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12 Accounting: Cash Book

By Francis Watson,2014-05-05 13:44
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12 Accounting: Cash Book

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    12 Cash Book

I. Introduction

    Cash Book is a combination of the Cash Account and the Bank Account. It performs two functions at the

    same time:

    ? a book of original entry

    ? a ledger

There are two types of cash book:

    ? Two-column cash book

    ? Three-column cash book

II. Three-column cash book

Format:

    Bank

    $$

    Increase in valueDecrease in value

    Cash

    $$

    Increase in valueDecrease in value

    Cash Book

    Date DetailsDiscountsCash BankDateDetailsDiscountsCash Bank

    $$$$$$$$$$

    Discounts Allowed (Expense)_

    $$

    Increase in value

    Discounts Received (Income)

    $$

    Increase in value

    53062962.doc Page 2/7 III. Discount Allowed vs Discount Received

    Cash Book

    Date DetailsDiscountsCash BankDateDetailsDiscountsCash Bank

    $$$$$$$$$$

     Discounts Allowed (Expense) Discounts Received (Revenue)

     (Cash Discount) (Cash Discount) These are the reductions given to our These are the reductions received from our

    customers (debtors) when they pay us suppliers (creditors) when we pay them

    quickly. quickly.

Double entry: Double entry:

    1. 1.

     Dr. Bank / Cash Dr. Creditor’s Account

     Cr. Debtor’s Account Cr. Bank / Cash With the amount received from the debtor With the amount paid to the creditor

2. 2.

     Dr. Discount Allowed Dr. Creditor’s Account

     Cr. Debtor’s Account Cr. Discounts Received With the discount allowed to the debtor. With the discount received from the

     creditor.

    However, we won’t debit the Discounts

    Allowed Account for every transaction. We However, We would record every discount

    would record every discount allowed in the received in the cash book first; and only at

    cash book first; and only at the month end, the month end, credit the Discounts

    debit the Discounts Allowed Account with Received Account with the total amount

     the total amount for the month. for the month.

    3% discount Paid money within 20 days Example 1 - Discounts Allowed:

The Cheung’s Co. had the following transactions in October 19-3:

    Oct 3 Goods of value $650 were sold to Chan with the terms of 3/20, n/60.

    Oct 7 Chan returned goods with value $150 because they were damaged.

    Oct 11 Cash was received from Chan for the remaining balance of goods sold.

    Prepare the following ledger accounts in the books of the SELLER (Cheung).

Solution:

    Sales

    $19-3$

    ( )( )( )

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    Chan

    19-3$19-3$

    ( )( )( )( )( )( )

    ( )( )( )

    ( )( )( )

    ( )( )

    Returns Inwards

    19-3$$

    ( )( )( )

    Cash

    19-3$$

    ( )( )( )

    Discounts Allowed (Expense)_

    19-3$$

    ( )( )( )

Example 2 Discount Received

    Using example 1, prepare the following ledger accounts in the books of the BUYER (Chan).

    Purchases

    19-3$$

    ( )( )( )

    Cheung

    19-3$19-3$

    ( )( )( )( )( )( )( )( )( )

    ( )( )( )

    ( )( )

    Returns Outwards

    $19-3$

    ( )( )( )

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    Cash

    $19-3$

    ( )( )( )

    Discount Received

    $19-3$

    ( )( )( )

Example 3 Three-column Cash Book

Mr. Chan had the following transactions in the month of May 19-6.

19-6$Dr. Cr.

    May 1Cash balance240

     1Bank balance2,900

    Mr. Wong paid us by cheque, having deducted

     310% cash discount of $80.720

    ABC. Ltd. paid us by cash after having deducted

     55% cash discount of $22.418

     9Cash withdrawn from the bank.300

     11T. Tung Ltd. paid us by cheque.60We paid Mr. Lee by cheque less cash discount of

     14$83.500We paid A. Shing by cash less cash discount of

     16$12.388

     19We received rent in cash.1,000

     21We paid wages in cash.500

     26Cash paid into the bank account.320

    53062962.doc Page 5/7 Solution:

    Cash BookDate DetailsDisCash BankDateDetailsDisCash Bank

    19-6$$$19-6$$$May 1 Balance b/d2402900May 9Cash300

     3Mr. Wong80720 14Mr. Lee83500

     5ABC Ltd22418 16A. Shing12388

     9Bank300 21Wages500

     11T. Tung60 26Bank320

     19Rent received1000 31Balance c/d7503200

     26Cash320

    102195840009519584000

    Balance b/d7503200

    Posted to Discount Allowed Posted to Discount Received

     Account Account

In General Ledger

    Discounts Allowed (Expense)

    19-6$$

    May 31Total for the month102

    Discount Received

    $19-6$

    May 31Total for the month95

IV. Transactions between Bank and Cash

    1. Take out some cash from the bank and put into the company’s cash box.

    Double Entry:

    Dr. Cash

    Cr. Bank

Wordings:

    ? Withdraw cash from bank for business use

    ? Draw cheque for office cash

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    ? Cash withdrawn from the bank

    2. Take out some cash from the company’s cash box and put into the bank

    Double Entry:

    Dr. Bank

    Cr. Cash

Wordings:

    ? Cash paid into the bank account

    ? Banked cash

    53062962.doc Page 7/7 V. Bank Overdraft

    A firm may borrow money from a bank by means of a bank overdraft. This means that the firm is allowed to

    pay more out of the bank account (by paying out cheque) than the total amount which it has placed in the

    account. For example, you have $100 in your bank account but you have drawn a cheque of $160 to your

    creditor; then bank overdraft = $60.

As long as there is money kept in the bank account , it will show a debit balance. When the account is

    overdrawn, the firm owes money to bank and so the account is a liability and the balance becomes a credit

    one.

    Cash Book

    Date DetailsDiscountsCash BankDateDetailsDiscountsCash Bank

    $$$$$$

    Balance b/dBalance b/d1000600

    Cash always has debit Bank Overdraft

    balance (current liability)

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