The Cash Book records all cash and bank receipts and payments. It is unique because it is a book of first entry and at the same time the cash and bank accounts of the ledger.
Types of Cash Book
- Two-column Cash Book — a Cash column and a Bank column.
- Three-column Cash Book — adds a Discount column (Discount Allowed on the debit side, Discount Received on the credit side).
Key idea
The debit side = receipts (money in). The credit side = payments (money out). Discount Allowed = debit side; Discount Received = credit side. Discount columns are only totalled, not balanced.
Example (three-column)
| Details | Discount | Bank |
|---|---|---|
| Received from Lina (debit) | 20 | 380 |
| Paid to Kamal (credit) | 15 | 285 |
Lina owed RM400; she pays RM380 and receives a discount allowed of RM20. Kamal is paid RM285 with a discount received of RM15 out of RM300.
Example
A contra entry: banking RM500 of cash — debit Bank RM500, credit Cash RM500, within the same Cash Book.
Balancing the Cash Book
The cash and bank columns are balanced like ordinary accounts: the balance is carried down at period end and brought down in the next period. It is important to distinguish a cash discount (recorded in the Cash Book because it relates to prompt payment) from a trade discount, which merely reduces the list price and is never recorded in any account.
Remember
The Discount Allowed total is posted to the debit of the Discount Allowed account; Discount Received to the credit of the Discount Received account.