Principles of Accounts

The Cash Book

The Petty Cash Book
 Topic & Structure of the lesson
 CASH DISCOUNT

 FORMS OF CASH BOOKS

 TWO-COLUMN CASH BOOK

 THREE-COLUMN CASH BOOK

 THE LEDGER ENTRIES FOR THE CASH BOOK DISCOUNT COLUMNS

 THE PETTY CASH BOOK

 THE COLUMNAR PETTY CASH BOOK

 THE IMPREST SYSTEM

 ADVANTAGES OF THE IMPREST SYSTEM

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 Learning Outcomes

 At the end of this topic, YOU should be able to:

 Describe the format of two-column and three-column cash

books.
 Explain the relationship between a cash book and the cash,
and bank accounts in the ledger
 Explain the function of the cash discount columns
.
 Relationship between a petty cash book and the cash account
in the ledger.
 Format and function of analysis columns and the imprest
system.

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 Key Terms you must be able to use

If you have mastered this topic, you should be able to use the following terms
correctly in your assignments and exams:

two-column and three-column cash books.

cash discount
petty cash book
imprest system.

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 CASH DISCOUNT

• Cash discount is a reduction given by the supplier of

goods to a buyer if the latter pays for them within a
period stipulated by the seller at the time of sale. It is not
deducted on the invoice, but calculated as a percentage
of the amount of the invoice (e.g. 5%), and deducted at
the time of payment.
• Ledger entries:
1. Discount allowed -
Debit Discount allowed account
Credit Debtors account
2. Discount received -
Debit Creditors account
Credit Discount received account

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 FORMS OF CASH BOOKS

• A two-column cash book in which are recorded cash

received and paid in one money column on each side, and
cheques received and paid in the other column on each
side.
• A two-column cash book in which are recorded cheques
received and paid in one money column on each side, and
cash discount allowed and received in the other column on
each side.
• A three-column cash book in which are recorded:
(a) cash received and paid in one column on
each side;
(b) cheques received and paid in one column on
each side; and
(c) cash discount allowed and received in the
remaining column on each side.

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 Format
Dr Cash and Bank account Cr

Date Particulars Cash Bank Date Particulars Cash Bank

Dr Cash account Cr

Date Particulars Disc Allowed Cash Date Particulars Disc Rec'd Cash

Dr Bank account Cr

Date Particulars Disc Allowed Bank Date Particulars Disc Rec'd Bank

Dr Cash and Bank account Cr

Date Particulars Disc Allowed Cash Bank Date Particulars Disc Rec'd Cash Bank

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 THE TWO-COLUMN CASH BOOK
• In practice cash received and paid is usually recorded in
a separate petty cash book. The cash book thus
normally consists of two-column with bank and discount
columns.
• The cash book is used instead of the bank account in the
ledger, and is written up from the bank paying-in book
and cheque book stubs.
• It is a book of prime entry, and the column on each side
that are used to record cheques received and paid are a
part of the double entry system.
• The other column on each side are memorandum and,
like the day books, intended to provide a means of
ascertaining the total discount allowed and total discount
received to facilitate the bulk posting of transactions to
the ledger.
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 THE THREE-COLUMN CASH BOOK

• This is not common in practice, but

sometimes used in examinations.

• It combines and replaces the cash and bank

accounts in the ledger.

• It is a book of prime entry, and the cash and

bank columns are a part of the double entry
system.

• The discount columns are used in the same

way as those in the two-column cash book.
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 THE LEDGER ENTRIES FOR
THE CASH BOOK DISCOUNT COLUMNS
• 1. Discount allowed:
Debit Discount allowed account with
the total of the debit discount
column
Credit Debtors accounts with the
amount of each item of
discount
• 2. Discount received:
Debit Creditors accounts with the
amount of each item of
discount
Credit Discount received account
with the total of the
credit discount column
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 THE PETTY CASH BOOK

• This is used to record the receipt and

payment of small amounts of cash.
• It is written up from the receipts and petty
cash vouchers.
• It replaces the cash account in the ledger.
• It is both a book of prime entry and part of
the double entry system.

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 THE COLUMNAR PETTY CASH BOOK

• This contains analysis columns on the

credit side, each of which relates to a
particular type of expenditure (and name
of a ledger account).

• These are intended to facilitate the bulk

posting of transactions to the ledger. At
the end of each calendar month the total
of each analysis column is debited to the
relevant ledger account.

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 THE IMPREST SYSTEM
• At the beginning of each period (week or month)
the petty cashier has a fixed amount of cash
referred to as a 'float'.
• At the end of each period (or start of the next)
the petty cashier is reimbursed the exact amount
spent during the period, thus making the float up
to its original amount.
• The reimbursement usually takes the form of a
cheque drawn for cash. The amount of the petty
cash float is determined by reference to the
normal level of petty cash expenditure in each
period.
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 ADVANTAGES OF THE IMPREST SYSTEM

• It facilitates control of the total petty cash

expenditure in each period as the petty
cashier cannot spend more than the
amount of the float except by applying to
the management for an increase.

• It deters theft of cash by the petty cashier

since a large cash balance cannot be
accumulated by drawing cash at irregular
intervals.

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 • The entries in the petty cash book are kept up to
date because the cash expenditure is not
reimbursed until the petty cash book is written
up and the total amount of expenditure for the
period is known.

• It discourages the practice of loans from petty

cash since these would have to be accounted for
at the end of the period, and in addition may
result in insufficient cash to meet the necessary
expenditure.

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 Petty Cash Book
Debit Credit
Printing Travelli
Telepho & ng
Utiliti ne & Statione Expens
Date Description Amount Date Description Amount es Postage ry es

1-Jul Balance b/d 500 3-Jul TNB 100 100

5-Jul Stamps 20 20

12-Jul Petrol 80 80

19-Jul Paper clips 5 5

25-Jul Taxi 15 15

31-Jul Bank 220 31-Jul Balance c/d 500

720 720 100 20 5 95

1-Aug Balance b/d 500

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 Example 4a
3-column cash book

The balances shown in Heng motors cash

book at 1 Dec 2007 were: Bank $1,630
and Cash $820. The following receipts
and payments occurred during Dec 2007.
2 Received a cheque for $1,000 from Samy as a loan
repayable in 5 years.
3 Purchased Office equipment for $1,210 and paid by
cheque.
4 Purchased in cash goods for resale costing $340.

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 5 Paid wages $150 in cash.
6 Cash sales paid into bank $480.
8 Purchases by cheque $370.
9 Cash sales of $160
11 Cheque sales $280.
12 Paid telephone bill by cheque
$320.
15 Paid cash of $200 into bank.

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 17 Drawings by cheque $250.
18 Bought stationery $80 by cash.
20 Introduced additional capital in the form of a
cheque for $500.
21 Paid water rates of $430 by cheque.
23 Withdrew cash of $100 from bank.
24 Received a cheque for $640 from Ali who
deducted $35 cash discount. Balance $675.

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 27 Paid Farida $720 by cheque after deducting $25
cash discount. Balance $745.
28 Evelyn sent us a cheque for $860 after deducting
$45 cash discount. Balance $905.
29 Received a cheque from Ah Chong for $920 who
deducted $50 cash discount which we did not
allow. Balance $970.
You are required to enter the above
transactions in a 3-column cash book.

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 Example 4b
petty cash book
Sam uses a columnar petty cash book to
record his cash payments. He also operates
an imprest system with a float of $150.
During August 2007, the cash transactions
were as follows:
1 Stamps $5
2 Cleaning materials $13
4 Telegram $2
5 Angpow to rubbish disposal man $10
7 Tea, milk, etc. $9
9 Bus fare $2
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 10 Paper clips and pens $6
13 Office cleaner $20
18 Taxi fare $12
21 Envelopes $4
23 Pos Laju $8
26 A4 paper $7
28 Milo and sugar $16
30 Received reimbursement to make up
float to $150

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 Question and Answer Session

Q&A

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 Next Session

• BOOKS OF PRIME ENTRY

Sales Journal and Sales Ledger.
Purchases Journal and Purchases Ledger
Sales Return Journal, Purchase Return
Journal and General Journal

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