1. UNIT-8 Accounting for Cash In order to keep proper records for information in future,the business concerns maintains many books. In each book it records a separate nature of transactions. For example in purchase book only credit purchases are recorded, while in sales book only credit sales are recorded and in cash book only cash transactions are recorded. 1

2. Generally business units maintain the following books of account. 1.Purchase Book 2.Sales Book 3.Purchase Return Book 4.Sales Return Book 5.Cash Book 6.Bills Receivable Book 7.Bills Payable Book and 8.Journal Proper. 2

3. Cash-Book Cash book is the book in which all cash transactions are recoded. The credit transactions and losses are not recorded in it.It is mainly a summary of cash inflow and outflow. Different types of cash book are maintained by the business units as per their requirements. 3

4. A specimen of a simple cash book is as follows: Cash-Book DateParticularsAmountDateParticularsAmount To Balance b/d To All cash receipts-- (like-cash sales, collection from debtors,rent,comm ission,interest,etc) ---- ------- By All payments— (like-cash purchase of any items, payments for wages,salaries rent,advertiseme nt,commission,in terest etc.) By Balance c/d ----- --------- ---------- 4

5. The cash book is divided into two equal sides of debit and credit. Left hand side is called debit side while right hand side is known as credit side. In the debit side all the receipts in cash are recorded and all cash payments so in credit side. In the beginning if any old balance is there that is transferred to the debit side as, To, balance b/d, at very first. At the end of the month the balance if any left, is transferred to the credit side as, By balance c/d. It is very important to note that in a single column cash book debit side eighter is greater or equal to credit side. 5

6. Illustration no.1 From the following prepare a suitable cash book. 2015 SR Jan.01 Business started with cash 20,000 Jan.02 Purchased for goods for cash 12,000 Jan.03 Purchased furniture 3,000 Jan.04 Sold goods for cash 10,000 Jan.05 Sold goods to Mr. Ahmad on credit 2,000 Jan.14 Paid wages 200 Jan.26 Received from Mr. Ahmad 1,980 Jan.30 Paid rent for the month 1,000 Jan.31 Purchased a machine 5,000 6

7. Cash-Book Solution no.1 Date ParticularsAmount Date ParticularsAmount 2015 Jan.01 Jan.04 Jan.26 To Capital a/c To Sales a/c To Mr. Ahmad 20,000 10,000 1,980 ----------- 31,980 2015 Jan.02 Jan.03 Jan.14 Jan.30 Jan.31 By Purchase a/c By Furniture a/c BY Wages a/c By Rent a/c By Machine a/c By Balance c/d 12,000 3,000 200 1,000 5,000 10,780 ----------- 31,980 7

8. Illustration no.2 From the following balances transactions a cash book. 2015 SR Jan.01 Mr Abdul Aziz started his grocery store with 50,000 Jan.02 He Purchased grocer’s items 35,000 Jan.03 Purchased basmati rice from Suhail on credit 8,000 Jan.07 Sold goods for cash 6,000 Jan.12 Paid carriage 100 Jan.20 Paid for stationary 200 Jan.25 Paid to Suhail 8000 Jan.28 Sold goods 12000 Jan.29 Paid for salaries 500 Jan.30 Telephone charges 50 8

9. Cash-Book Solution n.2 Date Particulars Amount Date ParticularsAmount 2015 Jan.01 Jan.07 Jan.28 To Capital a/c To Sales a/c 50,000 6,000 12,000 ---------- 68,000 2015 Jan.02 Jan.12 Jan.20 Jan.25 Jan.29 Jan.30 Jan.31 By Purchase a/c By Carriage a/c By Stationary a/c By Suhail By Salaries a/c By Telephone charges a/c By Balance c/d 35,000 100 200 8,000 500 50 24,150 ----------- 68,000 9

10. Illustration n.3 Opening balance on1st Jan.2015 is SR 16150. SR Jan.01 Goods purchased for cash 3,000 Jan.02 Goods purchased from Mr. White on credit 5,000 Jan.04 Goods sold for cash 4,000 Jan.05 Goods sold Mr Black on credit 6,000 Jan.06 Paid to Mr White 5,000 Jan.07 Received from Mr Black 6,000 Jan.08 Paid commission 100 Jan.09 Paid electric charges 200 Jan.10 Paid general expenses 20 Jan.31 Commission received 150 Prepare cash book from the above information. 10

11. Cash-Book DateParticularsAmountDateParticularsAmount 2015 Jan.01 Jan.04 Jan.07 Jan.31 To Balance b/d To Sales a/c To Mr Black To Com.a/c 16,150 4,000 6,000 150 --------- 26,300 2015 Jan.01 Jan.06 Jan.08 Jan.09 Jan.10 Jan.31 By Purchase a/c By Mr White By Comm.a/c By Electric--- charges a/c By General Exp- enses a/c By Balance c/d 3,000 5,000 100 200 20 17,980 ----------- 26,300 11

12. Question no.1 What is a cash book? Answer : Cash book is a summary of cash inflow and cash outflow during a particular period. Question no.2 What is meant by inflow? Answer : The receipts of cash through which the Cash balance is increased is called inflow. Question no.3 What is outflow? Answer : The payment of cash through which the cash balance is decrease is known as out- flow. Question no.4 Why do we not record the credit transa- ction in the cash book? Answer : Cash book is a summary of only cash transaction. In credit transactions no inflow or outflow is there. So credit transactions are not recorded in it. 12

13. Question no.5 Is preparation of cash book necessary? Answer : Almost for every business units the cash book is necessary. But for the big organizations it is more relevant and is almost compulsory. Question no.6 Where do we record the cash sales in a cash book? Answer : Cash sale is recorded in the debit side of cash book. Question no. 7 Where do you record the cash purchase in the cash book.? Answer : It is recorded in the credit side of cash book. 13

14. Question no.08 Where do we record the loss by fire in a cash book? Answer : We do not record the loss by fire in cash book. Question no.09 Why do we not record the loss by fire in cash book? Answer : Loss by fire does not record in the cash book because there is no inflow or outflow of cash due to this fire. Question no.10 Where are all the payments recorded in the cash book? Answer : All payments are recorded in the credit side of cash book. 14

15. Ques.11. Where are all the receipts recorded in the cash book? Ans. All the receipts are recorded in the debit side of cash book. Ques.12. Does it necessary that the cash book start always with opening balance? Ans. No, it does not necessary that cash book start always with opening balance. Ques.13. Does it necessary that the cash book end always with closing balance? Ans.. No, it does not necessary that cash book end always with closing balance. 15

16. Double Columns Cash-Book Like the single column cash book the double columns cash book is also prepared simply by adding one column of bank on both the sides.This is because the payments are also made through cheques and money is also deposited in the bank and withdrawn from the bank by the business concern. Specimen of Double Columns Cash Book DateParticularsCashBankDateParticularsCashBank To Balance b/d---- ---------- ------ ---------- By Balance c/d --- --------- ---- --------- 16

17. Illustration no.4 From the following prepare a suitable cash book. 2015 SR March 01 Business started with cash 50,000 March 02 Deposited into bank 30,000 March03 Goods purchased for cash 5,000 March04 Goods purchased through cheque 3,000 March05 Goods sold for cash 2,500 March06 Goods sold and deposited into bank 3,000 March07 Withdrawn from bank for office use 10,000 March08 Withdrawn from bank for personal use 2,000 March13 Salaries paid through cheque 4,000 17

18. Cash Book Date Particulars cash BankDate Particulars cash Bank 2015 Mar.01 Mar.02 Mar.05 Mar.06 Mar.07 To Capital a/c To Cash a/c To Sales a/c To Bank a/c 50,000 2,500 10,000 --------- 62,500 30,000 3,000 --------- 33,000 2015 Mar.02 Mar.03 Mar.04 Mar.07 Mar.08 Mar.13 Mar.31 By Bank a/c By Purchase a/c By Cash a/c By Drawing a/c By salaries a/c By Balance c/d 30,000 5,000 27,500 ---------- 62,500 3,000 10,000 2,000 4,000 14,000 --------- 33,000 18

19. 2015 SR. March 01 Cash in hand80,000 March0 1 Bank Balance120,000 March 03 Received a cheque from Osman24,000 March 04 Deposited Osman's cheque with bank-- March 08 Withdrawn from bank for business use20,000 March 10 Goods sold for cash30,000 March 15 Goods bought for cash80,000 March 18 Goods sold for cash60,000 March 20 Paid Rahim by cheque26,000 March 30 Deposited into bank16,000 March 31 Paid salary in cash 10,000 March 31 Paid rent by cheque 5,000 Illustration no.5 Enter the following transactions in a double column cash book/two column cash book. 19

20. Illustration no.5 Cash Book Date ParticularsCashBankDate Particulars CashBank 2015 Mar.01 Mar.03 Mar.04 Mar.08 Mar.10 Mar.18 Mar.30 To Balance b/d To Osman To Cash a/c To Bank a/c To Sales a/c To Cash a/c 80,000 24,000 ----- 20,000 30,000 60,000 ---- --------- 2,14,000 ------------- 1,20,000 ------ 24,000 ------ ----- ------- 16,000 ---------- 1,40,000 ----------- 2015 Mar.04 Mar.08 Mar.15 Mar.20 Mar.30 Mar.31 By Bank a/c By Cash a/c By Purchase a/c By Rahim By Bank a/c By Salary a/c By Rent a/c By Balance c/d 24,000 ----- 80,000 --- 16,000 10,000 --- 84,000 --------- 2,14,000 ---------- ----- 20,000 ---- 26,000 --- 5,000 89,000 --------- 1,40,000 ----------- 20

21. Question no.14. What is a contra entry ? Answer. If a transaction requires entries on both the debit and the credit sides simultaneously, it is called 'Contra entry'. Usually, the contra entries will appear in the following occasions. a. When an account is opened with a bank. b. The firm's cash is deposited in the bank. c. The cash is withdrawn from bank for office use. d. The cheques received from debtors, are deposited in the bank. In transactions a&b, the cash balance available with the firm is decreased, the cash in bank is increased. In transaction 'c', the cash in the bank is decreased and the cash in the firm is increased. 21

22. Question no.15 Do you think that business cash deposited into a bank is a contra entry? Answer Yes, business cash deposited into a bank is a contra entry. Question no.16 Do you know that cash withdrawn from the bank for private use is a contra entry? Answer. No, cash withdrawn from the bank for private use is not a contra entry? Question.no17 At which side of the cash book will you record the credit purchase of machinery for SR 20000? Answer It will not be recorded at any side of cash book because there is no inflow or outflow of cash in this transaction. 22

23. Question no.18. Fill in the blanks- (a) Cash Book is a summary of --------------transactions. (cash) (b) Credit transactions are ------------recorded in the cash book.(not) (c) Cash columns of cash book either is ------or------ balance. (equal or has the debit) (d) Cash column in cash book never has ------balance.(credit) (e ) Credit balance of bank column in cash book means --------. (overdraft) (g) Bank column of cash book either has -----balance or ----- balance or -----balance. (no, or debit or credit) 23

24. Practical Problems 1.Enter the following transactions into a single column cash book. Date SR 2015 Jan.01 Business started with cash 50,000 Jan.04 Goods purchased for cash 30,000 Jan.05 Paid carriage charges 500 Jan.09 Goods purchased from Mr Ali 6,000 Jan.12 Sold for cash 8,000 Jan15 Sold to Mr Amir 10,000 Jan.20 Paid to MR Ali 6,000 Jan 25 Paid rent for the month 1,000 Jan.28 paid general expenses 200 Jan.29 Received from Mr Amir 10,000 Jan.30 Furniture purchased 4,000 Ans. Cash Balance : SR. 26,300 24

25. 2.Enter the following transactions into a single column cash book. Date SR 2015 Jan.01 Business started with cash 20,000 Jan.04 Goods purchased for cash 10,000 Jan.05 Paid wages 1, 500 Jan.09 Goods purchased from Mr Abdullah 5,000 Jan.12 Sold to Tufail 8,000 Jan15 Sold to Mr Anwar 10,000 Jan.20 Paid to Mr.Abdullah 5,000 Jan 25 Paid carriage 1,000 Jan.28 paid general expenses 200 Jan.29 Received from Mr Tufail 8,000 Jan.30 Machinery purchased 4,000 Jan.31 Drawn for personal use 2,000 Ans. Cash Balance: SR 4,300 25

26. 3.Enter the following transactions into a suitable cash book. Date SR 2015 Mar.01 Business started with cash SR.15000 and goods SR.5000 20,000 Mar.04 Goods purchased for cash SR.8000 and credit SR.2,000 10,000 Mar05 Paid salary 1, 500 Mar09 Goods sold to Mr. Wahid 7,000 Mar.12 Sold for cash 8,000 Mar.20 Paid furniture 6000 Mar25 Paid carriage 500 Mar.28 paid postage expenses 200 Mar.29 Received from Mr. Wahid 7,000 Mar.30 Machinery purchased 9,000 Mar.31 Drawn for personal use cash SR.3000 and goods SR.2000 5,000 Mar.31 Purchased from Mr. Shadab Ahmad 2,000 Answer. Cash Balance : SR. 1,800 26

27. 4.Prepare cash book with cash and bank columns from the following transactions. 2015 SR Feb. 01 Business started with cash 50,000 Feb. 02 Deposited into Samba bank 20,000 Feb.03 Purchase for cash 18,000 Feb.04 Purchase on credit 6,000 Feb.05 Purchase through cheque 5,000 Feb.10 Sold for cash 7,000 Feb.12 Sold on credit 2,000 Feb.14 Sold goods, cheque received and deposited into Samba 4,000 Feb 15 Sold and received a cheque 8,000 Feb 18 Cheque deposited into bank Feb.20 paid for postage 200 Feb.22 Paid electric charges through cheque 400 Feb.26 Drawn from bank for office use 3,000 Feb.28 Drawn from Samba for personal use. 1,000 Ans.Cash Balance: SR 21,800 Bank Balance:SR22,600 27

28. 5.Prepare cash book with cash and bank columns from the following informations. 2015 SR Feb. 01 Business started with cash 150,000 Feb. 02 Deposited into Samba bank 70,000 Feb.03 Purchase for cash 38,000 Feb.04 Purchase on credit 16,000 Feb.05 Purchase through cheque 1 5,000 Feb.12 Sold for cash 14,000 Feb.13 Sold goods, cheque received and deposited into Samba 8,000 Feb 14 Sold and received a cheque 16,000 Feb 16 Cheque deposited into bank Feb.19 paid for postage 1, 200 Feb.24 Paid electric charges through cheque 1,000 Feb.27 Drawn from bank for office use 9,000 Feb.28 Drawn from Samba for personal use. 10,000 Ans.Cash Balance: SR 63,800 Bank Balance:SR59,000 28

29. 6. From the following informations draw a suitable cash book. 2014 SR Dec. 01 Business started with cash 90,000 Dec. 03 Deposited into bank 50,000 Dec.05 Purchase on credit 30,000 Dec.06 Purchase for cash 12,000 Dec.08 Purchase through cheque 1 3,000 Dec.11 Sold for cash 18,000 Dec.12 Sold goods, cheque received and deposited into bank 9,000 Dec 15 Sold and received a cheque 15,000 Dec 17 Cheque deposited into bank Dec.20 paid for carriage 1, 000 Dec.23 Paid electric charges through cheque 1,500 Dec 26 Drawn from bank for office use 10,000 Dec 27Paid for personal travelling expenses. 8,000 Ans.Cash Balance: SR 47,000 Bank Balance:SR 49,500 29