The Cash Book (Cambridge International IGCSE Accounting)

Cash or Bank

Do I enter a transaction in the cash account or the bank account?

• Enter the transaction in the cash account if physical money is exchanged

  • Paying a supplier using cash
  • Receiving cash from a customer
  • Taking money from the till for personal use

• Enter the transaction in the bank account if there is no physical money involved

  • Transactions involving a bank transfer
  • Paying an invoice or bill by cheque
  • Receiving a cheque from a customer
  • Standing orders and direct debits

• Some transactions are entered into both the cash and bank accounts

  • Depositing cash from the business into the business bank account
  • Withdrawing cash from the business bank account for business use

The Cash Book

What is the cash book?

• The cash book has two functions

  • It is a book of prime entry
  • It is a ledger account for both the cash and bank accounts

• The cash book records all cash transactions

  • Both physical cash and cash in the bank

• The cash book is part of the double entry system

• There are columns for the dates and details just like other ledger accounts

• There are three columns for the value of the transaction on both sides of the cash book

  • Discount columns

    • Discount allowed on the debit side
    • Discount received on the credit side

  • Cash columns

  • Bank columns

The layout of the cash book

Which side should the balances be on?

• The balance for the cash account is always on the debit side

  • Cash is always an asset
  • It can never be a liability

• The balance for the bank account can be on either side

  • It is on the debit side if the business has money in the bank
  • It is on the credit side if the business is overdrawn

How do I enter transactions into the cash book?

• STEP 1 Identify whether the transaction affects the cash or bank account

• STEP 2 Decide whether the account should be debited or credited

  • Debit the account if the business is receiving money
  • Credit the account if the business is losing money

• STEP 3 Include any discount that was allowed or received

What are contra entries in the cash book?

• A contra entry is for a transaction that is entered into both sides of the cash book

  • It will be entered in the cash column on one side
  • It will be entered in the bank column on the other side

• The two transactions which result in contra entries are:

  • Withdrawing cash from the business bank account for business use

    • Debit the cash account
    • Credit the bank account

  • Depositing cash from the business into the business bank account

    • Debit the bank account
    • Credit the cash account

Exam Hint It is very easy to get confused when making contra entries into the cash book.

If the amount goes in the cash column, the details will say “bank”. If the amount goes in the bank column, the details will say “cash”.

For contra entries, remember that the name used for the details will be different to the name of the column where the entry is made.

Worked Example Worked Example

Yana is a sole trader. On 1 January 2024, Yana had $20 cash in hand and $850 in the bank. During January 2024, the following transactions took place. Prepare Yana’s cash book.

Jan 2	Purchased goods on credit, $350, from Liza
4	Paid electricity, $250, by telephone transfer
6	Sold goods on credit, $180, to Tobey
10	Withdrew cash, $300, from the bank for business use
11	Cash sales, $50, were paid directly into the bank account
18	Paid Liza, $320, by credit transfer, in full settlement of the invoice from 2 January 2024
21	Tobey paid his account of £180 by cheque after deducting 5% cash discount
28	Paid rent, $500, by direct debit
31	Paid $200, cash, for wages

Answer:

Jan 1	Debit balance of $20 for cash and debit balance of $850 for bank
2	No entry into the cash book as there was no exchange of cash
4	$250 credit entry to the bank account
6	No entry into the cash book as there was no exchange of cash
10	Contra entry - debit the cash account and credit the bank account
11	$50 debit entry to the bank account
18	$350 - $320 = $30 $320 credit entry to the bank account with $30 discount
21	5% ✕ $180 = $9 and $180 - $9 = $171 $171 debit entry to the bank account with $9 discount
28	$500 credit entry to the bank account
31	$200 credit entry to the cash account

Yana

Cash Book

Date	Details	Discount Allowed $**	Cash $	Bank $	Date	Details	Discount Received $	Cash $	Bank **$
Final answer: 2024 Jan 1	Final answer: Balance b/d		Final answer: 20	Final answer: 850	Final answer: 2024 Jan 4	Final answer: Electricity			Final answer: 250
Final answer: Jan 10	Final answer: Bank		Final answer: 300		Final answer: Jan 10	Final answer: Cash			Final answer: 300
Final answer: Jan 11	Final answer: Sales			Final answer: 50	Final answer: Jan 18	Final answer: Liza	Final answer: 30		Final answer: 320
Final answer: Jan 21	Final answer: Tobey	Final answer: 9		Final answer: 171	Final answer: Jan 28	Final answer: Rent			Final answer: 500
					Final answer: Jan 31	Final answer: Wages		Final answer: 200

Balancing the Cash Book

How do I balance the cash book?

• Balance the cash columns just like any other ledger account

  • Ignore the other columns
  • Remember the balance is always brought down onto the debit side

• Balance the bank columns just like any other ledger account

  • Ignore the other columns

  • The balance will be brought down onto the:

    • debit side if the business has money in the bank
    • credit side if the business is overdrawn

• Do not balance the discount columns

  • You just need to total them up
  • They will likely be different totals

Where do I put the totals for the discount columns?

• The cash book is the book of prime entry for discount

  • It records the discounts allowed and received
  • It is not part of the double entry system for discount

• Enter the discount in the relevant accounts

• The total on the left-hand side is the discount allowed

  • Debit the whole total to the discount allowed account

    • Label the entry as “cash book”
    • You do not need to put a separate entry for each transaction

  • Credit the relevant trade receivables accounts in the sales ledger

• The total on the right-hand side is the discount received

  • Debit the relevant trade payables accounts in the purchases ledger

  • Credit the whole total to the discount received account

    • Label the entry as “cash book”
    • You do not need to put a separate entry for each transaction

Worked Example Yana’s cash book for January 2024 is shown below. Balance the cash book and bring down the balances at 1 February 2024.

Yana

Cash Book

Date	Details	Discount Allowed $**	Cash $	Bank $	Date	Details	Discount Received $	Cash $	Bank $
2024 Jan 1	Balance b/d		20	850	2024 Jan 4	Electricity			250
Jan 10	Bank		300		Jan 10	Cash			300
Jan 11	Sales			50	Jan 18	Liza	30		320
Jan 21	Tobey	9		171	Jan 28	Rent			500
					Jan 31	Wages		200

Answer:

Balance the cash account:

• Total of the cash debit entries = $320

• Total of the cash credit entries = $200

• Difference in the cash totals = $120

  • This goes on the credit side as that total is the smallest

Balance the bank account:

• Total of the bank debit entries = $1 071

• Total of the bank credit entries = $1 370

• Difference in the bank entries = $299

  • This goes on the debit side as that total is the smallest

Yana

Cash Book

Date	Details	Discount Allowed $	Cash $	Bank $	Date	Details	Discount Received $	Cash $	Bank $
2024 Jan 1	Balance b/d		20	850	2024 Jan 4	Electricity			250
Jan 10	Bank		300		Jan 10	Cash			300
Jan 11	Sales			50	Jan 18	Liza	30		320
Jan 21	Tobey	9		171	Jan 28	Rent			500
Final answer: Jan 31	Final answer: Balance c/d			Final answer: 299	Jan 31	Wages		200
		Final answer:**	Final answer: **	Final answer:** **	Final answer: Jan 31	Final answer: Balance c/d	Final answer:** **	Final answer: 120	Final answer:**
		Final answer: 9	Final answer: 320	Final answer: 1 370			Final answer: 30	Final answer: 320	Final answer: 1 370
Final answer: Feb 1	Final answer: Balance b/d		Final answer: 120		Final answer: Feb 1	Final answer: Balance b/d			Final answer: 299