Tutorial 2 Cash Cycle 1 LTJ 2022

Tutorial 2 – The Cash Cycle

Section A:

1. (a) What is the difference between cash and credit transactions?

- Cash transaction is the payment that is made immediately. Credit transaction is the payment that is made at a future date based on the credit period given.

(b) What is the difference between trade discounts and cash discounts?

- Trade discount is a percentage reduction granted to customer from the list price due to the purchase of large quantity and to encourage bulk purchases. Cash
discount is percentage granted to customer in order to encourage prompt payment.

(c) What are the different types of cash in a business? Briefly explain.

2. (a) What is the purpose of preparing a three column cash book? Briefly explain its format.

(b) Why is the cash book both a book of prime entry and ledger account? Explain.

(c) What is an overdraft? How does it work?

3. Explain what is an imprest system? How does it work?

4. The following are the transactions of Axis Trading in May:

May
1 Start a business with Cash in hand RM800 and Cash at bank RM1,000
2 Purchased goods by cheque RM400
2 Paid rates to Dewan Bandaraya Kuala Lumpur by cheque RM40
4 Bought goods on credit from Zen & Co RM200
8 Sold goods to Todds on credit RM300
9 Cash sales RM80
1 Paid transport by cash RM12
0
1 Credit sales to Todds RM300
3
1 Paid for stationery in cash RM16
Tutorial 2 Cash Cycle 2 LTJ 2022

4
1 Introduced further capital RM1,000 by cheque
5
1 Todds paid for the amount owing by cheque, less 5% discount (calculate the amount)
6
2 Withdrew cash for own use RM120
0
2 Purchased goods with office cash RM28
4
2 Paid Zen & Co a cheque in full settlement of the amount owing, less 5% discount (calculate the amount)
5
2 Sold goods on credit to Tali RM450
6
2 Paid transport by cash RM10
8
3 Transferred cash from office to bank RM400
0
3 Credit purchase from Zen & Co RM300
0
3 Refund cash to Todds for returning empty containers for recycling RM5
1
3 Bought office furniture, paid by cheque RM200
1
3 Paid Samuel a cheque in settlement of outstanding invoice of RM700 and deducting RM35 cash discount
1
3 Receive a cheque from Kenneth RM475 after deducting RM25 cash discount
1

Required:
(a) Enter the above transactions in a three-column Cash Book and close the Cash Book at the end of May (ignore those transactions that do not involve the Cash
Book).
Discount Discount
May Particular Cash Bank May Particular Cash Bank
paid received
1 Capital 800 1,000 2 Purchases 400
9 Sales 80 Rates 40
15 Capital 1,000 10 Transport 12
16 Todds 30 570 14 Stationery 16
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30 Cash 400 20 Drawings 120

31 Kenneth 25 475 24 Purchases 28
25 Zen & Co 10 190
28 Transport 10
30 Bank 400
31 Return (Container) 5
Furniture 200
Samuel 35 665
Balance c/d 289 1,950
55 880 3,445 45 880 3,445
June
1 Balance b/d 289 1,950

(b) Post those items involving the Cash Book to the appropriate ledgers. (those credit transaction no need include in ledger)

Capital Account
May RM May RM
1 Cash 800
Bank 1,000
15 Bank 1,000

Purchases Account
May RM May RM
2 Bank 400
24 Cash 28

Rates Account
May RM May RM
2 Bank 40
Tutorial 2 Cash Cycle 4 LTJ 2022

Sales Account
May RM May RM
9 Cash 80

Transport Account
May RM May RM
10 Cash 12
28 Cash 10

Stationery Account
May RM May RM
14 Cash 16

Trade Payables: Zen & Co Account

May RM May RM
25 Bank 190 4 Purchases 200
Discount Received 10

Trade Receivables: Todds Account

May RM May RM
8 Sales 300 16 Bank 570
13 Sales 300 Discount Allowed 30
31 Refunds / Returns 5
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Drawings Account
May RM May RM
20 Cash 120

Fixture & Fittings Account

May RM May RM
31 Bank 200

Trade Payables: Samuel Account

May RM May RM
31 Bank 665
Discount Received 35

Trade Receivables: Kenneth Account

May RM May RM
31 Bank 475
Discount Allowed 25

Section B: Extra exercise questions (for students’ own practice)

Question 1

Maxwell buys and sells machinery. During the month of March, the following receipts and payments occurred.

March
1 Balances as per Cash Book: Bank RM2,100; Cash RM1,010
Tutorial 2 Cash Cycle 6 LTJ 2022

3 Cash sales paid into bank RM620

4 Cash purchases RM380
6 Paid an electricity bill of RM660 by cheque
9 Sales by cheque RM530
1 Drew a cheque for RM400 in respect of wages
0
1 Cash sales RM440
2
1 Paid RM190 in cash for travelling expenses
5
1 Paid water bill by cheque RM560
6
1 Drawings by cheque RM300
9
2 Purchases by cheque RM470
0
2 Paid postage of RM30 in cash
1
2 Paid cash of RM450 into the bank
2
2 Introduced further capital of RM650 by cheque
4
2 Purchased a delivery vehicle for RM4,000 and paid by cheque
5
2 Received a cheque for RM3,500 from Morris as a three year loan
6
2 Paid road tax and insurance on delivery vehicle of RM430 in cash
8
2 Withdrew cash of RM330 from bank for office use
9
3 Received cheque from Kenny RM475 after deducting RM25 cash discount
0
3 Received cheque from Donny RM722 after deducting RM38 cash discount
0
3 Paid Sammy a cheque in settlement of outstanding invoice of RM700, and deducting RM35 cash discount
1
3 Paid Gracey a cheque in settlement of outstanding invoice of RM360, and deducting RM18 cash discount
Tutorial 2 Cash Cycle 7 LTJ 2022

1
3 Received a cheque from Joy for RM1,254 after deducting cash discount of RM66. However, the cash discount was wrongly deducted (not allowed). Joy
1 needs to pay up for the shortfall of RM66 very soon.

Required:
(a) Enter the above transactions in a three-column Cash Book and close the Cash Book at the end of March (ignore those transactions that do not involve the
Cash Book).

Discount Discount
March Particular Cash Bank March Particular Cash Bank
allowed received
1 Balance b/d 1,010 2,100 4 Purchases 380
3 Sales 620 6 Electricity 660
6 Sales 530 10 Wages 400
12 Sales 440 15 Travelling Expenses 190
22 Cash 450 16 Utilities 560
24 Additional Capital 650 19 Drawings 300
26 Morris 3,500 20 Purchases 470
29 Bank 330 21 Postage 30
30 Kenny 25 475 22 Bank 450
Donn 38 722 25 Vehicle 4,000
31 Joy 66 1,254 28 Road tax and Insurance 430
Joy (66) 29 Cash 330
31 Sammy 35 665
Gracey 18 342
Balance c/d 300 2,574
63 1,780 10,301 53 1,780 10,301
April
1 Balance b/d 300 2,574

(b) Post those items involving the Cash Book to the appropriate ledgers.

Capital Account
March RM March RM
1 Bank 2,100
Tutorial 2 Cash Cycle 8 LTJ 2022

Cash 1,010
24 Bank 650

Sales Account
March RM March RM
4 Cash 620
9 Bank 530
12 Cash 440

Purchases Account
March RM March RM
4 Cash 380
20 Bank 470

Utility Account
March RM March RM
6 Bank 660
16 Bank 560

Wages Account
March RM March RM
10 Bank 400

Travelling Expenses Account

March RM March RM
15 Cash 190

Drawings Account
Tutorial 2 Cash Cycle 9 LTJ 2022

March RM March RM
19 Bank 300

Postage Account
March RM March RM
21 Cash 30

Vehicle Account
March RM March RM
25 Bank 4,000

Loan: Morris Account

March RM March RM
26 Bank 3,500

Road Tax and Insurance Account

March RM March RM
28 Cash 430

Discount Allowed Account

March RM March RM
31 Trade Receivables: Kenny 25 31 Trade Receivables: Joy 66
Tutorial 2 Cash Cycle 10 LTJ 2022

Trade Receivables: Donny 38

Trade Receivables: Joy 66

Discount Received Account

March RM March RM
31 Trade Payables: Sammy 35
Trade Payables: Gracey 18

Sales Ledger
Trade Receivables: Kenny Account
March RM March RM
30 Bank 475
Discount Allowed 25

Trade Receivables: Donny Account

March RM March RM
30 Bank 722
Discount Allowed 38

Trade Payables : Sammy

March RM March RM
31 Bank 665
Discount Received 35

Trade Payables: Gracey Account

March RM March RM
31 Bank 342
Discount Received 18
Tutorial 2 Cash Cycle 11 LTJ 2022

Trade Receivables: Joy Account

March RM March RM
31 Discount Allowed 66 31 Bank 1,254
Discount Allowed 66
Tutorial 2 Cash Cycle 12 LTJ 2022

Question 2

Vincent K is a sole trader who records all his cash and bank transactions in a three-column Cash Book. On 1 August, his cash in hand was RM68 but he had a
bank overdraft of RM1,692.

The following are her transactions for the month of August:

August
2 Received a cheque of RM160 from Patrick in full settlement of a debt of
RM168
10 Cash sales paid directly to bank RM2,086
12 Drew a cheque RM75 in favour of Winifred Engineering, in settlement of
an outstanding debt
14 Paid RM35 cash for stationery
16 Paid Frederick Sung the sum of RM86 by cheque in settlement of an
amount owed to him of RM90
18 Drew a cheque for office cash RM150
20 Cash sales RM1,120; cash kept in the office safe
21 Received interest of RM60 and paid this into the bank
The sales of the previous day were also banked in
24 Paid telephone charges by cheque RM147
26 Received a cheque of RM704 from Benny Chan in settlement of his
account amounting to RM720
28 Paid RM40 out of cash for office expenses
30 Paid RM254 to Larry Heng by cheque in full settlement of the RM270
balance on his account
30 The bank notified Vincent K that it had charged RM20 bank charges to his
account
Tutorial 2 Cash Cycle 13 LTJ 2022

Required:
(a) State three (3) purposes for preparing a Cash Book.

(b) Define the two (2) types of cash discounts in the 3-column Cash Book and the purpose of a cash discount.

(c) Draw up the 3-column Cash Book of Vincent K for the month of August. Balance up the cash and bank columns, bringing down the balances at 1
September.

Discount Discount
Aug Particular Cash Bank Aug Particular Cash Bank
allowed received
1 Balance b/d 64 1 Balance b/d 1,692
2 Patrick 8 160 12 Winifred Engineering 75
10 Sales 2,086 14 Stationery 35
18 Bank 150 16 Frederick Sung 4 86
20 Sales 1,120 18 Cash 150
21 Interest 60 21 Bank 1,120
Cash 1,120 24 Telephon Bills 147
26 Frederick Sung 16 704 28 Office Expenses 40
30 Larry Heng 16 254
Bank Charges 20
Balance c/d 139 1,706
24 1,334 4,130 20 1,334 4,130
Sep
1 Balance b/d 139 1,706

(d) Total up the two discount columns and post the amounts to the relevant accounts in the General Ledger.
Tutorial 2 Cash Cycle 14 LTJ 2022

Discount Allowed Account

Aug RM Aug RM
31 Trade Receivables Control 24 31 Balance c/d 24

Sep 1 Balance b/d 24

Discount Received Account
Aug RM Aug RM
31 Balance c/d 20 31 Trade Payables Control 20

Sep 1 Balance b/d 20