Cash Book Definition The Cash book is another book of Prime Entry, where cash transactions are recorded. The Cash book may take the form of two or three columns. The Cash book forms part of the double entry system.
Cash Book Cash - What is It? Cash is the single asset readily convertible into any other type of asset. It is the most liquid of assets, The standard medium of exchange The basis for measuring and accounting for all other items.
Cash Book Cash - Reporting Criteria To be reported as cash it must be: – readily available for the payment of current obligations – It must also be free from any contractual restriction that limits its use in satisfying debts.
Cash Book Classes of Cash Cash consist of: – Coins, currency and available funds on deposit at the bank. – Negotiable instruments such as money orders, certified cheques, cashier’s cheques, personal cheques, and bank drafts are also viewed as cash.
Cash Book Near Cash Items Temporary investments are securities that contain restrictions or penalties on their conversion to cash, and are not classified as cash. Cash equivalents are short-term highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in interest rates. – Generally only investments with original maturities of three months or less qualify under these definitions.
Cash Book Near Cash Items A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of, a specified person or bearer.
Cash Book Two Column Cash Book The two column cash book has two sides appearing on each side of the cash book – One side is used for the individual cheques or cash received into the Business or its Account at the Bank – The other for payments by cheque or cash The cash columns are used for actual cash receipts and payments of cash only. There is an assumption that an actual cash balance is kept as well as a bank account. (Millichamp 1992: 116)
Cash Book Three Column Cash Book The three column cash book has three columns appearing on each side of the cash book representing three types of accounts which are classified as :- – Discount - which is a nominal account – Cash - which is a real account – Bank - which is a personal account
Cash Book Three Column Cash Book It is necessary to have three columns on the debit side because: 1.The discount column is required as a prime entry place for discount allowed; 2.The individual cheques or cash received from each customer or other source are required. – So that they form a record of such receipts – They can be posted to the credit of the customers’ accounts;
Cash Book Three Column Cash Book It is necessary to have three columns on the debit side because: 3. The actual banking column is required to record the actual amount banked on each occasion money is banked. – These figures can be compared with the entries in the bank statements. (Millichamp 1992: 116)
Cash Book Two-Column Cash Book Format Three-Column Cash Book Format DateDetailsCashBankDateDetailsCashBank RECEIPTSPAYMENTS DateDetailsDisc All CashBankDateDetailsDisc Rec. Cash BankRECEIPTSPAYMENTS
Cash Book Discount Cash discounts are reductions made from: – Accounts Receivable (debtors) – Accounts Payable (creditors) at the time of settlement. The totals are posted to: – A Discounts Allowed – A Discount Received Account in the General Ledger.
Cash Book Discount Column The discount column in the cash book is not part of the double entry system of Book keeping The discount column is placed in the cash book solely as a source of prime entry Double entry for Discount Allowed Column is:- – Debit Discount allowed account – this is an expense account. – Credit The individual customer’s account (Wellington etc.). Double entry for Discount Received Column is:- – Debit The supplier’s account (Reid etc). – Credit Discount received account – a revenue account required for the year end profit and loss account.
R ECORDING OF R ECEIPTS IN THE C ASH B OOK Lecture Notes 7
Cash Book Recording of Receipts from Debtors On receipt of cash from debtors, the amount actually received is entered in the cash column on the debit side. If the money is paid direct into the bank, the entry would be made to the debit side of the bank column. The corresponding entry is made in each case to the debtor’s account in the ledger.
Cash Book Recording of Cash Sales On receipt of an amount in respect of cash sales, the entry is made in the cash column on the debit side, The corresponding entry being made to the sales account in the ledger. Recording of Sale of Fixed Asset On receipt of an amount from the sale of a fixed asset, the entry would be to the debit side of the cash or bank column, The credit will be to the asset account in the ledger.
Cash Book Recording of Discounts Given All cash discounts given are entered in the discount allowed column, which is on the debit side of the cash book. The total is subsequently transferred to the debit side of the discount allowed account.
R ECORDING OF P AYMENTS IN THE C ASH B OOK Lecture Notes 7
Cash Book Recording of Payments to Creditors On payment of cash to a creditor the amount is entered in the cash column on the credit side. If the payment is made by cheque, the amount is entered on credit side in the bank column. The debit entry is made to the creditor’s personal account.
Cash Book Recording of Payments for Purchases On payment of an amount in respect of Purchase of Goods, the entry is made in the cash or bank column (Cheque) on the credit side. The corresponding entry is made to the debit side of the purchases account. Recording of Purchases of Assets On payment of an amount for the purchase of an asset, the credit will be to the cash or bank column (Cheque). The corresponding debit is made to the asset account in the ledger.
Cash Book Recording of Discounts Received If cash discount is received, such an amount is entered in the discount received column which is on the credit side of the cash book. The total is transferred to the credit side of the discount received amount in the ledger.
Cash Book Contra Entry Definition - Contra is a book-keeping entry by which a transfer of money from cash to bank and vice versa is made. Surplus cash is paid into the bank and a shortage of cash is made good by withdrawals from the bank. Both entries occur in the cash book and no ledger entry is required. The letter ‘C’ is recorded in the folio column to indicate that the transaction is a contra.