Cash books, Bank accounts

1. Cash BooksCash BooksCash BooksCash Books
DBS3024 BUSINESS TRANSACTIONDBS3024 BUSINESS TRANSACTION
by
Stephen Ong
Visiting Fellow, Birmingham City
University Business School
Visiting Professor, Shenzhen
University

2. Today’s OverviewToday’s Overview

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Learning objectivesLearning objectives
 To explain the format of two-column andTo explain the format of two-column and
three-column cash booksthree-column cash books
 To enter up and balance off cash booksTo enter up and balance off cash books
 To use folio columns for cross-To use folio columns for cross-
referencing purposesreferencing purposes
 To make the entries for discounts allowedTo make the entries for discounts allowed
and discounts received both in the cashand discounts received both in the cash
book and, at the end of a period, in thebook and, at the end of a period, in the
discount accounts in the general ledgerdiscount accounts in the general ledger
 To make similar entries in separateTo make similar entries in separate
columns in the cash book for othercolumns in the cash book for other
recurring itemsrecurring items

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11
Bank AccountsBank Accounts

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Mobile Payment by SquareMobile Payment by Square
Video : Pay with SquareVideo : Pay with Square httpshttps
://www.youtube.com/watch?v=8pJOVOtJpo://www.youtube.com/watch?v=8pJOVOtJpo

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Types of accountTypes of account
 Current account:Current account:
 Used for regular payments in and outUsed for regular payments in and out
 Comes with a cheque book, pay-in book, and ATM /Comes with a cheque book, pay-in book, and ATM /
debit carddebit card
 Earns ZERO or little interest /Earns ZERO or little interest / profit shareprofit share
 Savings Deposit account:Savings Deposit account:
 Generally earn some interest /Generally earn some interest / profit shareprofit share
 Not intended for accessing money on a regular basis.Not intended for accessing money on a regular basis.
 Fixed Deposit account:Fixed Deposit account:
 Generally earn a guaranteed interest /Generally earn a guaranteed interest / profit shareprofit share atat
fixed time periods, ie. 1, 3, 6, 12, or 60 monthsfixed time periods, ie. 1, 3, 6, 12, or 60 months
 Money is not accessible during the time period.Money is not accessible during the time period.
**Profit share for Islamic Bank accounts**Profit share for Islamic Bank accounts

7. Bank StatementBank Statement
NameName
AddressAddress AccountAccount
No.No.

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22
The Cash BookThe Cash Book

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What is the cash book?What is the cash book?
 The cash book is theThe cash book is the cash accountcash account
and the bank accountand the bank account put together input together in
one book.one book.
 This means we can record all moneyThis means we can record all money
received and paid out on the same page.received and paid out on the same page.
 In the cash book, the debit column forIn the cash book, the debit column for
cash and the debit column for bank arecash and the debit column for bank are
together, and the credit column for cashtogether, and the credit column for cash
and the credit column for bank areand the credit column for bank are
together.together.

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The cash account and bankThe cash account and bank
accountaccount

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The cash bookThe cash book

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Folio columnsFolio columns
 Just like in a T-account, the cash bookJust like in a T-account, the cash book
has ahas a details columndetails column that contains thethat contains the
name of the account in which the othername of the account in which the other
part of the double entry has been entered.part of the double entry has been entered.
 More information can be given by usingMore information can be given by using
folio columns.folio columns.
 AA folio columnfolio column is drawn up in the cashis drawn up in the cash
book and the name of the other book andbook and the name of the other book and
the page number is entered against everythe page number is entered against every
entry.entry.

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The cash book (with folio)The cash book (with folio)

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Cash discountsCash discounts
To encourage early payment of accounts,To encourage early payment of accounts,
a business may accept a smaller sum ina business may accept a smaller sum in
full settlement if payment is made within afull settlement if payment is made within a
certain period of time.certain period of time.
 Discounts allowedDiscounts allowed – cash discounts– cash discounts
allowed by a business to its customersallowed by a business to its customers
when they pay their accounts quickly.when they pay their accounts quickly.
 Discounts receivedDiscounts received – cash discounts– cash discounts
received by a business from its suppliersreceived by a business from its suppliers
when it pays what it owes them quickly.when it pays what it owes them quickly.

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Posting discount allowedPosting discount allowed
W. Clarke owed us RM100. He pays usW. Clarke owed us RM100. He pays us
in cash on 2 September 2012, which isin cash on 2 September 2012, which is
within the time limit applicable for a 5%within the time limit applicable for a 5%
discount.discount.
DebitDebit CashCash RM95RM95
CreditCredit W. ClarkeW. Clarke RM95RM95
DebitDebit Discount allowedDiscount allowed RM5RM5
CreditCredit W. ClarkeW. Clarke RM5RM5

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Posting discount receivedPosting discount received
The business owed S. Small RM400. ItThe business owed S. Small RM400. It
pays him by cheque on 3 September 2012,pays him by cheque on 3 September 2012,
which is within the time limit laid down bywhich is within the time limit laid down by
him for a 2.5% cash discount.him for a 2.5% cash discount.
DebitDebit S. SmallS. Small RM390RM390
CreditCredit BankBank RM390RM390
DebitDebit S. SmallS. Small RM10RM10
CreditCredit Discount receivedDiscount received RM10RM10

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How the entries would lookHow the entries would look

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Discount columns in the cashDiscount columns in the cash
bookbook
 To reduce the number of entries in theTo reduce the number of entries in the
general ledger, discount columns cangeneral ledger, discount columns can
be added to the cash book.be added to the cash book.
 TheThe discount allowed column is addeddiscount allowed column is added
to the debit sideto the debit side of the cash book andof the cash book and
thethe discount received column is addeddiscount received column is added
to the credit sideto the credit side of the cash book.of the cash book.
 The total of these columns will beThe total of these columns will be
posted to the relevant discountposted to the relevant discount
accounts.accounts.

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Discount columns in the cashDiscount columns in the cash
book (Continued)book (Continued)
How the cash book would look with aHow the cash book would look with a
discount column.discount column.

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33
The Bank OverdraftThe Bank Overdraft

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What happens if there is a bankWhat happens if there is a bank
overdraft?overdraft?

22. ACTIVITYACTIVITY

23. ANSWERANSWER

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Learning outcomesLearning outcomes
You should have now learnt:You should have now learnt:
 That a cash book consists of a cashThat a cash book consists of a cash
account and a bank account putaccount and a bank account put
together into one booktogether into one book
 How to enter up and balance a two-How to enter up and balance a two-
column cash book, i.e. one containingcolumn cash book, i.e. one containing
a debit and a credit column for thea debit and a credit column for the
bank account, and a debit and a creditbank account, and a debit and a credit
column for the cash accountcolumn for the cash account

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Learning outcomesLearning outcomes
(Continued)(Continued)
 That the bank columns in the cashThat the bank columns in the cash
book are for cheques and any otherbook are for cheques and any other
transfers of funds that have been madetransfers of funds that have been made
into or out of the bank accountinto or out of the bank account
 That a folio column is included in theThat a folio column is included in the
cash book so as to help trace entriescash book so as to help trace entries
made into accounts in the ledgers andmade into accounts in the ledgers and
so as to provide assurance that theso as to provide assurance that the
double entries have been madedouble entries have been made

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Learning outcomesLearning outcomes
(Continued)(Continued)
 That cash discounts are given toThat cash discounts are given to
encourage people to pay theirencourage people to pay their
accounts within a stated time limitaccounts within a stated time limit
 That ‘cash discount’ is the name givenThat ‘cash discount’ is the name given
for discount for quick payment evenfor discount for quick payment even
where the payment was made bywhere the payment was made by
cheque or by direct transfer into thecheque or by direct transfer into the
bank account, rather than by paymentbank account, rather than by payment
in cashin cash

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Learning outcomesLearning outcomes
(Continued)(Continued)
 That cash discounts appear in theThat cash discounts appear in the
profit and loss part of the incomeprofit and loss part of the income
statementstatement
 How to enter up and balance a three-How to enter up and balance a three-
column cash book, i.e. one containingcolumn cash book, i.e. one containing
a debit and a credit column for thea debit and a credit column for the
bank account, a debit and a creditbank account, a debit and a credit
column for the cash account and acolumn for the cash account and a
debit and a credit column for discountdebit and a credit column for discount

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Learning outcomesLearning outcomes
(Continued)(Continued)
 That the discounts columns in the cashThat the discounts columns in the cash
book make it easier to enter up thebook make it easier to enter up the
books. They act as a collection pointbooks. They act as a collection point
for discounts allowed and discountsfor discounts allowed and discounts
received, for which double entry intoreceived, for which double entry into
the general ledger is completed whenthe general ledger is completed when
the totals are transferred to thethe totals are transferred to the
discount accounts in the generaldiscount accounts in the general
ledger, usually at the end of the monthledger, usually at the end of the month

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Learning outcomes (Continued)Learning outcomes (Continued)
 That a multiple column cash book isThat a multiple column cash book is
often used in order to further reduceoften used in order to further reduce
the number of entries made in thethe number of entries made in the
general ledgergeneral ledger
 How to add additional columns to theHow to add additional columns to the
cash book for frequently recurringcash book for frequently recurring
items and make the appropriate entriesitems and make the appropriate entries
in them and in the general ledgerin them and in the general ledger

30. Resources : Core ReadingResources : Core Reading
 Wood, Frank and Robinson, SheilaWood, Frank and Robinson, Sheila
(2009)(2009) Bookkeeping and AccountsBookkeeping and Accounts ,7,7thth
Edition, Pearson/ FT Prentice HallEdition, Pearson/ FT Prentice Hall
 Wood, Frank and Sangster, Alan
(2012) Business Accounting ,12th
Edition, Pearson/ FT Prentice Hall
 Fortes, Hilary (2011) Accounting
Simplified , Pearson/ FT Prentice Hall

31. QUESTIONS?QUESTIONS?