THE CASH BOOK
A cash book is a subsidiary book as well as a part of the ledger. Only cash
and bank entries are passed through the cash book. Money or cheques
coming into the business are debited and those going out are credited,
The cash book is then balanced and balances brought down. It is a part of
the ledger because it has cash and bank accounts and double entry can
be completed in them if is a Contra entry.
It is a subsidiary book because it has discount columns that are not
balanced but added up and posted
to the general ledger to complete the double entry.
TYPES OF BANK ACCOUNTS
1. CURRENT ACCOUNT-suitable for business people and it earns no
interest is earned
2. Savings /deposit Account- it earns interest
3. fixed deposit account-earns a higher interest money is kept for a
specific period of time
4. Call account-usually for bigger sums of money which can be withdrawn
whenever [Link] also
earns high interest.
PAYMENTS THROUGH THE BANĶING SYSTEM
An arrangement could be made with the bank to make payments in
named accounts such services
include:
1) Standing Order- The bank is authorized to make fixed payments at
regular intervals on behalf of the customer. Suitable payments of rent, hire
purchase, insurance premium e.t.c
2) Direct Debit- An instruction to the bank to make payments of varying
amounts at irregular intervals. Suitable for paying bills.
3) Credit Transfers/ Bank Giro- An arrangement with the bank where
payment is made directly into the payee's account. Suitable for payment
of salaries
4) Cheque- A cheque is an instruction to the bank to pay a named person
the specified amount
(Leave half a page)
5) Payin slip- A document in which the customer writes money and
cheques deposited according to the currency's denomination.
(Leave half a Page)
Importance/ Advantages of the Cash Book
1. The Cash Book reduces the number of entries in the ledger
2. It increases efficiency
3. Reference to cash and bank accounts is easier
4.. It instantly shows the cash and bank balance
Bank Overdraft
This is when the business withdraws more than it has in the bank account.
In the cash book it will be indicated by a credit balance in the bank
account. In the bank statement, it will be a debit balance and will be
indicated (OID) or debit balance (DR)
Dishonored Cheques
Cheques that the bank refuses to pay (cash) due to several reasons such
as,
1. No funds in the account.
2. Stale cheque (stayed for than Six months)
Write 3 more reasons for dishonoring cheques
Contra Entry
A transaction whose double entry is completed in the cash book
Unpresented Cheques- Cheques given out by the bank but not yet taken
to the bank by customers
Cheques not yet cleared/ Deposits not yet cleared- Cheques deposited by
the business but not yet cleared for money to be in the account
Dividends- Profit on investments received through the bank
Discount Allowed- Amount of reduction on given to debtors for prompt
payments. It is debited in the ledger account. It is treated as an expense
in the profit and loss account. Recorded on the debit side of the Discount
allowed a/c and on credit side of customer a/c.
Discount Received- amount of reduction received from creditors for
prompt payment of debts. It is treated as a gain and added to gross profit
in the profit and loss a/c. in the ledger it is posted to credit side of
discount received amount and on the debit side of the suppliers a/c.
Types Of Cash Books
Two column cash book
Three column cash book
Analysis cash book
Petty cash book
Bank reconciliation
Meaning- To reconcile is to bring agreement to 2 opposing sides. The
reconciliation statement serves to
explain the reasons for the differences between the figures in the cash
books and banks. Reconciliation
is therefore, an explanation of differences
Purpose of preparing_the bank reconciliation statement
Need to confirm the cash book entries with those in the bank statement
To locate errors and correct them
Bring the cash book balance to agree with the bank balance
Causes of different balances in the cash book and the bank statement
balances
List at least five causes
OINTS TO REMEMBER WHEN PREPARING THE BANK RECONCIIATION
STATEMENT:
1. Check if the cash book is balanced, if not, balance it and bring down the
balance
2. Check if the balance in the cash book is a debit or credit balance(bank
overdraft)
Remember a bank overdraft is a negative figure so presented cheques are
subtracted though
you say 'add'
3. Check if there is any entry that will cause the bank statement to agree
with the opening balance
of the cash book and ignore it (not to be recorded in the cash book)
4. The closing bank balance in the cash book is the one recorded in the
statement of financial
position either as a current asset or current liability if its an overdraft
5. Items in the cash book and not in the bank statement are recorded in
the bank reconciliation
statement and items in the bank stațement [Link] in the cash book are
recorded in the-baak
reconciliation statement
odnctel
0sh mal
6. Errors recorded after the cash book is prepared and the bank statement
should be corrected as
follows:
a) Errors made in the cash book to be corrected in the cash book
b) Errors made in the bank statement to be corrected in the bank
reconciliation account.
Hders
t ae
hnolders
Shevt
