Three Column Cash Book

Three Column Cash Book

This is a book that combines Cash, Bank, and Discount accounts together in a single ledger. It has column for cash, bank and discount. The principle of double entry is also applicable in the three-column cash book.

Discount

What is a Discount?

Discount can be defined as the reduction in the price of goods in order to induce or encourage the customer to purchase in bulk or for prompt payment. Discount accounts are nominal accounts. On the debit side is the discount allowed and on the credit side is the discount received.

Types of Discount

Trade Discount

Cash Discount

Trade Discount

This is an allowance made by manufacturer or wholesaler to a retailer in form of deduction from the catalogue price of goods supplied. It is an inducement to the customer to buy goods in large quantity.

Cash discount

Cash discount is a percentage allowance for prompt payment of an account or for payment within a specified period of time. It is not ignored in the account as in the case of trade discount

Classification of Cash Discount

Discount Received: This is the discount granted customers by suppliers when he pays its accounts quickly. It is treated as an income and credited to the three- column cash book. Cash discount is posted to the income side of the profit and loss account.

Discount allowed: This is discount allowed by a firm to its customers when they pay their accounts quickly. It is entered on the debit side of the three-column cash book and is treated as expenses in the profit and loss account.

Comparison between Cash Discount and Trade Discount

S/N CASH DISCOUNT TRADE DISCOUNT

  1. It is given for prompt payment. It is given to encourage or induce

purchase of large quantities of goods.

  1. Discount will be posted to the ledger. Discount will not be posted to the ledger.
  2. It must be deducted after trade discount. It will be deducted before cash discount.
  3. It is given to customers who pay on time. It is given to every buyer.
  4. It is conditional. It is unconditional.

ILLUSTRATION:

Mr. SUCCESS made the following transactions in the month of March, post the transactions in a three – column cash book:

March 1. Cash at hand ₦200

Cash in bank ₦2,000

Withdrawal of office cash ₦300

Customer R. Adelai settle his account of N200 by cash and was allowed 5% discount

4 Paid wages by cheque ₦700

5 Received cheque from R.Winla ₦1,160

Allowed him discount ₦10

5 Purchase of goods less 5% discount

(Discount received) by cash ₦400

6 Paid T. Chike by cheque ₦280

Discount received ₦20

6 Bought packaging materials for cash ₦200

7 Cash sales ₦3,000

7 Paid into bank ₦2,800

What was the balance brought down on 7th Mar, 2013?

SUCCESS’S THREE COLUMN CASH BOOK FOR MARCH 2013

DR CR

Date Particulars Folio Disct. Allowed ₦ Cash ₦ Bank ₦ Date Particulars Folio Disct. Received ₦ Cash Bank

Mar. 1 Balance b/d 200 2,000 Mar. 2 Office Cash 300

Mar. 2 Bank 300 Mar. 4 Wages 700

Mar. 2 R. Adelai 10 190 Mar. 5 Purchases 20 380

Mar. 5 R. Winla 40 1160 Mar. 6 T. Chike 20 280

Mar. 7 Sales 3000 Mar. 6 Packing mat. 20

Mar. 7 Bank

Cash cc 2,800 Mar. 7 Bal c/d cc 2,800

Mar. 7 490 4,680

50 3,690 5,960 40 4,500 8,000

Oct. 1 Bal b/d 490 4,680

DR Office A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 2 Bank 300

DR Bank A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 2 Bank 300

DR R. Adelai A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Apr. 1 Balance c/d 200 Mar. 2 Cash 190

Mar. 2 Discount 10

DR Wages A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 4 Bank 700

DR R. Winla A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Apr. 1 Balance b/d 1,200 Mar. 5 Bank 1,160

Mar. 5 Discount 40

1, 200 1, 200

DR Purchase A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 5 Cash 380 Apr. 1 Balance c/d 400

Mar. 5 Discount 20

400 400

DR T. Chike A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 6 Bank 280 Apr. 1 Balance c/d 300

Mar. 6 Discount 20

300 300

DR P Mat A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 6 Cash 20

DR Sales A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 7 Cash 800

DR Disct. R A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 5 Purchases 20 Apr. 1 Balance c/d 40

Mar. 6 T. Chike 20

40 40

DR Disct. A A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 2 R. Adelai 10

Mar. 5 R. Winla 40

DR Cash A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 7 Cash 2,800

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Analytical Petty cash Book

The petty cash book is the book for recording small disbursements. i.e. expenses. Petty cash is the book of original or prime entry which is used for recording small disbursements or expenses.

Imprest System

It is a system for recording petty cash transactions, which are paid out of a cash float. The system is set up by giving a specified sum known as cash float to the cashier in order to cover petty expenses during the period.

The petty cashier will pay out money from the float for all authorized vouchers. At frequent intervals, he/she will be re-reimbursed for the amount spent thus bringing it to the original amount.

Columns in a Petty Cash Book

(A) DEBIT SIDE

  1. Amount
  2. Dates
  3. Particulars of expenses
  4. Voucher number
  5. Total amounts

 

(B) CREDIT SIDE

On the credit side we have the analysis of expenses of a ledger account. This has different columns for different expenses e.g. stationery, postage, transport, etc.

Recording of Receipts and Payments in Petty Cash Book

The credit entry is made in the cash book

The debt entry is made in the petty cash book

The entries on the credit side of the petty cash book are first made in the total column and then, extended into the relevant expenses column,

The expenses columns have various headings for different expenses,

The last column of the petty cash book is known as a ledger account.

Preparation of a Petty Cash Book

Example

Record the following in the relevant columns of the petty cash book of Chillington, a sole proprietor.

Jan 1. Petty cashier received an Imprest amount of ₦2000

2 Paid for bus fare ₦200

4 Paid for postage ₦150

8 Paid for duplicating paper ₦300

12 Bought envelops ₦250

16 Paid Mr. Kalu ₦500

25 Bought office pins ₦100

26 Bought stamps ₦100

30 Paid taxi fare ₦200

Petty Cash Transactions in Ledgers

Chillington’s Petty Cash Book

The above table is a petty cash book.

Petty Cash Transactions in Ledgers

DR Stationery A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 300

DR Postage A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 300

DR Transport A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 400

DR Office Expenses A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 100

DR Mr. Kalu’s A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 500

Imprest System

This is a method used in controlling the amount of money given to the petty cashier. A fixed amount called Imp rest is given to the cashier weekly or monthly to pay for small expenses.

At the end of the period, the petty cashier gives account of what she spends and the balance remaining. The amount spent will be reimbursed. This process of giving a petty cashier some amount of money for petty items at the beginning of every month is called “Imprest system”.

The sum of money giving to a petty cashier is called “Cash float”, the document used in raising petty cash is known as a “Petty Cash Voucher”

Petty Cash

This is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque, because of the inconvenience and costs of writing, signing and then cashing the cheque.

 

EVALUATION

  1. BASI LIMITED operates a petty cash on the imprest system with a cash float of N3000

Jan.1 envelope ₦40

Jan.5 petrol ₦160

Jan.7 postage stamps ₦70

Jan.9 petrol ₦180

Jan.9 envelopes ₦120

Jan.11 office cleaning ₦20

Jan.11 stationery ₦210

Jan.12 travelling expenses ₦100

Jan. 13 transport fee ₦90

Jan.16 postage stamps ₦30

Jan. 17 paid Gracious ₦90

Jan.20 stationery ₦120

Jan.21 petrol ₦50

Jan.21 settled Ojo ₦70

Jan.22 travelling expenses ₦60

Jan.22 office cleaning ₦100

Jan.25 postage ₦40

Jan. 28 paid Eije ₦50

Jan. 30 travelling ₦80

You are required to enter the transactions into the pretty cash book under the following headings: postage and stationary, Motor expenses, transport, office cleaning,

  1. What is a Petty Cash Book?
  2. Define Imprest System

This is a book that combines Cash, Bank, and Discount accounts together in a single ledger. It has column for cash, bank and discount. The principle of double entry is also applicable in the three-column cash book.

Discount

What is a Discount?

Discount can be defined as the reduction in the price of goods in order to induce or encourage the customer to purchase in bulk or for prompt payment. Discount accounts are nominal accounts. On the debit side is the discount allowed and on the credit side is the discount received.

Types of Discount

Trade Discount

Cash Discount

Trade Discount

This is an allowance made by manufacturer or wholesaler to a retailer in form of deduction from the catalogue price of goods supplied. It is an inducement to the customer to buy goods in large quantity.

Cash discount

Cash discount is a percentage allowance for prompt payment of an account or for payment within a specified period of time. It is not ignored in the account as in the case of trade discount

Classification of Cash Discount

Discount Received: This is the discount granted customers by suppliers when he pays its accounts quickly. It is treated as an income and credited to the three- column cash book. Cash discount is posted to the income side of the profit and loss account.

Discount allowed: This is discount allowed by a firm to its customers when they pay their accounts quickly. It is entered on the debit side of the three-column cash book and is treated as expenses in the profit and loss account.

Comparison between Cash Discount and Trade Discount

S/N CASH DISCOUNT TRADE DISCOUNT

  1. It is given for prompt payment. It is given to encourage or induce

purchase of large quantities of goods.

  1. Discount will be posted to the ledger. Discount will not be posted to the ledger.
  2. It must be deducted after trade discount. It will be deducted before cash discount.
  3. It is given to customers who pay on time. It is given to every buyer.
  4. It is conditional. It is unconditional.

ILLUSTRATION:

Mr. SUCCESS made the following transactions in the month of March, post the transactions in a three – column cash book:

March 1. Cash at hand ₦200

Cash in bank ₦2,000

Withdrawal of office cash ₦300

Customer R. Adelai settle his account of N200 by cash and was allowed 5% discount

4 Paid wages by cheque ₦700

5 Received cheque from R.Winla ₦1,160

Allowed him discount ₦10

5 Purchase of goods less 5% discount

(Discount received) by cash ₦400

6 Paid T. Chike by cheque ₦280

Discount received ₦20

6 Bought packaging materials for cash ₦200

7 Cash sales ₦3,000

7 Paid into bank ₦2,800

What was the balance brought down on 7th Mar, 2013?

SUCCESS’S THREE COLUMN CASH BOOK FOR MARCH 2013

DR CR

Date Particulars Folio Disct. Allowed ₦ Cash ₦ Bank ₦ Date Particulars Folio Disct. Received ₦ Cash Bank

Mar. 1 Balance b/d 200 2,000 Mar. 2 Office Cash 300

Mar. 2 Bank 300 Mar. 4 Wages 700

Mar. 2 R. Adelai 10 190 Mar. 5 Purchases 20 380

Mar. 5 R. Winla 40 1160 Mar. 6 T. Chike 20 280

Mar. 7 Sales 3000 Mar. 6 Packing mat. 20

Mar. 7 Bank

Cash cc 2,800 Mar. 7 Bal c/d cc 2,800

Mar. 7 490 4,680

50 3,690 5,960 40 4,500 8,000

Oct. 1 Bal b/d 490 4,680

DR Office A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 2 Bank 300

DR Bank A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 2 Bank 300

DR R. Adelai A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Apr. 1 Balance c/d 200 Mar. 2 Cash 190

Mar. 2 Discount 10

DR Wages A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 4 Bank 700

DR R. Winla A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Apr. 1 Balance b/d 1,200 Mar. 5 Bank 1,160

Mar. 5 Discount 40

1, 200 1, 200

DR Purchase A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 5 Cash 380 Apr. 1 Balance c/d 400

Mar. 5 Discount 20

400 400

DR T. Chike A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 6 Bank 280 Apr. 1 Balance c/d 300

Mar. 6 Discount 20

300 300

DR P Mat A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 6 Cash 20

DR Sales A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 7 Cash 800

DR Disct. R A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 5 Purchases 20 Apr. 1 Balance c/d 40

Mar. 6 T. Chike 20

40 40

DR Disct. A A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 2 R. Adelai 10

Mar. 5 R. Winla 40

DR Cash A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Mar. 7 Cash 2,800

 

Analytical Petty cash Book

The petty cash book is the book for recording small disbursements. i.e. expenses. Petty cash is the book of original or prime entry which is used for recording small disbursements or expenses.

Imprest System

It is a system for recording petty cash transactions, which are paid out of a cash float. The system is set up by giving a specified sum known as cash float to the cashier in order to cover petty expenses during the period.

The petty cashier will pay out money from the float for all authorized vouchers. At frequent intervals, he/she will be re-reimbursed for the amount spent thus bringing it to the original amount.

Columns in a Petty Cash Book

(A) DEBIT SIDE

  1. Amount
  2. Dates
  3. Particulars of expenses
  4. Voucher number
  5. Total amounts

 

(B) CREDIT SIDE

On the credit side we have the analysis of expenses of a ledger account. This has different columns for different expenses e.g. stationery, postage, transport, etc.

Recording of Receipts and Payments in Petty Cash Book

The credit entry is made in the cash book

The debt entry is made in the petty cash book

The entries on the credit side of the petty cash book are first made in the total column and then, extended into the relevant expenses column,

The expenses columns have various headings for different expenses,

The last column of the petty cash book is known as a ledger account.

Preparation of a Petty Cash Book

Example

Record the following in the relevant columns of the petty cash book of Chillington, a sole proprietor.

Jan 1. Petty cashier received an Imprest amount of ₦2000

2 Paid for bus fare ₦200

4 Paid for postage ₦150

8 Paid for duplicating paper ₦300

12 Bought envelops ₦250

16 Paid Mr. Kalu ₦500

25 Bought office pins ₦100

26 Bought stamps ₦100

30 Paid taxi fare ₦200

Petty Cash Transactions in Ledgers

Chillington’s Petty Cash Book

The above table is a petty cash book.

Petty Cash Transactions in Ledgers

DR Stationery A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 300

DR Postage A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 300

DR Transport A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 400

DR Office Expenses A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 100

DR Mr. Kalu’s A/c CR

Date Particulars Amount ₦ Date Particulars Amount ₦

Jan Petty cash 500

Imprest System

This is a method used in controlling the amount of money given to the petty cashier. A fixed amount called Imp rest is given to the cashier weekly or monthly to pay for small expenses.

At the end of the period, the petty cashier gives account of what she spends and the balance remaining. The amount spent will be reimbursed. This process of giving a petty cashier some amount of money for petty items at the beginning of every month is called “Imprest system”.

The sum of money giving to a petty cashier is called “Cash float”, the document used in raising petty cash is known as a “Petty Cash Voucher”

Petty Cash

This is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque, because of the inconvenience and costs of writing, signing and then cashing the cheque.

 

EVALUATION

  1. BASI LIMITED operates a petty cash on the imprest system with a cash float of N3000

Jan.1 envelope ₦40

Jan.5 petrol ₦160

Jan.7 postage stamps ₦70

Jan.9 petrol ₦180

Jan.9 envelopes ₦120

Jan.11 office cleaning ₦20

Jan.11 stationery ₦210

Jan.12 travelling expenses ₦100

Jan. 13 transport fee ₦90

Jan.16 postage stamps ₦30

Jan. 17 paid Gracious ₦90

Jan.20 stationery ₦120

Jan.21 petrol ₦50

Jan.21 settled Ojo ₦70

Jan.22 travelling expenses ₦60

Jan.22 office cleaning ₦100

Jan.25 postage ₦40

Jan. 28 paid Eije ₦50

Jan. 30 travelling ₦80

You are required to enter the transactions into the pretty cash book under the following headings: postage and stationary, Motor expenses, transport, office cleaning,

  1. What is a Petty Cash Book?
  2. Define Imprest System
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