Maintaining the cash book

Transcription

1 Maintaining the cash book Introduction You are likely to see two or three tasks in your assessment that will ask you to deal with transactions in the cash book of a business. Remember that there are two sides to the cash book; the receipts side which shows increases in our cash balance (debit entries) and the payments side which shows reductions in our cash balance (credit entries). In this chapter we will introduce a layout for our cash book known as the two column cash book and you will see that the name can be a little misleading as it will actually contain more than two columns of information. Topics covered: The cash book The two column cash book

2 172Bo Bookkeeping Transactions The cash book The cash book is one of the main Books of Prime Entry for a business and shows all of the transactions that affect the bank account of the business. The cash book is made up of two separate Books of Prime Entry: book receipts (which is the debit side) showing receipts into the bank account (increasing the asset of cash in the bank) book payments (which is the credit side) showing payments out of the bank account (reducing the asset of cash in the bank) The two column cash book Rather than recording all cash and bank transactions together in a single account, the twocolumn cash book enables the business to separate these records using two columns in the cash book; each column representing a separate account. This would be used for a business that regularly has customers paying in physical cash (rather than by cheque) and the business chooses to keep some of the cash in hand to pay for some of its purchases. The name is slightly misleading as it will have more than two columns but it has this name as the focus is on two columns, with further analysis given in additional columns. The two columns that we are most interested in are: (a) (b) The column which records total amounts going into or out of the bank account The column which shows transactions that are in the form of actual physical cash With the two column cash book you must ensure that you separately record: Receipts into and payments out of the business bank account Receipts of and payments out of cash by the business. There are other columns to analyse the totals. An example of a two column cash book debit side (so receipts into the business): Date Detail Sales Sales control Sundry receipts 31 August s , , DR DR CR control CR Sales CR Sales control CR Sundry receipts So, the two columns that we focus on are the two shaded in the illustration above: The column which is the total receipts into the bank account giving the total debit to the bank account (increasing an asset).

3 Chapter 10: Maintaining the cash book 173 The column which is the total received by the business in the form of actual physical cash giving the total debit to our cash balance (increasing an asset). The combined total of the and columns is then analysed into the various credit entries that would be required in the double entry. If you add up the credit to of 140, the credit to sales of 500, the credit to the sales control account of 3,000 and the credit to sundry receipts of 200 this gives a total credit of 3,840, which balances the total of the debit to bank of 3,240 and the debit to cash of 600. As well as cash book receipts we can also consider cash book payments: An example of a two column cash book credit side (so payments made by the business): Date Detail purchases control Sundry payments 31 August s , , CR CR DR control DR s DR control DR Sundry payments As with the debit side of the cash book, the two columns that we focus on are the two shaded in the illustration above: The column which is the total payments from the bank account giving the total credits to the account (reducing an asset). The column which gives the total amount paid by the business in the form of physical cash (reducing an asset). The combined total of the and columns is then analysed into the various debit entries that would be required in the double entry. If you add up the debit to of 42, the debit to purchases of 150, the debit to the purchase control account of 2,300 and the debit to sundry payments of 60 this gives a total debit of 2,552, which balances the total of the credit to bank of 2,372 and the credit to cash of 180. In your assessment you may need to record transactions in a two column cash book and calculate the closing and balances. You may need to consider the credit side of the cash book (so, payments being made from the business) and the debit side of the cash book (receipts into the business). Let s start looking at the credit side in a typical example of the sort of task you may face.

4 174Bo Bookkeeping Transactions ILLUSTRATION There are five payments that need to be entered into Shouting Ltd s cash book. Receipts for three cash payments From Shouting Ltd a customer From Shouting Ltd a customer From Shouting Ltd a customer Net 100 Net 200 Net (No ) Gross 120 Gross 240 G J Ltd M L Ltd P E Ltd Cheque book counterfoils for two cheque payments Yelling Ltd ( account YEL05) 800 Screetch Office Supplies Ltd (no credit account with this supplier) 60 including Enter the details from the three receipts and two cheque book stubs into the credit side of the cash book shown below and total each column. book credit side purchases Office expenses Balance b/d 5,120 G J Ltd M L Ltd P E Ltd Yelling Ltd Screetch Ltd

5 Chapter 10: Maintaining the cash book 175 Interpreting the information in the task: We are looking at the credit side of the cash book which means that we are dealing with payments made by the company. The records of the first three payments are given in the form of receipts. Don t confuse this with meaning a receipt of cash (remember that we are looking at cash payments on the credit side of the cash book), when they refer to receipts here they mean the slip of paper you are given as your record when you purchase something for cash. These first three payments are therefore payments out of physical cash. This is supported by the fact that the receipts state that we are a customer and that the supplier received cash with thanks. You will see that two of the receipts include details of the element of the transaction which we will need to analyse out in our cash book. The company names at the bottom of the receipts are the names of the suppliers that we made these purchases from. The records of the other two payments are cheque book counterfoils (or cheque book stubs as they are often called). This means that they are payments out of the bank account. The first bank payment is to a credit supplier (we know this because they have a purchase account reference meaning that they are included on the list of credit supplier accounts in the memorandum purchase ) meaning that we have written a cheque paying off a previous credit purchase. Notice that there is no reference to on this counterfoil as the would have been accounted for when we actually made the original purchase. The second bank payment looks like it is for office supplies from a supplier that we don t get credit from. As this is a cheque payment for a transaction that we are making at that point you will see that there is detail of the element of the transaction. We then have the table showing the various analysis columns of the cash book with rows for each of the transactions we need to insert. You will see that there is already a balance brought down (or an opening balance) on the bank account. Remember that we are looking at the credit side of the cash book, so the fact that this balance brought down is on the credit side shows us that the bank account is a liability rather than an asset and means that the bank account is overdrawn by 5,120. We can now start completing the entries that we need to make in the cash book. Let s introduce the information from the three receipts first; as these were all paid for in the form of physical cash the full Gross totals are shown in the column as this is what will be coming out of our cash balance, with the Net figures analysed as s and the shown for the transactions that included a element.

6 176Bo Bookkeeping Transactions purchases Office expenses Balance b/d 5,120 G J Ltd M L Ltd P E Ltd Yelling Ltd Screetch Ltd We can now introduce the two cheque payments. The full Gross values are shown in the column as this is the amount that will be coming out of our bank account (remember that these are cheque payments!). For the first cheque the payment will be analysed as Ledger as this was a payment to a credit supplier that we owed money to. Remember that there was no to split out as the would have been accounted for when we received the original Invoice. The second cheque did include so we need to work out the Net figure in the usual way (60/1.2 = 50) and the amount (50 x 0.2 = 10). The Net figure can be shown in the Office Expenses column as this appears to be what it relates to from reading the cheque stub. Balance b/d 5,120 purchases G J Ltd M L Ltd P E Ltd Yelling Ltd Office expenses Screetch Ltd

7 Chapter 10: Maintaining the cash book 177 The final step is to complete the total figures for each column: Balance b/d 5,120 purchases G J Ltd M L Ltd P E Ltd Yelling Ltd Office expenses Screetch Ltd , So we have now finished this task looking at the credit side of the cash book. Let s turn our attention to the debit side... ILLUSTRATION The debit side of the cash book shows the receipts that the business has had, both in the form of payments into the bank account (receipts of cheques perhaps) and also in the form of actual cash received. There are two cheques from credit customers to be entered into Shouting Ltd s cash book: Mumbling Ltd 950 Whispering Ltd 700 Enter the above details into the debit side of the cash book and total each column. Balance b/d 1,600 Mumbling Ltd Whispering Ltd Sales Ledger Interpreting the information in the task: Compared to when we were looking at the credit side of the cash book this task is relatively short and sweet. We are given details of two cheques that the company has received from credit customers. The values of the cheques do not have any element as the would have been accounted for when we made the original credit sale, not now that the customer is paying off what they owe us. The balance brought down on the column shows that Shouting Ltd already had 1,600 of physical cash in hand before they received anything. There is no balance brought down in the column of the Debit side of the cash book as we have already seen in the previous illustration that the bank account is overdrawn with the balance brought down on the Credit side.

8 178Bo Bookkeeping Transactions When we insert the two cheque receipts into our cash book we can show the total amount received in the column with the analysis as Sales Ledger as it was received from credit customers who would be listed on the memorandum sales. Balance b/d 1,600 Sales Ledger Mumbling Ltd Whispering Ltd And we can finish by totalling the columns: Balance b/d 1,600 Sales Ledger Mumbling Ltd Whispering Ltd ,600 1,650 1,650 Once we have dealt with the credit side of the cash book (the payments made by the business), and the debit side of the cash book (the receipts made by the business), we can pull it all together to identify the balance carried down at the end of the period. ILLUSTRATION CALCULATING THE CASH AND BANK BALANCE (a) Using your answers to the last two illustrations, calculate the cash balance. (b) Using your answers to the last two illustrations, calculate the bank balance. (c) Will the bank balance calculated in (b) above be a debit or credit balance? Let s start by looking at the columns for part (a) of this task. When we dealt with the debit side of the cash book we had a total for the column of 1,600. This is the increase in the Asset of cash. When we dealt with the credit side of the cash book we had a total for the column of 660. This is the decrease in the Asset of cash. If we net off the debit and the credit (the increase and the decrease) we get 1, = 940 as a remaining balance (or balance carried down) on the in hand. Next let s look at the column for (b) and (c). On the Debit side of the cash book we had a total for the column of 1,650. This is the increase in the Asset of the balance at the bank.

9 Chapter 10: Maintaining the cash book 179 The Credit side of the cash book had a total on the column of 5,980. This is the decrease in the Asset of the balance at the bank. By netting these two figures off we get 1,650 5,980 = 4,330...which is a net credit balance meaning that we are still overdrawn. So the answers to the task are: ILLUSTRATION CALCULATING THE CASH AND BANK BALANCE (a) (b) (c) Using your answers to the last two illustrations, calculate the cash balance 940 Using your answers to the last two illustrations, calculate the bank balance 4,330 Will the bank balance calculated in (b) above be a debit or credit balance? Credit Have a go at these further examples. Examples 1 to 3 run together as a single exercise for Joker Ltd, and then examples 4 to 6 do the same for Crazy Ltd:

10 180Bo Bookkeeping Transactions LECTURE EXAMPLE 1 THE TWO COLUMN CASH BOOK (CREDIT SIDE) There are five payments that need to be entered into Joker Ltd s cash book. Receipts From Joker Ltd a customer From Joker Ltd a customer From Joker Ltd a customer Net 75 Net 140 Net (No ) Gross 90 Gross 168 A B Ltd C D Ltd E F Ltd Cheque book counterfoils Saucy Ltd ( account SAU01) 1,500 Funtime Office Supplies (No credit account with this supplier) 72 including Enter the details from the three receipts and two cheque book stubs into the credit side of the cash book shown below and total each column. book credit side purchases Office expenses Balance b/d 14,985 A B Ltd C D Ltd E F Ltd Saucy Ltd Funtime Ltd

11 Chapter 10: Maintaining the cash book 181 LECTURE EXAMPLE 2 THE TWO COLUMN CASH BOOK (DEBIT SIDE) There are two cheques from credit customers to be entered into Joker Ltd s cash book: Happy Ltd 799 Jolly Ltd 1,500 Enter the above details into the debit side of the cash book and total each column book debit side Balance b/d 2,500 Happy Ltd Jolly Ltd Sales LECTURE EXAMPLE 3 CALCULATING THE CASH AND BANK BALANCE (a) Using your answers to lecture examples 1 and 2, calculate the cash balance. (b) Using your answers to lecture examples 1 and 2, calculate the bank balance. (c) Will the bank balance calculated in (b) above be a debit or credit balance?

12 182Bo Bookkeeping Transactions LECTURE EXAMPLE 4 THE TWO COLUMN CASH BOOK (CREDIT SIDE) There are six payments that need to be entered into Crazy Ltd s cash book. Receipts From Crazy Ltd a customer From Crazy Ltd a customer From Crazy Ltd a customer Net 50 Net 25 Net (No ) Gross 60 Gross 30 Bill Ltd Bob Ltd Ben Ltd Cheque book counterfoils Nuts Ltd ( Ledger a/c NUT01) Mad Motor Repairs Ltd (No credit account with this supplier) Glob Insurance Ltd (No credit account with this supplier) 180 (The original invoice contained 30 ) 120 including 100 (no ) Enter the details from the three receipts and three cheque book stubs into the credit side of the cash book shown below and total each column. book credit side purchases Motor expense Insurance expense Balance b/d 175 Bill Ltd Bob Ltd Ben Ltd Nuts Ltd Mad Ltd Glob Ltd

13 Chapter 10: Maintaining the cash book 183 LECTURE EXAMPLE 5 THE TWO COLUMN CASH BOOK (DEBIT SIDE) There are two cheques from credit customers to be entered into Crazy Ltd s cash book: Kind Ltd 980 Lovely Ltd 3,000 There was also a receipt from Claire Turner who rented a room in the office for 500 (no ). She paid in the form of cash. Enter the above details into the debit side of the cash book and total each column. Sales Sundry income Balance b/d 500 Kind Ltd Lovely Ltd Claire Turner LECTURE EXAMPLE 6 CALCULATING THE CASH AND BANK BALANCE (a) Using your answers to lecture examples 4 and 5, calculate the cash balance. (b) Using your answers to lecture examples 4 and 5, calculate the bank balance. (c) Will the bank balance calculated in (b) above be a debit or credit balance?

14 184Bo Bookkeeping Transactions LECTURE EXAMPLE 7 ANOTHER STYLE OF CASH BOOK TASK There are three payments to be entered in the credit side of Snorkel Ltd s cash book during one week. purchase listing Suppliers paid in cash Net Gross Scuba Ltd Trade payables listing Credit suppliers paid by cheque Amount paid Flipper Ltd 2,400 Tank plc 980 (a) Enter the details from the cash purchases listing and the trade payables listing into the credit side of the cash book shown below and total each column. book credit side Ledger (Trade Payables) s Balance b/d 1,200 (b) The debit side of the cash book shows that the cash balance brought forward at the beginning of the week was 450 and a further 612 has been received during the week. Using your answer to (a) above calculate the cash balance.

15 Chapter 10: Maintaining the cash book 185 (c) The debit side of the cash book shows that the total amount of money banked during the week was 3,113. Using your answer to (a) above calculate the bank balance. If your calculations show that the bank account is overdrawn, your answer should start with a minus sign, for example 85. LECTURE EXAMPLE 8 ANOTHER STYLE OF CASH BOOK TASK Safari Ltd s cash book is both a book of prime entry and part of the double entry bookkeeping system. These are the totals of the columns in the credit side of the cash book at the end of the month. book credit side Trade Payables s Office Expenses 1,480 11, ,390 2, (a) What will be the FOUR entries in the general? Account name Amount Debit Credit One of the bank payments to trade payables was to Lion Ltd for 1,150. (b) What will be the entry in the subsidiary purchases? s Account name Amount Debit Credit

16 186Bo Bookkeeping Transactions