CASH BOOK By: Waqar Ahmad Lecturer Management Science Department RANA University Kabul, Afghanistan

CASH BOOKBy:

Waqar Ahmad

Lecturer

Management Science Department

RANA University

Kabul, Afghanistan

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Introduction: Cash is the most important element of business. In every type of business transactions, cash will be definitely involved because in every business, there will be exchange of money for goods or services.

A large number of transactions are related to receipts & payments of cash in every business. In order to record the cash receipts & cash payments, every business organization maintain a book, which is called as “Cash Book”.

Cash book can be defined as, “a book which is used to record the cash receipts & cash payments of business, is called as cash book”.

Cash book has two sides, i.e., debit side & credit side. The debit side is used for recording the cash receipts & credit side is used for recording of cash payments.


Advantages of Cash Book:

The cash book has the following advantages.

1. Cash book provides complete information about cash inflow (Cash Receipts) & cash outflow (Cash Payments) of business, which helps the management to control the excessive & unnecessary cash outflow & to know about the cash inflow sources & activities.

2. Cash book provides the information about the receipts & payments of cash in bank account of business, which keeps the management updated about the increase & decrease in bank account, & helps in controlling the outflow of cash from bank account.


3. Cash book provides data about discount received & discount allowed. As we know that discount received is our income & discount allowed is our expense, so it helps the management to control the expense of discount allowed & to know about the income earned in the shape of discount received.

4. By preparing cash book, there is no need to maintain the cash ledger account & bank ledger account in ledger book, because cash book itself is a ledger & it will be balanced already after recording all transactions. The balanced amounts of cash & bank will be directly transferred to Trial Balance.


Types of Cash Book:

As we know that cash is the important element for every business. Receipts & payments of cash are involved in every business. But the method of receipts & payments of cash is may be different in various businesses.

In some businesses, the receipts & payments of money is settled only through cash, but may be in some businesses, the receipts & payments of money is made through bank. Also it is possible that some businesses may allow discounts or receive discounts while dealing with each other.

Due to the above possible conditions, three types of cash book can be maintained as according to the nature of various businesses. These three types of cash book are as follow.


1Simple Cash Book

(EXPLANATION & PROBLEMS)


Explanation:

Simple cash book is maintained mostly by small sized businesses, where the business transactions related to receipts & payments of money are settled only in cash.

Simple column cash book can be defined as, “a cash book, in which those business transactions are recorded, which are related only to receipts & payments of cash, is called as simple column cash book”.

Simple cash book is also called as “One Column Cash Book” because this cash book contains only one column, i.e., “cash column”, on debit side for receipts of cash & on credit side for payments of cash.


Simple Cash BookReceipts PaymentsDate

Description Vr. No.

Cash Date

Description Vr. No.

Cash

Total Total


Method of Recording Transactions inSimple Cash Book:

1. The date of transactions will be recorded in “Date Column” on both sides.

2. In “Description Column”, first of all the opening balance will be shown as “Balance b/f”.

3. For all other transactions of receipts & payments of cash, the opposite aspects or accounts will be recorded in “Description Column”, due to which cash is received or paid.

4. If there is any voucher available for receipts or payments of cash, the number of that particular voucher will be recorded in the “Voucher No. Column”.


5. The amount of money received or paid in cash will be recorded in “Cash Column”.

6. After recording all transactions, the balance will be find by getting the total of cash column on receipts side & payments side. This balance will be the closing balance of cash for this month or year & will be shown as “Balance c/d”.


Problem No. 1

Record the following transactions in cash book of Haji Manzoor & Co. for the month of April, 2014.

1st April: Balance b/f from previous month $ 255,000.3rd April: Purchased goods for cash $ 23,500.6th April: Purchased computer for office work $ 25,100.9th April: Purchased goods from Mr. Ali $ 16,200.11th April: Sold goods for cash $ 56,400.13th April: Purchased stationary for cash $ 12,000.15th April: Sold goods to Mr. Mustafa $ 32,600.17th April: Paid to Mr. Ali 60% cash for goods purchased.20th April: Received cash from customer $ 2350.22nd April: Paid telephone bill $ 1800.24th April: Paid electricity bill $ 5600.26th April: Received full amount from Mr. Mustafa.28th April: Paid salaries $ 30,000.


Problem No. 2

Prepare a simple cash book from the following transactions of Mecra Corporation, for the month of July, 2012.

1st July: Started business with cash $ 315,000.2nd July: Purchased goods $ 20,000.5th July: Purchased furniture $ 32,000.7th July: Purchased goods from Mr. Zubair $ 22,000.10th July: Sold goods $ 44,100.12th July: Purchased air conditioner $ 45,000.14th July: Sold goods to Mr. Kareem $ 38,000.16th July: Paid to Mr. Zubair 75% cash for goods purchased.21st July: Received cash from debtors $ 5850.23rd July: Paid utility bill $ 4100.25th July: Paid insurance $ 3000.27th July: Received 50% amount from Mr. Kareem.29th July: Paid wages $ 15,000.


2Two ColumnCash Book



Explanation:

Two column cash book is maintained by those businesses, where business transactions related to receipts & payments of money are settled in cash, along with receipts & payments of discount.

Two column cash book can be defined as, “a cash book in which those business transactions are recorded, which are related to receipts & payments of cash, along with receipts & payments of discount, is called as two column cash book”.

Two column cash book contains two columns, i.e., “discount column” & “cash column” on debit side for discount allowed & receipts of cash, & on credit side for discount received & payments of cash.


Two Column Cash Book Receipts Payments

Date Description

Vr. No.

DiscAll.

Cash Date Description

Vr. No.

DiscRec.

Cash

Total Total


Method of Recording Transactions inTwo Column Cash Book:


2. In “Description Column”, first of all the opening balance will be shown as “Balance b/f”.

3. For all other transactions of receipts & payments, the opposite aspects or accounts will be recorded in “Description Column”.

4. If there is any voucher available for receipts or payments, the number of that particular voucher will be recorded in the “Voucher No. Column”.


5. The amounts of discount allowed transactions will be recorded in “Discount Allowed Column” on receipts side.

6. The amounts of discount received transactions will be recorded in “Discount Received Column” on payments side.

7. The amounts of money received or paid in cash will be recorded in “Cash Column”.

8. After recording all transactions, the balance will be find by getting the total of cash column on receipts side & payments side. This balance will be the closing balance of cash for this month or year & will be shown as “Balance c/d”.


9. The discount allowed column & discount received column will be totaled & their totals will be transferred to discount allowed ledger & discount received ledger in ledger book.


Problem No. 1

Record the following transactions of Al - Ramzan Corporation, in cash book with cash & discount column, for the month of June, 2013.

1st June: Started business with cash $ 322,000.3rd June: Purchased goods $ 18,800, discount received $ 2500.4th June: Sold goods $ 55,000, allowed 10% discount.6th June: Purchased merchandise of $ 71,900, on $ 68,000.10th June: Sold goods of $ 78,000, on $ 75,000.14th June: Purchased furniture from Mr. Amir $ 85,000.15th June: Sold goods to Mr. Haider $ 32,600.17th June: Purchased goods of $ 44,100, but paid only $ 42,000.19th June: Paid to Mr. Amir $ 80,000 in full settlement of his debt.22nd June: Received $ 30,000 from Mr. Haider in full settlement.25th June: Sold goods of $ 51,300, but received only $ 48,000.28th June: Withdraw cash by owner for personal use $ 12,000.30th June: Paid wages $ 14,000.


Problem No. 2

Record the following transactions of Regent Corporation, in two column cash book, for the month of January, 2011.

1st Jan: Balance b/f $ 185,000.2nd Jan: Purchased goods $ 10,000, discount received $ 1200.4th Jan: Purchased merchandise from Mr. Abbas $ 22,000.5th Jan: Purchased merchandise of $ 11,100, on $ 10,000.8th Jan: Sold goods of $ 95,000, on $ 92,000.10th Jan: Sold merchandise $ 100,000, allowed 5% discount.13th Jan: Sold goods to Mr. Faheem $ 50,800.16th Jan: Purchased goods of $ 33,200, but paid only $ 30,000.20th Jan: Paid to Mr. Abbas $ 19,000 in full settlement of his debt.23rd Jan: Received $ 49,000 from Mr. Faheem in full settlement.26th Jan: Withdraw for personal use by owner $ 5500.29th Jan: Paid insurance $ 4300.31st Jan: Sold goods of $ 55,000, but received only $ 54,000.


3Three Column

Cash Book



Explanation:

Three column cash book is maintained by those businesses, where business transactions related to receipts & payments of money are settled in cash & through bank, along with receipts & payments of discount.

Three column cash book can be defined as, “a cash book, in which those business transactions are recorded, which are related to receipts & payments of cash & bank, along with receipts & payments of discount, is called as three column cash book”.

Three column cash book contains three columns, i.e., “discount column”, “cash column” & “bank column” on debit side for discount allowed & receipts of cash & bank, while on credit side for discount received & payments of cash & bank.


Three Column Cash BookReceipts PaymentsDate

Description

Vr. No.

Disc

All.

Cash

Bank

Date

Description

Vr. No.

Disc

Rec.

Cash

Bank

Total Totalwww.facebook.com/waqar.ahmad25

Method of Recording Transactions inThree Column Cash Book:


2. In “Description Column”, first of all the opening balances will be shown as “Balance b/f”.

3. For all other transactions of receipts & payments, the opposite aspects or accounts will be recorded in “Description Column”.

4. If there is any voucher available for receipts or payments, the number of that particular voucher will be recorded in the “Voucher No. Column”.


5. The amounts of discount allowed transactions will be recorded in “Discount Allowed Column” on receipts side or debit side.

6. The amounts of discount received transactions will be recorded in “Discount Received Column” on payments side or credit side.

7. The amounts of money received or paid in cash will be recorded in “Cash Column”.

8. The amounts of money received at bank or paid through bank will be recorded in “Bank Column”.

9. After recording all transactions, the balances will be find by getting the total of cash & bank columns on receipts side & payments side. These balances will be the closing balances of cash & bank for this month or year & will be shown as “Balance c/d”.


10. The discount allowed column & discount received column will be totaled & their totals will be transferred to discount allowed ledger & discount received ledger in ledger book.


Important Points in Three Column Cash Book:

Before we start preparing three column cash book, it is necessary for us to know about some important points regarding three column cash book. These points are given below in detail.

1. Balance Brought Forward of Bank:

As we know that balance brought forward or balance b/f means the balance of previous month or year, & it is recorded always on the receipts side of cash book as opening balance. However, the balance b/f of bank may be some times recorded on payments

side because of the bank overdraft. If the balance b/f of bank is overdraft balance, then it will be recorded on payments side.


2. Contra Entry:

Contra is a Latin word which means “opposite”. Contra entry is that entry which is recorded on

both sides of cash book. It will show double effect & will be recorded on receipts side, as well as on payments

side.

For example, if we have a transactions like,

a) Cash deposited into bank “or” cash paid into bank.

In case of this transaction, the amount of cash deposited or paid will be recorded on payments side in “cash column” & the same amount will be recorded

on receipts side in “bank column”, because cash is paid from the business & received in bank account. In “voucher No. column”, the word “C” will be inserted on both sides. It will shows that this is contra entry.


b) Cash withdrawn from bank for office use.

In case of this transaction, the amount of cash withdrawn will be recorded on payments side in “bank column” & the same amount will be recorded on receipts side in “cash column” because cash is paid from bank account & received in business. In “voucher No. column”, the word “C” will be inserted on both sides. It

will shows that this entry is contra entry.

3. Treatment of Cheque Received:

When cheque will be received, either it will be deposited on the same day in bank account or just because of some reasons like shortage of time, the cheque may not be deposited in bank account on the same day.


If in case the cheque is received & deposited in bank account on same day, then the amount of cheque

received will be directly recorded on receipts side in “bank column”.

But if in case cheque is received but due to shortage of time, it is not deposited in bank account on same day, then it will be considered as “cash” & the amount of cheque will be recorded on receipts side in “cash column”, & when it will be deposited in bank on some other day, then it will be treated as “contra entry”.

In this case, the amount of cheque will be recorded on receipts side in “bank column” & the same amount will be recorded on payments side in “cash column”. In “voucher No. column”, the word “C” will be inserted on both sides. It will shows that this entry is contra entry.


4. Dishonoring of Cheque:

Dishonoring of cheque means the refusal by the bank to pay the amount of cheque to the person, whose name is mentioned on the cheque, or the person to whom the cheque is issued.

Let me explain it with the help of example. For example, Mr. A purchased good from Mr. B for $ 5000. Mr. A will now pay $ 5000 to Mr. B. But Mr. A is not in the position to pay the cash right now, so Mr. A gives a cheque to Mr. B for $ 5000.

Now Mr. B deposited this cheque in his bank, & asked his bank to collect the amount mentioned on cheque from the bank of Mr. A.

According to rules, the bank of Mr. A should pay the amount mentioned on cheque to the bank of Mr. B.


If the amount of cheque is paid by the bank of Mr. A to the bank of Mr. B, it means that the cheque is

honored. But if the bank of Mr. A refused to pay the amount of cheque to the bank of Mr. B, then this

cheque will be called as dishonored cheque. This is called as dishonoring of cheque.

a) Dishonoring of Cheque Received:

When the cheque is received, it is deposited in bank & the amount of cheque is recorded on receipts side in “bank column”. If in case the cheque received is

dishonored, the bank will inform about the dishonor of cheque. In this case, the amount of cheque will be recorded on payments side in “bank column”.


b) Dishonoring of Cheque Issued:

When the cheque is issued, the amount of cheque is recorded on payments side in “bank column”. If in

case the cheque issued is dishonored, the holder of cheque will inform about the dishonor of cheque. In this case, the amount of cheque will be recorded on receipts side in “bank column”.

Reasons of Dishonoring of Cheque:

If the date is not written on cheque. If the date is written incorrectly. If the date written is three months old. If the name of the payee (a person to whom the

cheque is issued), is not written on cheque, or not written clearly.

If the cheque is not found in proper condition or it is found wet, torn or spotted.


If the amount written in words and figures does not match with each other.

If the signature of the drawer (a person who issued the cheque), is not mentioned on the cheque, or incorrect, or unidentifiable & does not match with the signature given on signature specimen card kept by the bank.

If the amount mentioned on the cheque is more than the amount that the drawer has in his bank account.

If any changes made on the cheque are without the drawer’s signature.

If the account number is not mentioned, or is invisible, or is not clear.

If the cheque is overwritten. If the drawer has given order to the bank to stop the

payment to the holder of the cheque.


If the amount of the drawer's account reached at minimum level (if any minimum level of balance is set according to the rules & regulations of drawer’s bank).

If the bank has got the information regarding the death or insolvency or lunacy of the drawer.

5. Interest Allowed by the Bank:

When bank allows any interest, it will be recorded on receipts side in “bank column”.

6. Bank Charges:

Bank usually deduct certain charges due to interest on overdraft or for collections of cheques, etc. These charges will be recorded on payments side in “bank column”.


Problem No. 1

Al - Madina Corporation Limited has the following transactions, in the month of November, 2010. Record the following transactions in cash book with cash, bank & discount column.

1st Nov: Balance b/f Cash $ 200,000, Bank $ 155,000.2nd Nov: Deposited cash into bank $ 80,000.4th Nov: Purchased merchandise for cash $ 43,500.5th Nov: Withdraw cash from bank for office use $ 15,000.7th Nov: Purchased furniture $ 30,000. Payment made by cheque.

Discount received 8%.10th Nov: Sold goods to Mr. Rehan $ 60,000.13th Nov: Sold goods to Mr. Irfan $ 75,000. Received cheque.

Discount allowed $ 4000.15th Nov: Purchased goods from Mr. Kaleem $ 18,000.17th Nov: Paid cheque to Mr. Kaleem for full amount of credit.

Received 5% discount.


20th Nov: Received cheque of full amount from Mr. Rehan. Discount allowed to him 10%.23rd Nov: Purchased stationary for cash $ 4000.25th Nov: Paid rent $ 12,000, wages $ 8000, insurance $ 5000.


Problem No. 2

Mehran Wholesales Dealer has the following transactions, in the month of October, 2014. Record the following transactions in cash book with cash, bank & discount column.

1st Oct: Started business with Cash $ 212,000, Bank $ 100,000.3rd Oct: Purchased goods & paid by bank $ 31,000.4th Oct: Sold merchandise for cash $ 88,500.6th Oct: Withdraw cash from bank for office use $ 48,000.9th Oct: Sold goods to Mr. Ahmad $ 60,000.11th Oct: Purchased computer $ 41,000. Payment made by cheque.

Received discount 12%.12th Oct: Sold goods $ 65,000. Received cheque. Discount allowed

$ 2000.16th Oct: Purchased goods from Mr. Munir $ 22,000.19th Oct: Received cheque of full amount from Mr. Ahmad. Discount allowed to him 15%.


20th Oct: Paid cheque to Mr. Munir for full amount of credit. Received 25% discount.

24th Oct: Purchased stationary for cash $ 6300.26th Oct: Paid rent $ 18,700, wages $ 13,400, insurance $ 6100.


Documents

CASH BOOK By: Waqar Ahmad Lecturer Management Science Department RANA University Kabul, Afghanistan