CASH BOOK

LECTURE 2:BY: Ms. Pakeezah Butt.CASH BOOKLearning Objectives:

To explain the meaning of Cash BookTo discuss the types of cash bookTo enter the transactions in Cash Book (all formats)To describe the meaning and need of Petty Cash BookTo prepare the Petty Cash Book

IntroductionAs the business grows, the number of transactions increases.Recording all the transactions only in the Journal becomes very inconvenient, bulky and may cause delay in collecting information required. It needs to be divided into many books.Journal is subdivided in such a way that a separate book is used for each category of transactions.There are various kinds of books that are maintained where the transactions will be recorded in these books according to their nature such as

Cash book for cash transactionsSales Book for credit salesPurchases Book for credit PurchasesPurchases return book for all returns of goods purchased on creditSales return book for all returns of goods sold on creditBills receivable book for all note received from debtorsBills payable book for all bills payable to creditors

Cash BookCash Book is a Book in which all cash receipts (cash received) and cash payments (cash paid) are recorded.

When a cash book is maintained, no separate cash ledger is required as Cash Book serves the purpose of Cash Account.

Cash Book plays a significant role because it records large number of cash items of a business concern.

Difference between Cash Ledger &Cash BookCash BookSubsidiary book for cash transaction (Journal is subdivided in to such a way that a separate book is used for each category of transactions).

Books of original entry (records entries directly from transaction).

When cash transaction are recorded in cash book there is no necessity to open a cash account in ledger. Cash Account

It is an account in ledger.

Cash account is opened in the ledger in which posting is done from some book of original entry (journal).

When account is opened in journal, it is necessary to open account is ledger.TYPES OF CASH BOOKCash book can be of four types:

1. Simple (single column) Cash Book2. Two (double) column cash book 3. Three (triple) column cash book 4. Petty cash book

Simple Cash Book (single column)A simple cash book is prepared like any ordinary account.It records only cash receipts and cash payments.It has two sides, namely debit and credit.Cash account is an asset account, so the rule followed is Increase in assets to be debited and Decrease in asset is to be credited.Cash receipts are recorded on the debit side i.e. left hand side and cash payments are recorded on the credit side i.e. right hand side.It is also known as single column cash book as there is only one amount column on its debit side and on the credit side.

ExplanationDateIn this column Year, Month and Date of transactions are recorded in chronological order.ParticularsIn this column, the name of the account in respect of which cash has been received or payment has been made is written.Ledger FolioIn this column, it records the page number of the ledger book on which relevant account is prepared.AmountIn this column, it records the amount received on debit side and cash paid on its credit side.10At the end of the month, cash book is balanced in the same manner an account is balanced in the ledger.

The total of the debit side of the cash book is compared with the total of the credit side and the difference if any is entered as balance c/d.

In case of Simple Cash Book, the total of debit side is always more than the total of the credit side, since the payment can never exceed the available cash. The difference is written in the amount column and total of the both sides of the cash book becomes equal.

The closing balance of the credit side becomes the opening balance for the next period and is written as Balance b/d on the Debit side of the Cash Book for the next period.ILLUSTRATION 1Enter the following transactions in the cash book of M/s. Rohan TradersDate Details Amount (Rs.)December 01, 2005Cash in Hand27,500December 05, 2005Cash received from A 12,000December 08, 2005Insurance Premium paid 2,000December 10, 2005Furniture purchased for cash6,000December 14, 2005Sold Goods for cash16,500December 18, 2005Purchased Goods for cash from B 26,000December 22, 2005Cash paid to C3,200December 25, 2005Sold Goods to D for cash18,700December 27, 2005Purchased goods on credit15,00December 28, 2005Cash Deposited into Bank5,000December 29, 2005Purchased building from E100,000December 30, 2005Rent paid4,000December 31, 2005Salary paid7,000Prepare Cash Book for the month of April 2006 from the following particulars :

Date2013 Details Amount (Rs.)April 01 Cash in hand 17,600April 03 Purchased Goods for cash from A 7,500April 06 Sold Goods to B 6,000April 10 Wages paid in cash 500April 15 Cash paid to C3,500April 17 Cash Sales 10,000April 19 Commission paid 700April 21 Cash received from D 1,500April 25 Furniture Purchased for cash 1,700April 28 Rent paid 3,000April 30 Paid Electricity bill in cash 1,300ILLUSTRATION 2Double (TWO) Column Cash BookA two column cash book along with the cash payments and cash receipts, also records: Discount Allowed (concession given by the businessman to its customers or debtors)Discount Received (concession received by the businessman from the creditors)

Discount Allowed is a type of loss for the business so it is to be debited and recorded in Dr. Side of the cash book.

Discount received is the is a gain or profit for the firm so it is to be credited and recorded in the Cr. side of the cash book.

Note: Discount columns are not balanced they are only totaled. 2005 Rs. Jan 1 Cash in hand 15,000 Jan 5 Paid to A 3,000 Discount allowed by him 100 Jan 6 Purchased goods for cash 4,000 Jan 10 Received from B 9,800 Discount allowed 200 Jan 11 Sold goods 4,000 Jan 12 Paid to C2,950 Discount received 50 Jan 13 Paid wages 500 Jan 14 Paid to D in full settlement of his Account which shows a Cr. Balance of Rs. 4000 3900ILLUSTRATION 1X started business on 1.4.2005 with Rs. 20,000 as Capital. He had following cash transactions in the month of April 2005.

ILLUSTRATION 2

Triple (THREE) Column Cash BookA three column cash Book is a cash book which contains bank column along with cash and discount columns.

Instead of having a separate book to record bank transactions, a column is added on each side.

All deposits/payments into bank are recorded on the debit side and all withdrawals/payments through the bank are recorded on the credit side of the cash book.

Balancing of Bank ColumnNote: In usual case, the deposits or payments into the bank will exceed the withdrawals or payments out of the bank that s why the total of debit side is always more than the total of the credit side. The difference is written in the amount column and total of the both sides of the bank column becomes equal. The closing balance of the credit side becomes the opening balance for the next period and is written as Balance b/d on the Debit side of the Cash Book for the next period.

It is possible, however, that the bank may allow to withdraw more than the amount deposited, i.e. to have an overdraft. In such a case the total of the bank column on the credit side will be bigger than the one on the debit side. The difference is written on the debit side as To Bal c/d. Then the totals are written on the two sides opposite one another; the balance is then entered on the credit side as By Bal b/d.Preparation of Bank column cash bookThere are some special business transactions which need special treatment in the Bank column of the Cash Book:

(i) Opening balance(ii) Receipt of cheques(iii) Contra entries(iv) Endorsement of cheque(v) Bank charges(i) Opening BalanceThe opening bank balances are recorded on the debit side of the cash book. If it is a Bank overdraft, it is written on the credit side of the bank column of the cash book as opening balance.

(ii) Receipt of ChequesIf the cheques received and deposited in bank on the same date, it is entered on the debit side of bank column.If the cheques received are not deposited in the bank on same day, they are considered as cash and written on the debit side in the cash column.

(iii) Contra entriesWhen there is a transaction that relates to both cash and bank, this will be written on one side of Bank Column and on other side of Cash Column, Such transactions are known as Contra entries.

In case cash is withdrawn from bank, it is entered on the credit side of bank column and also in the debit side of cash column of the cash Book.In case cash is deposited in the bank, the amount is recorded on the debit side of bank column and on the credit side of cash column of the cash book.

The letter C is written in the LF column on both sides against these entries.(iv) Endorsement of ChequeOn receipt, it is recorded on the debit side of cash column.On endorsement of cheque, the amount is recorded on the credit side of the cash column.

(v) Bank ChargesIf bank charges any interest, service charges etc. are entered on the credit side of the Bank column.Similarly, if bank gives interest, collects commission etc., these will be recorded on the debit side on the Bank column.

ILLUSTRATION 1Record the following transactions in the triple column Cash BookDate Details Amount (Rs.)01 Jan 2010 Bank Balance 32,50001 Cash Balance 12,30003 Purchased Goods by cheque 5,300...Discount received20008 Goods Sold for cash 9,500Discount Allowed50010 Purchased Typewriter by Cheque 5,40015 Sold Goods and received Cheque 7,900(deposited on the same day)17 Purchased Stationery by Cheque 1,00020 Cash deposited into bank10,00022 Paid Cartage50024 Cheque given to Mudit 7,00028 Rent paid by Cheque 3,00030 Paid Salary3,500ILLUSTRATION 2Prepare Bank Column Cash Book from the following information:

Date Details Amount (Rs.)1 Dec 2009Cash in hand 10,5001 Bank Overdraft 9,5004 Paid Wages 4006 Cash Sales 10,0009 Cash deposited into Bank 5,00013 Purchased Goods and paid by cheque 6,000..Discount received100015 Cash deposited into Bank 4,00018 Paid Trade Expenses by cheque 1,20022 Rent paid 2,30025 Received Cash from Rahul 1,50027 Commission paid 2,00029 Salary paid 3,50031 Bought Goods by Cheque 3,000..Discount received200PETTY CASH BOOKSmall payments are made for conveyance, postage, telephone, courier and other expenses. If all these transactions are recorded in cash book, it may become bulky and the main cashiers work will also increase.Businesses appoint a petty cashier who makes these small payments and keep record of these payments in a separate cash book called as Petty Cash book.He is given a sum of money in the beginning of period. During the period he makes payment out of this money.At end of the period the firm repay the amount paid by him so that the balance of cash with remains same in the beginning of the period as well as at the end of the period.Amount receivedDate ParticularsVoucher no.Amount paidAnalysis of paymentsConveyance

PostageStationaryMiscellaneousFORMAT OF PETTY CASH BOOKILLUSTRATION 1

ILLUSTRATION 2

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