The Cash Book - Business Studies Form 3 Notes

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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.
Cash Account
Dr. Cr.
Date Details L.F Amount
Sh
Date Details L .F Amount
sh
20_6       20-6      
Feb 1 Capital G.L 100,000 Feb 3 Rent G.L 20,000
5 Sales G.L 40,000 9 Bank C 18,000
6 Momani S.L 22,000 25 Carriage in G.L 9,000
12 Commission G.L 7,000 31 Salaries G.L 16,000
22 Bank C 50,000 31 Balances c/d 156,000
      219,000       219,000
31 Balance b/d 156,000        

 

Bank Account
Dr. Cr.
Date Details L.F Amount
Sh
Date Details L .F Amount
sh
20-6
Feb 1
8
9


31


Capital
Sales
Cash


Balance


G.L
G.L
C.L


b/d

250,000
30,000
18,000
298,000

51,000
20-6
Feb 3
9
25
31
31





Furniture
Purchase
Salaries
Drawings
Cash
Amino
Salaries
Balances


G.L
G.L
G.L
G.L
C
P.L
G.L
c/d


15,000
80,000
26,000
16,000
50,000
28,000
32,000
51,000
298,000

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

Cash Account
Dr. Cr.
Date Details L.F Cash
sh
Bank
sh
Date Details L.F Cash
Sh
Bank
Sh
                   
  • 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

Two-column cashbook
Dr. Cr.
Date Details Bank Cash Date Details Bank Cash
1/3
1
2
27

1/4

Bal b/d
Sales
Debtors

Bal b/d

13,200


25,200
17,700

56,000
12,000
24,500
80,500
72,300
15/3
31/3

31/3
Creditor
Rent

Bal c/d


7,500

17,700
25,200


8,200

72,300
80,500

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

Mutua Traders
Three Column Cash Book
Dr. Cr.
Date details Disc.
allow
Cash
Shs.
Bank.
Shs.
Date Details Disc
rec.
Cash
Shs.
Bank
Shs.
2006

Jan 1
2
6
18
22
28
30
30
30

30


Bal b/d
Sales
Mwanza
Sales
Bank C
Maluka
Cash at bank
Bal c/d

Totals
Bal b/d



6,400


1,320



7,720


74,000
100,000

60,000
33,000




267,000
50,000



153,600
300,000


80,600
398,800


933,000
2006

Jan
1st
3rd
12
16
21
22
25
30
30
30

30


Bal /bd
Salaries
Furniture
Kamaru
Wages
Cash C
Drawing
Bank C
Bal c/d


Totals
Bal/b/d




1,600







1,600




78,400
48,000

10,000
80,600
50,000


267,000


500,000
203,000
170,000


60,000





933,000
398,800

24 ticks @ ½ mk = 12mks

Working

6th January 153,600 = 96%
6400 = 4%
16
th January 80000 less 1600 = 78,400
28
th 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.
10
th: Deposited Sh.12, 000 into the business bank account from the cash till.
14
th: 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`

KIBOKO TRADERS
THREE COLUMN CASH BOOK FOR THE MONTH OF JANUARY 2009
Dr. Cr.
Date Details Folio D.A Cash Bank Date Particulars Folio D.R Cash Bank
2009
Jan 1
2
10
16
17
20
20
30

Balance
Mutes
Cash
Capital
Sales
Mutua
Odhiambo
Cash


b/d

C1




C2




2,000



1,632


3632 


40,000


 
24,000 

7,200

71,000 



30,000
12,000
56,000

16,000

40,000
154,000
2009
Jan 1
4
10
14
24
30


Bal
Salaries
Bank
Wayua
Furniture
Bank
Bal


b/d

C1


C2
c/d






400



400




16,000 
12,000
 

40000 
3,200
71,000 



17,000


39,600 
10,400 

87,000
154,000 

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)

Tobago Co. Ltd. three column cash book.
Dr. Cr.
Date Details F Discount allowed Cash Bank Date Details F Discount received Cash Bank
 2011            2011          
 Nov   1 Balance   b/d    2500  12000  Nov   1  Purchase     1750   
 1 Sales       2500    3  Kiprop    75    1425
 5  Ondiek      1200    3  Kirui     100    1900
 5  Jane      3850    3  Nasimiyu    63    2037
 5  Mueni    300    2050  14  Bank  C    2000  
 14  Cash  C      2000  28  Cash  C      14188
 17  Sales      8500    29  Salary      8000  
 22  Mueni    500    4500  30   Mueni        2050
 28  Bank  C    14188    30  Bal. c/d     20988  
 30  Bal  c/d      1050            
       800  32738  21600        238  3278  2160
 30  Bal   b/d    20988      Bal.  b/d      1050

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

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