Chap - 13 (Cashbook)

CHAPTER-13
CASHBOOK
CASHBOOK consists of the cash account and the bank account put together in one book.
 Two column cashbooks (bank and cash column)
Three column cashbooks (bank, cash and discount column)
 The bank will have a copy of the account in its own books. Periodically, or on request
from the business, the bank sends a copy of the account in its books to the business.
This document is known as the BANK STATEMENT.
 When the business receives the bank statement, it checks it against the bank columns
in its Cash Book to ensure that there are no errors.
FOLIO COLUMNS- are columns used to enter reference numbers.

 The details column in an account contains the name of the account in which the other
part of the double entry has been entered.
 Anyone looking through the books should, therefore, be able to find the other half of the
double entry in the ledgers easily.
 Example: An entry for receipt of cash from C Kelly whose account was on page 45 of
the sales ledger, and the cash recorded on page 37 of the Cash Book, would have the
following folio column entries:
 In the Cash Book, the folio column entry would be SL 45
 In the Sales Ledger, the folio column entry would be CB 37.
ADVANTAGES:
 It speeds up the process of finding the other side of the double entry in the ledgers.
 Helps to detect errors. If the folio column is blank against an entry, it means that the
double entry has not yet been made.
CONTRA ENTRY- when both the debit and credit entries for an item is in the same book, it
is known as a contra item.
 Example: A cash receipt of £100 from M Davies on 1 August 20X8 which was banked
on 3 August of £80 of this amount would appear in the Cash Book as follows:
THREE COLUMN CASHBOOK

CASH DISCOUNTS IN CASHBOOK
 Businesses want their customers pay their accounts quickly. A business may accept a
smaller sum in full settlement if payment is made within a certain period of time.
 CASH DISCOUNT is the allowance given for quick payment.
 Full details of the percentage allowed, and the period within which payment is to be
made, are quoted on all sales documents by the seller.
 Types of Cash Discounts: Discounts allowed and Discounts received
 The discounts allowed and received accounts are in the General Ledger along with all
the other revenue and expense accounts.
Total of discount column on debit side of cash book is entered on the debit side
of DISCOUNT ALLOWED account, in General Ledger.
Total of discount column on credit side of cash book is entered on the credit
side of DISCOUNT RECEIVED account, in General Ledger.
DISCOUNTS ALLOWED: cash discounts allowed by a business to its customers when

they pay their accounts quickly.
 Discounts allowed in the discount’s column on the debit side of the Cash Book.
 Shown as an expense in Income statement.
 Example: W Clarke owed us £100. He pays us in cash on 2 September 20X8, which is
within the time limit applicable for a 5 per cent cash discount. Therefore, he pays
£100 − £5 = £95 in full settlement of his account.
DISCOUNTS RECEIVED: cash discounts received by a business from its suppliers when
it pays what it owes them quickly.
 Discounts received are entered in the discount’s column on the credit side of the Cash
Book.
 Shown as an income (added with gross profit) in the Income Statement.
 Example: The business owed S Small £400. It pays him by cheque on 3 September
20X8, which is within the time limit laid down by him for a 2.5 per cent cash discount.
The business will pay £400 – £10 = £390 in full settlement of the account.
BANK OVERDRAFT
 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 its bank account than the
total amount it has deposited in the account.
 When the bank account is overdrawn, the business owes money to the bank, so the
account is a liability and the balance becomes a credit balance.
On the statement of financial position, a bank overdraft is shown under the heading “current
liabilities”.

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CHAPTER-13

FOLIO COLUMNS- are columns used to enter reference numbers.

THREE COLUMN CASHBOOK

DISCOUNTS ALLOWED: cash discounts allowed by a business to its customers when

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