Subsidiary Books of Accounts Cont’d – Cash Book

Subsidiary Books of Accounts Cont’d – Cash Book.

Introduction:

Hello kids, welcome to another interesting lesson in accounting.

In our last class, we started instruction to subsidiary books. I am sorry I have been away for a while due to some exigencies.

However, I am fully back now. So we are going to cruise together in interesting accounting lessons. Today we will be looking at the cash book.

In a business environment, the duty of receiving and paying out money requires a considerable number of accounting entries. Remember these money transactions may be in the form of cash, cheques or electronic transfers. If these transactions are posted directly to the ledger, the bank and cash account will contain too many entries.

The essence of making the ledger less cumbersome is carried one step further by taking the bank account and cash account out of the ledger and combing both in one subsidiary book called cash book.

Types of cash books

They are basically two types of cash books depending of the columns, which are; (a) two (2) columns cash book and (b) three (3) columns cash book.

Simple or single column cash book:

This cash book will only record cash transactions. The cash coming in, that is cash receipts will be recorded on the left and cash payments that is out going will be recorded on the right hand side of the cash book. The left hand side is the debit usually abbreviated as “Dr.” the right hand side is the credit side usually abbreviated as “Cr”. Now since there is only one column we do not record bank transaction in this cash book.

Any discount given or gotten will also not feature here. Cash books are balance frequently, in most organizations on daily basis. One important point to remember is that a single column cash book can never have a credit balance. A single column cash book only show a debit balance.

Two (2) columns cash book:

This cash book is so called because it has two columns. One column for bank and one for cash transactions; the two columns on the debit side record the money that comes in while the two columns on the credit side record payment of money.

The bank column on the debit side records cheques received, cash paid into bank as well as direct electronic transfers while the bank column on the credit side records payments by cheques and direct electronic transfers to beneficiaries from the organization. The cash column on the debit records cash received while the cash column on the credit records cash paid.

Contra entry- When the double entry for a transaction appears on both sides of the cash book, this is called a contra entry. An example of contra entries in the cash book are when cash is deposited into the bank account out from the cash in hand or when cash is withdrawn from the bank for office use

Three (3) Column cash book:

A three column cash has a third column (in addition to the columns for bank & cash) for recording cash discounts allowed to debtors and cash discounts received from creditors.

A cash discount is the amount allowed off (deducted from) debtors to encourage settlement of the debts within a specified period of time.

In a typical trading organization, cash discounts are fairly common and require a large a large number of entries. If these are posted directly to the discount allowed account or discount received account, both accounts will end up containing too many entries. If this is to be avoided, it is necessary to modify the recording process so that postings are done periodically to the accounts in the general ledger

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