Cash Book
In this lesson, we will learn to record and interpret cash and bank transactions in the Cash Book.
The Cash Book together with the four Special Journals, General Journal and Petty Cash Book make up the books of prime entry of a business.
Related Lessons:
Format Of Cash Book
A Cash Book is a ledger account that combines the cash account and bank account into one account. It records all cash and bank transactions of the business, except for payments made from petty cash.
It follows the same T-account format as a ledger account, where the left side of the T is the Debit side and the right side of the T is the Credit side.
There are two different formats of Cash Book.
In a two-column Cash Book, both the debit and credit sides contain a Cash column and a Bank column.
In a three-column Cash Book, both sides of the T-account include a Cash column and a Bank column. In addition, the debit side has an extra column to record Discount Allowed, while the credit side has an extra column to record Discount Received.
Recording In Cash Book
Cash and Bank accounts are current asset to the business. As such, they are Debit nature accounts, therefore, debit to increase and credit to decrease.
Date column:
This records the date of each transaction
Particulars / Details column:
Records name of the other account affected by the transaction
Cash column:
The cash column on the debit side of the Cash Book records receipt of cash by the business, while the one on the credit side records cash payment made by the business
Bank column:
The bank column on the debit side of the Cash Book records money received into the business bank account, while the one on the credit side records payment made from the business bank account
Discount Allowed column:
The discount allowed column resides on the debit side of the Cash Book. It records the total amount of cash discount given to the trade receivable upon receiving its payment.
The total of the discount allowed plus the amount received equals the total amount owed by the trade receivable.
Discount Received column:
The discount received column resides on the credit side of the Cash Book. It records the total amount of cash discount received by the business upon payment to its trade payable.
The total of the discount received plus the amount paid equals the total amount owed to the trade payable.
Closing Of Cash Book
To close the Cash Book:
The total of the Cash column on the debit side is compared to the total of the Cash column on the credit side.
The side with the smaller total is balanced by recording the difference as Balance Carried Down (Balance c/d) on the last day of the month. This balance is then Brought Down (Balance b/d) on the first day of the next month and is entered on the opposite side of the Balance c/d.
The same closing applies to the Bank column where the total of the Bank column on the debit side is compared to the total of the Bank column on the credit side. The difference is then brought down to the next month.
However, students need to take note that the Cash account cannot have a credit balance, that is, its balance c/d on the last day of the month cannot be on the debit side of the Cash Book. After all, a business cannot have negative cash.