Cash BooksCash BooksCash BooksCash Books

DBS3024 BUSINESS TRANSACTIONDBS3024 BUSINESS TRANSACTION

byStephen Ong

Visiting Fellow, Birmingham City University Business School

Visiting Professor, Shenzhen University

Today’s Overview Today’s Overview

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Learning objectivesLearning objectives To explain the format of two-column and To explain the format of two-column and

three-column cash booksthree-column cash books To enter up and balance off cash booksTo enter up and balance off cash books To use folio columns for cross-To use folio columns for cross-

referencing purposesreferencing purposes To make the entries for discounts allowed To make the entries for discounts allowed

and discounts received both in the cash and discounts received both in the cash book and, at the end of a period, in the book and, at the end of a period, in the discount accounts in the general ledgerdiscount accounts in the general ledger

To make similar entries in separate To make similar entries in separate columns in the cash book for other columns in the cash book for other recurring itemsrecurring items

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11Bank AccountsBank Accounts

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Mobile Payment by SquareMobile Payment by Square

Video : Pay with Square Video : Pay with Square https://www.youtube.com/watch?v=8pJOVOtJpoc

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Types of accountTypes of account Current account:Current account:

Used for regular payments in and outUsed for regular payments in and out Comes with a cheque book, pay-in book, and Comes with a cheque book, pay-in book, and

ATM / debit cardATM / debit card Earns ZERO or little interest / Earns ZERO or little interest / profit shareprofit share

Savings Deposit account:Savings Deposit account: Generally earn some interest / Generally earn some interest / profit shareprofit share Not intended for accessing money on a regular Not intended for accessing money on a regular

basis.basis. Fixed Deposit account:Fixed Deposit account:

Generally earn a guaranteed interest / Generally earn a guaranteed interest / profit profit shareshare at fixed time periods, ie. 1, 3, 6, 12, or 60 months at fixed time periods, ie. 1, 3, 6, 12, or 60 months

Money is not accessible during the time period.Money is not accessible during the time period.

**Profit share for Islamic Bank accounts**Profit share for Islamic Bank accounts

Bank StatementBank Statement

NameNameAddressAddress Account No.Account No.

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22The Cash BookThe Cash Book

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What is the cash book?What is the cash book?

The cash book is the The cash book is the cash account cash account and the bank accountand the bank account put together in put together in one book.one book.

This means we can record all money This means we can record all money received and paid out on the same page.received and paid out on the same page.

In the cash book, the debit column for In the cash book, the debit column for cash and the debit column for bank are cash and the debit column for bank are together, and the credit column for cash together, and the credit column for cash and the credit column for bank are and the credit column for bank are together.together.

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The cash account and bank The cash account and bank accountaccount

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The cash bookThe cash book

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Folio columnsFolio columns Just like in a T-account, the cash book Just like in a T-account, the cash book

has a has a details column details column that contains the that contains the name of the account in which the other name of the account in which the other part of the double entry has been entered.part of the double entry has been entered.

More information can be given by using More information can be given by using folio columns.folio columns.

A A folio column folio column is drawn up in the cash is drawn up in the cash book and the name of the other book and book and the name of the other book and the page number is entered against every the page number is entered against every entry.entry.

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The cash book (with folio)The cash book (with folio)

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Cash discountsCash discounts

To encourage early payment of accounts, To encourage early payment of accounts, a business may accept a smaller sum in a business may accept a smaller sum in full settlement if payment is made within a full settlement if payment is made within a certain period of time.certain period of time.

Discounts allowed Discounts allowed – cash discounts – cash discounts allowed by a business to its customers allowed by a business to its customers when they pay their accounts quickly.when they pay their accounts quickly.

Discounts received Discounts received – cash discounts – cash discounts received by a business from its suppliers received by a business from its suppliers when it pays what it owes them quickly.when it pays what it owes them quickly.

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Posting discount allowedPosting discount allowed

W. Clarke owed us RM100. He pays us W. Clarke owed us RM100. He pays us in cash on 2 September 2012, which is in cash on 2 September 2012, which is within the time limit applicable for a 5% within the time limit applicable for a 5% discount.discount.

Debit Debit Cash Cash RM95RM95

Credit Credit W. ClarkeW. Clarke RM95RM95

Debit Debit Discount allowedDiscount allowed RM5 RM5

Credit Credit W. ClarkeW. Clarke RM5 RM5

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Posting discount receivedPosting discount received

The business owed S. Small RM400. It The business owed S. Small RM400. It pays him by cheque on 3 September 2012, pays him by cheque on 3 September 2012, which is within the time limit laid down by which is within the time limit laid down by him for a 2.5% cash discount.him for a 2.5% cash discount.

Debit Debit S. SmallS. Small RM390RM390Credit Credit BankBank RM390RM390Debit Debit S. SmallS. Small RM10 RM10Credit Credit Discount received Discount received RM10 RM10

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How the entries would lookHow the entries would look

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Discount columns in the cash Discount columns in the cash bookbook

To reduce the number of entries in the To reduce the number of entries in the general ledger, discount columns can general ledger, discount columns can be added to the cash book.be added to the cash book.

The The discount allowed column is added discount allowed column is added to the debit side to the debit side of the cash book and of the cash book and the the discount received column is added discount received column is added to the credit side to the credit side of the cash book.of the cash book.

The total of these columns will be The total of these columns will be posted to the relevant discount posted to the relevant discount accounts.accounts.

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Discount columns in the cash Discount columns in the cash book (Continued)book (Continued)

How the cash book would look with a How the cash book would look with a discount column.discount column.

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33The Bank OverdraftThe Bank Overdraft

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What happens if there is a bank What happens if there is a bank overdraft?overdraft?

ACTIVITYACTIVITY

ANSWERANSWER

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Learning outcomesLearning outcomes

You should have now learnt:You should have now learnt: That a cash book consists of a cash That a cash book consists of a cash

account and a bank account put account and a bank account put together into one booktogether into one book

How to enter up and balance a two-How to enter up and balance a two-column cash book, i.e. one containing a column cash book, i.e. one containing a debit and a credit column for the bank debit and a credit column for the bank account, and a debit and a credit account, and a debit and a credit column for the cash accountcolumn for the cash account

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Learning outcomes Learning outcomes (Continued)(Continued)

That the bank columns in the cash That the bank columns in the cash book are for cheques and any other book are for cheques and any other transfers of funds that have been made transfers of funds that have been made into or out of the bank accountinto or out of the bank account

That a folio column is included in the That a folio column is included in the cash book so as to help trace entries cash book so as to help trace entries made into accounts in the ledgers and made into accounts in the ledgers and so as to provide assurance that the so as to provide assurance that the double entries have been madedouble entries have been made

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Learning outcomes Learning outcomes (Continued)(Continued)

That cash discounts are given to That cash discounts are given to encourage people to pay their accounts encourage people to pay their accounts within a stated time limitwithin a stated time limit

That ‘cash discount’ is the name given That ‘cash discount’ is the name given for discount for quick payment even for discount for quick payment even where the payment was made by cheque where the payment was made by cheque or by direct transfer into the bank or by direct transfer into the bank account, rather than by payment in cashaccount, rather than by payment in cash

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Learning outcomes Learning outcomes (Continued)(Continued)

That cash discounts appear in the That cash discounts appear in the profit and loss part of the income profit and loss part of the income statementstatement

How to enter up and balance a three-How to enter up and balance a three-column cash book, i.e. one containing column cash book, i.e. one containing a debit and a credit column for the a debit and a credit column for the bank account, a debit and a credit bank account, a debit and a credit column for the cash account and a column for the cash account and a debit and a credit column for discountdebit and a credit column for discount

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Learning outcomes Learning outcomes (Continued)(Continued)

That the discounts columns in the cash That the discounts columns in the cash book make it easier to enter up the book make it easier to enter up the books. They act as a collection point books. They act as a collection point for discounts allowed and discounts for discounts allowed and discounts received, for which double entry into received, for which double entry into the general ledger is completed when the general ledger is completed when the totals are transferred to the the totals are transferred to the discount accounts in the general discount accounts in the general ledger, usually at the end of the monthledger, usually at the end of the month

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Learning outcomes (Continued)Learning outcomes (Continued)

That a multiple column cash book is That a multiple column cash book is often used in order to further reduce the often used in order to further reduce the number of entries made in the general number of entries made in the general ledgerledger

How to add additional columns to the How to add additional columns to the cash book for frequently recurring items cash book for frequently recurring items and make the appropriate entries in them and make the appropriate entries in them and in the general ledgerand in the general ledger

Resources : Core ReadingResources : Core Reading

Wood, Frank and Robinson, Sheila Wood, Frank and Robinson, Sheila (2009) (2009) Bookkeeping and Accounts Bookkeeping and Accounts ,7,7thth Edition, Pearson/ FT Prentice HallEdition, Pearson/ FT Prentice Hall

Wood, Frank and Sangster, Alan (2012) Business Accounting ,12th Edition, Pearson/ FT Prentice Hall

Fortes, Hilary (2011) Accounting Simplified , Pearson/ FT Prentice Hall

QUESTIONS?QUESTIONS?