LECTURE 4: ACT 04101

Cash Book

Ngata, C (MSc A&F,)

College of Business Education - CBE
Dodoma Campus

December 12, 2023 1

 Aim
 The aim of this lecture is to address a brief
discussion on how to record business
transactions in a single column, double
column, and three columns cash books.

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By the end of this module you
should be able to:

 Define Cash Book and explain its purposes.

 Identify kinds of cash book
 Record transactions in two columns cash book.
 Record transactions in three columns cash book.
 Identify kinds of discounts and their treatment.

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Nature and purpose of Cash
Book
 A cash book refers to a book in which cash
receipts and payments are recorded.

 Cash here means bank notes, coins, money

orders, credit transfers, cheques or any other form
of monetary payment or receipt acceptable in
settlement of business debts.

 A cash book is part of ledger as well as a book of

original entry.
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 Nature and purpose of Cash
Book
 Any entry made in the cash book is part of double
entry.

 It means if a debit entry is made in the cash book

then only corresponding credit entry is to be made in
the respective ledger account and vice-versa is true.

 It is important to note therefore that there is no

subsidiary book for cash transactions other than the
cash book, and credit transaction must not be
recorded in the cash book.
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 One column Cash Book
 This is a simplest version of a cash book being a
mere ledger ruling with debit and credit columns
for dates, particulars, folio and amounts.

 On the debit side are entered all cash receipts and

on the credit side the cash payments.

 This is a typical cash account for businesses which

do not use and accept cheques.

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Format of Simple cashbook
Cash book
Dr
Cr
Particulars

Particulars
Amount

Amount
Folio

Folio
Date

Date

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 Illustration 1:
From the following transactions during the month
of January, write up Michael Mwalish’s one column
cash book (cash account). He started business on 1st
January, 2004 having transferred shs. 96,000 from
his private bank account to the business office.

Jan 1: Paid shs. 4,000 for rent for the month and
made purchases of shs. 38,300
Jan 2: Paid shs. 3,800 for stationery and shs 1,920
for
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stamp. 8
 Cont’d
Jan 4: Cash sales shs. 17,280
Jan 7: Paid shs. 2,880 in respect of wages to
assistant
Jan 10: Borrowed shs. 48,000 from Joyce Kantono, a
friend
Jan 13: Bought a used pick-up for shs. 92,160 from
Kabras Garage against shs. 19,200 deposit.
Jan 19: Cash sales shs. 42,240
Jan 20: Paid wages for two weeks shs. 5,760
Jan 23: Bought shs. 62,400 goods from Webuye
Wholesalers Ltd on credit
Jan 29: Drew shs 28,800 for private use.

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 Cont’d
Jan 30: Cash sales shs. 26,880
Jan 31: Paid another shs. 57,600 off pick up
account.

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 Two columns Cash Book
 This is a kind of cash book that maintain both
cash account and bank account.
 A cash account records the receipts and payments

of cash. Similarly, a bank account records the

receipts and payments of money by cheques.
 Instead of the cash account and the bank account

being opened in different parts of the cash book,

the amount columns are placed together in two
columns cash book.
 This method is convenient and economizes the

use of 12,
December space.
2023 11
Format for Two Column Cashbook
Details

Details
Cash

Cash
Folio

Folio
Bank

Bank
Date

Date

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 Illustration 2:
S. Waweru starts business as at April 1, 1996 with
cash sh. 50,000. The following transactions took
place during April 1995:

April 1: Opened a bank account with K.C.B paying

in sh. 45,000
April 2: Bought goods for cash sh. 1,000
April 3: Bought motor vehicle and paid by cheque
sh. 20,000
April 5: Bought goods for sh. 5,000 and paid by
cheque.
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 Cont’d
April 7: Sold goods for cash sh. 2,000
April 10: Paid expenses sh. 500 in cash
April 15: Sold goods and received a cheque for sh.
3,500
April 16: Paid cash into bank sh. 2,000
April 17: Bought goods for cash sh. 1,500
April 20: Paid wages to an assistant sh. 1,000 in cash.
April 22: Cashed cheque for office cash sh. 1,500
April 30: Paid expenses sh. 800 in cash.

Required: Record the above transactions in two

columns cash book and balance it.

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 Three columns Cash Book

 Refers to a kind of cash book that contains three

columns in both sides i.e. cash, bank and discount
columns.
 Discount allowed is recorded in the discount
column on debit side and the discount received on
credit side of the cash book.
 These two discounts columns are regarded as
memorandum accounts only.
 It means these columns make a note of the discount
as it occurs and it is not a part of double entry.
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 Discounts
 The allowance given to a trader on the goods
purchased is known as a discount.

 There are two kinds of discount, these are:

i. Trade discount:
A kind of discount given in view of quantity
purchased. If large quantities are purchased
then the list price is reduced at a specific
percentage and it is known as trade discount.
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 Discounts
ii. Cash discount:
This discount is given to induce the traders to pay their
accounts promptly. Cash discount may be of two kinds i.e.

a. Discount allowed: Is the discount which

is allowed to the debtors. It is a loss to the
business.

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 Discounts
b. Discount received: Is the discount which
is received from the creditors. It is regarded
as gain at the end of the accounting period.

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Contra entry
 a Contra Entry is an entry which is recorded
to reverse or offset an entry on the other side
of an account. If a debit entry is recorded in
an account, contra entry will be recorded
on the credit side and vice-versa.
 Debit and credit aspects of a single

transaction are entered in the same account,

but in different columns. Each entry in this
case is viewed as a contra entry of the
other. Remember the word contra as
“Against” or “Opposite”.

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Cont……
 Examples of Contra Entry
 1. Cash 50,000 withdrawn for official purpose

from the bank. Journal entry for this

transaction will be
Debit: Cash A/C 50,000
Credit: Bank A/C 50,000
In the above example, both entries, debit and
credit, are a contra entry of each other, they
both offset each other. The narration is not
required for a contra entry and only a “C” is
written in the left column which depicts that it
is a contra entry.
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Cont…
2. Received a check from a debtor for 10,000
and deposited into bank the same day.
Debit: Bank A/C 10,000
Credit: Debtor’s A/C 10,000

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Cont…
 If a transaction requires entries on both the debit
and the credit sides simultaneously, it is called
'Contra entry'.
 Usually, the contra entries will appear in the
following occasions.

a. When an account is opened with a bank.

b. The firm's cash is deposited in the bank.
c. The cash is withdrawn from bank for office use.
d. The cheques received from debtors, are
deposited in the bank.

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Cont…..
 In transactions a&b, the cash balance
available with the firm is decreased, the cash
in bank is increased. In transaction 'c', the
cash in the bank is decreased and the cash in
the firm is increased.

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 Date

Details

LF

Discount
allowed
Cash

Bank

Date

Details

LF

Discount
received
Cash
Format for Three column cashbook

Bank
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Example of three column cashbook
Using information given below, prepare a three
column cashbook and balance it at the end of the
month June, 2015
1 Balances; cash shs 50,000 and bank shs
255,970
2 Paid shs 12,000 stationery by cash
3 Received a cheque of shs 500,000 as a loan from
CRDB Bank
6 Cash sales shs 120,000
8 Received cheques from the following account
balances after deducting 5% cash discount:
Juma shs 100,000; Khamis shs 200,000 and
Janet shs 250,000.
25
Cont…
9 Bought goods shs shs 65,000 paying by cheque.
10 Owner withdrew shs 40,000 from the bank for
own use
18 Cash purchases shs 100,000
22 Cash salaes 200,000
23 Banked shs 150,000
28 Paid the following account by cheque after
deducting 8% cash discount: Ashura shs
40,000; Tagota shs 70,000
29 Withdrew shs 160,000 from bank for office use
30 Paid the following by cash: wages shs 57,000;
Rent shs 50,000 and stationery shs 38,000.

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 REFERENCES
 Saleemi N.A (1988), Accounting Simplified.
N.A Saleemi Publishers, Nairobi Kenya.
 Wood F. and Sheila R. (2009), Book-keeping

and Accounts, 7th edn.

 Kimuda D.M. (2008), Foundations of
Accounting, East African Educational
Publishers Ltd, Nairobi Kenya.

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 END OF PRESENTATION

<<Thanks very much for listening>>

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