The Cash Book Grade 11 Business Prepare by: Ms Percival.

The book of original entry used to record all money transactions is called the Cash book.

There are different formats of the Cash Book

Two-Column Cash Book

On 1 September 2018, a business had Cash in hand of $740 and Cash at bank of $7280.

The following source documents are available.

Date Source Document Transaction

Sept 5 Cheque counterfoil Payment of an account payable Lee,$1420
8 Till roll Cash sales totaling $1580
11 Cash receipt Payment of general expenses of $110 in cash
14 Paying-in-slip Counterfoil Transfer of $1400 cash to bank account
21 Bank Statement Bank charges for the month totaling $180
28 Paying-in-slip counterfoil Cheque from an account receivable Evans,$3170

Here is the two column Cash book for September. It has beedn balanced at the end of the month and
folio references have been added to show that the entries have been posted to the relevant ledger
accounts.

Dr CASH BOOK Page 7 Cr

Cash Bank Cash Bank

$ $ $ $
Sept 1 Balances 740 7280 Sept 5 G Lee PL4 1420
8 Sales GL9 1580 11 General expenses GL6 110
14 Cash C 1400 14 Bank C 1400
28 T Evans SL8 3170 21 Bank charges GL3 180
30 Balances c/d 810 10250
2320 11850 2320 11850
Oct 1 Balances b/d 810 10250

NB:

 The cash column is always before the bank column

 The cash book has a double role: it is a book of original entry (the first record of money
transactions with information extracted from source documents) and it is also part of the
double-entry system because it replaces the separate cash and bank accounts that would
otherwise have been found in the general ledger.
  The folio reference follows the pattern used in previous books of original entry. The cash book
has a page number and the reference CB7 would be used by the posted entries in the ledgers.
 The folio reference ‘C’ is used for entries between cash and bank columns (that is paying money
into the bank account- as in the example- or taking cash from the bank. C stands for Contra
entry.

Practice questions

Preparing a two-column cash book

On 1 March 2018 Latoya’s business had cash in hand of $1340 and a balance at the bank of $6270. The
following source documents are available for money transactions during March 2018.

Date Source document Transaction

March 4 Cash receipt Purchase of stationery for office use $60
7 Cheque counterfoil Payment of water rates,$290
11 Till roll Cash sales totaling $3180
15 Paying-in-slip counterfoil Transfer of $3000 cash to the bank account.

Cash discounts
A cash discount is a reduction in the amount paid by credit customers, or to credit suppliers, when
accounts are settled within an agreed time limit.

Recording Discount allowed.

Tricia sells goods on credit to Chad Brothers. Each invoice sent to this customer has a footnote stating
‘Terms: 5%, 30 days’. This means that the customer can reduce the amount paid by 5% if payments are
made within 30 days.

On 1 May 2018, Tricia sold goods valued at $1200 to Chad Brothers. On May 19 2018, the amount due
was settled lees the cash discount.

Step 1: Enter the sale on credit in the sales book of original entry.

SALES LEDGER

Dr Chad Brothers (Account No.6) Cr

$
May 1 sales SB9 1200
Step 2: when the customer pays on 19 May, the amount paid will be $1200 less 5% cash discount:
$1140. Record the receipt of the cheque in the usual way in the cash book with the debit entry in the
bank account and a credit entry in the credit customer’s account.

Dr Chad Brothers (Account No.6) Cr

$ $
May 1 Sales SB9 1200 May 19 Bank CB7 1140

Step 3: It is now necessary to make entries to record the discount that the customer deducted from the
amount due. Discounts given to credit customers are called discounts allowed.

Dr Chad Brothers(Account No.6) Cr

$ $
May 1 Sales SB9 1200 May 19 Bank CB7 1140
19 Discount 60
allowed

GENERAL LEDGER

Dr Discounts allowed (Account No.11) Cr

$ $
May 19 Chad Brothers 60

Cash discounts might be offered to a business by a supplier, since suppliers will also be anxious to be
paid as soon as possible.

Recording discount received

Tricia’s main supplier is BL Trading Ltd. This supplier always offers Tricia a trade discount of 4% if debts
are settled within 30 days. On 4 May 2018, Tricia purchased goods, value $2400, from BL Trading Ltd. On
24 May, Tricia settled the amount due less the 4% cash discount.

The purchase is recorded in the purchases book in the usual way, and the payment is recorded in the
cash book.
The entries in the payable’s account and the discount account are shown below.

PURCHASES LEDGER

Dr BL Trading Ltd(Account No.2) Cr

$ $
May 24 Bank CB7 2304 May 4 Purchases PB6 2400
24 Discount 96
received

GENERAL LEDGER

Dr Discount received(Account No.12) Cr

$ $
May 24 Bank CB7 2304 May 4 Purchases PB6 2400
24 Discount 96
received

Three Column Cash Book

Robin is the owner of a wholesale business. He offers his credit customers a 2% cash discount for
Prompt payment of amounts due. Robin’s suppliers offer a cash discount of 5% for prompt payment.

On May 1 2018 Robin’s Cash book showed the following balances cash $1350, bank $7480.

The following money transactions occurred during May 2018

Date Source Document Transaction

Sept 3 Cheque counterfoil Payment of an account payable, Campbell Traders. The
amount owed was $2600. This amount settled less 5% cash
discount.
5 Paying-in-slip Counterfoil Receipt of cheque from an account receivable Scott, who
owed $1600. This amount settled less 2% cash discount.
9 Till rolls Cash sales totaling $4540
16 Cheque counterfoil Payment of an account payable, LT Wright. The amount owed
was $4480. This amount was settled less 5% cash discount.
21 Paying-in-slip counterfoil Paid $4200 cash into the business’s bank account
28 Paying-in-slip counterfoil Receipt of a cheque from an account receivable Pitts, who
owed $900. This amount was settled less 2% cash discount.
 Here is the three-column cash book for May. The cash book has been balanced at the end of the month
and folio references have been added to show that the entries have been posted to the relevant ledger
accounts.

Dr CASH BOOK Page 7 Cr

Discount Cash Bank Discount Cash Bank

Allowed Received
$ $ $ $ $ $
May 1 Balances 1350 7480 May 3 Campbell PL4 130 2470
5 K Scott SL8 32 1568 Traders
9 Sales GL7 4540 16 LT Wright PL9 224 4256
21 Cash C 4200 21 Bank C 4200
28 D Pitts SL5 18 882 31 Balances c/d 1690 7404
GL7 50 5890 14130 GL8 354 5890 14130
June 1 Balances b/d 1690 7404

The discount columns are totaled and the totals posted to the discount columns In the general ledger.

GENERAL LEDGER

Dr Discount allowed (Account No.7) Cr

$ $
May 31 Cash book CB11 50

Dr Discount received (Account No.8) Cr

$ $
May 31 Cash book CB11 354

Comparison of trade discount and cash discount

Cash discount Trade discount

A reward for prompt payment
Rather small in percentage terms (2-5%)
Recorded as part of the double entry records
A reward for buying in bulk
Can be large in percentage terms (115-33%
No record is made of trade discounts in the
double entry records- only the net amounts.
(after the discount is deducted) is shown.
 Cash Book with a bank account that is overdrawn

Dr CASH BOOK Page 7 Cr

Bank Bank
$ $
June 1 Balance 2400 June 8 Rent 1400
8 Cash 3700 15 Drawings 1100
18 Sales 3400 18 Equipment 8600
30 Balance c/d 2090 28 Insurance 490
11590 11590

NB: The bank account becomes overdrawn on 18 June when the large payment was made for new
equipment. (it is from this date that the bank will start charging interest)

However, it is only when the account is balanced at the end of the month that the overdraft balance is
formally recorded.

Of course, a cash account could not become overdrawn. It is impossible to have a negative cash balance.