Cash Book: March 2016

Cash Book

9.1 Cash

Cash is a Current Asset. It is the most readily available form of Current Assets to meet the current obligation of business. Cash includes, paper currency, coins, cheque, bank drafts but excludes postage stamps, post-dated cheque, dishonoured cheque etc.

9.2 Cash Book

a) The Cash Book is sub division of the book of original entry and it records transactions related to receipts or payment by cash or cheque. Only all cash transactions are first recorded in the Cash Book and then posted from Cash Book into respective ledger.

b) Cash Book performs the functions of journal and ledger at the same time.

i) The similarities with journal are-

- All cash transactions are entered chronologically in the Cash Book.

- Journal like narration is given in the cash book.

- It is a primary book of all cash related entries. All cash transactions are recorded first in the Cash Book.

ii) The similarities with Ledger are-

- Cash Book acts like a Ledger as it is balance and the balance is carried in the trial balance.

- It has two sides (Dr. Side and Cr. Side), like a ledger.

- ‘To’ and ‘By’ are used while recording the transactions, like ledger.

- It is a part of ledger book (Cash A/c of ledger book).

iii) When a Cash Book is opened, Cash Account is not opened in the ledger.

9.3 Kinds of Cash Book

There are different kinds of cash book as follows:

1. Single Column Cash Book- to record cash transactions only.

2. Double Column Cash Book- to record cash and bank related transactions.

3. Triple Column Cash Book- to record cash, bank and discount.

4. Petty Cash Book- to record all regular expenses and receipts.

9.3.1 Single Column Cash Book

It records all cash transactions. All cash receipts are recorded on the left hand or debit side, and all cash payments are entered on the Right hand of credit side. The difference between the debit and credit sides shows the Cash in hand.

Characteristics

1. After recording an entry in cash book it is posted in the Ledger.

2. Unlike a subsidiary book, the cashbook is balanced like any other account.

3. The debit side total is always greater than the credit side total since the payment cannot exceed the cash receipts.

4. Cash discount allowed or received is not recorded here.

Example: From the following information, prepare a Single Column Cash Book of Asit and bring down the balance and post them into Ledger accounts on 31^st Dec.2009.

2009		Rs.
Dec.1	Balance in hand	5,000
Dec.3	Purchased goods for cash	1,500
Dec.7	Further capital introduced	1,000
Dec.9	Bought furniture	900
Dec.10	Spent for private use	800
Dec.11	Received rent from Basu	450
Dec.15	Received from Kumar on account	500
Dec. 21.	Sold goods for cash	2,000
Dec. 25.	Paid to creditors	1,100
Dec. 31.	Paid salary	650

Solution

In the Books of Asit

Cash Book (Single Column)

*Date*	*Particulars*	*V.N.*	*L.F.*	*Rs.*	*Date*	*Particulars*	*V.N.*	*L.F.*	*Rs.*
2009					2009
Dec.1	To Balance b/d			5,000	Dec.3	By Purchases A/c. (Goods purchased for cash)			1,500
Dec.7	To Capital A/c. (Fresh capital introduced)			1,000	Dec.9	By Furniture A/c. (Furniture brought)			900
Dec.11	To Rent A/c. (Rent received)			450	Dec.10	By Drawings A/c. (Spend for private use)			800
Dec.15	To Kumar A/c. (Cash received)			500	Dec.25	By Creditors A/c (Cash paid for creditors).			1,100
Dec.21	To Sales A/c. (Goods sold for cash)			2,000	Dec.31	By Salary A/c. (Salary paid in cash)			650
					Dec.31	By Balance c/d.			4,000
2010				8,950					8,950
Jan.1	To Balance b/d			4,000

9.3.2 Double Column Cash Book

When there are bank transactions beside cash transactions, one additional column i.e. Bank column is also included. The format is similar to a single column Cash Book except with one more additional column. In Double Column Cash Book, both cash and bank transactions are recorded and so both balances can be obtained simultaneously.

Important Adjustments related to Double Column Cash Book

1. Contra Entries: Contra means, money transferred from one Cash or Bank A/c to another Cash or Bank A/c (like Cash withdrawn from Bank, Cash Deposited to Bank, Fund transferred from one Bank A/c to another etc.). In contra, debit and credit of a transaction are recorded in the same account in different columns. Each entry in the debit or, credit side is considered as the Contra entry of the other

i. Cash deposited into the Bank Rs.500. the entry will be
Bank A/c	Dr.	500
To Cash A/c.			500

The Bank would be the receiver and would be entered on the debit side in the Bank Column of the Double Column Cash Book and credit aspect is entered on the credit side in the Cash column of the Double Column Cash Book.

ii. Cash withdrawn from Bank Rs.600. the entry will be
Cash A/c	Dr.	600
To Bank A/c.			600

The Bank would be the giver and It would be entered on the credit side in the Bank Column of the Double Column Cash Book and debit aspect is entered on the debit side in the cash column of the Double Column Cash book. “Cash” is considered as contra of “Bank” and “Bank” is considered as contra of “Cash”. In contra entries “C” is put in the L.F. Column.

2. Cheque received and deposited into bank:

The entry will be: -

i. Cheque has been deposited into bank
Bank A/c	Dr.
To Customer’s/ Debtors A/c.
ii. When the cheque is dishonored by bank
Customer’s/ Debtors A/c.	Dr.
To Bank A/c

3. Cheque received from one person and endorsed to another persons: The entries will be: -

i. When Cheque the is received from a debtor
Bank A/c	Dr.
To Customer/ Debtor A/c.
ii. When the cheque endorsed in favour of a creditor, the entry will be-
Creditor’s A/c	Dr.
To Bank A/c
iii. When the endorsed cheque is dishonored by bank
Customer’s/ Debtors A/c.	Dr.
To Creditor’s A/c
(In such case, the amount appears in both Debit and Credit side in Bank Column)

4. When a cheque is issued to a creditor: The entries will be: -

i. When Cheque issued
Creditor’s / Supplier’s A/c	Dr.
To Bank A/c.
ii. When the above cheque is dishonored by bank.
Bank A/c	Dr.
To Creditor’s / Supplier’s A/c
iii. When “Stop Payment” order is given to the bank after issuing the cheque (for some reason), or the cheque is dishonoured, the entry will be.
Bank A/c	Dr.
To Creditor’s / Supplier’s A/c

9.3.3 Triple Column Cash Book

The columns in the Debit side of this cashbook are used for cash, Bank receipts and Discount allowed whereas the columns in credit side are used for cash, bank payments and discount received. Cash Column and Bank columns of the Cash Book represent Cash Account and Bank Account of the ledger, but the discount column is just a book of original entry. At the end of each period (month or week) the debit total of the discount column of the cashbook (not balanced), is posted to the debit side of the Discount Allowed Account maintained in the Ledger. Likewise, the Credits total of the Discount column is posted to the credit of Discount received account maintained in the ledger.

Discount

Discount is a reduction from the Gross Amount. There are two types of discount

a. Trade Discount- Trade discount is shown as deduction in the invoice. Trade discount is not reflected on book of accounts.

b. Cash Discount- Cash Discount is allowed to those buyers who make payment during specified period. This discount is recorded in the books of account.

i. When cash discount is allowed
Cash/Bank A/c	Dr.
Discount Allowed A/c.	Dr.
To Debtor’s A/c
ii. When cash discount is received
Creditor’s A/c	Dr.
To Cash/Bank A/c
To Discount Received A/c

Example: Prepare a Three Column Cash Book from the following transactions of the month of Jan.2010.

		Rs.
Jan.1	Cash in hand	1,000
	Cash at Bank	10,000
Jan.5	Discounted a Bill of Exchange at 1% through bank	4,000
Jan.7	Bought goods from Rajesh by cheque	5,000
Jan.8	Bought goods from Sandip for cash	500
Jan.14	Paid trade expenses	100
Jan.16	Paid into Bank	1,000
Jan.20	Received Cash from Mohan	500
	Allowed discount	50
Jan.23	Withdrew from bank	500
Jan.23	Paid to Sunita & Co.	100
	Received discount	30
Jan.24	Received cash from Ram and deposited the same into bank.	2, 000
Jan.25	Withdraw from bank for private expenses	300
Jan.27	Sold goods for cash	500
Jan.28	Sold goods and received a cheque	8,000
Jan.29	Received payment of a loan of Rs.5, 000 and deposited Rs.2, 000 out of it into bank
Jan.31	Bank Charges as per Pass Book	20

Solution:

Entry

Treatment

Rs.

Jan.1

Cash in hand

Cash Opening Balance will come in Dr. side of cash column of Cash book

1,000

Cash at Bank

Bank Opening Balance will come in Dr. side of bank column of Cash book

10,000

Jan.5

Discounted a Bill Exchange at 1% through bank

Bill receivable and discount allowed will come in Dr. side of cash column of the cash book.

4,000

Jan.7

Bought goods from Rajesh by cheque

Purchase made by cheque will come at Cr. Side of Bank column of Cash Book.

5,000

Jan.8

Bought goods from Sandip for cash

Cash purchase will come at Cr. side of cash column of cash book.

500

Jan.14

Paid trade expenses

Trade Expenses, will come at Cr. Side of cash column of cash book.

100

Jan.16

Paid into Bank

It is a contra entry. In Dr. side the amount will come as “To Cash A/c” at bank column of the cash book and in Cr. Side it will come as “By Bank A/c” at cash column of the cash book.

1,000

Jan.20

Received Cash from Mohan Allowed discount

The received entry will come at Dr. side of cash column of the cash book as “To Mohon A/c” Discount allowed amount will come in Discount Allowed column at debit side of Cash Book.

500

Jan.23

Withdrew from bank

It is a contra entry. In Dr. side the amount will come as “To Bank A/c” at cash column of the cash book and in Cr. Side it will come as “By Cash A/c” at bank column of the cash book.

500

Jan.23

Paid to Sunita & Co.

Received discount

The payment entry will come at Cr. Side of cash column of cash book and discount received amount will come in Discount Received Column.

100

Jan.24

Received a cheque from Ram and deposited the same into bank.

There will be two entries on the same date.

At first, a cash receipt from Ram will come as “To Ram A/c” at the Dr. side of the cash column.

As the amount deposited into bank on the same date there will be also a contra entry for it.

2, 000

Jan.25

Withdraw from bank for private expenses

The Drawing entry will come at Cr. side of bank column of cash book.

300

Jan.27

Sold goods for cash

Cash sale will come at Dr. side of the cash column of the cash book.

500

Jan.28

Sold goods and received a cheque

As sales made by cheque, it will come at Dr. side of the bank column of the cash book.

8,000

Jan.29

Received payment of a loan of Rs.5, 000 and deposited Rs.2, 000 out of it into bank

A loan was given and now has been received. So, Loan A/c will come at Dr. side of the cash column of the cash book. This Amount Rs.2,000 will be treated as Contra entry.

5,000

2,000

Jan.31

Bank Charges as per Pass Book

A bank charge is an expense. It will come at Cr. Side of bank column of cash book.

Cash Book (Triple Column)

Dr.

Cr.

Date

Particulars

L.F.

Dis

Rs.

Cash

Rs.

Bank Rs.

Date

Particulars

L.F.

Dis

Rs.

Cash

Rs.

Bank Rs.

2010

Jan.1

To Balance b/d

1,000

10,000

Jan.7

By Purchases A/c

5,000

Jan.5

To Bills Receivable A/c

3,960

Jan.8

By Purchases A/c

500

Jan.14

By Trade Exp. A/c

100

Jan.16

To Cash A/c

1,000

Jan.16

By Bank A/c

1,000

Jan.20

To Mohan

500

Jan.23

To Bank A/c

500

Jan.23

By Cash A/c

500

Jan.24

To Ram A/c

2,000

Jan.23

By Sunita & Co

100

Jan.24

To Cash A/c

2,000

Jan.24

By Bank A/c

2,000

Jan.25

By Drawings A/c

300

Jan.27

To Sales A/c

500

Jan.29

By Bank A/c

2,000

Jan.28

To Sales A/c

8,000

Jan.31

By Bank Charges

Jan.29

To Loan A/c

5,000

Jan.31

By Balance c/d

3,800

21,140

Jan.29

To Cash A/c

2,000

9,500

26,960

9,500

26,960

Feb.1

To Balance b/d

3,800

21,140

9.3.4 Petty Cash Book

In almost every business concern, a number of small payments e.g., conveyance, postage and telegram, taxi fare, cartage, printing and stationery etc. are made daily. If all such payments are entered in the cashbook, the cashier will be overburdened. To overcome this difficulty the business engages a “Petty Cashier” who is entrusted with the task of making small payments under different heads of expenses in a separate book called “Petty Cash Book.” The ruling of the Cash Book provides separate columns for each Ledger Account. The columns are added periodically and debited to the respective accounts in the Ledger.

Systems of Petty Cash

(a) Normal system of petty cash: The Petty Cashier receives a lump sum amount of Cash and when the whole amount is spent he submits the account to the head Cashier.

(b) Imprest system of petty cash: A certain fixed amount is given to the Petty Cashier for a specified period. Petty Cashier submits the account of the sum spent with supporting vouchers. The head cashier reimburses the sum spent only.

Advantages of the Imprest system

1. It reduces the burden of the head cashier and saves his valuable time.

2. The entries of the Petty Cash book are frequently checked by the cashier and hence errors, if committed, are immediately rectified;

3. The Petty Cash accounts are always kept-up-to-date;

4. There is minimum chance of defalcation of Cash;

5. It also saves the time for posting small items to the ledger Accounts.

6. It trains young staff to handle money with responsibility.

Format of Petty Cash Book:

- Simple.

- Columnar.

Simple Petty Cash Book: Like Cash book, when the Petty cashier receives cash he enters it on the left hand side in the debit column and when he pays cash he enters it on the right hand side credit column. Each transaction and its descriptions are entered chronologically.

Cash received	C.B. Folio	Date	Particulars	Voucher No.	Total Payment
Money received
			Money paid

9.3.4.1 Columnar Petty Cash Book: Here a separate column is provided for each common type of expenditure e.g., travelling, wages, stationery, postage, etc. When some expense is entered in the total payment column, same is also entered in the respective analysis column. At the end of certain period all the analysis columns are totaled and entered in the debit side of the respective accounts.

Example: Record the following transactions of Mr. Ram who maintain his Petty Cash Book under the Imprest System with some analytical Columns (the Imprest amount being Rs.100).

Date	Particulars	Rs.
2009
April 1	Cash in hand	30.00
April 1	Received cash to make up the Imprest	-
April 2	Bought Postage Stamps	9.75
April 3	Paid for delivery charges	15.50
April 5	Bought Stationeries	10.00
April 8	Paid wages for cleaning office room	12.00
April 12	Received from a debtor	40.00
April 16	Paid to Chinmoy	8.00
April18	Paid for a Telegram	10.50
April 20	Repairs charges paid for Telex	12.00
April 22	Paid minibus fare (Conveyance exp.)	5.00
April 25	Tiffin expenses for staff. (Staff Tiffin exp.)	10.00

Solution

In the Books of Mr. Ram

Petty Cash Book (under Imprest system)

Amt. Received	Date	Particulars	V.N.	Total amount	Postage Telegram	Stationery	Office Expenses	Travelling	Misc. or Ledger A/c.
Rs. P.	2009			Rs. P.	Rs. P.	Rs. P.	Rs. P.	Rs. P.	Rs. P.
30.00	April 1	To Balance b/d
70.00	April 1	To Cash received*
	April 2	By Postage stamp		9.75	9.75
	April 3	By delivery charges		15.50					15.50
	April 5	By Stationery		10.00		10.00
	April 8	By Office Cleaning		12.00			12.00
40.00	April12	To Debtors		-
	April16	By Chinmoy		8.00					8.00
	April18	By Telegrams		10.50	10.50
	April20	By Repairs of Telex		12.00			12.00
	April22	By Mini bus-fare		5.00				5.00
	April25	By Tiffin Expenses		10.00					10.00
				92.75	20.25	10.00	24.00	5.00	33.50
		By Balance c/d		47.25
140.00				140.00
47.25	Mar.1	To Balance b/d

* Cash received under Imprest system = (Imprest Amount – Cash in hand) = (100-30) = 70.

Balancing of Petty Cash Book

At the end of the period (Day or Month), all the A/c head columns are totaled. The petty cash balance is obtained by deducting the payment column total on the credit side from the receipt column total on the debit side. This is written in the credit column, balanced off and brought down in the Debit column for the next period.

9.4 Sale through Credit/Debit Cards

On sale of goods through a Credit or Debit card, the seller uses the embossed card to print the data on a form with the help of Credit Card Machine. The customer counter signs the form and receives a copy of the form for his record. Such forms are then submitted by the seller to his bank. The seller’s bank then credits the sale amount to the seller’s account (as if the seller has received cheque for goods sold).

Accounting for Credit/Debit Card sale
1. Bank A/c	Dr.
To Sales A/c.
(Sales made through Credit/Debit card)
The bank charges commission, for which the following entry is made.
2. Commission Account	Dr.
To Bank A/c.
(Commission Charged by bank)

9.5 Bank Overdraft

Overdraft means excess drawing from a bank account than its deposited balance. An overdraft is a credit balance in the books of account and a debit balance in the pass book (It is a temporary loan allowed by bank).

Cash Book

Monday, 14 March 2016

Accountacy - Cash Book