: Purchase of items for the purpose of trading.
ii) Other purchase: Purchase of items not for purpose of trading.
iii) Trade sales: Sales of trading items. trading business
iv) Disposal: Sales of non-trade items.
Parties to business transactions
There are always two parties, i.e. the supplier and the customer.
i) Trade
pay laterpayables: Trade supplies who allow the business to delay payment until the end of the credit term.
ii) Other payables: Other supplies who allow the business to delay the payment until the end of the credit term.
iii) Trade receivables: Trade customers who are allowed to delay payment until the end of the credit term.
iv) Other receivables: Other customers who are allowed to delay payment until the end of the credit term.Cash Book
Cashbook receive later

Cash Book is a book of prime entry, used to record all types of cash and cheque (bank) transactions, i.e. actual cash received or paid
deposit into the bank account and issuance of cheques (bank) from the bank account. Cash Book is important because:
i) It helps to record all the cash received and payments during a particular period. Thus, it gives the true picture of the cash
transactions.
ii) It helps to rectify any errors. A cashbook is used to reconcile with the bank statement. Therefore, any mistake or error can
be detected at the time of verification of cashbook.
ABFA1173 Principles of Accounting

Format: The three-column Cash Book pay

details receive Cash Book

Date Particular Folio Discount Cash Bank Date Particular Folio Discount Cash Bank
Allowed Received
purchase RM RM RM RM RM RM
/ 1000
/
500
/ /

Receipts of cash/cheque:
Example: Encik Kamal paid a cheque of RM30,000 as capital into the business.
Cash Book
Date Particular Folio Discount Cash Bank Date Particular Folio Discount Cash Bank
Allowed Received
RM RM RM RM RM RM
Capital 30,000

Payments of cash/cheque
Example: Encik Kamal pays RM500 cash for rental.
Cash Book
Date Particular Folio Discount Cash Bank Date Particular Folio Discount Cash Bank
Allowed Received
RM RM RM RM RM RM
Rental 500
ABFA1173 Principles of Accounting

1 month-3 day 10%

Discounts
Discounts are deductions allowed by the supplier to the customer. There are two types of discounts:
i) Trade discount: percentage reduction granted to a customer from the list price due to the purchase of a large quantity.
ii) Cash discount: a percentage reduction granted to the customer in order to encourage paying within a specified period.
Cash discounts are:
i) Discount received: cash discount received from trade payable (supplier). It reduces the payable because we pay a lesser
amount.
Example: Credit purchase from Encik Baba (trade payable) RM700. Paid chaque to settle the full amount with a cash discount
of 5%.
original pay 700
Discount received = RM700 x 5% discount- 35/669

= RM35
Cash Book
Date Particular Folio Discount Cash Bank Date Particular Folio Discount Cash Bank
Allowed Received
RM RM RM RM RM RM
TP:En 35 665
Baba
ii) Discount allowed: cash discount given to trade receivable (customer). It reduces the receivable because we receive a lesser
amount.
Example: Credit sales to Encik Ali RM800. Received cheque to settle the full amount with a 5% cash discount
Discount allowed =RM800 X 5%
=RM40.

original receive -RM 800

discount-40/760
ABFA1173 Principles of Accounting
* Receive

Cash Book
Date Particular Folio Discount Cash Bank Date Particular Folio Discount Cash Bank
Allowed Received
RM RM RM RM RM RM
TR:En 40 760
Ali -800

cash - bank
pay receive

Contra entries
Transfer of cash to bank or bank to cash.
Jan 3: Withdraw RM500 from bank as cash for office use.
Jan 8: Deposit cash RM600 into the bank account.
receive input
receive pay
Cash Book
Date Particular Folio Discount Cash Bank Date Particular Folio Discount Cash Bank
Allowed Received
Jan RM RM RM Jan RM RM RM
3 Bank / 500 3 Cash / 500
8 Cash / 600 8 Bank / 600
ABFA1173 Principles of Accounting

600 x 5%=30-RM570-pay
Lecture Illustration I
Record in a three-column Cash Book for Syarikat Daya Sdn. Bhd. The following transactions.
July
receive
1 Commence business with cash RM20,000 as capital.
2 Bank in RM5,000 cash into the bank account. contra-receive.& pay at the same time.
5 Bought goods for cash RM1,200. pay money
7 Paid electricity bill of RM800 by online banking. pay
20 Received an instant transfer from Cat Enterprise for the settlement of debts amounted to RM450, deducting RM50 cash
discount. receive money.-RM 400
25 Settled the amount of RM600 to Mimi Trading by cheque, deducting cash discount 5%.
pay

Cash Book pay money

receive money
Date Particular Folio Discount Cash Bank Date Particular Folio Discount Cash Bank
Allowed Received
July RM RM RM RM RM RM
1 Capital 20,000
2 Cash / 5,000 2 Bank / 5,000
5 Purchase 1,200
7 Electricity 800
20 TR: Cat Ent 50 400 25 TP: Mimi 30 570
31 Bal c/d 13,800 4,030
50 20,000 5,400 30 20,000 5,400
Aug * positive -1370
negative
1 Bal b/d 13,800 4,030 RM 6200

balance bought
forward
20000 5400-1370=Rm 4030

20000-6200=13800
ABFA1173 Principles of Accounting

Closing the Cash Book

The cash account will always be a positive balance (debit balance) because this is the amount that is left inside the office.
The bank account may give a positive (debit) or negative (credit) balance:
i) Debit balance: there is excess cash left in the bank account for the business to use the following months.
ii) Credit balance (bank overdraft): the business had used more than the available money kept in the bank account. It is a
special loan approved by the bank, a liability to the business.
Lecture illustration II
Record in a three-column Cash Book for Syarikat Daya Sdn. Bhd. The following transactions.
July -1 Commence business with cash RM20,000 as capital.
2 Bank in RM5,000 cash into the bank account.
5 Bought goods for cash RM1,200.
7 Paid electricity bill of RM800 by online banking.
20 Received an instant transfer from Cat Ent. for the settlement of debts amounted to RM450, deducting RM50 cash discount.
25 Settled the amount of RM6,000 to Mimi Trading by cheque, deducting cash discount 5%.

6000 x 5% =300
Cash Book
Date Particular Folio Discount Cash Bank Date Particular Folio Discount Cash Bank
Allowed Received
July RM RM RM RM RM RM
1 Capital 20,000
2 Cash / 5,000 2 Bank / 5,000
5 Purchase 1,200
7 Electricity 800
20 TR: Cat Ent 50 400 25 TP: Mimi 300 5,700
31 Bal c/d (1,100) 31 Bal c/d 13,800
50 20,000 6,500 300 20,000 6,500
Aug
1 Bal b/d 13,800 1 Bal b/d (1,100)
5400-receive

6500 payment
6500-5400=1100
ABFA1173 Principles of Accounting

Lecture illustration III

The following information represented Monika Trading’s Cash Book for the month of May 2021.

salary

Required:
Identify and explain the transactions of Monika Trading for the month of May 2021.
Solution:
ABFA1173 Principles of Accounting

May
1 Balances as per Cash Book: Cash RM1,010; Bank RM2,100
3 Cash sales paid into bank RM620
4 Cash purchases RM380
6 Paid an electricity bill of RM660 by cheque
9 Sales by cheque RM530
10 Drew a cheque for RM400 in respect of wages
12 Cash sales RM440
15 Paid RM190 in cash for travelling expenses
16 Paid water bill by cheque RM560
19 Drawings by cheque RM300
20 Purchases by cheque RM470
21 Paid postage of RM30 in cash
22 Deposited cash of RM450 into the bank
24 Introduced further capital of RM650 by cheque
25 Purchased a motor vehicle for RM4,000 and paid by cheque
26 Received a cheque for RM3,500 from Mina as a loan
28 Paid insurance of RM430 in cash
29 Withdrew cash of RM330 from bank for office use
30 Received cheque from Ken RM475 after deducting RM25 cash discount
30 Received cheque from Don RM722 with a discount allowed of RM38
31 Paid Sam a cheque of RM665, and deducting RM35 cash discount
31 Paid Grace a cheque of RM342, and received a discount of RM18
31 Received a cheque from Joyce for RM1,254
31 Monika Trading has a closing cash balance of RM300 and balance at bank of RM2,574
ABFA1173 Principles of Accounting

The Petty Cash (Imprest system) not important payment

Petty cash book is both a book of original entry and a ledger. It is used to record small cash payment for any immaterial expenses such
as taxi fare, purchase of stationery, postage, donation and etc. normally the cash float amount not more than RM1,000.

First day- 1000

spend-800
The Imprest Syatem:
At the end of the period, the cashier will reimburse the petty cashier the amount of petty cash spent during the period so that the petty
cashier will start with the same amount of the petty cash float. The source documents will be various cash bills, receipts ets. Petty cashier
will issue the petty cash voucher and signed by the recipients to acknowledge the receipts of petty cash.

Left -200
Format top up-800

Petty Cash Book

Date Particular Voucher Receipt Payment Analysis
Number Dr Cr Stationary Postage Travel Sundries
last day-100

`1000
800 - grab-RM 200
-donate-RM500
-post laju-RM100

Illustration IV
ABFA1173 Principles of Accounting

Encik Charlie started a business on I may. He decided to have a petty cash system for the small amount of payment for a month. A
cheque amount of RM200 was issued as a petty cash float. During the month, the following transactions took place:
May RM
-First-200
2 Stamps 5
5 Bus fare 14
9 Pos laju 8
17 Cleaning 30
23 Tea 12

Petty Cash Book

Date Particular Voucher Receipt Payment Analysis
May Number Dr Cr Stationary Postage Travel Sundries
1 Bank 200
2 Stamps 5-01 5 5
5 Bus fare 5-02 14 14
9 Pos laju 5-03 8 8
17 Cleaning 5-04 30 30
23 Tea 5-05 12 12
69 13 14 42
31 Bal c/d 131
200 200
31 Bal b/d 131
Bank 69
200
Jun 1 Bal b/d 200