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The three-column cash book
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The cash book records all cash and bank transactions. The three-column version also records cash discounts.
Layout
The cash book is both a book of original entry and part of the ledger.
Debit side (receipts): discount allowed, cash, bank.
Credit side (payments): discount received, cash, bank.
A contra entry is when money moves between cash and bank (for example cash paid into the bank), so it appears on both sides.
Debit side (receipts): discount allowed, cash, bank.
Credit side (payments): discount received, cash, bank.
A contra entry is when money moves between cash and bank (for example cash paid into the bank), so it appears on both sides.
Cash discounts
Discount allowed: given to a customer who pays promptly. Entered on the debit side next to the receipt. The column total is debited to the discount allowed account (an expense).
Discount received: given by a supplier when the business pays promptly. Entered on the credit side next to the payment. The column total is credited to the discount received account (income).
The discount columns are not balanced; they are just totalled.
Discount received: given by a supplier when the business pays promptly. Entered on the credit side next to the payment. The column total is credited to the discount received account (income).
The discount columns are not balanced; they are just totalled.
Balancing
Balance the cash and bank columns at the end of the period. The balance carried down (c/d) becomes the balance brought down (b/d).
A credit balance on the bank column means an overdraft. The cash column can never have a credit balance.
A credit balance on the bank column means an overdraft. The cash column can never have a credit balance.
A customer owes £400 and pays by cheque, taking a 5% cash discount. What is entered in the cash book?
- Discount = 5% of 400 = £20
- Amount paid = 400 − 20 = £380
Answer: Debit side: discount allowed £20, bank £380
Debit side: receipts and discount allowed. Credit side: payments and discount received. Contras move money between cash and bank. Discount columns are totalled and posted to discount accounts. A credit bank balance is an overdraft.
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