How to apply Cash Book in business

A cash book is a book of account for recording cash receipts and cash payments. A cash book is one of the most important books of account. It is used only for recording cash transaction. A cash book, apart from the ledger is also a book of original entry.

Rules for Making Entries in the Cash Book

When making entries in the cash book, the following rules should be followed:

1. Enter all cash received on the debit side of the cash book.
2. Enter all cash paid out on the credit side of the cash book.
3. Enter the name of the receiver and the payer in the particular’s column

Types of Cash Book

There are three types of Cash Book

1. Single Column Cash Book
2. Double Column Cash Book
3. Three-Column Cash Book

We shall discuss each of these in detail:

Single Column Cash Book

The single Column Cash Book is drawn as follows: The single cash book has only a single column on the debit side for cash receipts and another on the credit side for cash payments.

The format of a single cash book;

	Date	Particulars	Folio	Amount		Date	Particulars	Folio	Amount

It can be seen that Cash Book is divided into two equal parts, namely: the Debit side and the Credit side.

An Example is given below:

Mr. Akubo commenced business as a petty trade in Lagos, on 1^st of March, 2011 with N8000 in cash.  During the month, the following transactions took place:

				₦
	1	Mar.	Bought office furniture	400.00
	3	Mar.	Bought assorted goods for sale	2000.00
	5	Mar.	Bought postage stamps	10.00
	7	Mar.	Sold goods for cash	80.00
	8	Mar.	Paid for cleaning materials	10.00
	10	Mar.	Received cash from Danladi Abubakar	50.00
	14	Mar.	Paid Adewale Adewunmi	90.00
	16	Mar.	Bought Stationery for cash	5.00
	18	Mar.	Bought sundry articles for resale	500.00
	20	Mar.	Received cash from Mallam Lamido	100.00
	22	Mar.	Cash Sales	50.00
	24	Mar.	Paid Jemima Johnson Cash	100.00
	28	Mar.	Paid wages to assistant	100.00
	30	Mar.	Paid rent	50.00

You are required to post the above entries to the cash book.

Solution

The Cash Book of Mr. Akubo will be as follows:

		DR								CR
		Date	Particulars	Folio	Amount		Date	Particulars	Folio	Amount
		01-Mar	Capital	L.1	8,000.00		01-Mar	Furniture	L.2	400
		07-Mar	Sales	L.5	80.00		03-Mar	Purchases	L.3	2,000.00
		10-Mar	Danladi Abubakar	L.7	50.00		03-Mar	Postage Stamps	L.4	10.00
		20-Mar	Lamido	L.10	100.00		08-Mar	Cleaning Materials	L6	10.00
		22-Mar	Sales	L.5	50.00		14-Mar	Adewale Adewunmi	L.8	90.00
							16-Mar	Stationery	L.9	5.00
							18-Mar	Purchases	L.3	500.00
							24-Mar	Jemima Johnson	L.11	100.00
							28-Mar	Wages	L.12	100.00
							30-Mar	Rent	L.13	50.00
								Balance	c/d	5,015.00
					8,280.00					8,280.00
		01-Apr	Balance	b/d	5,015.00

Two-Column Cash Book

A two-column cash book is used for recording a combination of bank and cash transactions. It has one column for each of cash and bank transactions on both debit and credit sides. It is drawn as follows:

	DR										CR
	Date	Particulars	Folio	Cash	Bank		Date	Particulars	Folio	Cash	Bank

Rules for Making Entries in the Two-Column Cash Book

Sometimes money is taken from the bank to a cash box in an office or shop. At other times, cash is taken from the office or shop and paid into the bank. Such transfer is called Contra Entry. They must be recorded in book accounts: cash and Bank accounts. Contra Entry is denoted with ‘cc’. The word ‘Contra’ is a Latin word which means ‘opposite’

For example, when money is transferred from the cash box in an office, the bank receives the money, and is therefore debited. The cash account which gives the money, must also be credited.

Example:

Enter the following transactions in a double-column cash book of Olorunfemi Enterprises from the following particulars:

			₦
	May-01	Cash in office	260.00
	May-01	Cash at Bank	1,800.00
	May-03	Received bank cheque from R. Yomi	160.00
	May-05	Cash Sales to date	500.00
	May-06	Paid cash into bank	650.00
	May-09	Paid R. Yomi by cheque	140.00
	May-12	Paid rent by cheque	100.00
	May-14	Bought Stationery by cash	100.00
	May-17	Withdraw cash from bank to office	400.00
	May-18	Purchase goods for cash	160.00
	May-29	Cash sales to date	600.00
	May-30	Paid cash to the bank	150.00
	May-31	Paid wages in cash	100.00
	May-31	Bank desired charges	50.00

Olorunfemi Enterprises Cash Book for May

	DR										CR
	Date	Particulars	Folio	Cash	Bank		Date	Particulars	Folio	Cash	Bank
	May-01	Balance	b/d	260	1,800		May-06	Bank	Cc	650
	May-03	R. Yomi			160		May-09	R. Yomi			140
	May-05	Sales		500			May-12	Rent			100
	May-06	Cash	cc		650		May-14	Stationery		100
	May-17	Bank	cc	400			May-17	Cash	cc		400
	May-29	Sales		600			May-18	Purchases		160
	May-30	Cash	cc		150		May-30	Bank	cc	150
							May-31	Wages		100
							May-31	Bank Charges			50
								Balance	c/d	600	2,070
				1,760	2,760					1,760	2,760
	Jun-01	Balance	b/d	600	2,070

The Three Column Cash Book

The three column cash book is the same with the two-column cash book but with an additional column for discounts on both sides of the account.

	DR												CR
	Date	Particulars	Folio	Disct. Allowed	Cash	Bank		Date	Particulars	Folio	Disct. Received	Cash	Bank

Rules for Making Entries in the Two-Column Cash Book

The Discount column in the debit side records discount allowed to customers by the organization while the credit side records discount received by the organization.

Example: Record the following transactions in a three column cash book.

			₦
	Sept 1	Cash in Hand	500.00
	Sept. 2	Received cheque from Joe	8,000.00
	Sept. 2	Allowed Joe Discount	200.00
	Sept. 4	Drew Cheque for Peter	2,200.00
	Sept. 4	Received discount from Peter	400.00
	Sept. 16	Bought goods in cash	250.00
	Sept. 20	Received cash from Evans	4,000.00
	Sept. 25	Paid Cash to Udoh	500.00
	Sept. 30	Drew cheque for trade expenses	1,200.00

Solution:

	DR												CR
	Date	Particulars	Folio	Disct. Allwd	Cash	Bank		Date	Particulars	Folio	Discount Received	Cash	Bank
	Sep-01	Balance	b/d		500			Sep-04	Peter		400		2,200
	Sep-02	Joe		200		8,000		Sep-16	Purchases			250
	Sep-20	Evans			4,000			Sep-25	Udoh			500
								Sep-30	Expenses				1,200
									Balance	c/d		3,750	4,600
					4,500	8,000						4,500	8,000
	Oct. 1	Balance	b/d		3,750	4,600