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Business Processes & Accounting Systems · Week 03

Cash Book, Petty Cash Book & General Journal

The cash book as both a day book and a ledger account; one-, two- and three-column cash books (contra entries, discounts allowed and received); the petty cash book and the imprest system; and the general journal for everything else.

ITE3622📄 Accounting process - Session 03.pdf📄 Practice questions for lesson 3.pdf

1Where these books fit

Source documentsPrimary booksLedgerTrial balanceFinancial statements

This week covers the remaining primary books:

  • the cash book, from receipts (Dr side) and payment vouchers (Cr side)
  • the petty cash book
  • the general journal, from journal vouchers

The sales, purchase and returns journals were covered in Week 2.

2The cash book

  • The cash book records all cash receipts and cash payments.
  • It has a dual purpose. It is both a primary entry book and an account in the ledger (the cash/bank account). So no separate cash account is needed in the ledger.
Side What goes in Source document
Debit (left) Receipts: money coming in Receipt
Credit (right) Payments: money going out Payment voucher

Four types:

  1. one-column
  2. two-column
  3. three-column
  4. petty cash book

One-column cash book (cash only)

Date Receipt No. Description L/F Cash ‖ Date Voucher No. Description L/F Cash

Two-column cash book (cash + bank)

It adds a bank column for the current account.

Features of a current account:

  • no interest
  • the bank issues a cheque book
  • an overdraft facility is available
  • a cheque is written when money is needed
Date R/N Description L/F Cash Bank ‖ Date V/N Description L/F Cash Bank
Contra entries ("C")

When money moves between cash and bank, both sides of the entry are in the cash book. Mark them "C" (contra) in the L/F column. Nothing is posted to the ledger.

  • Cash deposited into the bank: Dr Bank column / Cr Cash column.
  • Cash withdrawn from the bank for office use: Dr Cash column / Cr Bank column.

Three-column cash book (cash + bank + discount)

Two types of discount:

Type Meaning Recorded?
Trade discount A reduction from list price for trade buyers or bulk orders Not recorded in the books. The invoice already shows the net price
Cash discount A reduction for paying promptly Recorded in the cash book's discount columns

Two kinds of cash discount:

Discount allowed (D/A) Discount received (D/R)
Who gives it We give it to a customer who pays early A supplier gives it to us when we pay early
Cash book side Debit (receipts side) Credit (payments side)
Nature Expense Income
Ledger posting (column total) Dr Discount allowed / Cr debtors (the debtor's account is credited with cash + discount) Dr creditors / Cr Discount received
Memo columns

The discount columns are not balanced like cash and bank. They're totalled and the totals are posted to the discount accounts in the ledger.

🧪 Try it — Three-column cash book builder
Bank overdraft

A credit balance in the bank column means an overdraft: you owe the bank, so it's a liability. The cash column can never have a credit balance.

3The petty cash book & imprest system

  • Businesses have many very small payments (stationery, travel, postage). Recording them all in the main cash book would bury the important transactions.
  • So they're kept in a separate petty cash book. Like the cash book, it's both a book of original entry and a ledger account.

Advantages:

  • Small payments are handled by a responsible petty cash controller (petty cashier).
  • The main cashier's workload drops.
  • Better control of business resources.
  • Efficient decisions.
  • Fewer frauds and errors on cash payments.
The imprest system
  1. The main cashier gives the petty cashier a fixed amount: the float.
  2. At the end of the period, the main cashier checks the petty cash book and vouchers.
  3. The main cashier reimburses exactly the amount spent, bringing the balance back to the float.

Top-up = amount spent = float − cash left.

Petty cash book format (analysis columns)

Receipts L/F Date Description V/N Payments Stationery Travelling Postage Ledger accounts

Each payment goes in the total column and in its analysis column. The column totals are posted to the expense accounts in the ledger. The "ledger accounts" column holds items such as payments to a creditor.

🧪 Try it — Imprest petty cash simulator

4The general journal

The general journal records transactions that don't fit the specialist journals (cash book, sales, purchases and returns journals). It records everything else.

  • Source document: the journal voucher.
  • Format: date, accounts debited and credited, amounts, and an explanation (narration).
Date Particulars L/F Dr Cr
1 Jan Motor vehicle A/C Dr 250,000
   To Creditor (ABC Motors) A/C 250,000
(Being a vehicle bought on credit from ABC Motors)

Transactions recorded in the general journal

Transaction Entry Note
Opening entries Dr each asset / Cr each liability / Cr capital (the balancing figure) Starts the books of a business
Credit purchase of non-current assets (vehicles, equipment, furniture) Dr Asset / Cr Creditor If bought for cash, use the cash book
Owner contributes capital in assets other than cash (own computer, furniture) Dr Asset / Cr Capital Cash capital goes in the cash book
Credit sale of non-current assets (1) Dr Asset disposal / Cr Asset (transfer the cost). (2) Dr Debtor / Cr Asset disposal (the selling price) Cash sale goes in the cash book
Drawings of assets other than cash (goods, equipment) Dr Drawings / Cr Asset (for goods: Cr Purchases) Cash drawings go in the cash book
Correction of errors Reverse or adjust the wrong entry Week 4 (suspense account)
Accounting adjustments Accruals, prepayments, depreciation, bad debts Weeks 6–7
Exam focus

Expect:

  • Why the cash book is special (dual purpose)
  • Preparing two- and three-column cash books with contra entries, discounts and balancing
  • Trade vs cash discount
  • Discount allowed vs received
  • The petty cash book with analysis columns and the imprest top-up
  • Its advantages
  • General journal entries with narrations for the six types of transaction

5Practice questions (course paper)

Worked answers to the Session 3 practice paper. Each one gives the key entries and the closing balances so you can check your own cash book.

Two-column cash books

Q1: Kamal Business, May 2019

Cheques received on May 4 and 7 are held as cash until they're deposited on May 8 (a contra entry).

Date Item Cash Bank
1 Capital +1,000
2 Rent −230
3 Bank loan +2,000
4, 7 Cheques: Kumari 190, F Sunil 34 +224
8 Deposited (contra ¢) −224 +224
9 Paid Gayan −92
11 Kusun paid us +96
16 Repaid loan −500
22 Cash sales +122
24 Cash deposited (contra) −50 +50
26 Motor expenses −75
30 Withdrew for business (contra) +200 −200
31 Wages −320
Balance c/d 726 1,499
Q2: Kasun bookshop, November 2018

Key point: Nuwan's cheque (194) is dishonoured on Nov 8. Credit the bank column and debit Nuwan again.

Cash Bank
Opening balance 295 4,240
Receipts: cash sales 310 + 430; cheques Nuwan 194, Sudath 174 (both later deposited); withdrawal 150 +1,258 +368
Contras out (deposits of the two cheques) −368
Payments: postage 80, wages 400, general 35 −515
Payments: equipment 310, Prabath 94, dishonoured 194, withdrawal 150, motor 81, insurance 320 −1,149
Balance c/d 670 3,459

Three-column cash books (with discounts)

Pre- vs post-discount
  • "Pre-discount" amount × 5% = the discount, and the cheque is the rest (260 → discount 13, cheque 247).
  • "Post-discount" amount is the cheque itself, so gross = cheque ÷ 0.95 (475 → gross 500, discount 25).
Q3: Wine wholesaler, January
Item Disc. allowed Cash Bank Disc. received
Opening balances 620 7,142
Dasun 260 / Gihan 320 (pre, 5%) 13 + 16 = 29 +551
Rent −430
Sumudu 475 / Green 855 (post, 5%) −1,330 25 + 45 = 70
Motor expenses −81
Naleen 2 +88
Wages −580
Lalith 768 / Dhanapala 384 (post, 4%) 32 + 16 = 48 +1,152
Drawings −200
W Kamal 5 +155
Fixtures −720
Commission +120
Totals / balance c/d 84 2 6,485 70

General ledger: Discount allowed Dr 84 (expense) · Discount received Cr 70 (income).

Q4: Office supply shop, February
Item Disc. allowed Cash Bank Disc. received
Opening 420 4,940
Nilani 820 / Diliani 320 (pre, 5%) 41 + 16 = 57 +1,083
Cash sales +740
Rent −340
Kasun 470 / Gunapala 846 (post, 6%) −1,316 30 + 54 = 84
Withdrawn for business (contra) +400 −400
Withdrawn for owner (drawings) −800
Wages −540
Fixtures / furniture −4,320 / −14,300
A Kanthi +324
Balance 57 680 −14,789 84

The bank balance is negative, so it's a bank overdraft of Rs. 14,789: a credit balance brought down, shown as a current liability.

Petty cash (imprest system)

Q5: Jothipala Ltd, May 2019 (float 3,000)
Cleaning Motor (petrol + service) Postage Stationery Travelling Total
770 970 410 260 450 2,860

Balance left = 3,000 − 2,860 = 140. Restore the imprest: receive 2,860 from the main cashier, and carry down 3,000 for June.

Q6: Petty cash book, June 2018 (float 600)
Office expenses Motor expenses Cleaning Casual labour Total
68 400 26 127 621
Q6: check the figures

The items add up to 621, which is more than the 600 float, so the paper's numbers can't all be right. The method still holds: reimburse the amount spent on 30 June to restore the float.

Q7: Osada Printing, May 2019 (float 5,000)
Travel Stationery Postage Sundry (newspapers, repairs, display, wrapping) Ledger (creditor X) Total
305 610 256 369 200 1,740

Balance 3,260, reimbursed 1,740 → 5,000 carried down. Post each column total to its expense account, and the 200 to creditor X (Dr).

Opening entries and the general journal

Q8: Araliya Enterprises, opening balances 1 Jan 2019

Assets: land 800,000 + building 400,000 + debtors 70,000 + cash 60,000 + bank 30,000 = 1,360,000. Liabilities: creditors 70,000 + bank loan 120,000 = 190,000.

Capital (the balancing figure) = 1,170,000. Record it in the general journal (opening entry): debit each asset, and credit each liability and capital.

Q9: Mora Enterprises

Opening capital = 700,000 + 200,000 + 300,000 − 100,000 − 30,000 = 1,070,000.

Date Dr Cr Rs.
Apr 2 Machinery Kalthota Enterprises 600,000
Apr 22 Furniture ABC Co. 550,000
Q10: Kalyana Enterprises, January 2019
Date Book Entry
Jan 6 General journal Dr Motor vehicle 1,800,000 / Cr Indra Traders
Jan 8 Purchase journal (goods for resale) Dr Purchases 50,000 / Cr Sunimal
Jan 14 General journal Dr Furniture 200,000 / Cr Swarnapal & Sons
Jan 25 Cash book (paid cash) Dr Machinery 500,000 / Cr Cash
Q11: Nuwana Enterprises (disposals on credit)

Opening capital = 400,000 + 400,000 + 234,000 + 50,000 − 150,000 = 934,000.

Date Dr Cr
Apr 6 Kamal 75,000 Furniture 50,000 · Profit on disposal 25,000
Apr 17 Gihan 300,000 Land 200,000 (half of 400,000) · Profit on disposal 100,000
Q12: Opening balances and January 2019 entries

Opening capital = 1,000,000 + 500,000 + 30,000 + 80,000 − 50,000 − 150,000 = 1,410,000.

Date Dr Cr Rs.
Jan 5 Furniture AB Co Ltd 500,000
Jan 14 Land Cash (cash book) 700,000
Jan 20 Motor vehicles Capital 800,000
Jan 30 Jusmin 700,000 Building 500,000 · Profit on disposal 200,000
Jan 31 Drawings Furniture 50,000

6Quick revision sheet

Concept Remember it as
Cash book Records all cash and bank receipts and payments; primary book and ledger account
Source documents Receipt (Dr side) · payment voucher (Cr side)
Types One-column (cash) · two-column (cash + bank) · three-column (+ discount) · petty cash
Current account No interest, cheque book, overdraft
Contra (C) Cash ↔ bank movement; both sides in the cash book
Trade discount Not recorded
Discount allowed Dr side; expense; given to customers
Discount received Cr side; income; received from suppliers
Bank overdraft Credit balance in the bank column = liability
Petty cash Small payments; petty cashier; analysis columns
Imprest Fixed float; top-up = amount spent
General journal Journal voucher; opening entries, credit asset buy/sell, non-cash capital or drawings, corrections, adjustments
Narration "Being…" explanation under each journal entry

?Self-check quiz

10 questions on this week. Answer them all, then press Check my answers. Your best and latest scores are saved and shown on the subject page.

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