The Cash Book

Cash or Bank

Cash or bank

Do I enter a transaction in the cash account or the bank account?

• Enter the transaction in the cash account if physical money is exchanged

  • Paying a supplier using cash

  • Receiving cash from a customer

  • Taking money from the till for personal use

• Enter the transaction in the bank account if there is no physical money involved

  • Transactions involving a bank transfer

  • Paying an invoice or bill by cheque

  • Receiving a cheque from a customer

  • Standing orders and direct debits

• Some transactions are entered into both the cash and bank accounts

  • Depositing cash from the business into the business bank account

  • Withdrawing cash from the business bank account for business use

The Cash Book

The cash book

What is the cash book?

• The cash book has two functions

  • It is a book of prime entry

  • It is a ledger account for both the cash and bank accounts

• The cash book records all cash transactions

  • Both physical cash and cash in the bank

• The cash book is part of the double entry system

• There are columns for the dates and details just like other ledger accounts

• There are three columns for the value of the transaction on both sides of the cash book

  • Discount columns

    • Discount allowed on the debit side

    • Discount received on the credit side

  • Cash columns

  • Bank columns

Which side should the balances be on?

• The balance for the cash account is always on the debit side

  • Cash is always an asset

  • It can never be a liability

• The balance for the bank account can be on either side

  • It is on the debit side if the business has money in the bank

  • It is on the credit side if the business is overdrawn

How do I enter transactions into the cash book?

• STEP 1
  Identify whether the transaction affects the cash or bank account

• STEP 2
  Decide whether the account should be debited or credited

  • Debit the account if the business is receiving money

  • Credit the account if the business is losing money

• STEP 3
  Include any discount that was allowed or received

What are contra entries in the cash book?

• A contra entry is for a transaction that is entered into both sides of the cash book

  • It will be entered in the cash column on one side

  • It will be entered in the bank column on the other side

• The two transactions which result in contra entries are:

  • Withdrawing cash from the business bank account for business use

    • Debit the cash account

    • Credit the bank account

  • Depositing cash from the business into the business bank account

    • Debit the bank account

    • Credit the cash account

Balancing the Cash Book

Balancing the cash book

How do I balance the cash book?

• Balance the cash columns just like any other ledger account

  • Ignore the other columns

  • Remember the balance is always brought down onto the debit side

• Balance the bank columns just like any other ledger account

  • Ignore the other columns

  • The balance will be brought down onto the:

    • debit side if the business has money in the bank

    • credit side if the business is overdrawn

• Do not balance the discount columns

  • You just need to total them up

  • They will likely be different totals

Where do I put the totals for the discount columns?

• The cash book is the book of prime entry for discount

  • It records the discounts allowed and received

  • It is not part of the double entry system for discount

• Enter the discount in the relevant accounts

• The total on the left-hand side is the discount allowed

  • Debit the whole total to the discount allowed account

    • Label the entry as “cash book”

    • You do not need to put a separate entry for each transaction

  • Credit the relevant trade receivables accounts in the sales ledger

• The total on the right-hand side is the discount received

  • Debit the relevant trade payables accounts in the purchases ledger

  • Credit the whole total to the discount received account 

    • Label the entry as “cash book”

    • You do not need to put a separate entry for each transaction