1. Cash Book is the Books of original entry for recording all cash transactions.
2. Cash Book is a combination of Cash Account and Bank Account. Its function is the same as cash with a bank account. If the businessman uses a cash book, then the cash and bank accounts need not be opened in the ledger.
3. The cash column next to the Cash Book debit records all cash receipts while the cash column next to the Cash Book credit records all cash payments.
4. The bank column next to the Cash Book debit records all cash and checks entered into the bank. The bank column next to her credit records all payments by check.
5. The Cash Book is part of the main ledger and the way it records is based on a double entry system.
6. All entries in the cash book (except counter note) must be posted to a specific account in the ledger to complete a double entry.
7. The advantages of using Cash Book are:
a) records in the major ledgers can be reduced
b) readily refer to bank accounts and cash accounts
c) one can be reserved for recording Cash Book
8. There are two forms of Cash Book, namely:
a) Two Column Cash Book
b) Three Column Cash Book
Two Column Cash Book
1. The Two Column Cash Book contains cash columns and bank columns on both sides of debit and credit.
Counter Note On Cash Book
1. Cash Account records cash in the office while Bank Account records cash in bank. Upon the transfer of cash from office to bank or otherwise, both cash and bank accounts will be involved. Note this move is a contra note.
a) Transfer of office cash to bank
Example: May 3 Insert RM800 cash into the bank.
Debit Bank Account RM 800 (Increase)
Credit Cash Account RM 800 (Decrease)
b) Transfer of cash from bank to office.
Example: May 26 Remove RM 500 from bank for office use
Debit Cash Account RM 500 (increase)
Credit Bank Account Credit RM 500 (reduced)
2. For each counter note, two entries are written on the same page in Cash Book, one account is debited and one account is credited with the same amount. The “K” or () mark in the folio column on both sides of the debit and credit to show a counter note.
Three Column Cash Book
The Three Column Cash Book contains discounted columns, cash columns, and bank columns on both sides of debit and credit.
1. Dishonoured Cheque is a cheque that is not received by the bank when it comes to payment.
2. Reasons for dishonoured cheque:
a) the amount in the current account is insufficient.
b) post-dated cheque
c) dead cheque – expired cheque
d) incorrect or incomplete cheque
e) other reasons such as torn cheque, dumping, closing accounts are closed or frozen.
3. If a dishonoured cheque is returned by the bank, adjustments need to be made in respect of the debt by the debtor reverts to the original debt (before the check received from him). Any discounts given to it will be withdrawn or cancelled.
|Debit Debtors Account||Debtors return back to old debt|
|Credit Bank Account||Cancel the entry of the check that has been debited into the cash book|
|Debit Creditors Account||Debtors return back to old debt|
|Credit Discount Given Account||Cancel the discount given to the debtors|
Cash Book As A Journal
1. In addition to Cash Book, Cash Receipt Journal, and Cash Payment Journal can also be used to record cash transactions. This means that the Cash Book has been replaced by two journal books.
2. Cash Receipts Journal records all cash receipts and cheque while Cash Payment Journal records all cash and cheques payments.
3. The Cash Receipts Journal and the Cash Payments Journal are the Books of original entry but are not part of the double entry system. Both journals do not have an initial balance and a final balance. Therefore, the bank account must be opened in the ledger to record the bank balance.
Cash Receipts Journal
1. Cash receipts journal is a special journal that records all cash and cheque receipts by businesses before this entry.
2. This journal is the same as the Cash book debit point, only the balance is not shown.
Cash Payment Journal
1. Cash Payment Journal is a special journal that records all cash and check payments by businesses before the post is posted to the account in the ledger.
2. This journal is the same as the Cash Book credit portion but is not shown.