Slide 13.

Chapter 13
Cash books

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.2

Learning objectives
After you have studied this chapter, you
should be able to:
 Explain the format of two-column and
three-column cash books
 Enter up and balance off cash books
 Use folio columns for cross-referencing
purposes

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.3

Learning objectives (Continued)

 Make the entries for discounts allowed and
discounts received both in the cash book
and, at the end of a period, in the discount
accounts in the general ledger
 Make similar entries in separate columns
in the cash book for other recurring items

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.4

What is the cash book?

 The cash book is the cash account and
the bank account put together in one book.
 This means we can record all money
received and paid out on the same page.
 In the cash book, the debit column for
cash and the debit column for bank are
together, and the credit column for cash
and the credit column for bank are
together.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.5

The cash account and bank

account

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.6

The cash book

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.7

Folio columns
 Just like in a T-account, the cash book has a
details column that contains the name of the
account in which the other part of the double
entry has been entered.
 More information can be given by using folio
columns.
 A folio column is drawn up in the cash book
and the name of the other book and the page
number is entered against every entry.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.8

The cash book (with folio)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.9

Cash discounts
To encourage early payment of accounts,
a business may accept a smaller sum in
full settlement if payment is made within a
certain period of time.
 Discounts allowed – cash discounts
allowed by a business to its customers
when they pay their accounts quickly.
 Discounts received – cash discounts
received by a business from its suppliers
when it pays what it owes them quickly.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.10

Posting discount allowed

W. Clarke owed us £100. He pays us in
cash on 2 September 2012, which is within
the time limit applicable for a 5% discount.

Debit Cash £95

Credit W. Clarke £95
Debit Discount allowed £5
Credit W. Clarke £5
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.11

Posting discount received

The business owed S. Small £400. It pays
him by cheque on 3 September 2012, which
is within the time limit laid down by him for a
2.5% cash discount.

Debit S. Small £390

Credit Bank £390
Debit S. Small £10
Credit Discount received £10

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.12

How the entries would look

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.13

Discount columns in the cash book

 To reduce the number of entries in the
general ledger, discount columns can be
added to the cash book.
 The discount allowed column is added to
the debit side of the cash book and the
discount received column is added to the
credit side of the cash book.
 The total of these columns will be posted
to the relevant discount accounts.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.14

Discount columns in the cash book

(Continued)
How the cash book would look with a
discount column.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.15

Activity

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.16

What happens if there is an

overdraft?

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.17

Learning outcomes
You should have now learnt:
 That a cash book consists of a cash
account and a bank account put together
into one book
 How to enter up and balance a two-
column cash book, i.e. one containing a
debit and a credit column for the bank
account, and a debit and a credit column
for the cash account
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.18

Learning outcomes (Continued)

 That the bank columns in the cash book
are for cheques and any other transfers of
funds that have been made into or out of
the bank account
 That a folio column is included in the cash
book so as to help trace entries made into
accounts in the ledgers and so as to
provide assurance that the double entries
have been made
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.19

Learning outcomes (Continued)

 That cash discounts are given to
encourage people to pay their accounts
within a stated time limit
 That ‘cash discount’ is the name given for
discount for quick payment even where
the payment was made by cheque or by
direct transfer into the bank account,
rather than by payment in cash

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.20

Learning outcomes (Continued)

 That cash discounts appear in the profit
and loss part of the income statement
 How to enter up and balance a three-
column cash book, i.e. one containing a
debit and a credit column for the bank
account, a debit and a credit column for
the cash account and a debit and a credit
column for discount

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.21

Learning outcomes (Continued)

 That the discounts columns in the cash
book make it easier to enter up the books.
They act as a collection point for discounts
allowed and discounts received, for which
double entry into the general ledger is
completed when the totals are transferred
to the discount accounts in the general
ledger, usually at the end of the month

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 13.22

Learning outcomes (Continued)

 That a multiple column cash book is often
used in order to further reduce the number
of entries made in the general ledger
 How to add additional columns to the cash
book for frequently recurring items and
make the appropriate entries in them and
in the general ledger

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012