Home » Questions » Book of original entries - Cash book Short Answer Questions




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1. What is an imprest system?

The process of maintaining petty fund for petty payments and replenishment of petty fund is referred to as imprest system

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2. What is a petty cash book?

Petty cash book is a type of cash book that records only the small payment 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. Payment made from this fund is recorded in a book known as petty cash book

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

A single column or a simple cash book contains only cash column at each side. Such a cash book can only records transactions which are related to cash and the transactions related to bank account and discount can’t be recorded in it

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4. What is a cash book?

A cash book is a book of original entries that is used to record all cash related transactions. A cash book has two sides or parts one is receipts and other is payment side.

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5. What is a two columns cash book?

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

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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

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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

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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.

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

Discount received is a discount given by the supplier to a business on business’s quick repayment of its debts

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


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10. What does bank overdraft indicate?

A Business can borrow money from bank by means 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.

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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 the balance sheet as a current asset provided that the closing balance of petty cash book is material

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12. 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.

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

A cash book is a book of original entries whereas a cash flow statement is a financial statement

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14. 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 or a year or whatever. For example a firm can ask bank to pay $500 as insurance premium on 5th of every month

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15. 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.

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16. What is a direct deposit?

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

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17. 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

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

Because interest is charge on the balance of overdraft on 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

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19. What is the difference between cash book and cash account?

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.

As opposed to cash book, a cash account is a ledger account not a book of original entries. Cash account is used to record cash related transactions but doesn’t provide that much detail of the transactions as a cash book does

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20. 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.

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

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

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22. What does folio or post ref column in cash book indicate?

Folio column is the reference to a specific ledger account or any other books of accounts. In this column, the name of an 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.

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

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

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