Book-keeping · Lesson 4

Single, two- and three-column cash books, contra entries, discounts, overdrafts

WAECNECO

What the syllabus asks

WAEC: (1) meaning, purpose, format, contents and differences; (2) preparation of cash books: single column, double column (contra entry) and three column. Extends fa5.1–5.5 (bank reconciliation is in fa5).

NECO: (1) meaning, purpose, format, contents and differences; (2) preparation of cash books: single column, double column (contra entry) and three column. Extends fa5.1–5.5 (bank reconciliation is in fa5).

What you will learn

State the meaning and purposes of the cash book.
Describe its format and contents and distinguish it from the cash account.
Prepare single-, two- and three-column cash books.
Record contra entries correctly.
Calculate and record cash discounts.
Post the cash book and discount totals to the ledger.
Record overdrafts, bank charges, electronic payments and dishonoured cheques.
Explain controls over cash.

Key points

Cash book: original entry plus Cash and Bank accounts.
Receipts on the debit side, payments on the credit side.
Single, two and three-column formats.
Contra entries move money between cash and bank, marked C.
Discount allowed sits with receipts; discount received with payments.
Discount columns are totalled and posted, never balanced.
Customers and suppliers are posted with both money and discount.
Overdraft: credit balance in the bank column.
Electronic receipts go to the bank column.
Dishonoured cheques reverse the receipt and any discount.

Start here: Meaning and purposes of the cash book

The cash book records all receipts and payments of money, whether in notes and coins (cash) or through the bank (cheques, transfers, POS, standing orders). It is both a book of original entry (transactions are first written there, in date order, from receipts, cheque counterfoils and bank slips) and a ledger: it holds the Cash account and the Bank account, so there are no separate Cash and Bank accounts in the general ledger.

Purposes

To record every receipt and payment promptly and in date order.
To show the cash in hand and the bank balance at any time.
To complete one side of the double entry for every money transaction.
To control cash: the cash balance in the book must equal the money counted in the till.
To record cash discounts (three-column form).
To provide figures for the bank reconciliation statement.

The rule of the cash book

Like any asset account, the cash book is debited with money received (left side) and credited with money paid out (right side). The other half of each entry goes to a ledger account on the opposite side: cash sales ₦62,000 debited in the cash book are credited to Sales account.

What counts as “cash” and what counts as “bank”

Use the cash column for notes and coins received or paid over the counter. Use the bank column for everything that passes through the bank account: cheques received (once banked), cheques issued, bank transfers, POS receipts that settle into the account, standing orders, direct debits, bank charges and interest. In modern Nigerian shops most receipts are POS or transfer, so the bank column is often the busier one.

Who keeps the cash book?

In a small business the owner keeps it. In a larger one, the cashier keeps the cash book, while other clerks keep the sales and purchases ledgers. This separation is deliberate: the cashier handles money but does not write up customers’ accounts, so he cannot hide a theft by reducing what a customer appears to owe. The cashier also prepares a daily summary of takings, banks the money and files the source documents in date order.

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Practice questions

1. The cash book is both

a book of original entry and part of the ledger
a day book and a journal
a trial balance and ledger
a balance sheet and ledger

Show answer

A: a book of original entry and part of the ledger
Dual role.

2. A contra entry in a two-column cash book arises when

goods are sold on credit
a debtor pays by cheque
rent is paid by cheque
cash is paid into the bank

Show answer

D: cash is paid into the bank
Both sides of the cash book.

3. In a three-column cash book, discount allowed is on the

both sides
not shown
debit side
credit side

Show answer

C: debit side
With receipts.

4. Cash 45,000 + 64,000 − 80,000 − 22,000. Closing cash is

₦4,000
₦7,000
₦29,000
₦87,000

Show answer

B: ₦7,000
Net ₦7,000.

5. A debtor owing ₦100,000 pays by cheque less 2% discount. The bank column shows

₦98,000
₦100,000
₦102,000
₦2,000

Show answer

A: ₦98,000
100,000 − 2,000.

Key words

Cash book: Book recording all cash and bank receipts and payments.
Contra entry: Entry on both sides of the cash book for cash–bank transfers.
Discount allowed: Cash discount given to customers; an expense.
Discount received: Cash discount from suppliers; an income.
Memorandum column: Column recorded for information, not part of the balance.
Overdraft: Amount owed to the bank on a current account.
Dishonoured cheque: Cheque returned unpaid by the bank.
POS: Point-of-sale card terminal.
Paying-in slip: Form used to deposit money in a bank.
Counterfoil: Stub of a cheque kept by the drawer.
Bank charges: Fees deducted by the bank.
Imprest: Fixed float for petty cash (bk5).

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