LESSON 5 CASH BOOK TWO COLUMNS AND.PDF

LESSON 5 CASH BOOK TWO COLUMNS Sổ Tiền mặt bằng tiếng anh Tiếng anh chuyên ngành kế toán chuyên đề kế toán tiền bằng tiếng anh Cash book

LESSON 5: CASH BOOK: TWO COLUMNS AND

THREE COLUMNS

The objectives: After carefully studying this lesson, you should be able to:

1 use either a two-column cash book or a three-column cash book

2 appreciate how cash discount might arise

3 make accounting entries in respect of cash discount

INTRODUCTION

In this lesson, you will see that Cash book serves two purposes; it is a book of original entry and also part of the double entry system You will learn how

to record entries for discount received and discount allowed both in the cash book and in the general ledger

I LAYOUTS OF CASH BOOK

The Cash book combines the cash account and the bank account, using columns but still with debits on the left and credits on the right

This becomes a compact and convenient way of recording the receipt and payment of money using the same rules for double – entry It also becomes

easy to see at a glance movements between the two accounts

There are two layouts of the Cash book: Cash book – two columns, and Cash book – three columns

I.1 Cash book: two columns

Date Account

name

Cash (£)

Bank (£)

Date Account

name

Cash (£)

Bank (£)

I.2 Cash book: three columns

Date Account

name

Discount allowed (£)

Cash (£)

Bank (£)

Date Account

name

Discount received (£)

Cash (£)

Bank (£)

This layout can be used when there is cash discount: discount allowed and/ or discount received If there is no discount, the two-column layout will be applied

II CASH DISCOUNT

Cash discount is an allowance to encourage payment of accounts by debtors within a certain period

This allowance is usually expressed as percentage, e.g 5%, 2½%, 1¼%

Sales of goods on credit → debtor → discount allowed

Purchases of goods on credit → creditor → discount received

II.1 Discount allowed

Discount allowed is an allowance for debtors who pay their debts within certain

time

Discount allowed account is an expense account of the business It will be kept therefore in the General Ledger At the end of the trading period its balance will

be transferred to the profit and loss account

E.g A Smith owed the business £1,500 for the goods sold to him on May 10,

Year 2 The terms of sale allow for 3% cash discount for payment within 7 days

On May 15, Year 2, A Smith paid his debt by cheque

In this example, A Smith paid his amount within required time, hence, 3% cash discount was given to him: £1,500 x 3% = £45

Therefore, A Smith needs pay only:

£1,500 - £45 discount = £1,455 The entries for this transaction will appear in the books of accounts like this:

Sales

May 10 A Smith 1,500

A Smith

£

“ 15 Discount allowed 45

Bank

Year 2 £

May 15 A Smith 1,455

Discount allowed

May 15 A Smith 45

The accounts will appear in the cash book like this:

Date

Year

2

May

15

Accoun

t name

A smith

Discoun

t allowed (£)

45

Cas

h (£)

Bank (£)

1,45

5

Dat

e

Accoun

t name

Discoun

t received (£)

Cas

h (£)

Ban

k (£)

II.2 Discount received

Discount received is an amount received from creditors when paying them

within required time

Discount received account is an income account of the business It also will be kept in the General Ledger At the end of the trading period its balance will be transferred to the profit and loss account

E.g Suppose that the business owed L Turner £2,000 for the goods bought from

May 20th Year 2 By paying within a specified time (May 23, Year 2), the business can receive a cash discount of 5%

In this example, 5% cash discount was: £2,000 x 5% = £100

Therefore, the business need pay only:

£2,000 - £100 discount = £1,900 The entries for this transaction will appear in the books of accounts like this:

Purchases

May 20 L Turner 2,000

L Turner

£

May 23 Bank 1,900 May 20 Purchases

2,000

“ 23 Discount received 100

Bank

May 23 L Turner 1,900 Discount received

May 23 L Turner 100

The accounts will appear in the cash book like this:

e

Accoun

t name

Discoun

t allowed (£)

Cas

h (£)

Ban

k (£)

Date

Year

2 May

23

Accoun

t name

LTurner

Discoun

t received (£)

100

Cas

h (£)

Bank (£)

1,90

0

The following example shows a three-column cash book for one month together with the immediate postings to the personal accounts and the end-of-the-month transfer of the totals of the discount columns to the general ledger

Year 7

“ 4 We pay L barratt by cheque, after deducting 2½% cash discount 273

“ 7 T Salter pays us by cheque, after deducting 2½% cash discount 234

“ 10 General expenses paid in cash 43

“ 15 We pay M Thorne by cheque, after deducting 5% cash discount 171

“ 21 Withdrew from bank for office cash 60

“ 27 L Page pays us by cheque, after deducting 2½% cash discount

312

Date Account

name

Discount allowed (£)

Cash (£)

Bank (£)

Date Account

name

Discount received (£)

Cash (£)

Bank (£)

Y7

Oct

1 Balances

b/d

65 935

Y7 Oct

4

“ 7 T Salter 6 234 “ 10 General

Expense

43

Thorne

“ 31 Balances

c/d

82 997

Nov1 Balances

b/d

82 997

SALES LEDGER

T Salter

£

Oct 1 Balance b/d 240 Oct 7 Bank 234

Oct 7 Discount allowed 6

L Page

£

Oct 7 Discount allowed 8

PURCHASES LEDGER

M Thorne

£

Oct 15 Bank 171 Oct 1 Balance b/d 180

Oct 15 Discount received 9

L Barratt

£

Oct 4 Bank 273 Oct 1 Balance b/d 280

Oct 4 Discount received 7

GENERAL LEDGER

General Expenses

Discount allowed

Oct 31 Sundries 14

Discount received

Oct 31 Sundries 16

Note:

- You simply total the discount columns in the cash book You then transfer those totals – on the same side – to the respective discount accounts

- C (in Cash C// Bank C): means contra- used where the double – entry is complete within the cash book

SUMMARY

1 The cash book is a combination of the cash accont and the bank account It shows columns for cash and bank on both sides

2. The cash book is a book of original entry and also part of the double entry records

3. A cash discount is given to encourage prompt payment Discount received and discount allowed are cash discounts

4. Discount received is an income and discount allowed is an expense

5. The three-column cash book incorporates columns for discount allowed and discount received on either side The discount columns are not part of the double entry

6. Discount columns are totalled at the end of the month

I hope you will be successful!

GLOSSARY