2.

76 PRINCIPLES AND PRACTICE OF ACCOUNTING

UNIT 5 : CASH BOOK

LEARNING OUTCOMES

After studying this unit, you would be able to:

♦ Understand that a Cash Book is a type of subsidiary book but treated as a principal book.
♦ Be familiar with various kinds of Cash Books, viz., Simple Cash Book, Two-column Cash Book
and Three-column Cash Book.
♦ Learn the technique of preparation of Simple Cash Book and how to balance it.
♦ See how Double-Column Cash Book is a prepared adding discount column alongwith cash
column.
♦ Understand the techniques of preparing Three-column Cash Book.
♦ Understand what is a Petty Cash Book and the Imprest System of Petty Cash.
♦ Note the advantages of the Petty Cash Book.
♦ Learn how to maintain a Petty Cash Book and how to post the entries of the Petty Cash Book in
the ledger.
♦ Understand the accounting of credit/debit sales transactions.

UNIT OVERVIEW

Subsidiary
book as
well as
Principal
book

Simple Cash Three

column
cash book Book cash book

Two
column
cash book

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77 ACCOUNTING PROCESS 2.77

5.1 CASH BOOK - A SUBSIDIARY BOOK AND A PRINCIPAL BOOK

Cash transactions are straightaway recorded in the Cash Book and on the basis of such a record, ledger accounts
are prepared. Therefore, the Cash Book is a subsidiary book. But the Cash Book itself serves as the cash account
and the bank account; the balances are entered in the trial balance directly. The Cash Book, therefore, is part of
the ledger also. Hence, it has also to be treated as the principal book. The Cash Book is thus both a subsidiary
book and a principal book.

5.2 KINDS OF CASH BOOK

The main Cash Book may be of the three types:
(i) Simple Cash Book;
(ii) Two-column Cash Book;
(iii) Three-column Cash Book.
In addition to the main Cash Book, firms also generally maintain a petty cash book but that is purely a subsidiary
book.
SIMPLE CASH BOOK
Such a cash book appears like an ordinary account, with one amount column on each side. The left-hand side
records receipts of cash and the right-hand side the payments.
Balancing of the Cash Book: The cash book is balanced like other accounts. The total of receipts column is
always greater than total of payments column. The difference is written on the credit side as ‘By balance c/d’.
The totals are then entered in the two columns opposite one another and then on the debit side the balance is
written as “To Balance b/d”, to show cash balance in hand in the beginning of next period.

ILLUSTRATION 1

Enter the following transactions in a Simple Cash Book:

2020 `
Jan.1 Cash in hand 1,200
“5 Received from Ram 300
“7 Paid Rent 30
“8 Sold goods for cash 300
“10 Paid to Shyam 700
“27 Purchased Furniture 200
“31 Paid Salaries 100
“31 Rent due, not yet paid, for January 30

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2.78 PRINCIPLES AND PRACTICE OF ACCOUNTING

SOLUTION

Dr. Cash Book Cr.

Date Receipts L.F. Amount Date Payments L.F. Amount
2020 ` 2020 `
Jan. 1 To Balance b/d 1,200 Jan. 07 By Rent A/c 30
“5 To Ram A/c 300 “ 10 By Shyam A/c 700
“8 To Sales A/c 300 “ 27 By Furniture A/c 200
“ 31 By Salaries A/c 100
“ 31 By Balance c/d 770
1,800 1,800
2020
Feb. 1 To Balance b/d 770

Note: One can see the following:

(i) In the simple cash book only the cash receipts and cash payments are recorded.
(ii) The total of debit side is always greater than the total of credit side since the payment cannot exceed
the available cash.
(iii) The simple cash book is like an ordinary account.
DOUBLE-COLUMN CASH BOOK
If along with columns for amounts to record cash receipts and cash payments another column is added on each
side to record the cash discount allowed or the discount received, or a column on the debit side showing bank
receipts and another column on the credit side showing payments through bank. It is a double-column cash book.
Cash discount is an allowance which often accompanies cash payments. For example, if a customer owes
` 500 but is promised that 2% will be deducted if payment is made within a certain period, the customer can clear
his account by paying promptly ` 490. Cash received will be ` 490 and ` 10 will be the discount for the firm
receiving the payment discount is a loss; for the person making the payment it is a gain. Since cash discount is
allowed only if cash is paid, it is convenient to add a column for discount allowed on the receipt side of the cash
book and a column for discount received on the payment side of the cash book.
In the cash column on the debit side, actual cash received is entered; the amount of the discount allowed, if any,
to the customer concerned is entered in the discount column. Similarly, actual cash paid is entered in the cash
column on the payments side and discount received in the discount column. Also the bank column on the debit
side records all receipts through bank and the same column on the credit side shows payment through bank.
Balancing: It should be noted that the discount columns are not balanced. They are merely totalled. The total of
the discount column on the receipts side shows total discount allowed to customers and is debited to the Discount
Account. The total of the column on the payments side shows total discount received and is credited to the
Discount Account. The Cash columns are balanced, as already shown. The bank columns are also balanced and
the balancing figure is called bank balance. Thus a double column cash book should have two columns on each
side comprising of either cash and discount transaction or cash and bank transactions.

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79 ACCOUNTING PROCESS 2.79

ILLUSTRATION 2

Ganesh commenced business on 1st April, 2020 with ` 2,000 as capital. He had the following cash transactions
in the month of April 2020:
` `
April 1 Purchased furniture April 7 Paid for petty expenses 15
and paid cash 250 “ 8 Cash purchases 150
“2 Purchased goods 500
“4 Sold goods for cash 950
13 Paid for labour 1,000
“5 Paid cash to Ram Mohan 560
“6 He allowed discount 10 “” Paid Ali & Sons 400
“6 Received cash from They allowed discount 8
Krishna & Co. 600 “”
Allowed discount 20

Make out the two-column Cash Book (Cash and discount column) for the month of April, 2020.

SOLUTION

Cash Book
Dr. Receipts L.F. Discount Amount Date Payments L.F. Discount Cr.
Date ` ` 2020 ` Amount
2020 `
April 1 To Capital A/c 2,000 April 1 By Furniture A/c 250
“4 To Sales A/c 950 “ 2 By Purchases A/c 500
“6 To Krishna A/c 20 600
“5 By Ram Mohan 10 560
“7 By Petty
Expenses A/c 15
“8 By Purchases A/c 150
“ 13 By wages A/c 1,000
“ 13 By Ali & Sons 8 400
“ 30 By Balance c/d 675
20 3,550 18 3,550
May 1 To Balance b/d 675

To summarise:
(i) the discount columns in the cash book are totalled;
(ii) they are not balanced; and
(iii) their totals are entered in the discount received/paid account in the ledger.

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2.80 PRINCIPLES AND PRACTICE OF ACCOUNTING

Note: The person who pays, is credited by both the cash paid by him and the discount allowed to him. Similarly,
the person to whom payment is made, is debited with both the amount paid and the discount allowed by him.
THREE-COLUMN CASH BOOK
A firm normally keeps the bulk of its funds at a bank; money can be deposited and withdrawn at will if it is current
account. Probably payments into and out of the bank are more numerous than strict cash transactions. There is
only a little difference between cash in hand and money at bank. Therefore, it is very convenient if, on each side
in the cash book, another column is added to record cash deposited at bank (on the receipt side of the cash
book) and payments out of the bank (on the payment side of the cash book).
For writing up the three-column cash book the under mentioned points should be noted:
1. While commencing a new business, the amount is written in the cash column if cash is introduced and
in the bank column if it is directly put into the bank with the description “To Capital Account”. If a new
cash book is being started for an existing business, the opening balances are written as : “To Balance
b/d”.
2. All receipts are written on the receipts side, cash in the cash column and cheques in the bank column.
If any discount is allowed to the party paying the amount, the discount is entered in the discount column.
In the particulars column the name of the account in respect of which payment has been received is
written.
3. All payments are written on the payments side, cash payment in the cash column and payments by
cheques in the bank column. If some discount has been received from the party receiving the payment,
it is entered in the discount column.
4. Contra Entries: Often cash is withdrawn from bank for use in the office. In such a case the amount is
entered in the bank column on the payments side and also in the cash column on the receipts side. In
the reverse case of cash being sent to the bank, the amount is recorded in the bank column on the
receipts side and in cash column on payment side. Against such entries, the letter “C” should be written
in the LF. column, to indicate that these are contra transaction and no further posting is required for
them.
Note: If initially cheques received are entered in the cash column and then sent to the bank, the entry is
as if cash has been sent to the bank.
While recording contra entries, the basic but important rules should be followed -
(a) The Receiver Dr.
The Giver Cr.
(b) All what comes in Dr.
All what goes out Cr.
e.g. where a Cash Book with separate columns for Bank Account is maintained.
(a) If cash is deposited in Bank Account, the Bank will be the Receiver, hence it will be Debited and
as the cash is going out, cash will be credited.

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81 ACCOUNTING PROCESS 2.81

(b) If cash is withdrawn from the Bank Account, the Bank will be the Giver, hence it will be Credited
and, as the cash is coming in, cash will be Debited.
5. If some cheque sent to the bank is dishonoured, i.e., the bank is not able to collect the amount, it is
entered in the bank column on the credit side with the name of the related party in the particulars column.
6. If some cheque issued by the firm is not paid on presentation, it is entered in the Bank column on the
debit side with the name of the party to whom the cheque was given.
7. In a rare case, a cheque received may be given to some other party, i.e., endorsed. On receipt, it must
have been entered in the bank column on the debit side; on endorsement the amount will be written in
the bank column on the credit side.
The advantages of such type of Cash Book are that -
(a) the Cash Account and the Bank Account are prepared simultaneously, therefore the double
entry is completed in the Cash Book itself. Thus the contra entries can be easily cross-checked
in Cash column in one side and the Bank column in the other side of the Cash Book. Also the
chances of error are reduced.
(b) the information regarding Cash in Hand and the Bank Balance can be obtained very easily and
quickly as there is no need to prepare Ledger of the Bank Account.
In case of maintaining more than one Bank Account, separate column can be add for each Bank Account.
Transactions between these two or more Bank Accounts can be recorded and tallied with a much less
effort.
Suppose, there are two Bank Accounts namely PNB Current Account and SBI-Cash Credit Account.
Now, if a cheque is deposited from PNB cheque Book to SBI Account, the receiver - i.e., PNB Account
will be debited and the giver i.e. the SBI Account shall be credited.
Balancing: The discount columns are totalled but not balanced. The cash columns are balanced exactly
in the same manner as indicated for the simple cash book. The process is similar for balancing the bank
columns also. It is possible, however, that the bank may allow the firm to withdraw more than the amount
deposited i.e., to have an overdraft, In such a case, the total of the bank column on the credit side is
bigger than the one on the debit side. The difference is written on the debit side as “To Balance c/d.”
Then the totals are written on the two sides opposite one another, the balance is then entered on the
credit side as “By Balance b/d.”
However, the usual case is that payments into the bank will exceed the withdrawals or payments out of
the bank. Then the bank columns are balanced just like the cash columns.

ILLUSTRATION 3

Enter the following transactions in Cash Book with Discount and Bank Columns. Cheques are first treated as
cash receipt.
2020 `
Jan.1 Chandrika commences business with Cash 20,000
“ 3 He paid into Current A/c 19,000

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2.82 PRINCIPLES AND PRACTICE OF ACCOUNTING

“ 4 He received cheque from Kirti & Co. on account 600

“ 7 He pays in bank Kirty & Co.’s cheque 600
“ 10 He pays Rattan & Co. by cheque and is allowed discount ` 20 330
“ 12 Tripathi & Co. pays into his Bank A/c 475
“ 15 He receives cheque from Warshi and allows him discount ` 35 450
“ 20 He receives cash ` 75 and cheque ` 100 for cash sale
“ 25 He pays into Bank, including cheques received on 15th and 20th 1,000
“ 27 He pays for cash purchase 275
“ 30 He pays sundry expenses in cash 50

SOLUTION

Dr. Cash Book Cr.

Date Receipts L.F. Discount Cash Bank Date Payments L.F. Discount Cash Bank

` ` ` ` ` `

2020 2020

Jan. To Capital A/c 20,000 Jan. 3 By Bank A/c C 19,000

1

3 To Cash C 19,000 7 By Bank A/c C 600

4 To Kirti & Co. 600 10 By Ratan & Co. 20 330

7 To Cash C 600 25 By Bank A/c C 1,000

12 To Tripathi & Co. 475 27 By Purchases 275

A/c

15 To Warshi 35 450 30 By S. Exp. A/c 50

20 To Sales A/c 175

25 To Cash C 1,000

31 By Balance c/d 300 20,745

35 21,225 21,075 20 21,225 21,075

Feb. To Balance b/d 300 20,745

1

5.3 POSTING THE CASH BOOK ENTRIES

Students would have seen that the cash columns in the cash book is actually the cash account and the bank
column is actually bank account. Also, the discount columns are memorandum columns, meant only to provide
information about the total discount allowed and total discount received.

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83 ACCOUNTING PROCESS 2.83

The debit side columns for cash and bank indicate receipts. Therefore, the amounts debited in the cash book
should be put to the credit of the account in respect of which cash or cheque has been received. For instance, in
the cash book given above we see that `175 have been received for sale of goods. For posting, the amount is
credited to the Sales Account as “By Cash `175.” We also see M/s. Warsi have paid `450 and also they have
been allowed ` 35 as discount; thus they have discharged a debt of `485. In the account of M/s. Warsi, the
posting is on the credit side as
By Cash ` 450
By Discount ` 35
or as:
By Sundries ` 485
All payments are recorded on the credit side. The particulars columns show on what account payments have
been made. In the ledger accounts concerned the amount is put on the debit side. For example, the cash book
shows that a cheque for ` 330 has been issued to M/s. Ratan & Co. and also that they have allowed a discount
of ` 20; thus an obligation of ` 350 has been met. In the account of M/s. Ratan & Co. the posting is:
To Bank ` 330
To Discount ` 20
Or
To Sundries ` 350
The rule thus develops: From the debit side of the cash book credit the various accounts with their respective
amounts (including any discount that may have been allowed); from the credit side of cash book the posting will
be to the debit of the accounts mentioned in the particular column with their respective amounts (including the
discount which may have been received).
As has been shown already, the total of the discount columns on the debit side is debited to the discount account;
the total of the column on the credit side is credited to the discount account. From the cash book given on the
previous page ` 35 is debited and ` 20 be credited to the discount account.

5.4 PETTY CASH BOOK

In a business house a number of small payments, such as for telegrams, taxi fare, cartage, etc., have to be made.
If all these payments are recorded in the cash book, it will become unnecessarily heavy. Also, the main cashier
will be overburdened with work. Therefore, it is usual for firms to appoint a person as ‘Petty Cashier’ and to
entrust the task of making small payments say below ` 200, to him. Of course he will be reimbursed for the
payments made. Later, on an analysis, the respective account may be debited.
IMPREST SYSTEM OF PETTY CASH
It is convenient to entrust a definite sum of money to the petty cashier in the beginning of a period and to
reimburse him for payments made at the end of the period. Thus, he will have again the fixed amount in the
beginning of the new period. Such a system is known as the imprest system of petty cash.

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2.84 PRINCIPLES AND PRACTICE OF ACCOUNTING

The system is very useful specially if an analytical Petty Cash Book is used. The book has one column to record
receipt of cash (which is only from the main cashier) and other columns to record payments of various types. The
total of the various columns show why payments have been made and then the relevant accounts can be debited.
(i) The amount fixed for petty cash should be sufficient for the likely small payments for a relatively short
period, say for a week or a fortnight.
(ii) The reimbursement should be made only when petty cashier prepares a statement showing total
payments supported by vouchers, i.e., documentary evidence and should be limited to the amount of
actual disbursements.
(iii) The vouchers should be filed in order.
(iv) No payment should be made without proper authorization. Also, payments above a certain specified limit
should be made only by the main cashier.
(v) The petty cashier should not be allowed to receive any cash except for reimbursement.
In the petty cash book the extreme left-hand column records receipts of cash. The money column towards the
right hand shows total payments for various purposes; a column is usually provided for sundries to record
infrequent payments. The sundries column is analysed. At the end of the week or the fortnight the petty cash
book is balanced. The method of balancing is the same as for the simple cash book.

ILLUSTRATION 4

Prepare a Petty Cash Book on the imprest System from the following:
2020 `
Jan. 1 Received `100 for petty cash
“ 2 Paid bus fare .50
“ 2 Paid cartage 2.50
“ 3 Paid for Postage & Telegrams 5.00
“ 3 Paid wages for casual labourers 6.00
“ 4 Paid for stationery 4.00
“ 4 Paid tonga charges 2.00
“ 5 Paid for the repairs to chairs 15.00
“ 5 Bus fare 1.00
“ 5 Cartage 4.00
“ 6 Postage and Telegrams 7.00
“ 6 Tonga charges 3.00
“ 6 Cartage 3.00
“ 6 Stationery 2.00
“ 6 Refreshments to customers 5.00

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85 ACCOUNTING PROCESS 2.85

SOLUTION

Petty Cash Book

Receipts Date V. Particulars Total Con- Cartage Statio- Postage & Wages Sundries
` 2020 No. ` veyance ` nery Telegrams ` `
` ` `
100 Jan.1 To Cash
2 1 By Conveyance .50 .50
2 By Cartage 2.50 2.50
3 3 By Postage and 5.00 5.00
Telegrams
4 By Wages 6.00 6.00
4 5 By Stationery 4.00 4.00
6 By Conveyance 2.00 2.00
5 7 By Repairs to 15.00 15.00
Furniture
8 By Conveyance 1.00 1.00
9 By Cartage 4.00 4.00
6 10 By Postage and 7.00 7.00
Telegrams
“ 11 By Conveyance 3.00 3.00
“ 12 By Cartage 3.00 3.00
“ 13 By Stationery 2.00 2.00
“ 14 By General 5.00 5.00
Expenses
60.00 6.50 9.50 6.00 12.00 6.00 20.00
By Balance c/d 40.00
100 100.00
40.00 To Balance b/d
60.00 8 To Cash

ADVANTAGES OF PETTY CASH BOOK

There are mainly three advantages:
(i) Saving of time of the chief cashier;
(ii) Saving in labour in writing up the cash book and posting into the ledger; and
(iii) Control over small payments.

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2.86 PRINCIPLES AND PRACTICE OF ACCOUNTING

POSTING THE PETTY CASH BOOK

In the ledger, a petty cash account is maintained; when an amount is given to the petty cashier, the petty cash
account is debited. Each week or forthnight, the total of the payments made is credited to this account. The petty
cash account will then show the balance in the hand of the cashier; on demand he should be able to produce it
for counting. At the end of the year, the balance is shown in the balance sheet as part of cash balance.
Of course, the payments must be debited to their respective amounts as shown by the petty cash book. For this
two methods may be used:
(i) From the petty cash book the total of the various columns may be directly debited to the concerned
accounts; or
(ii) A journal entry may first be prepared on the basis of the petty cash book, debiting the accounts shown
by the various analysis columns, and crediting the total of the payment of the petty cash accounts.
For Illustration 4 the journal entry and relevant accounts are as follows:
2020 ` `
Jan. 6 Conveyance Account Dr. 6.50
Cartage account Dr. 9.50
Stationery account Dr. 6.00
Postage and Telegrams account Dr. 12.00
Wages Account Dr. 6.00
Repairs Account Dr. 15.00
General Expenses Account Dr. 5.00
To Petty Cash Account 60.00
(Being the analysis of the Petty Cash Book for the week ending Jan. 6)
Entry for cash handed over to the Petty Cashier
Petty Cash Account Dr. 60
To Cash Account 60
(Being Cash received)

Petty Cash Account

Date Particulars Folio Amount Date Particulars Folio Amount
2020 ` 2020 `
Jan.1 To Cash 100.00 Jan. 6 By Sundries:
“8 To Cash 60.00 Conveyance 6.50
Cartage 9.50
Stationery 6.00
Postage and Telegrams 12.00

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87 ACCOUNTING PROCESS 2.87

Wages 6.00
Repairs 15.00
General Expenses 5.00

5.5 ENTRIES FOR SALE THROUGH CREDIT/DEBIT CARDS

Now-a-days sales through Credit/Debit Cards are issued by almost every Bank in India either directly or with
collaboration of some other agencies. HSBC Card, SBI Card, BOB Card, ICICI Bank Card, HDFC Card and
Andhra Bank Card are some of the popular Cards.
The procedure for issuing Credit/Debit Cards are as follows -
1. A small Plastic Card, called Credit Card is issued by bank to a prospective customer, after verifying his
credibility, which is generally measured by his income sources. Debit Card is issued by bank to a
customer who has an account with the bank, maintaining a minimum balance. Now a days ATM Card
issued by the bank can also be used as Debit Card. This card would contain an embossed 16 digit
number and also the name of the cardholder.
2. Generally Bank charges annual subscription fees from the credit card holder. No fee is charged in case
of Debit Card, though some banks charge a nominal fee on Debit Card.
3. When the Card holder intends to buy some goods or services through Credit or Debit Card, the seller
fills in a form, generally in triplicate, the details of the goods a with the amount of sales and uses the
embossed card with the help of the Credit Card machine to print the data on that form. Also the customer
has to countersign the form. One carbon copy of the form is given to the customer for the record.
4. The seller sums up the different amounts sold like this and submits, generally everyday, to his bank all
the forms. The amount is credited by the bank to the seller’s account and debited to the account of the
Bank or the company issuing the Credit/Debit Card.
5. The bank issuing the Card, charges commission for each such transaction, which varies between 1% to
4% and is immediately debited to seller’s bank account.
6. The bank sends a monthly statement to the card holder. In case of Debit Card the account is immediately
debited to the card holder’s account, whereas in case of Credit Card, card holder has to pay the amount
in full or part. However, if not paid in full, the interest is charged.
ACCOUNTING FOR CREDIT/DEBIT CARD SALE
From the seller’s point of view, this type of sale is equivalent to a cash sale. Commission charged by the bank
will be treated as selling expenses. The following journal entries will be made in the seller’s books of accounts.
1. Bank A/c Dr.
To Sales Account
(Sales made through Credit/Debit Card)
2. Commission Account Dr.
To Bank Account
(Commission charged by bank)

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2.88 PRINCIPLES AND PRACTICE OF ACCOUNTING

ILLUSTRATION 5

Enter the following transaction in Cash Bank with Discount and Bank columns. Cheques are first treated as cash
receipts -
2020 `
March 1 Cash in Hand 15,000
Overdraft in Bank 500
2 Cash Sales 3,000
3 Paid to Sushil Bros. by cheque 3,400
Discount received 100
5 Sales through credit card 2,800
6 Received cheque from Srijan 6,200
7 Endorsed Srijan’s cheque in favour of Adit
9 Deposit into Bank 6,800
10 Received cheque from Aviral and deposited the same into Bank by allowing discount 3,600
of ` 50
12 Adit informed that Srijan’s cheque is dishonoured. Now cash is received from Srijan
and amount is paid to Adit through own cheque
15 Sales through Debit Card 3,200
24 Withdrawn from Bank 1,800
28 Paid to Sanchit by cheque 3,000
30 Bank charged 1% commission on sales through
Debit/Credit Cards

SOLUTION

Dr. Cash Book Cr.

Date Particulars L.F. Discount Cash Bank Date Particulars L.F. Discount Cash Bank
` ` ` ` ` `

2020 2020
March 1 To Balance b/d 15,000 March 1 By Balance b/d 500
2 To Sales 3,000 3 By Sushil Bros. 100 3,400
5 To Sales 2,800 7 By Adit 6,200
6 To Srijan 6,200 9 By Bank C 6,800
9 To Cash A/c C 6,800 12 By Adit 6,200
10 To Aviral 50 3,600 24 By Cash A/c C 1,800
12 To Srijan 6,200 28 By Sanchit 3,000

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89 ACCOUNTING PROCESS 2.89

15 To Sales A/c 3,200 30 By Commission 60

24 To Bank A/c C 1,800 31 By Balance c/d 19,200 1,440
50 32,200 16.400 100 32,200 16,400

Note: If the received cheque is endorsed to the other party on the same day, then no entry is required.
However, in the above case posting has been done through cash column as the endorsement is done on next
day.

SUMMARY
 Cash book contains cash transactions and also bank transactions, if it has a separate book column. It is
both a subsidiary book and a principal book.
 Cash book can be prepared adding discount column also.
 For small payments, petty cash book is maintained separately recording the particulars of payment and
its amount. The fixed amount is given to the petty cashier for making small payments in the beginning
of the period. The amount spent is replenished so that he will have again the fixed sum in the beginning
of the next period. This system is known as imprest system of petty cash book.

TEST YOUR KNOWLEDGE

True and False
1. Cash book is a subsidiary book as well as a principal book.
2. Two column cash book consists of two columns cash column & bank column.
3. Discount column of cash book is never balanced.
4. Contra entry is passed in a two column cash book.
5. If the bank column is showing the opening balance on credit side, it is an overdraft.
6. A cash book records cash transactions as well as credit transactions.
7. Discount column of cash book records the trade discount.

Multiple Choice Questions

1. The total of discounts column on the debit side of the cash book, recording cash discount deducted by
customers when paying their accounts, is posted to the __________________________
(a) Credit of the discount allowed account.
(b) Debit of the discount allowed account
(c) Credit of the discount received account.
2. Cash book is a type of __________ but treated as a ____________ of accounts.
(a) Subsidiary book, principal book
(b) Principal book, subsidiary book
(c) Subsidiary book, subsidiary book

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2.90 PRINCIPLES AND PRACTICE OF ACCOUNTING

3. Which of the following is not a column of a three-column cash book?

(a) Cash column
(b) Bank column
(c) Petty cash column
4. Contra entries are passed only when __________________________
(a) Double-column cash book is prepared
(b) Three-column cash book is prepared
(c) Simple cash book is prepared
5. The Cash Book records __________________________
(a) All cash receipts
(b) All cash payments
(c) All cash receipts and payments
6. The balance in the petty cash book is __________________________
(a) An expense
(b) A profit
(c) An asset
7. If Ram has sold goods for cash, the entry will be recorded __________________________
(a) In the Cash Book
(b) In the Sales Book
(c) In the Journal

Theory Questions
1. Is cash book a subsidiary book or a principal book? Explain.
2. What are the various kinds of cash book?
3. What are the advantages of a three column cash book?

Practical Questions
1. Shri Ramaswamy maintains a Columnar Petty Cash Book on the Imprest System. The imprest amount
is ` 500. From the following information, show how his Petty Cash Book would appear for the week
ended 12th September, 2020:
`
7-9-2020 Balance in hand 134.90
Received Cash reimbursement to make up the imprest 365.10

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91 ACCOUNTING PROCESS 2.91

Stationery 49.80
8-9-2020 Miscellaneous Expenses 20.90
9-9-2020 Repairs 156.70
10-9-2020 Travelling 68.50
11-9-2020 Stationery 71.40
12-9-2020 Miscellaneous Expenses 6.30
Repairs 48.30

ANSWERS/HINTS
True and False
1. True: Since the balance is taken to the Trial balance cash book is a subsiadiary book as wellas principal
book.
2. False: Two column cash book consists of two columns cash column & discount column.
3. True: Discount column is totaled and transferred to the discount allowed or received account.
4. False: Contra entry is passed in a three column cash book which includes bank and cash columns.
5. True: Usually the debit side of opening balance shows a favorable balance, where there is unfavorable-
overdraft then it should be shown on the credit side
6. False: A cash book records only cash transactions.
7. False: Discount column of cash book records the cash discount. Trade discount is not shown in the
books of accounts.

Multiple Choice Questions

1. (b) 2. (a) 3. (c) 4. (b) 5. (c) 6. (c) 7. (a)

Theoretical Questions
1. Cash transactions are straightaway recorded in the Cash Book and on the basis of such a record, ledger
accounts are prepared. Therefore, the Cash Book is a subsidiary book. But the Cash Book itself serves
as the cash account and the bank account; the balances are entered in the trial balance directly. The
Cash Book, therefore, is part of the ledger also. Hence, it has also to be treated as the principal book.
The Cash Book is thus both a subsidiary book and a principal book.
2. The main Cash Book may be of the three types:
(i) Simple Cash Book;
(ii) Two-column Cash Book;
(iii) Three-column Cash Book.

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2.92 PRINCIPLES AND PRACTICE OF ACCOUNTING

In addition to the main Cash Book, firms also generally maintain a petty cash book but that is purely a
subsidiary book.
3. The advantages of three column Cash Book are that -
(a) the Cash Account and the Bank Account are prepared simultaneously, therefore the double
entry is completed in the Cash Book itself. Thus the contra entries can be easily cross-checked
in Cash column in one side and the Bank column in the other side of the Cash Book. Also the
chances of error are reduced.
(b) the information regarding Cash in Hand and the Bank Balance can be obtained very easily and
quickly as there is no need to prepare Ledger of the Bank Account.

Practical Problems
Answer 1
Petty Cash Book
Date Receipts Amount Date Payments Total Stationery Travelling Misc Repairs
2020 ` 2020 Amount ` ` Exps. `
` `
Sept. 7 To Balance b/d 134.90 7 By Stationery 49.80 49.80
To Reimbursement 365.10 8 By Misc. Expenses 20.90 20.90
9 By Repairs 156.70 156.70
10 By Travelling 68.50 68.50
11 By Stationery 71.40 71.40
12 By Misc. Expenses 6.30 6.30
By Repairs 48.30 48.30
421.90 121.20 68.50 27.20 205.00
By Balance c/d 78.10
500.00 500.00
13 To Balance b/d 78.10

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