SOKOINE UNIVERSITY OF AGRICULTURE

For BAIB And AEA

BMAF 100: PRINCIPLES OF ACCOUNTING
LECTURE NOTES – CASHBOOK
Cash is the life blood for any business. Therefore, care should be taken
when recording transactions relating to cash or bank. The cash book is a
unique book of original entry. Although it is a journal, it also acts as an
account for cash and bank. This is the only book of original entry that is
balanced and the double entry is completed in the ledger.
The cash book records the receipts and payments of cash and bank.
Discount received and discount allowed are also recorded in the cash
book for convenience. The format of the cash book is also unique, in that
the accounts for cash and bank stand side by side along with the discount
column. All receipts are debited and all payments are credited.
There are three types of cash book namely;
A single column cash book- is the one which contains only a column
related to cash transactions.
Two column cash book- is the one which contains two columns related
to cash and bank.
Three column cash book- is the one which contains three columns
related to cash, bank and discounts.
The illustration below shows the basic format of a three-column cash
book.
DR CASH BOOK
CR
Dat Details f Cas Ban Dis. Dat Detail f Cas Ban Dis.
e (receip h k Allow e s h k Receiv
ts) ed (pay’t ed
s)

Recording entries in the cash book

When a document is received, the first analysis is to determine where it
should be recorded. Any document relating to cash or bank, such as
cheque vouchers, cash bills and receipts are used to make records in the
cash book.
Again, it is done in a chronological order and the name of the account in
the ledger is written in the details column. If the transaction involves the
bank, then the amount is written in the bank column. If it involves cash,
then the amount is written in the cash column. Any discount received or
allowed is placed in the discount column.
Contra entries
Since both cash and bank accounts are in the cash book, it is possible to
complete the double entry in the cash book if the transaction involves
both accounts. When this happens, it is described as a contra entry.
These occurs when cash is deposited into the bank or cash is withdrawn
from the bank for use in the office.
Balancing the cash book
The cash book is balanced to determine the amount of cash in hand and
bank. To balance the cash book means to make both sides equal. The
columns for cash book on both sides are totaled. The difference is
determined and added to the side with smaller value. The cash book will
always carry a debit balance; this means that the debit side will always be
greater than the credit side, since it is not possible to overspend cash. A
credit balance also known as overdraft on the bank account signifies that
the account has been overdrawn, that is, cheques were written in excess
of the amount in the bank.
Examples
Illustration 1
Record the following transactions of Deo, a retailer, in his three-column
cash book for the month of April, 2006.
April 01 Cash at bank 1,800,000
03 Cash sales 1,490,000
08 Paid cash for cleaning 124,000
10 Received a cheque from B Calm 1,500,000
15 Purchases paid by cheque 1,380,000
17 Paid rent by cheque 750,000
19 Received a cheque from S Leep to settle his account of TZS
700,000 less 5% discount.
 21 Paid cash into bank 1,200,000
24 Received TZS 900,000 cash from P Paine to settle his account
of TZS 950,000.
26 Paid D Serene by cheque to settle an account of TZS 840,000
less 5% discount.
Required:
Balance the cash book and bring down the balance at the end of the
month and then prepare the ledger accounts.
Illustration 2
Write up a three-column cash book of Sui from the following details and
balance the cash book at the end of the month and then open the ledger
accounts.
Aug 01 Started business with TZS 1,800,000 cash in hand and TZS
16,000 in the bank.
02 Paid rent by cheque TZS 300,000
03 Paid utilities by cheque TZS 1,240,000
05 Cash sales TZS 4,300,000
07 Received a cheque from debtor C. Lebrity TZS 3,400,000 after
allowing a discount of TZS 135,000
09 Cash sales paid directly into bank TZS 2,980,000
11 Paid cash into bank TZS 4,000,000
15 Paid accounts at vendor ltd the amount owing TZS 2,900,000
received 5% discount
18 Mr. Sui withdrew TZS 1,500,000 from the bank for personal
use
20 Paid motor repairs by cash TZS 850,000
20 Withdrew TZS 500,000 from the bank for office use
The petty cash book
Small cash payments and receipts can be omitted from the cash book to
avoid overcrowding. When this is done, a petty cash book is used. The
format of a PCB facilitates the analysis of transactions so that certain
types of transactions can be posted in aggregate to the ledger. The debit
side of the PCB represents receipts whilst the credit side represents
payments, which is divided into several analysis columns.
The advantages of using a petty cash book
The task of handling and recording small cash payments can be given by
the cashier to a junior member of staff. This person is known as the “petty
cashier”. The cashier, who is a more senior and consequently higher paid
member of staff would be saved from routine work.
Format of a petty cash book
PETTY CASH BOOK
Receipt foli Dat Detail Vouche Tota Trav Stat Offic Ledger
s o e s r l . . e accoun
No. exp exp exp t

The PCB operates with an imprest system. This means that the petty
cashier is given a float (imprest) at the beginning of a period from which
funds are disbursed. Request for payment is written on vouchers which
briefly explain the purpose of the payment and indicate the amount. At
the end of the period (week or month) the total cash paid is then
reimbursed by the main cashier. This is referred to as restoring the
imprest. This means that the petty cashier is given the exact amount she
has disbursed. The totals of the analysis column are then posted to the
general ledger.
Try this: To determine the amount to restore the imprest
The imprest of a business is TZS 1,000,000 per week. At the end of a
week the petty cashier disbursed funds for the following: car wash TZS
50,000, stationery TZS 145,000, received for telephone calls TZS 15,000,
cleaning TZS 175,000, coffee and tea TZS 230,000.
Determine the amount to be reimbursed by the cashier
Example
Illustration 1
Enter the following transactions in a petty cashbook, having analysis
column for postages and stationery, travelling expenses, cleaning and
miscellaneous. Total the analysis columns and restore the imprest to the
original amount.
TZS
June 01 received imprest from cashier 600,000
June 03 bought postage stamps V1 100,000
June 05 stationery V2 80,000
June 09 taxi fare V3 40,000
June 10 office cleaning V4 72,000
June 12 snacks for meeting V5 100,000
June 14 paid for newspaper V6 20,000
June 17 office cleaning V7 40,000
June 20 taxi fare V8 20,000
June 23 copy paper V9 30,000
June 30 bulbs for office V10 16,000

Illustration 2
The following is a summary of the petty cash transactions of Jockfield ltd
for May 2008.
May 01 Received from cashier TZS 300,000 as petty cash float
02 Postage 18,000
03 Travelling 12,000
04 Cleaning 15,000
07 Petrol for delivery van 22,000
08 Travelling 25,000
09 Stationery 17,000
11 Cleaning 18,000
14 Postage 5,000
15 Travelling 8,000
18 Stationery 9,000
18 Cleaning 23,000
20 Postage 13,000
24 Delivery van 5,000-mile service TZS 43,000
26 Petrol 18,000
27 Cleaning 21,000
29 Postage 5,000
30 Petrol 14,000
Required:
i. Rule up a suitable petty cash book with analysis columns for
expenditure on cleaning, motor expenses, postage, stationery,
travelling.
ii. Enter the month’s transactions
iii. Enter the receipt of the amount necessary to restore the imprest
and carry down the balance for the commencement of the following
month
iv. State how the double entry for the expenditure is completed