Books of original entries - Cash Book

Cash Book
A Cash book is a ledger account used to record the transactions related to cash and bank. In other words cash book is a cash account, bank account and sometimes a discount account put together in one book however it's not the hard and fast rule cash book may record only cash related transactions (where a small business don't have bank account).

Firms use cash books because its easier to record all cash related transactions in one book than to record them in three different accounts cash account, bank account and discount account and its easy to find out money received and paid on particular date with cash book.

A Cash book of X.Y.Z superstore for the mount of January which means that this book records all cash and bank related transactions which took place in the month of January.


                                                                 X.Y.Z Superstore
                                                                       Cash Book
                                                     For the month of January 2011
Dr. (Debit)                                                                                                                                        Cr. (Credit)

Date
Description
Folio
Discount
Cash
Bank
Date
Description
Folio
Discount
Cash
Bank
Jan.1
      3
    24
    25
Balance b/d
Debtor-Allen
Bank
Commission










45
20000
2000
500

30000


300
Jan.6
      8
    10
    15
    18
    24
    27
Creditor-Aw Co.
Rent Expenses
Wages
Salaries
Office expenses
Cash
Machinery


Balance c/d








30








15

200
300

500




21500
1000


3000

500
5000


20800
    31 TOTAL
45 22500 30300     31 TOTAL
45 22500 30300


Folio column
This column is filled when we post transactions from cash book to ledger account. It used as reference for double entries in accounts
Discount column
It is used to record discount received from supplier and discount allowed to customers
Cash column
It is filled for transactions related to receipts and payments of cash
Bank column
It is used for recording transactions related to receipts and payment of cash through bank account e.g receiving and making payments via cheques


EXAMPLE

Drawing up a cash book of whole seller business X.Y.Z whole seller for month of February, 2011

Balance brought down from last month Cash $20,000, Bank $50,000

February    1   Paid rent by cash $2000
                 2   Received cash $1000 from j brown and discount allowed $100
                 7   Received cheque for $5000 from B berry and discount $200
                 9   Paid by cheque $4000 to a creditor S man
               15   Purchased goods and paid by cheque $5000
               16   Paid $500 for sundry expenses by cheque
               20   Cash sales of $4000 paid direct into bank account
               26   J berry paid us $3000 for good purchased on credit last month
               29   Withdrawn cash $3000 and goods worth $2000 for personal use



                                                               X.Y.Z Whole seller
                                                                       Cash Book
                                                     For the month of February 2011
Dr. (Debit)                                                                                                                                        Cr. (Credit)
Date
Description
Folio
Discount
Cash
Bank
Date
Description
Folio
Discount
Cash
Bank
Feb.1
      2
      7
    20
    26
Balance b/d
J brown
B berry
Sales
J berry








100
200
20000
1000


3000

50000
5000
4000
Feb.1
      9
    15
    16
    29
Rent exp.
S man
Purchases
Sundry exp.
Drawings


Balance c/d









2000



3000


19000

4000
5000
500



49500
    31 TOTAL
300 24000 59000     31 TOTAL

24000 59000







Cash paid into bank and withdrawn from bank
Businesses need sufficient cash reserves to pay off day to day expenses and in some cases businesses have cash reserves more than their needs. Therefore firms withdraw and deposit cash into their bank account frequently

When business receives or has cash and pay into business bank account

This transaction has the following effects

There is (-) decrease in asset of Cash
There is (+) increase in asset of Bank

Therefore double entry will be:

  Bank   <------- Debit

  Cash   <--------Credit

When business need liquid cash for paying expenses or any other needs and withdraw cash from business bank account

This transaction has the following effects

There is (+) increase in the asset of Cash
There is (-) decrease in the asset of Bank

Therefore the double entry will be:

Cash   <--------Debit

Bank   <--------Credit

EXAMPLE

June   2 A receipt of $5000 form a debtor MR. M. Saleem
          3 The Receipt of $5000 deposited in the bank account
          5 $600 withdrew from bank for sundry expenses

                                                                       Cash Book
Dr. (Debit)                                                                                                                                        Cr. (Credit)

Date
Description
Folio
Discount
Cash
Bank
Date
Description
Folio
Discount
Cash
Bank
Jun.2
      3
      5
M. Saleem
Cash
Bank








5000

600

5000
Jun.3
      5
Bank
Cash









5000
600

    




    






Did you notice that we have posted a single transaction on both sides of cash book because these kind of transactions effect both debit and credit sides

Bank overdraft

A Business can borrow money from bank by means of a bank overdraft. It's implies that the business can withdraw money from its bank account more than it has deposited in the account.
Banks give a chance to withdraw more money than you have in your account for example if a business have $5000 in its bank account, it can withdraw more than $5000. The excessive amount would be liability of business and business will have to pay off that liability.

In the case of overdraft Balance c/d always on debit or receipt side of cash book indicating that we have withdrawn more than we have deposited
                                                                       Cash Book
Dr. (Debit)                                                                                                                                        Cr. (Credit)
Date
Description
Folio
Discount
Cash
Bank
Date
Description
Folio
Discount
Cash
Bank
Jan.1
      3
    27
      
Balance b/d
Debtor
M. berry




Balance c/d




200


5000
3000






5000

1000




3000


Jan.6
      8
      9
    17
      
Sundry exp.
Drawings
Creditor
Equipments



Balance c/d















200
2000

2000




4000
1000
3000
2000
3000
    31 TOTAL

8000 9000     31 TOTAL

8000 9000


$3000 is the overdraft (liability) of business will be shown in balance sheet under the head of current liabilities