Cash Book

• Dividing the ledger into sections makes it more convenient to use as the same type of accounts can be kept together and the task of maintaining the ledger can be divided between several people. It also enables checking procedures (in the form of control accounts) to be introduced and may reduce the possibility of fraud.
• Sales ledger: the ledger in which the accounts of credit customers are maintained.
• Purchase ledger: the ledger in which the accounts of credit suppliers are maintained.
• Cash book: These contain the main cash book, and the petty cash book.
• Nominal (general) ledger: ithe ledger where all the other accounts are maintained.
• To record surplus cash paid into the bank:

  • Debit the bank account and write 'cash' in the details column
  • Credit the cash account and write 'bank' in the details column
• To record cash withdrawn from the bank for office use:

  • Debit the cash account and write 'bank' in the details column
  • Credit the bank account and write 'cash' in the details column
• Contra Entry: is one which appears on both sides of the cash book.

  
  

  • In the detail's column on the debit side, write the name of the account where the money has come from.

  • In the details column on the credit side, write the name of the account to which the money is going.
• Bank overdraft:

  • Occurs when more has been paid out of the bank than was put into the bank account
• Bank loan different from a bank overdraft because:

  • It is a fixed amount which is paid into the business bank account
  • Must be repaid by an agreed date
  • Interest at a fixed rate is payable on the total amount borrowed
• 1. Cash discount: Supplier's offer for prompt payment.
  2. Time limit: Set by supplier, not payment method.
  3. Encourages prompt payment.
  4. Supplier receives slightly less, but gets funds earlier.
  5. Not restricted to cash payments.
  6. Boosts available funds for the business.
• Discount allowed: Offered to credit customers who pay promptly.

  - Cost to the business.

  - Encourages prompt debt settlement.

  - Boosts available funds for the business.

  
  

  Discount received: Given by credit suppliers when the business pays promptly.

  - Benefit to the business.

  - Doesn't involve receiving actual money, but a reduction in the amount owed.

  • Important: Discount received is an income; discount allowed is an expense.
• • Discount columns in cash book not part of double entry system, used for convenience.
  • Steps for transferring discount totals to double entry system:

  1. Total each discount column.
  2. Debit discount allowed account with total of discount allowed column.
  3. Credit discount received account with total of discount received column.
• • Trade discount ≠ cash discount:
  • Trade discount: reduction in price of goods at purchase.
  • Cash discount: reduction in price at payment.
• • Dishonoured cheque: A cheque that the debtor's bank refuses to pay.
  • Reasons: Not enough money in the account or errors on the cheque (e.g., missing signature, date, or discrepancies in amount).
  • Consequences: Returned to the business that deposited it.
  • Accounting: Record by crediting bank account and debiting debtor's account (reverse of initial entries).
  • Notification: Inform debtor of unpaid amount.