A cash book records all money moving in and out, in separate cash and bank columns. Receipts go on the debit side, payments on the credit side, and a contra entry moves money between the two columns.
This lesson is part of books of prime entry. Discounts are explained more fully in handling discounts in the appropriate records.
Worked example: one week in a cash book
Kedai Siti starts with cash RM500 and a bank balance of RM3 200. The week’s transactions are below.
- 3 March: cheque of RM760 from Ali, who owed RM800 and is allowed RM40 discount.
- 5 March: cheque of RM1 140 to Hasan, who was owed RM1 200, with RM60 discount received.
- 8 March: cash sales of RM420.
- 10 March: wages of RM300 paid in cash.
- 12 March: RM400 cash paid into the bank.
| Side | Details | Discount | Cash | Bank |
|---|---|---|---|---|
| Dr | Balance b/d | 500 | 3 200 | |
| Dr | Ali | 40 | 760 | |
| Dr | Sales | 420 | ||
| Dr | Cash (contra) | 400 | ||
| Cr | Hasan | 60 | 1 140 | |
| Cr | Wages | 300 | ||
| Cr | Bank (contra) | 400 |
Balancing the columns:
- Cash: debit 500 + 420 = 920. Credit 300 + 400 = 700. Balance c/d = 920 − 700 = RM220.
- Bank: debit 3 200 + 760 + 400 = 4 360. Credit 1 140. Balance c/d = 4 360 − 1 140 = RM3 220.
Check: cash debit total 920 equals credit 700 + 220. Bank debit total 4 360 equals credit 1 140 + 3 220.
The mistake that costs marks
The slip with discount is to write the settled amount of RM800 in the bank column. The bank only received RM760, so the bank column must show what actually moved.
The second slip is a contra entry on one side only. The cash leaves the cash column and enters the bank column, so both sides need a line.
| Item | Wrong | Right |
|---|---|---|
| Ali’s cheque in bank | 800 | 760 |
| Contra | Bank debit 400 only | Bank debit 400 and cash credit 400 |
What happens to the discount totals?
Discount allowed is on the debit side, because it is a cost to the business. Discount received is on the credit side, because it is a gain.
At month end, the two totals are posted to their own ledger accounts.
Check yourself
Devi owes RM1 000 and pays RM950 by cheque in full settlement. Show the cash book entry and the ledger effect on Devi’s account.
Answer
Cash book, debit side: Devi, discount allowed RM50, bank RM950.
Devi’s account is credited with RM950 for the payment and RM50 for the discount allowed. Her account then closes at zero.
What to study next
Continue with handling discounts in the appropriate records. The cash and profit transaction timeline shows why cash and profit can differ. For help with balancing, see online one-to-one Accounting tuition.