What is a Three Column Cash Book?
A cash book with three columns for discounts received and paid,
cash transactions, and bank transactions is known as a three
column cash book.
Explanation
A three column cash book, also known as a triple column cash book,
contains three money columns on both the debit and credit sides:
one on each side for recording discount, cash, and bank amounts.
If a business holds a bank account frequently makes receipts and
payments through that bank account, then it is useful to maintain a
three column cash book rather than a single or double column cash
book.
It is customary for businesses to allow discounts for early
payments. For example, if cash is paid early, creditors may receive
a discount. On the other hand, if debtors pay early, a discount may
be allowed to them.
You may remember that cash and discounts are closely related.
This is the reason why discount columns are also provided in the
cash book.
In a three column cash book, three columns are provided for the
amounts on each side. One column records cash receipts and
payments, the second records banking transactions, and the third
records discounts received and allowed.
Although single and double column cash books are alternatives to
a cash account, the three column cash book serves the purpose of
cash as well as a bank account.
Discount Columns:
Key Points
Consider the following critical aspects of discount columns in a triple
column cash book:
The discount allowed column is located on the debit side and
the discount received column is located on the credit side.
The discount allowed and discount received columns represent
two different accounts. They are not related.
The discount columns are memorandum columns in nature.
Therefore, two separate accounts, "Discount Allowed" and
"Discount Received", are opened in the ledger.
Since discount allowed and discount received are unrelated,
they are not balanced. Both columns are summed separately
and the aggregate is transferred to the ledger accounts.
Format of a Three Column Cash Book
The common format used in a three column cash book is shown
below.
It is worth mentioning that the format of a three column cash book
is similar to that of a two column cash book.
The only exception is that a column is added in a three column cash
book to account for bank-related transactions.
Opening Balance
The opening balance of cash in hand and cash at the bank are
recorded on the debit side in the cash and bank columns,
respectively.
If the bank balance is a credit balance (overdraft), then it is
entered on the credit side in the bank column.
Receipt of Cheque or Cash
If a cheque is received and deposited into a bank account on the
same date, it will appear on the debit side on the cash book in the
bank column.
If the cheque is not deposited into a bank account on the same date,
it is treated as cash and, therefore, the amount will appear in cash
column.
Finally, in the usual manner, the receipt of cash is recorded in the
cash column.
Payment by Cheque or Cash
If a payment is made by cheque, it will be recorded on the credit
side in the bank column. This is because the cash at bank has
decreased.
If the payment is made in cash, it will be recorded in the cash
column in the usual manner.
Bank Charges
Bank charges are recorded on the credit side of the cash book in the
bank column. This is because cash at bank decreases as a result of
such charges.
Contra Entries: Definition
If an entry is made on the debit side and the same entry is recorded
on the credit side of the cash book, it is called a contra entry.
To differentiate contra entries from other entries, letter "C" is
printed in the posting reference column (on both the debit and
credit sides of the cash book).
The letter "C" indicates that the contra effect of this transaction is
recorded on the opposite side.
Contra entries may be one of the following types:
Type 1
When cash is deposited into a bank, two entries are required: one on
the credit (payment) side in the cash column, which records the
reduction in cash in hand; and the other on the debit (receipt) side
in the bank column, which records the increase in cash at bank.
Type 2
When cash is withdrawn from a bank for office use, two entries are
needed: one on the credit side in the bank column, which records
the reduction of cash at bank; and the other on the debit side in the
cash column, which records the increase in cash in hand.
Type 3
It has already been explained that when a cheque is received and
not deposited into a bank on the same date, the amount will be
recorded on the debit side of the cash book in the cash column.
When the same cheque is deposited into a bank account on another
date, two entries are required: one on the debit side in the bank
column, which records the increase in the amount at bank; and the
other on the credit side in the cash column, which records the cash
(cheque) paid into the bank.
Balancing the Three Column Cash Book
Whenever it is necessary to determine the bank balance, the bank
columns are summed on both sides.
If the debit column is larger than the credit column, the difference
represents cash at bank. If, on the other hand, the credit column
exceeds the debit column, the difference represents "overdrawn
balance".
A bank account may have an overdrawn balance because by
arranging an overdraft with the bank, it is possible that more money
may be withdrawn from the bank than what was deposited.
The cash columns are balanced as usual. The discount columns are
simply summed and not balanced.
Posting Three Column Cash Book to Ledger
Accounts
The method of posting a three column cash book into ledger is as
follows:
The opening balances of the cash book are not posted.
Contra entries are not posted because the double entry
accounting for these transactions is completed within the
cash book.
All items on the debit side of the cash book are posted to the
credit of respective accounts in the ledger.
All items on the credit side of the cash book are posted to the
debit of respective accounts in the ledger.
The total of the discount column on the debit side is posted to
the debit of discount allowed account, and the total of the
discount column on the credit side is posted to the credit of
discount received account in the ledger.
Example
During May 2016, the John Trading Company made the following
transactions:
May 01: Cash balance $2,200, bank overdraft $365.
May 03: Paid J & Co. by cheque $1,200, discount received
amounting to $15.
May 05: Received from A & Co. a cheque for $980, discount
allowed to them $20.
May 07: Deposited into bank the check received from A & Co.
on May 05.
May 10: Purchased stationery for cash, $150.
May 15: Purchased merchandise for cash, $1,300.
May 15: Cash sales for the first half of the month, $2,350.
May 16: Deposited into bank $1,600.
May 18: Cash withdrawn from bank for personal expenses
$150.
May 19: Issued a cheque for merchandise purchased, $1,650.
May 21: Drew cash from bank for office use, $650.
May 24: Received a cheque from S & Sons and deposited it
into bank, $1,560.
May 25: Paid a cheque to Ali Inc. for $400 and received a
discount of $15.
May 27: Purchased furniture in cash for office use, $390.
May 29: Paid office rent by cheque, $450.
May 30: Cash sales for the second half of the month, $4,300.
May 31: Paid salaries by check, $1,760.
May 31: Withdrew cash from bank for office use, $1,470.
Required: Record the above transactions in a three column
cash book.
Solution
1 A double column cash book has two money columns for the following purposes:
a) One for discount and the other for bank
b) One for discount and the other for cash
c)One for cash and the other for bank.
d) One for cash receipts and the other for cash payments
2) Contra entries are recorded in:
a) Cash book with discount column
b) Cash book with discount and bank columns
c) Simple cash book
d) Petty cash book
3) Office cash deposited into the bank is recorded in the cash book on:
a) Debit side
b) Credit side
c)Debit side and credit side
d) None of the above
4) Cash discount allowed is recorded on the:
a) Debit side
b) Credit side
c)Petty cash book
d) Not recorded in cash book
.
5) Cash withdrawn from bank for office use is recorded in the cash book on:
a) Debit side
b) Credit side
c) Debit side and credit side
d) None of the above
6) Cash withdrawn from the bank for the owner's personal use is recorded in the cash book on:
a) Debit side
b) Credit side
c) Both sides
d) No sides
7) The cash book is meant for recording:
a) All cash transactions
b) Only cash payments
c) Only cash receipts
d) Petty expenses
8) Cash sales are recorded in:
a) Sales book
b) Cash book
c) Journal
d) None of the above
9) The petty cash book is used to record:
a) Petty cash receipts
b) Petty cash payments
c) All cash payments
d) Petty cash receipts and payments
10) In the case of cash book, if the nature of the balance is not mentioned, then it will be:
a) Debit balance
b) Credit balance
c) Overdraft of cash book
d) None of the above
Solution for multiple choice questions
1) b
2) b
3) c
4) a
5) c
6) b
7) a
8) b
9) d
10) a
Practice question
Write up a three-column cash book for a wine wholesaler as of May
from the following details and balanced-off the cash book.
May
1. Balances brought forward: Cash £620; Bank £7,142.
2. The following paid their accounts by cheque, in each case deducting
5 per cent cash discounts: G. Slick £260; P. Fish £320; T. Old £420 (all
amounts are pre-discount).
4. Paid rent by cheque £430.
6. F. Black lent us £5,000 paying by cheque.
8. We paid the following accounts by cheque in each case deducting a 5
per cent cash discount: R. White £720; G. Green £960; L. Flip £1,600
10. Paid motor expenses in cash £81.
12. J. Pie pays his account of £90, by cheque £88, deducting £2 cash
discount.
15. Paid wages in cash £580.
18. The following paid their accounts by cheque, in each case deducting
5 per cent cash discount: A. Pony £540; B. Line & Son £700; T. Owen
£520
21. Cash withdrawn from the bank £400 for business use.
24. Cash drawings £200.
25. Paid W. Peat his account of £160, by cash £155, having deducted £5
cash discount.
29. Bought fixtures paying by cheque £720.
31. Received commission by cheque £120.
