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   1. What is an imprest system?

In imprest system, business provides cashier with the small amount of money at the start of a specific period. The cashier uses this money on small payments of cash such as taxi fare or postage stamp charges during that period of time and records the payments details in petty cash book. At the end of the period, business verifies payments made by cashier by looking at petty cash book or sometimes, business might see vouchers for the payments. Then, having verified the payments, business again provides the cashier with required amount of money to meet small payments needs for the next period. The whole process of maintaining petty fund for petty payments and replenishment of petty fund is referred to as imprest system

Example: A business gives its cashier $100 to fulfill the small payments needs such as taxi fare, postage stamp charges, and small party expenses etc. during a specific period of time. Cahier made payments amounting to $60 till the end of the period. At the end of the period, business will need to look at petty cash book to confirm payments made by cashier and then the business will give cashier $40 to top up the amount remaining in petty cash fund ( i.e. $60) so as to bring it back to the same $100 level for the next period of time

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   2. What is a petty cash book?

Petty cash book is a type of cash book that only records the small payments of cash. Generally, businesses reserves small amount of money to meet small day to day expenses such as taxi fare, postage stamp charges, cleaning charges etc. Payments made from this fund is recorded in a book known as petty cash book

Pretty cash book records most of the specifications of vouchers made at the time payment to help trace out where money was spent

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   3. What is a simple cash book or single column cash book?

Normally, when accountants speak of cash book, they mean a cash book with a cash column, bank column and a discount column at the each side of the cash book

Contrary to this, a single column or a simple cash book only contains cash column at each side. Such a cash book can only records transactions which are related to cash, the transactions related to bank account and discount can’t be recorded in it. In other words, a single column cash book does not have the bank and discount column but only a cash column along with other necessary details columns

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   4. What is a cash book?

A cash book is a book of original entries that is used to records all cash related transactions. A cash book has two sides or parts one is receipts and other is payment side. Cash book is not a ledger account rather that it is a book original entries which means it is a book used to record the transactions in the first place then its entries are transferred to ledger accounts. Whenever a payment is made by the business, it gets recorded on payment side of cash book and when cash or check is received by the business, it is recorded on receipts side.

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   5. What is a two columns cash book?

Two columns cash book contains cash and discount columns, but it doesn’t have the column for bank account related transactions as in three column cash book

If you add a discount column to a simple cash book, it would become the two columns cash book that records the transactions related to cash receipts and payments as well as discount received and discount allowed

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   6. What is a three columns cash book?

A three columns cash book contains three columns cash column, bank column and discount column on its both receipts and payments sides

If you add a bank column to a two columns cash book, it would become the three two columns cash book that records the transactions related to bank account, discount and cash in hand

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   7. What is a bank statement?

The statement issued by a bank and sent it to the business showing the business account balance and details of transactions through bank

When cash or cheque paid into the bank, it appears to be credited in the bank statement. When cheque issued or cash withdrawn from bank account, it is shown as debit balance in the bank statement

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   8. What is a contra entry in cash book?

When a transaction occurs at a specific date affecting both cash and bank balance, the transaction needs to be entered in both receipt and payment side of cash book and this entry is known as a contra entry.

Accountants typically put “C” in post ref or folio column of cash book to indicate that the entry is a contra entry

For example
A transaction such as “depositing business cash $1000 into business bank account” needs to record on receipts and payments side of a cash book. On the receipts side of cash book, we would record $1000 in bank column whereas on the payments side of cash book, we would record $1000 in cash column because the bank balance is increasing while cash in hand balance is decreasing (Tip: Recall the debiting and crediting rules)

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   9. What is the difference between discount received and discount allowed?

Discount received is a discount given by supplier to a business on business’s quick repayment of debt. For example a supplier may offer a business to repay its debt within 30 days if it likes to get 2% discount, otherwise it has to repay the full amount of debt

On the other, discount allowed is a discount given by business to its customers on their quick repayment of debt

Business can offer its customers that 2% discount will be given if they repay the debts within 30 days otherwise they have to pay the full amount of debt

In accounting, discount received is treated as a revenue and discount allowed is regarded as an expense

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   10. What does bank overdraft indicate?

A Business can borrow money from bank with the help of a bank overdraft. In the case of bank overdraft, a business can withdraw money from its bank account more than it has deposited in the account.

For example if a business has $5000 in its bank account, it can withdraw more than $5000. The excessive amount would be regarded as bank overdraft (a kind of liability) and business will have to pay off that liability.

In the case of overdraft, balance c/d always appears on debit or receipt side of cash book indicating that we have over withdrawn cash from bank account

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   11. In which financial statement the closing balance of petty cash book is shown?

The closing balance of petty cash book is an asset for the business. Therefore, it gets recorded in balance sheet as a current asset provided that the closing balance of petty cash book is material. If the petty cash book’s closing balance is not material, there is no need to demonstrate it in financial statements

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   12. What are different types of plastic cards available?

There are several types of plastic cards, some to them are listed below:

- ATM card
- Smart card
- Charge card
- Check guarantee card
- Credit card
- Debit card
- Travel card
- Shareholder card
- Loyalty card
- Business card
- Payment card
- Affinity card
- Purchasing card
- Store card
- Electronic pulse

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   13. What is the nature of bank overdraft?

It is pretty clear that bank overdraft is a liability since business has over withdrawn cash than the balance of bank account. Therefore, business has to repay the debt which is a liability for the business.

Bank overdraft is reported in balance sheet under the category of current liabilities because bank overdraft is generally payable within 12 months

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   14. What is the difference between a cash book and cash flow statement?

A cash book is a book of original entries used to record all cash related transactions. A cash book has two sides or parts one is receipts and other is payment side. Cash book is not a ledger account rather than it is a book original entries which means it is a book used to record the transactions in the first place and subsequently, its entries are transferred to ledger accounts. Whenever a payment is made by the business, it gets recorded on the payment side of cash book and when cash or check is received by a business, it is recorded on receipts side.

On the other hand, cash flow statement is one of the most important financial statements for getting the information about the movement of cash into and out of business during a certain accounting period. In other words, cash flow statement is a simple financial statement that let you know how a business has generated cash and how it has spent the cash during an accounting period. An accounting period can be a month, half year, year or whatever time period.

Points of difference

Cash book is a book of original entries while cash flow statement is a financial statement

Cash book is prepared for internal users of an organization whereas cash flow statement is mainly used by external users of the entity

Cash book is informally prepared. There is usually no need to follow GAAPs to prepare a cash book whereas cash flow statement is formally prepared after taking into consideration the GAAPs

Entries are made to cash book throughout an accounting period while cash flow statement is prepared at the end of an accounting period

Cash book is mainly prepared to record all details of cash related transactions. However, cash flow statement is used for many other purposes such as tracing out misappropriation, keeping an eye on liquidity of the business, helping investors, creditors, lenders etc.

There is no need to pursue a specific format to prepare a cash book. Cash book formats vary from business to business. On the other hand, a cash flow statement is prepared as prescribed by GAAPs

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   15. What is a standing order?

A business can order bank to pay certain fixed amount of money at regular time intervals to an individual or organization. The time interval might be a week, a month, a quarter, a year etc. For example a firm can ask bank to pay $500 as an insurance premium on 5th of every month

Moreover, the fixed amount of money can’t be changed until you cancel the current standing order and instruct bank to setup a new standing order with new fixed amount of money. A standing order is less secure than direct debit which means there are chances that you can overpay and there is no way to get the refund unless the receiver choose to refund the extra payment

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   16. Where to record the standing order in books of accounts?

All standing orders are recorded in the “payments” side of a cash book (or they are credited to cashbook) and they are recorded in the credit side of bank ledger account. Since standing orders are the payments for a business, they are treated in the same way as all other payments are treated in cash book

Definition of standing order
A business can order bank to pay certain fixed amount of money at regular time intervals to an individual or organization. The time interval might be a week, a month, a quarter, a year etc. For example a firm can ask bank to pay $500 as an insurance premium on 5th of every month

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   17. What is a direct deposit?

In case of direct debit, you give permission to a person or an organization to obtain fixed amount money directly from your account

The receiver of money can change the fixed amount of money at any time without the permission of sender given that a prior notice of amount of money and date at which money will be collected is given to the sender. Direct debit comes with the guarantee that the sender will never be overcharged and if so a refund will immediately be given by the bank

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   18. Where to record the direct deposit in books of accounts?

All direct debits are recorded in the “payments” side of a cash book (or they are credited to cashbook) and they are recorded in the credit side of bank ledger account. Since direct debits are the payments for a business, they are treated in the same way as all other payments are treated in the cash book

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   19. Why bank overdraft is usually considered as cheaper than bank loan?

Because interest is charge on the balance of overdraft on a daily basis as opposed to bank loan where interest is charged on the total amount of loan no matter whether you have spent that amount or not.

Overdraft comes with the choice that you spend a specific amount and incur interest on that amount whereas in case of a bank loan, banks charge interest on the full amount of loan taken

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   20. What is the difference between standing order and direct deposit?

Standing order
A business can order bank to pay certain fixed amount of money at regular time intervals to an individual or organization. The time interval might be a week, a month, a quarter, a year etc. For example a firm can ask bank to pay $500 as an insurance premium on 5th of every month

Moreover, the fixed amount of money can’t be changed until you cancel the current standing order and instruct bank to setup a new standing order with new fixed amount of money. A standing order is less secure than direct debit which means there are chances that you can overpay and there is no way to get the refund unless the receiver choose to refund the extra payment

Direct deposit
In contrary to instructing your bank to pay certain amount money, you give permission to a person or an organization to obtain fixed amount money directly from your account

In the case of direct debit, receiver of money can change the fixed amount of money at any time without the permission of sender given that a prior notice of amount of money and date at which money will be collected is given to the sender. Direct debit comes with the guarantee that the sender will never be overcharged and if so a refund will immediately be given by the bank

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   21. What is the difference between a cash book and a cash receipt & payment account of non profit oriented organizations?

Cash book is a book of original entries used to records all cash related transactions. A cash book has two sides or parts one is receipts and other is payment side. Cash book is not a ledger account rather that it is a book original entries which means it is a book used to record the transactions in the first place then its entries are transferred to ledger accounts. Whenever a payment is made by the business, it gets recorded on payment side of cash book and when cash or check is received by a business, it is recorded on receipts side.

A receipt and payment account looks like a cash book but there is a slight difference between the cash book and receipt & payment account. A receipt and payment account shows cash receipts and payments during an accounting period. A receipt and payment account is the summary of cash book that means it doesn't show the bank account and cash related transactions separately nor does it contain discount column. Moreover, receipt and payment account is not used to prepared the balance sheet

A Few major points of difference

Accounting timing
A receipt and payment account is prepared at the end of an accounting period. Whereas the business enter transactions in cash book frequently during the accounting period

Nature of entities
A receipt and payment account is prepared by a non-profit organization only. However, cash book is prepared by all types of organizations

Nature of Books
Cash book is the book of original entries while receipt and payment account is not a book of original entries and it’s not compulsory for an entity to prepare receipt and payment account

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   22. What is the difference between a cash book and a cash account?

Cash book is a book of original entries used to records all cash related transactions. A cash book has two sides or parts one is receipts and other is payment side. Cash book is not a ledger account rather that it is a book original entries which means it is a book used to record the transactions in the first place then its entries are transferred to ledger accounts. Whenever a payment is made by the business, it gets recorded on payment side of cash book and when cash or check is received by a business, it is recorded on receipts side.

As opposed to cash book, cash account is a ledger account (a book of secondary entries) not a book of original entries. Cash account is used to record cash related transactions but does not provide that much details of the transactions as a cash book does. Cash account neither records bank account related transactions nor does it give narration or other details of its entries

Points of difference between cash book and cash account

Cash book is a book of original entries while cash account is a book of secondary entries or a ledger account

Cash book entries are followed by narrations, but cash account entries don’t need narrations

Cash book is a primary source of financial information whereas cash account is prepared from cash book’s financial information

Cash book records cash and bank account related transaction whereas cash account records only cash transactions

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   23. Why does the cash book have only discount column rather than discount allowed and discount received columns?

There is no need to create two different columns since discount received and discount allowed can be determined by examining the receipt and payment sides or credit and debit sides of a cash book. Discount allowed is generally debit and discount received is credit. Therefore, by looking at debit and credit sides of a cash book, the amount of discount received and discount allowed can be ascertained and posted to ledger accounts

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   24. What is the difference between cash book and bank account?

Cash book is a book of original entries used to records all cash related transactions. A cash book has two sides or parts one is receipts and other is payment side. Cash book is not a ledger account rather that it is a book original entries which means it is a book used to record the transactions in the first place then its entries are transferred to ledger accounts. Whenever a payment is made by the business, it gets recorded on payment side of cash book and when cash or check is received by a business, it is recorded on receipts side.

As opposed to cash book, a bank account is a ledger account not a book of original entries. Bank account is used to record bank account related transactions but does not provide that much details of the transactions as a cash book does. Cash account neither records cash related transactions nor does it give narration or other details of its entries

Points of difference between cash book and bank account

Cash book is a book of original entries while bank account is a ledger account or a book of secondary entries

Cash book entries are followed by narrations, but bank account entries don’t need narrations

Cash book is a primary source of financial information whereas bank account is prepared from cash book’s financial information

Cash book records cash and bank account related transaction whereas bank account records only business bank account related transactions

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   25. Where to record the cash payment via credit card and debit card?

Credit card and debit cards are associated with business bank account. Therefore, the accounting treatment for credit card and debit card payments is same as of general bank account related transactions

Example
If a business purchases goods amounting to $500 and payment is made via credit card, business will record $500 in the payments side of cash book in bank column and from cash book, bank balance is transferred to bank ledger account where it appears on credit side

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   26. What does folio or post ref column in journal indicate?

Folio column is the reference to a specific ledger account or any other book of accounts. In this column, the name account and page No. on which we have entered the other part of double entry are filled in to help find out the other part of entry.

For example:

The transaction "Cash sales amounting to $400 were made to Mr. Z" is entered in cash receipt journal on page No.12 and Sales account that is located on page No. 22

The folio column would record the following entries:

In the cash receipt journal, we would enter SL 22 in folio column to indicate that the record related to sales to Mr. Z can be found on page No. 22 of sales ledger account

In the Sales ledger account, we would enter CJ 12 in the folio column to signify that the record related to cash receipt from Mr. Z can be found on the page No. 12 of cash receipt journal

An accountant is supposed to fill in this column when they complete the double entry.

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   27. What are the benefits of folio or post ref column?

Folio column indicates that other part of double entry has been completed and it helps find out on what page No. it is located.

If you see the folio column blank, you can assume that we have not yet completed the double entry and it helps trace out many errors.

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