What is a Three Column Cash Book?

A cash book with three columns for discounts received and paid, cash transactions, and
bank transactions is known as a three-column cash book.

Explanation

A three-column cash book, also known as a triple column cash book, contains three
money columns on both the debit and credit sides: one on each side for recording
discount, cash, and bank amounts.

If a business holds a bank account frequently makes receipts and payments through
that bank account, then it is useful to maintain a three-column cash book rather than a
single or double column cash book.

It is customary for businesses to allow discounts for early payments. For example, if
cash is paid early, creditors may receive a discount. On the other hand, if debtors pay
early, a discount may be allowed to them.

You may remember that cash and discounts are closely related. This is the reason why
discount columns are also provided in the cash book.

In a three-column cash book, three columns are provided for the amounts on each side.
One column records cash receipts and payments, the second records banking
transactions, and the third records discounts received and allowed.

Although single and double column cash books are alternatives to a cash account, the
three-column cash book serves the purpose of cash as well as a bank account.

Discount Columns: Key Points

Consider the following critical aspects of discount columns in a triple column cash book:

• The discount allowed column is located on the debit side and the discount
received column is located on the credit side.

• The discount allowed and discount received columns represent two different
accounts. They are not related.

• The discount columns are memorandum columns in nature. Therefore, two

separate accounts, "Discount Allowed" and "Discount Received", are opened in the
ledger.

• Since discount allowed and discount received are unrelated, they are not
balanced. Both columns are summed separately and the aggregate is transferred to the
ledger accounts.
Format of a Three Column Cash Book

The common format used in a three-column cash book is shown below.

It is worth mentioning that the format of a three-column cash book is similar to that of a
two-column cash book.

The only exception is that a column is added in a three-column cash book to account for
bank-related transactions.

Hints for Record Keeping in a Three Column Cash Book

If you are ever recording entries in a three-column cash book, this section presents a
few key points you should bear in mind.

Opening Balance

The opening balance of cash in hand and cash at the bank are recorded on the debit
side in the cash and bank columns, respectively.

If the bank balance is a credit balance (overdraft), then it is entered on the credit side in
the bank column.

Receipt of Cheque or Cash

If a cheque is received and deposited into a bank account on the same date, it will
appear on the debit side on the cash book in the bank column.

If the cheque is not deposited into a bank account on the same date, it is treated as
cash and, therefore, the amount will appear in cash column.

Finally, in the usual manner, the receipt of cash is recorded in the cash column.

Payment by Cheque or Cash

If a payment is made by cheque, it will be recorded on the credit side in the bank
column. This is because the cash at bank has decreased.

If the payment is made in cash, it will be recorded in the cash column in the usual
manner.

Bank Charges

Bank charges are recorded on the credit side of the cash book in the bank column. This
is because cash at bank decreases as a result of such charges.

Contra Entries: Definition

If an entry is made on the debit side and the same entry is recorded on the credit side of
the cash book, it is called a contra entry.

To differentiate contra entries from other entries, letter "C" is printed in the posting
reference column (on both the debit and credit sides of the cash book).

The letter "C" indicates that the contra effect of this transaction is recorded on the
opposite side.

Contra entries may be one of the following types:

• Type 1

When cash is deposited into a bank, two entries are required: one on the credit
(payment) side in the cash column, which records the reduction in cash in hand; and the
other on the debit (receipt) side in the bank column, which records the increase in cash
at bank.

• Type 2

When cash is withdrawn from a bank for office use, two entries are needed: one on the
credit side in the bank column, which records the reduction of cash at bank; and the
other on the debit side in the cash column, which records the increase in cash in hand.

Balancing the Three Column Cash Book

Whenever it is necessary to determine the bank balance, the bank columns are
summed on both sides.
If the debit column is larger than the credit column, the difference represents cash at
bank. If, on the other hand, the credit column exceeds the debit column, the difference
represents "overdrawn balance".

A bank account may have an overdrawn balance because by arranging an overdraft

with the bank, it is possible that more money may be withdrawn from the bank than
what was deposited.

The cash columns are balanced as usual. The discount columns are simply summed
and not balanced. An overview of this procedure is given on the double column cash
book page.

Posting Three Column Cash Book to Ledger Accounts

The method of posting a three-column cash book into ledger is as follows:

• The opening balances of the cash book are not posted.

• Contra entries are not posted because the double entry accounting for these
transactions is completed within the cash book.

• All items on the debit side of the cash book are posted to the credit of respective
accounts in the ledger.

• All items on the credit side of the cash book are posted to the debit of respective
accounts in the ledger.

• The total of the discount column on the debit side is posted to the debit of
discount allowed account, and the total of the discount column on the credit side is
posted to the credit of discount received account in the ledger.

Example

During May 2016, the John Trading Company made the following transactions:

• May 01: Cash balance $2,200, bank overdraft $365.

• May 03: Paid J & Co. by cheque $1,200, discount received amounting to $15.

• May 05: Received from A & Co. a cheque for $980, discount allowed to them
$20.

• May 07: Deposited into bank the check received from A & Co. on May 05.
• May 10: Purchased stationery for cash, $150.

• May 15: Purchased merchandise for cash, $1,300.

• May 15: Cash sales for the first half of the month, $2,350.

• May 16: Deposited into bank $1,600.

• May 18: Cash withdrawn from bank for personal expenses $150.

• May 19: Issued a cheque for merchandise purchased, $1,650.

• May 21: Drew cash from bank for office use, $650.

• May 24: Received a cheque from S & Sons and deposited it into bank, $1,560.

• May 25: Paid a cheque to Ali Inc. for $400 and received a discount of $15.

• May 27: Purchased furniture in cash for office use, $390.

• May 29: Paid office rent by cheque, $450.

• May 30: Cash sales for the second half of the month, $4,300.

• May 31: Paid salaries by check, $1,760.

• May 31: Withdrew cash from bank for office use, $1,470.

• Required: Record the above transactions in a three column cash book.

Solution

What is a contra entry?

A contra entry is when an entry is made on the debit side and the same entry is
recorded on the credit side of the cash book.

What is the difference between a two column and a three-column cash book?

The difference between the two types of cash book is that a double cash book has two
money columns (cash and bank) whereas a triple column cash book has three money
columns (cash, bank and discount).

What are the advantages of a three-column cash book?

Three column cash book records three types of accounts, i.e., cash, bank and discount.
This substitutes the creation of cash account, bank account, discount received, and
discount allowed in the ledger.

Petty cash book

Petty cash book is a book used in accounting for recording small and repetitive
transactions that are of little value. It records small transactions such as postage,
stationery etc.

Imprest system of Petty Cash book is system in which head cashier first estimates the
total petty expenses of a particular period say month or fortnight and estimated amount
is given to petty cashier in advance to meet petty expenses of particular period.

An imprest amount is the amount that is provided to the petty cashier by the chief
cashier at the starting of an accounting period. It remains constant as it is replenished
after a period of time.

Imprest payment

What Is Imprest?

An imprest is a cash account that a business relies on to pay for small, routine
expenses. Funds contained in imprests are regularly replenished, in order to maintain a
fixed balance.

What are the advantages of imprest system?

The advantages of imprest system of petty cash include:

• The main (or head) cashier is relieved of maintaining record of petty payments.

• Small payments are not stuffed in the main cash book.

• Complete and reliable check is maintained on small items of expenses.

• It is automatically balanced.

• What are the disadvantages of imprest system?

One of the major drawbacks of using an Imprest system is that it causes huge
inconvenience for larger expenses. The system is highly compatible and convenient for
smaller expenses while the opposite for larger expenses.

Double entry for receipt of cash to petty cash from cash book

Effect:

Petty cash balance increase

Cash book balance decrease.

Double entry

Debit: Petty cash

Credit cash book