CASHBOOK

Cash Book is a Book in which all cash receipts and cash payments are recorded. It is also one of the
books of original entry. It starts with the cash or bank balance at the beginning of the period.

The cashbook serves as a primary source for the preparation of financial statements and facilitates
effective cash management

Types of Cashbook:

1. Main/General Cashbook
2. Petty Cashbook.

Main Cashbook: The main cashbook is the primary ledger utilized to document cash transactions within
a business. It typically includes columns for recording cash receipts and cash payments. Variants such as
double-column and three-column cashbooks offer additional granularity by incorporating separate
columns for discounts allowed, discounts received, and bank transactions.

Petty Cashbook: In contrast to the main cashbook, the petty cashbook is designed to manage relatively
smaller transactions, often of a routine or miscellaneous nature. It functions as a subsidiary ledger,
dedicated to handling minor expenses such as office supplies, postage, or travel reimbursements. To
streamline operations, a predetermined petty cash fund is allocated, replenished periodically to maintain
its intended balance. By segregating minor expenditures from the main cashbook, the petty cashbook
aids in simplifying accounting procedures and enhancing transparency

Types of main/general Cashbook:

1. Single Column Cashbook: Records only cash transactions. A single column cashbook is a basic
accounting ledger used to record cash transactions where transactions are done with cash only. It
typically consists of two sides: one for cash receipts and the other for cash payments.
2. Double Column Cashbook: A double column cashbook, also known as a two-column cashbook,
extends the functionality of a single column cashbook by incorporating separate column for cash and
bank transactions.
3. Three Column Cashbook: A three column cashbook expands on the capabilities of a double column
cashbook by introducing a third column, typically for discount received and discount allowed.

These variations in cashbook formats allow businesses to choose the structure that best suits their
needs, providing flexibility in managing cash and bank transactions while maintaining accurate financial
records.

Purpose of Cashbook:

1. Record Keeping: Documenting all cash transactions accurately.

2. Monitoring Cash Flow: Tracking cash inflows and outflows to ensure liquidity.
3. Detecting Errors and Frauds: Serving as a tool for identifying discrepancies or irregularities.
4. Preparation of Financial Statements: Providing data for the income statement, balance sheet,
and cash flow statement.
Components of a Cashbook

1. Date: The date of the transaction.

2. Particulars: Description of the transaction, including the name of the party involved.
3. Folio: A folio is a numerical reference or page number in an accounting ledger, used to locate
and cross-reference specific transactions or entries.
4. Amount: The monetary value of the transaction.

Single Column Cashbook

A Simple Cash Book records only cash receipts and cash payments. It has two sides, namely debit and
credit. Cash receipts are recorded on the debit side i.e. left hand side and cash payments are recorded
on the credit side i.e. right hand side. In this book there is only one amount column on its debit side and
on the credit side. The format of a Single column Cash Book is as under:

DR CR
Date Particular Folio Amount Date Particular Folio Amount

Illustration 1

Date (2024) details ₦

1-Jan Cash in Hand 27,500
5-Jan Cash received from Eunice 12,000
6-Jan Insurance Premium paid 2,000
10-Jan Furniture purchased 6,000
11-Jan Sold Goods for cash 16,500
12-Jan Purchased Goods from Chinedu for cash 26,000
18-Jan Cash paid to Chinedu 3,200
19-Jan Sold Goods to Emeka for cash 18,700
22-Jan Rent paid 5,000
26-Jan Salary paid 7,000
26-Jan paid electricity 4,000

Double Column Cashbook

A double column cashbook is an accounting ledger that includes two separate columns for recording
cash transactions: one column for cash transactions (cash receipts and cash payments) and another
column for bank transactions (bank receipts and bank payments). The format of a Single column Cash
Book is as under:
 DR CR
Date Particular Folio Cash Bank Date Particular Folio Cash Bank

Contra Entries

When there is a transaction that relates to both cash and bank, this will be written on one side of Bank
Column and on other side of Cash Column, such transactions are known as ‘Contra entries’. In case, cash
is withdrawn from bank for office use, it is entered on the credit side of bank column and also in the
debit side of cash column of the cash Book. In case, cash is deposited in the bank, the amount is
recorded on the debit side of bank column and on the credit side of cash column of the cash book. The
letter ‘C’ is written in the Folio column on both sides against these entries. These entries are not to be
posted into ledger.

Illustration 2:

Prepare Bank Column Cash Book from the following information for December 2014

Dec-14 Details ₦
1 Cash in hand 10,500
1 Cash at bank 15,000
4 Paid Wages 400
6 Cash Sales 10,000
8 Cash deposited into Bank 5,000
11 Purchased Goods and paid by cheque 6,000
14 Cash deposited into Bank 4,000
16 Paid Trade Expenses by cheque 1,200
21 Rent paid 2,300
23 Received Cash from Rahul 1,500
25 Commission paid 2,000
26 Salary paid 3,500
28 Bought Goods by Cheque 3,000

Three Column Cashbook

A three-column cashbook is an accounting ledger that extends the functionality of a double-column

cashbook by incorporating an additional column for recording discounts. In addition to columns for cash
and bank receipts and payments, the three-column cashbook includes separate columns for discount
allowed and received.

Businesses prefer it if their customers pay their accounts quickly. A business may accept a smaller sum in
full settlement if payment is made within a certain period of time. The amount of the reduction of the
sum to be paid is known as a ‘cash discount’. The term ‘cash discount’ thus refers to the allowance given
for quick payment. It is still called cash discount, even if the account is paid by cheque or by direct
transfer into the bank account. The rate of cash discount is usually stated as a percentage. Full details of
the percentage allowed, and the period within which payment is to be made, are quoted on all sales
documents by the seller. A typical period during which discount may be allowed is one month from the
date of the original transaction.

Discounts allowed: cash discounts allowed by a business to its customers when they pay their accounts
quick

Discounts received: cash discounts received by a business from its suppliers when it pays what it owes
them quickly.

Three Column Cashbook Format

DR CR
Discount Discount
Date Particular Folio Cash Bank Allowed Date Particular Folio Cash Bank Received

Illustration 3:

20X8
June
1 Balances brought forward: Cash ₦420; Bank ₦4,940.

2 The following paid us by cheque, in each case deducting a 5 per cent cash discount:
3 S Braga ₦820; L Pine ₦320; G Hodd ₦440; M Rae ₦1,040.
4 5 Paid rent by cash ₦340.
5 Cash sales paid direct into the bank ₦740.
We paid the following accounts by cheque, in each case deducting 2.5% cash
6 discount: M Peters ₦360; G Graham ₦960; F Bell ₦400.
9 Withdrew cash from the bank for business use ₦400.
12 Cash sales ₦1,260.
14 B Age paid us their account of ₦280 by cheque less ₦4 cash discount.
We paid the following accounts by cheque: R Todd ₦310 less cash discount ₦15; F
17 Dury ₦412 less cash discount ₦12.
21 Paid wages by cash ₦540.
22 Bought fixtures by cheque ₦4,320.
23 Bought lorry paying by cheque ₦14,300.
25 Received ₦324 cheque from A Line.
27 Cash sales ₦980.
30 Bought stationery paying by cash ₦56.
Multiple Choice Questions:

1. Which of the following best describes the purpose of a cashbook?

a) To record only bank transactions

b) To manage petty cash expenses

c) To record all cash receipts and payments

d) To prepare income tax returns

2. Which type of cashbook is primarily used for managing relatively smaller transactions?

a) Main cashbook

b) Double column cashbook

c) Three column cashbook

d) Petty cashbook

3. Contra entries in a cashbook are related to:

a) Cash withdrawals from the bank

b) Transactions involving both cash and bank

c) Bank deposits

d) Petty cash expenses

4. In a double column cashbook, which columns are included?

a) Cash receipts and cash payments

b) Cash receipts and discounts allowed

c) Bank receipts and bank payments

d) Cash and bank transactions

5. What type of discount is recorded in the discount allowed column of a three-column cashbook?

a) Discounts received from suppliers

b) Discounts received from customers

c) Discounts allowed to customers

d) Discounts allowed by the bank

6. The purpose of a folio column in a cashbook is to:

a) Record the date of each transaction

 b) Provide a description of the transaction

c) Identify the page number of the ledger

d) Calculate the total amount of transactions

7. Which of the following transactions would be recorded as a contra entry in a cashbook?

a) Cash sales

b) Bank deposits

c) Cash withdrawals for office use

d) Payment of wages by cash

8. Cash sales paid directly into the bank account would be recorded in which column of a three-column
cashbook?

a) Cash

b) Bank

c) Discount allowed

d) Discount received

9. What is the purpose of a petty cashbook?

a) To record all major cash transactions

b) To manage small, routine expenses

c) To reconcile bank statements

d) To record bank transfers

10. What type of transactions are typically recorded in a petty cashbook?

a) Large capital expenditures

b) Routine, minor expenses

c) Bank transfers

d) Cash withdrawals for office use

11. If a business pays its supplier within the discount period, which column of the cashbook is affected?

a) Discount allowed

b) Bank

c) Cash

d) Discount received
12. Which column of a cashbook is used to record transactions related to bank deposits?

a) Cash

b) Bank

c) Discount allowed

d) Discount received

Short Answer Questions:

1. In a __________ cashbook, transactions involving both cash and bank are recorded.

2. A petty cashbook is primarily used for managing __________ expenses within a business.

3. The purpose of contra entries in a cashbook is to record transactions that involve both __________
and __________.

4. A single column cashbook typically consists of two sides: one for cash __________ and the other for
cash __________.

5. In a double column cashbook, separate columns are included for recording cash transactions and
__________ transactions.

6. Discounts allowed by a business to its customers are recorded in the __________ side of a three-
column cashbook.

7. The folio column in a cashbook is used to provide a reference or page number for __________ and
cross-referencing.

8. When cash is withdrawn from the bank for office use, it is recorded on the __________ side of the
bank column and on the __________ side of the cash column.

9. Cash sales paid directly into the bank account are recorded in the __________ column of a three-
column cashbook.

10. The purpose of a petty cashbook is to manage small, routine expenses and to simplify accounting
procedures by segregating minor expenditures from the __________ cashbook.

Essay Questions

1. What is a cashbook, and why is it important for businesses? Explain its role in recording cash
transactions and managing financial records.

2. Describe the differences between the main cashbook and the petty cashbook. How do these two
types of cashbooks help businesses manage their expenses effectively?
3. What are the common types of cashbooks used in accounting? Discuss the features and benefits of
single column, double column, and three-column cashbooks.

4. Explain what contra entries are in a cashbook and why they are important. Provide examples to
illustrate how contra entries impact cash and bank balances.

5. Discuss the components of a cashbook and their significance in recording transactions accurately. How
does each component contribute to maintaining transparent financial records in a business?