The Cash Book

The cash book is:

 a book of prime entry
 part of the double-entry system
 the cash and bank accounts brought together

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The two-column
cash book
The cash book is set out so that the:
 debit columns for cash and bank are side by side
 credit columns for cash and bank are also side by
side

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The folio column
 This column is used to identify the name of the
ledger and account number where the
corresponding part of the double entry has been
entered.
 Using a folio column speeds up the process of
finding the opposite entry in the ledgers.

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Two-column cash
book
The layout
Cash book

Date Details Folio Cash Bank Date Details Folio Cash Bank

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Example
Complete the two-column cash book for the following:
1 March Balance brought down from last month:
cash £325; bank £8,640.
2 March Paid insurance £2,000 by cheque.
3 March Cash sales £600.
4 March Purchases by cheque £3,250.
5 March R Hodge paid us £4,250 by cheque.
6 March Bought stationery £40, paying by cash.
7 March Paid wages by cheque £1,350.
8 March P Wilson paid us £600 for goods previously
bought on credit.
9 March Received £2,000 owing from A Sumner.
10 March Paid rent £300 by cash.
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 Cash book

Date Details Folio Cash Bank Date Details Folio Cash Bank

01/03 Balance b/d 325 8,640 02/03 Insurance GL 6 2,000

03/03 Sales GL 1 600 04/03 Purchases PL 2 3,250

05/03 R Hodge SL 2 4,250 06/03 Stationery GL 4 40

08/03 P Wilson SL 3 600 07/03 Wages GL 9 1,350

09/03 A Sumner SL 5 2,000 10/03 Rent GL 3 300

11/03 Balance c/d 585 8,890

925 15,490 925 15,490

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Tasks
 Complete Question 1 on task sheet.
 Complete Questions 1–14 from text book,
Chapter 10.

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Three-column cash
book
 The three-column cash book incorporates an
additional column at each side for discounts.
 There are two types of discounts but only one kind
are entered in the double-entry system.

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Discounts
1. Trade discounts
These are discounts given to companies who
trade in the same area or for bulk buying.

They are not recorded in the double-

entry system.

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Example: trade
discount
 Goods normally sell at retail price of £250 each.
 The manufacturer sells them to the retailer at a
20% trade discount for buying 10.
 The discount is recorded on the invoice
 £250 × 10 = 2,500 – 20% (£500) = £2000.
 £2,000 is the figure that is used in the double-
entry books.

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Discounts
2. Cash discounts
These are discounts given for early settlement of
an invoice.
They are given to encourage early payment.

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These discounts are
recorded in the double-
entry system as:
Discounts allowed – discounts given to debtors
when they pay their accounts early.
Discounts received – discounts received by a
business from its suppliers when they pay their
accounts quickly.

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Discounts
The discount columns in the cash book are
memorandum columns.
At the end of the period they are totalled and the
total is transferred into the discounts allowed
account and discounts received account in the
general ledger.

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The three-column
cash book
 Discount columns = memorandum columns.
 The discount columns are not part of the double-
entry system.
 These columns are totalled and transferred to the
discounts allowed account and discounts received
accounts in the general ledger.

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Contra
A transaction that appears on both the debit and
credit sides of the account is called a contra entry.
For example, when cash is taken out of the cash
account and put into the bank account, then both
entries will be in the cash book.

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Three-column cash
book
Cash Book
Date Details Folio Disc Allowed Cash Bank Date Details Folio Disc Received Cash Bank

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Enter the following transactions in the three-column cash book of
William Buck. Balance off the cash book and show the discounts
accounts in the general ledger.
1 July Balances brought forward: Cash £230; Bank 4,560.
2 July Cash sales £450.
3 July The following debtors paid their accounts by cheque each
deducting a 5% cash discount: R Jenn £460, S Benny £620 and
J Hacker £540.
4 July Paid rent by cheque £700.
5 July Paid wages by cheque £1,300.
6 July We paid the following accounts by cheque, in each case
deducting a 2% cash discount: F Jepson £300, D Hudson £400,
E Butler £600.
7 July Transferred £500 cash to the bank account.
8 July Bought stationery £60, paying cash.

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 Cash Book

Disc Disc
Date Details Folio Allow Cash Bank Date Details Folio Rec’d Cash Bank

1/7 Balances b/d 230 4,560 4/7 Rent GL 2 700

2/7 Sales GL 1 450 5/7 Wages GL3 1,300
3/7 R Jenn SL3 23 437 6/7 F Jepson PL2 6 294
3/7 S Benny SL4 31 589 6/7 D Hudson PL5 8 392
3/7 J Hacker SL8 42 498 6/7 E Butler PL6 12 588
7/7 Cash C 500 7/7 Bank C 500
8/7 Stationery GL8 60
9/7 balance c/d 620 2,810
96 1,180 6,084 26 1,180 6,084

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 Discounts allowed

9/7 Cash book 96

Discounts received

9/7 Cash book 26

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Bank overdraft

A bank overdraft is when a business has taken

more money out of its bank account than it has
deposited.
If this has occurred then the balance b/d will be
shown on the credit side of the account.

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For example, if a business on 1 November has a
bank overdraft of £1,200, and a cash balance of
£330, then the opening balances in the cash book
would appear as follows:

Cash Book

Date Details Folio Cash Bank Date Details Folio Cash Bank

1/11 balance b/d 330 1/11 balance b/d 1,200

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Tips
 If the balance b/d on the bank is a credit then it is
a bank overdraft.
 You can never have a balance b/d on the credit
side of the cash account (it is impossible to
physically spend more cash than you have).
 Take care with discounts: trade discounts do not
appear in the cash book or double-entry accounts.
 Cash discounts do appear in the cash book: these
are discounts given for early settlement, not
necessarily for cash payments.

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Tasks
 Complete Question 2 from task sheet.
 Complete Questions 1–6, Chapter 11 of text
book.

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