Principles of Accounts

CSEC Scholars- Online

Teacher: Ms. Naughton
The Cash Book
 Cash Books

A cash book is a financial ledger used to record all cash

transactions that occur within an organization or for personal
finances. It serves as a primary source of financial information,
tracking the flow of cash into and out of the business or
individual's pocket.
 Why is having a Cash Book so
Well…
important?
1. Record Keeping: Cash books help maintain an accurate and complete record of all cash
transactions, making it easier to track financial activities.

2. Monitoring Cash Flow: They allow individuals and businesses to monitor their cash inflow and
outflow, helping to ensure there is enough cash to meet financial obligations.

3. Financial Control: Cash books help in managing and controlling expenses, ensuring that funds
are used efficiently.

4. Financial Reporting: Cash books provide valuable data for preparing financial statements and
tax returns.
 Tips for Maintaining a Cash Book
Tips for Maintaining Cash Books:
• Record transactions as they happen, ensuring accuracy and timeliness.
• Use consistent and clear descriptions for each entry.
• Separate personal and business transactions if applicable.
• Keep all supporting documents (receipts, invoices) for reference.
• Reconcile your cash book regularly to ensure it matches your actual
cash on hand.
 How it Looks
The cash book consists of the cash account and the bank
account put together in one book. Initially, we showed these
two accounts on different pages of the ledger; now it is easier
to put the two sets of account columns together. This means
that we can record all money received and paid out on a
particular date on the same page.
In the cash book, the debit column for cash is put next to the
debit column
for bank.
How it Looks- The Cash Book
How it Looks- The Cash Book

Here, the
payments
into the bank
were
cheques
received by
the business
which were
banked on
receipt.
 Cash Deposited Into the Bank
Businesses who receive large amounts of cash need to
transfer this to the bank as soon as possible for security
purposes.

Some businesses bank cash received on a weekly basis.

Cash accumulated during the week will be counted and
checked against sales. The business may decide to
retain a float (cash in hand) and bank the remaining
cash.

Question: What would the double entry be when

Example of Transferring Cash into the
Bank
A cash receipt of $100 from John Ash on 1 August 2017,
later followed by the banking of $80 of this amount on 3
August.

‘C’ in the folio column stands for contra and is the reference used to
show that both parts of the double entry have been entered and
completed in one book, the cash book.
 Note:

Cash Withdrawn
Folio Numbers for
posting to the
ledgers are still
necessary!
When a business requires cash for business purposes it
will make a cheque out to itself for the amount of cash
required. The cheque is taken to the bank and the
money withdrawn.
Question: What would the double entry when
taking money out of the bank and making it cash
in hand?

Example: A withdrawal of $75 cash on 1 June 2017 from

the bank would appear in the cash book as follows:
Let’s Go through an Example-
Transactions
Let’s Go through an Example- Cash
Book
 Dealing with Cash Discounts
• Businesses prefer it if customers pay their accounts quickly.
• A firm may accept a smaller sum in full settlement if payment is made within
a certain period of time.
• The amount of the reduction of the sum to be paid is known as a cash
discount.
• The term ‘cash discount’ thus refers to the allowance given for quick
payment. It is still called a cash discount even if the account is paid by cheque
or by direct transfer into the bank account.
• The rate of cash discount is usually stated as a percentage. Full details of the
percentage allowed, and the period within which payment is to be made, are
quoted on all sales documents by the selling company.
 Discounts Allowed and Received

Discounts Allowed Discounts Received

Cash discounts allowed by a Cash discounts received by a
business to its customers business from its suppliers
when they pay their accounts when it pays their accounts
quickly. quickly.
 Example 1

W. Charles owed us $100. He pays on 2 September 2017 by

cash within the time limit laid down, and the business allows
him 5% cash
discount. So he will pay $100 less $5 cash discount = $95 in full
settlement
of his account.
 Effect:
Of Cash:
1. Cash is increased by $95 : Cash
2. Asset of accounts receivable is decreased by $95: Credit W. Charles

Of Discounts:
3. Asset of accounts receivable is decreased by $5. Credit: W. Charles $5.(After the
cash was paid there remained a balance of $5. As the account has been paid this
asset must now be cancelled.)
4. Expenses of discounts allowed increased by $5. Debit: Discounts allowed account $5.

This means that W. Charles’ debt of $100 has now been shown
as fully settled, and exactly how the settlement took place has
also been shown.
 Example 2

The business owed Ms. Sue Smith $400 and pays her by
cheque on 3 September 2017. Since they pay within the
specified 30 days they can claim 2.5% cash discount. So the
business will pay her $400 less $10 cash discount = $390 in full
settlement of the account.
 Effect:
Of Cheque:
1. . Asset of bank is reduced by $390. Credit: Bank, that is, enter in credit bank
column, $390.

2. Liability of accounts payable is reduced by $390: Debit: S. Smith’s account

$390.

Of Discounts:
3. Liability of accounts payable is reduced by $10.Debit: S. Smith’s account $10.
(After the cheque was paid, the balance of $10 remained. As the account has
been paid, the liability must now be cancelled.)
4. Revenue of discounts received increased by $10. Credit: Discounts received
account $10.
 Here is How these transactions would
look in the Necessary Accounts, books
and ledgers
 Here is How these transactions would
look in the Necessary Accounts, books
and ledgers
 Discount Columns in the Cash Book

• The discounts allowed account and the discounts received account are
in the general ledger, along with all the other revenue and expense
accounts. It has already been stated that every effort should be made
to avoid too much reference to the general ledger.
• In the case of discounts, this is done by adding an extra column on
each side of the cash book in which the amounts of discounts are
entered. Discounts received are entered in the discounts column on
the credit side of the cash book, and discounts allowed in the
discounts column on the debit side of the cash book.
 Here is How that Column Would
Appear

There is no alteration to the method of showing discounts in

the personal accounts.
 Bank overdrafts and the cash book

• A business may borrow money from a bank by means of a bank

overdraft. This means that the business is allowed to pay more out of
the bank account, by writing out cheques, than the total amount
available in the account.
• Up to this point the bank balances have all been money at the bank,
and so they have all been assets, that is, debit balances.
• When the account is overdrawn, the firm owes money to the bank and
so the account is a liability and the balance becomes a credit one
 An Example
• Suppose that the amount payable to A. Azar was $1,429
instead of $429. Thus the amount in the bank account,
$1,044, is exceeded by the amount withdrawn. The cash book
would appear as follows:

On a statement of financial position, a bank overdraft will be shown

as an item included under the heading Current Liabilities.
 Exercise
Write up a two-column cash book from the following details,
and balance off as at the end of the month.
 Dr. Cash Book p.g. 49
Cr.
Date Details Folio Discoun Cash Bank Date Details Folio Discou Cas Ban
t nt h k

2017 $ $ $ 2017 $ $ $
The End!