Financial Accounting - Cash Book

 

Financial Accounting

Cash Book

Part A: Discussion of theory regarding the procedure of preparation and maintenance of cash book in a business enterprise following standard accounting practices.

Part B: Five Illustrations with Solutions.

Part A

Introduction

A Cash Book is a journal book (also called day book), which is used for recording all cash receipts and all cash payments. Cash Book is a book of original / prime entry or a subsidiary book since cash transactions are recorded for the first time in this book from the source documents. The Cash Book is a ledger book in the sense that it is designed in the form of a Cash Account and records cash receipts on the debit side and cash payments on the credit side. Thus, the Cash Book is both a journal book and a ledger book.

 

Types of Cash Book

There are basically three types of Cash Book which are –

1.       Single Column Cash Book,

2.       Double Column Cash Book, and

3.       Triple Column Cash Book.

 

Single Column Cash Book

Single Column Cash Book has one amount column on each side. All cash receipts are recorded on the debit side and all cash payments on the payment side. This book is nothing but a Cash Account and, therefore, there is no need to open a separate cash account in the ledger.

 

Important points:

1.       When a Cash Book is maintained, Cash Account is not opened in the General Ledger.

2.       Cash Book is balanced just like any other account.

3.       A Cash Book does not record cheque receipts and issues.

4.       Cash Book always shows a debit balance or nil balance, because total cash payments during an accounting period cannot exceed total of Opening Cash Balance at the beginning of the period and all the cash receipts during the same period.

 

Double Column Cash Book

Double Column Cash Book has two amount columns on each side, one for cash and the other for bank.

 

Triple Column Cash Book

Triple Column Cash Book has three amount columns on each side, one for cash, one for bank and one for discount. All cash receipts, deposits into bank and discount allowed are recorded on debit side of the cash book and all cash payments, withdrawals from bank and discount received are recorded on the credit side. In fact, a triple-column cash book serves the purpose of Cash Account and Bank Account both. Thus, there is no need to open these two accounts in the General Ledger.

 

Important points:

1.   When a new business is started, capital is introduced in the business. The amount is written in the cash column (on the Receipts Side or Debit Side of the Cash Book), if cash is introduced and in the bank column, if the amount is directly deposited into the bank. But in both the cases Capital Account will be credited and will be written as “To Capital Account”. If a new Cash Book is started for an existing business, the opening balance is written on the Receipts or Debit side of the cash book as: “To Balance b/d”.

2.  Receipts are written on the receipts side – cash in the cash column and cheques and drafts in the bank column. In the particulars column, the name of the account under which the payment has been received is written.

3.       In case cheque received is not deposited into the bank on the same day, it is recorded on the receipts side of the cash book in the cash column (i.e. Cash A/c is debited). On the date of deposit of such cheque into bank, it is recorded on the receipts side of the cash book in the bank column (i.e. Bank A/c is debited) and on the payments side of the cash book in the cash column (i.e. Cash A/c is credited).

4.  When a cheque is received and no other information about the cheque is given in the problem, it should be assumed that the said cheque had already been deposited into bank on the same day when it was received.

5. Payments are written on the payments side – cash payments in the cash column and cheque payments in the bank column.

6.  Contra Entries: Some transactions are recorded in a Triple-column Cash Book which relate to both cash and bank, i.e., balance of one increases and that of the other decreases due to such transactions. Such transactions are entered on both sides of the Cash Book and such entries are known as Contra Entries. Examples of Contra Entries are:

Date	Particulars	LF	Dr (Rs)	Cr (Rs)
1.	Bank A/c      Dr
	To  Cash A/c
	(Cash deposited into
	Bank A/c)
2.	Cash A/c      Dr
	To Bank A/c
	(Cash withdrawn from
	Bank A/c)
3.	Bank A/c       Dr
	To Cash A/c
	(Cheque received on an
	Earlier date but not
	Deposited into bank and
	Recorded in the Cash
	Book by debiting Cash
	A/c, now deposited into
	Bank A/c)

 

7.   If a cheque sent to bank is dishonoured, i.e., the bank does not collect the amount, the uncollected amount is written in the bank column on the payments or credit side with the name of the cheque issuing party in the particulars column.

8.  If a cheque issued by the firm is dishonoured, i.e., the bank does not pay the amount on presentation of the cheque, the unpaid amount is written in the bank column on the receipts or debit side with the name of the party to whom the cheque was issued in the particulars column.

9.   Discount may be allowed when the payment is received by cheque. If the cheque is dishonoured, the discount allowed is written back by passing an entry in Journal Proper. However, the cheque amount is reversed by entering the amount in the bank column on the payments side with the name of the cheque issuing party in the particulars column.

10. Discount may be received when the payment is made by cheque. If the cheque is dishonoured, the discount received is written back by passing an entry in Journal Proper. However, the cheque amount is reversed by entering the amount in the bank column on the receipts side with the name of the party to whom the cheque was issued in the particulars column.

11. Period-end balancing is not done for the discount columns, because the totals of these columns are posted directly to the respective ledger accounts separately, i.e. total of the debit side discount column is posted to the debit side of Discount Allowed Account and total of the credit side discount column is posted to the credit side of Discount Received Account. The cash and bank columns are balanced periodically to know the closing balance of cash-in-hand and closing balance of cash-at-bank at the end of the period.

12.       Only cash discounts (either cash discount allowed or cash discount received) are entered in the discount columns of the Cash Book. On the other hand, trade discounts are not at all recorded in the books of accounts, i.e. no accounting entries are made in the books of accounts for the trade discounts.

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The Format of Triple Column Cash Book

Format of Triple Column Cash Book

Part B

Financial Accounting

Cash Book – Selected Problems

 

Illustration: 1

Write a three-column cash book with cash, bank and discount columns from the following transactions:

March, 2021	Transactions
1	Cash in hand Rs 15,000.
3	Purchased goods for cash Rs 6,000.
5	Deposited into bank Rs 5,000.
8	Cash sales Rs 10,000.
10	Cash withdrew from bank for office use Rs 2,000.
12	Received cash from Damini Rs 3,000, allowed her discount of Rs 100.
15	Received cheque from Dolly Rs 2,000 and deposited into bank on the same day, allowed her discount Rs 75.
18	Received cheque from Deepak Rs 5,000 (Not banked).
19	Cheque received from Deepak deposited into bank.
24	Paid to Chander by cheque Rs 2,500, he allowed discount Rs 125.
27	Withdrew from bank for personal use Rs 1,500.
28	Sold goods on credit to Ashok Mitra Rs 4,000
30	Purchased goods on credit from Chander Rs 5,000.
31	Received cheque from Ashok Mitra Rs 2,000 and deposited into bank.
31	Bank charges for the month Rs 100.

 

Click here for Solution: 1 in PDF

Illustration: 2

From the following cash and bank transactions of Mr. Gupta, owner of Gupta Stationery House, prepare a suitable Cash Book and strike the balances at the end of the month:

April, 2021	Transactions
1	Cash in hand Rs 8,800, and cash at bank Rs 11,000.
3	Purchased goods from M/s Agarwalla and paid by cheque Rs 1,400.
9	Cash purchases less trade discount @ 5% Rs 1,600.
10	Purchased postage stamps Rs 100.
12	Proceeds of cash sales deposited into bank Rs 10,000.
14	Drew cash for personal use Rs 820.
15	Received from Naresh cash Rs 600 and cheque Rs 1,000 – both deposited into bank and allowed Rs 100 as cash discount.
15	Withdrew from bank for office use Rs 1,600.
16	Paid wages Rs 600 and rent Rs 1,000.
19	Paid M/s Mohan & Co. by cheque Rs 4,800, cash discount allowed by him Rs 200.
23	Received a cheque from Subhash for sale of old goods Rs 1,600.
25	Paid M/s Agarwalla cash Rs 1,500 and Rs 720 by cheque, received cash discount Rs 50.
26	Manish, a customer, deposited into bank Rs 1,200.
29	Withdrew from bank for personal use Rs 400.
30	Bank charged commission Rs 200.
30	Withdrew from bank for paying income tax Rs 1,000.

 

Click here for Solution: 2 in PDF

Illustration: 3

Prepare cash book with cash, bank and discount columns in the books of Bharti from the following transactions:

April, 2021	Transactions
1	Cash in hand Rs 2, 20,000, and cash at bank Rs 60,000.
3	Deposited into bank Rs 80,000.
4	Goods purchased and issued a cheque for the same Rs 34,000.
7	Cash purchases Rs 16,000.
8	Paid commission by cheque Rs 12,000.
9	Withdrew from bank for private use Rs 2,500.
12	Received from Ved Rs 6,000, half of the amount was deposited into bank on the same day.
16	Interest collected by bank Rs 14,000.
20	Cash sales Rs 42,000.
22	Salaries paid Rs 40,000.
22	Goods sold to Sona & Co. Rs 36,000.
23	Received cheque from Sona & Co. (after discount of Rs 300) Rs 35,700.
27	Deposited the cheque received from Sona & Co. into bank.

 

Click here for Solution: 3 in PDF

 

Illustration: 4

Prepare three-column cash book from the following transactions:

April, 2021	Transactions
1	Cash in hand Rs 1,200; Overdraft at bank Rs 15,000.
3	Capital introduced Rs 20,000 out of which Rs 16,000 by cheque and is deposited into the bank.
4	Purchased goods from Shyam Traders amounting to Rs 3,000, and they allowed trade discount Rs 200. The amount was paid by cheque.
4	Goods purchased for cash Rs 4,000.
5	Sold goods to Mohan on credit Rs 5,000.
6	Received cheque from Rakesh Rs 2,450. Allowed him discount Rs 50.
10	Cheque received from Rakesh deposited into bank.
11	Settled the account of Tej Printers Rs 750 by paying cash Rs 680.
12	Cash received from Mohan Rs 4,750 in full settlement of his account of Rs 5,000.
16	An amount of Rs 1,000 due from Gupta Brothers written off as bad debts in the previous year, now received.
17	Received from Murli on behalf of Manohar Rs 200.
19	Received a cheque for Rs 800 from Mukesh, which was endorsed to Nitin.
20	Sale of old furniture, payment received in cash for Rs 720.
25	Cashed a cheque Rs 3,000.
25	Drew from bank for household expenses Rs 1,000 and for income tax Rs 500.
28	Surendra who owed Rs 400 became bankrupt and paid 60 paise in a rupee.
28	Received repayment of a loan Rs 3,000 and deposited out of it Rs 2,500 into the bank.
30	Interest debited by bank Rs 375.
30	Deposited with the bank the entire balance after retaining Rs 2,000 at office.

 

Click here for Solution: 4 in PDF 

Illustration: 5

Prepare cash book with cash, bank and discount columns in the books of Mr. Abhishek from the following transactions:

June, 2021	Transactions
1	Opening cash balance was Rs 3,800 and bank balance was Rs 27,500.
4	Wages paid in cash Rs 1,500.
5	Received cheque of Rs 19,800 from KBK Limited after allowing discount of Rs 200.
7	Paid to consultancy charges by cheque for Rs 7,500.
10	Cash of Rs 2,500 withdrawn from bank.
12	Received a cheque for Rs 4,500 in full settlement of the account of Mr. X at a discount of 10% and deposited the same into the Bank.
15	X’s cheque returned dishonoured by the Bank.

 

Click here for Solution: 5 in PDF