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TOPIC 3
CHAPTER 13
CASH BOOK
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DRAWING UP A CASH BOOK
The cash book consists of the: cashaccount and the bank account put
together in one book.In the cash book, the debit columnfor cash is put next to the debitcolumn for bank.
The credit column for cash is putnext to the credit column for bank.
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EgT-Account
20x8 20x8Aug 2 T Moore 33 Aug 8 Print 20 Aug 1 apital 1 Aug 7 ent 205
Aug 5 harles 25 Aug 12 Pott 19 Aug 3 Ltd 24 Aug 12 F Small 95
Aug 15 F ughes 37
ash ank
ash ank
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CASH PAID INTO THE BANK
The payment into the bank werecheques received by the business.
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Eg 1
A cash receipt of RM100 from M Davies on 1August 20x8 which was followed by thebanking on 3 August of RM80 of this amount
would appear in the Cash Book as follows:
CASH
RM
BANK
RM
CASH
RM
BANK
RM
20X8
Aug 1 M Davies
Aug 3 Cash
100
80
20x8
Aug 3 Bank 80
CASH BOOK
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Effect Action
1. Asset ofcash is
decreased
Credit the asset account, i.e.
the cash account which is
represented by the cashcolumn in the cash book.
2. Asset ofbank is
increased
Debit the asset account, i.e.
the bank account which is
represented by the bank
column in the cash book.
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Eg 2
A withdrawal of RM75 cash on June 20x8 from
the bank would appear in the Cash Book as:
CASH BOOKCASH
RM
BANK
RM
CASH
RM
BANK
RM
20X8
June 1 Bank 75
20x8
June 1 Cash 75
Both the debit and credit entries for thisitem are on the same book. When thishappens it is known as a contra item.
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Effect Action
1. Asset ofbank is
decreased
Credit the asset account, i.e.
the bank column in the cash
book.
2. Asset ofcash is
increased
Debit the asset account, i.e.
the cash column in the cash
book.
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THE USE OF FOLIO COLUMNS
Folio entries speed up the process offinding the other side of the double
entry in the ledgers.
The folio column should only be filled inwhen the double entry has been
completed.
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THE USE OF FOLIO COLUMNS
An entry would be:
In the cash book, the folio column isSL45
In the Sales Ledger, the folio column is
CB37
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THE USE OF FOLIO COLUMNS
o SL is Sales Ledger
o 45 is the page number.
o CB is Cash Book
o 37 is the page number
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Eg 3.
20x8 RM
Sept 1
Sept 2
Sept 4
Sept 6
Sept 7
Sept 15
Sept 23
Sept 29
Sept 30
Proprietor puts capital into a bank account for the
business.
Received cheque from M Boon.
Cash Sales
Paid rent by cash.
Banked RM50 of the cash held by the business
Cash sales paid direct into the bank.
Paid cheque to S Will
Withdrew cash from bank for business use
Paid wages in cash
10,940
315
802
135
50
490
277
120
518
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Cash Book20x8 Folio Cash Bank Folio Cash Bank
Sept 1 CapitalSept 2 M Boon
Sept 4 Sales
Sept 7 Cash
Sept 15 Sales
Sept 29 Bank
Oct 1 Bal
GL1SL98
GL87
C
GL87
C
b/d
802
120
922
219
10,940315
50
490
11,795
11,398
Sept 6 RentSept 7 Bank
Sept 23 S Wills
Sept 29 Cash
Sept 30 Wages
Sept 30 Bal
GL65C
PL23
C
GL39
c/d
13550
518
219
922
277
120
11,398
11,795
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CASH DISCOUNT
Cash Discount refers to the allowancegiven forquick payment.
Therate of discount is usually statedas a percentage.
Note: Cash discount always appear in
the profit and loss part. They are notpart of the cost of good sold. Nor arethey a deduction from selling price.
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DISCOUNT ALLOWED ANDDISCOUNT RECEIVED
Discount allowed: Cash discountallowed by a business to itscustomers when they pay theiraccounts quickly.
Discount received: Cash discountsreceived by a business from its
suppliers when it pays what it owesthem quickly.
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Eg 1 ..
Clarke owed us RM100. He pays us in cash on 2 September
20x8, which is within the time limit applicable for a 5 percent
cash discount. He pays RM100-RM5=RM95 in full settlement of
his account.
Effect Action
1. Ofcash:
Cash is increased by RM95
Asset ofdebtors is decreased by
RM95
Debit cash account, i.e. enter
RM95 in debit column ofCash
Book
Credit W Clarke RM952. Ofdiscounts:
Asset ofdebtors is decreased by
RM5
Expenses ofdiscounts allowed
increased by RM5
Credit Clarke RM5.
Debit discounts allowed account
RM5.
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Eg 2 ..
The business owed Small RM400. It pays him by cheque on 3
September 20x8, which is within the time limit laid down by
him for a 2 % cash discount. The business will pay
RM400-RM10= RM390 in full settlement of the account.
Effect Action
1. Ofcheque:
Asset ofbank is reduced by RM390.
Liability ofcreditors is reduced by
RM390
Credit bank, i.e. entry in the
credit bank column for RM390.
Debit S Smalls account RM390.
2. Ofdiscounts:
Liability ofcreditors is reduced by
RM10.
Revenues ofdiscounts received
increased by RM10.
Debit S Smalls account RM10.
Credit discounts received
account RM10.
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Cash Book20x8 Folio Cash Bank Folio Cash Bank
Sept 2 Clarke SL12 95 Sept 3 S Small PL75 390
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20x8 Folio RM Folio RM
Sept 2 S Small PL75 10
Discount Received (General Ledger)
20x8 Folio RM Folio RM
Sept 2 W Clarke SL12 5
Discount Allowed (General Ledger)
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20x8 Folio RM Folio RM
Sept 1 Balance b/d 100
100
Sept 2 Cash
Sept 2 Discount
CB 32
GL 17
95
5
100
Clarke (Sales Ledger)
20x8 Folio RM Folio RM
Sept 3 Bank
Sept 3 Discount
CB32
GL18
390
10
400
Sept 1 Balance b/d 400
400
S Small (Purchases Ledger)
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BANK OVERDRAFTS
A business may borrow money from abank by means of a bank overdraft.
Means that the business is allowed to paymore out of its bank account than thetotal amount it has deposited in theaccount.
So the business owes money to the bank,therefore the account is a liability andthe balance becomes a credit one.
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End Chapter 13