The Cash Book - Business Studies Form 3 Notes

• Definition
• Types of Cash Books
  • Single – Column Cash Book
  • Two Column Cash Book
  • Three Column Cash Book
• Past KCSE Questions on the Topic

Definition

• A cash book is a ledger that contains the cash and bank accounts only. The cash and bank accounts are usually kept in separate from other accounts.

Types of Cash Books

1. Single- column cash book.
2. Double - column cash book.
3. Three - column cash book.
4. Petty cash book.
5. Analysis cash book.

Single – Column Cash Book

• A cash book having the account and the bank account on different pages.
  
  Note
• In the ledger folio column, the name of the ledger and the page where the account named in the details column is to be found.
• A transaction whose double entry is completed in one book is referred to as a contra transaction. Denoted by „‟ C „‟ in the ledger folio. The „‟c/d‟‟ and „‟b/d‟‟ used against the balance is recorded in the ledger folio column.

Two Column Cash Book

• In a two column cash book the bank and cash account are being prepared side by side on the same page. It has the money column on both the debit and credit side.
• The first column is for recording cash in hand and the second column for recording cash at bank.

Format for the two column cash book

• The double mid- dividing line separates the debit side from the credit side. To the left we have the debit cash and bank and so is to the right.

Uses Of Two Column Cash Book.

- It is used to:

• Separate it with other accounts
• Quick determination of work flow
• Combine cash and bank accounts
• Easy reference and double entry transactions
• To relieve the general ledger of many records that appear

Example

On 1 March, 2001, mingy traders had Ksh. 13,200 in cash and bank balances of Sh56, 000.The following transaction took place during the month.

2001 - 2 Cash sales sh. 12,000
12 paid a creditor sh. 8,200
27 received a cheque for sh. 4,500 from debtors
31 paid rent 7,500 in cash

Record the above information in a two column cash book and balance it off.

Solution

Balancing off the two column cash book

• When balancing, each of these accounts is considered separately. The total of the debit column of the cash account is compared with the total of the credit column of the same account and the difference obtained.
• This balance is then inserted onto the smaller side as balance c/d to make the two sides equal. The same figure is brought down (b/d) on the opposite side below the totals.

Three Column Cash Book.

• A three column cash book has three money columns on each of the debit and credit sides.
• These columns are for discounts, cash and bank.

Discount

• A discount is an allowance by the seller of the goods to a buyer so that the buyer pays less than the quoted price.

Types of discounts

• Quantity Discounts
• Trade discounts
• Cash discounts

Note;

Cash discounts are calculated on the amounts owed. For example the money owed by Aisha is sh 10,000.If she is given a discount of 10%, then amount received will be
Discount is ¹⁰/₁₀₀ x 10,000 = 1,000
Amount received 10,000 - 1,000 = 9,000

Example

On January 1st 2006, Mutual Traders had cash in hand Shs.74, 000 and a credit. Bank balance of Shs.500, 000.
During the month the following Transactions took place

2006
January 2 Cash Sales Sh.100, 000
January 3 Paid salaries Shs.203, 000 by cheque
January 6 received a cheque of Shs.153, 600
January 6 from Mwanza after allowing her a cash discount of 40%
January 12 Bought office furniture by cheque Shs.170, 000.
January 16 Settled Kamaru‟s Account Shs.80, 000 in cash deducting Shs.1,600 cash discount.
January 18 received a cheque for Shs.300, 000 in respect of sales
January 21 Paid wages Shs.48, 000 in cash.
January 22 Withdrew Shs.60, 000 from the bank for office use.
January 25 Took Shs.10, 000 cash for his son's birthday to be celebrated at home.
January 28 Received Shs.33, 000 cash from Matoka settlement of his account less Shs.1,320 cash discount.
January 30 Deposited all the money into the bank except Shs.50, 000.

Prepare a 3 column cashbook duly balanced.

Solution

24 ticks @ ½ mk = 12mks

Working

6th January 153,600 = 96%
6400 = 4%
16th January 80000 less 1600 = 78,400
28th January 33,000 less 1320
Can give both 33,000 + 1320

Example

The following were the balances of Kiboko Traders as at 1st January 2009. Cash Sh.40, 000, bank overdraft Sh.17, 000. During the month the following transactions took place.

January 2nd: Mutes a debtor settled his account of Sh.32, 000 by cheque of Sh.30, 000
4th : Paid salaries amounting to Sh.16,000 by cash.
10th: Deposited Sh.12, 000 into the business bank account from the cash till.
14th: Settled Wayua‟s account of Sh.40, 000 and she was allowed a discount of 1% through a cheque.
16th: Deposited Sh.56, 000 in the bank from private resources.
17th: Sold goods for cash Sh.24,000.
20th: Mutua, a debtor, settled his account by a cheque of Sh.16, 000 having been allowed a discount of 2%.
24th: Purchased furniture Sh.10, 400 paying by cheque.
26th: Received Sh.7, 200 cash from Odhiambo.
30th: Banked all the available cash except Sh.3200.

Required: Prepare a three column cash for Kubuka Traders.

Solution`

NB: C₁ and C₂ if not indicated don't award. (20 x ½ = 10mks)

Example

On 1st November 2013:Tabagon Co. Ltd. had a balance of shs. 12,000 at the bank and shs. 2500 in hand. During the month, the following transaction took place;

Nov. 1 Cash sales Shs. 2500, cash purchase Shs. 1750
Nov. 3 Paid the following accounts by cheque.
Kirop Shs. 1500 less 5% cash discount
Kirui Shs. 2000 less 5% cash discount
Nasimiyu shs. 2100 less 3 % cash discount
Nov. 5 Received the following amounts from debtors: Ondiek shs. 1200, Jane shs. 3850 and Mueni by cheque shs. 2050 after allowing her shs. 300 cash discount.
Nov. 14 Paid office cash to the bank shs. 2000
Nov. 17 Cash sales 8500
Nov. 22 Mueni paid her account of shs. 5000 by cheque less 10% cash discount
Nov. 28 Withdrew all the money from the bank for office use except shs. 1000
Nov. 29 Paid salary cash shs. 8000
Nov. 30 A cheque received from Mueni on Nov. 5th was dishonoured.

Prepare Tobago Co. Ltd. three column cash book. (10 marks)

Solution

Prepare Tobago Co. Ltd. three column cash book. (10 marks)

10 ×1 = 10 marks

Past KCSE Questions on the Topic

1. State the meaning of the following terms used in a cash book
   1. Contra entry
   2. Folio column
2. The following is an extract of a cash book from Ramo traders
   

   Date	Particulars	Cash	Bank	Date	Particulars	Cash	Bank
   1/1	Balc/d	2500	4500	2/1	stat	520
   5/1	Sales	1200		3/1	Wages		2400
   10/1	Cash	1500		10/1	Bank	1500

   
   
   1. Determine the balances carried down on 10th Jan 1996 (1 mk)
   2. Give the name of the transaction on 10th Jan 1996 (1 mk)
3. Enter the following transactions as in the cash Book of Temple Traders Below(4 mks)
   
   March 5 Cash 30,000
   March 10 paid a creditor Kshs 7,500 by cheque
   March 20 received 5,000 in cash
   March 15 deposited 12,500into bank
   March 28 Paid wages 2,400 in cash
   
   

   Date	particulars	Cash	Bank	Date	Particulars	Cash	Bank

   
   
4. State four uses of two column cash book (4 mks)
5. For each of the following types of account indicate by writing Dr. or Cr. The side of record for increase and decrease
   

   Type of A/c	Increase	Decrease
   Asset
   Capital
   Revenue
   Expense

6. The following is an extract of a cashbook of Maisha traders
   

   Date 1998	Particulars	Cash	Bank	Date 1998	Particulars	Cash	Bank
   1/7	Bal b/d Sales Kamau Sales	- 8000	- 16000 20000	2/7 10/7 12/7 12/7 30/7	Salary Purchases Rent Stationary Bal c/d	5000 6000 11000	20000 19000 43000

   
   Determine the opening balances on 1.7..98
7. On July 1999 Kahawa Traders has Kshs 6,000 cash in hand, a bank overdraft of Kshs 2,000. During the month the following transactions took place
   1. Received cheque from debtors totaling to Kshs 80,000
   2. Paid telephone bills 1,200 cash
   3. Withdrew Kshs 16,000 from bank for office use. Enter the above information in
      Kahawa traders cashbook given below and balance it off
      

      Kahawa Traders Cash Book For the month of July 1999
      Date	Particulars	Cash	Bank	Date	Particulars	Cash	Bank

8. On 1 March, 2001, Mingi traders had Ksh. 13,200 in cash and bank balances of Sh 56,000. The following transaction took place during the month.
   
   2001 2 Cash sales sh. 12,000
   12 paid a creditor sh. 8,200
   27 received a cheque for sh. 4,500 from debtors
   31 paid rent 7,500 in cash
   
   Record the above information in a two column cash book and balance it off. (4 mks)
9. Outline the uses of two column cash book (4 mks)
10. The following is an extract of a cash book.
    

    Date 2002	Particulars	Cash	Bank	Date	Particulars	Cash	Bank
    2/5 12/5 20/5 28/5	Bal Sales Sales	W 20000 50000	X 120000	6/5 18/5 22/5 30/5	Wages Purchases Rent Bal c/d	6000 Y	60000 30000 150000

    Determine the figures represented by W, X, Y,Z (4 mks)