THE CASH BOOK Contra Entries

WEEK ONE AND TWO DATE …………………….

TOPIC: THE CASH BOOK

CONTENT

• Types of Cash Book
• Single Column Cash Book
• Two Column Cash Book
• Contra Entries
• Bank Overdraft

The Cash Book is a subsidiary book of account that is used to record the payments and receipts of money (cash or cheques) to or by a business organisation. The cash book is part of the double entry system. It therefore functions both as a ledger and a subsidiary book of account

Types of Cash Book

1. Single Column Cash Book
2. Two Column Cash Book (or Double Column Cash Book)
3. Three Column Cash Book
4. Petty Cash Book

Single Column Cash Book

This is the simplest form of Cash Book operated by a business and it is used to record all cash transactions. The cash transactions recorded in the cash book can be for cash sales, cash purchases, payment of cash to suppliers, receipt of cash from customers, acquisition of properties (fixed assets) by cash and all other transactions that involved the receipt and payment of cash.

Illustration:

Prepare a Cash Book from the following information for the month of March 2017

N

March 1 Balance of cash in hand 14, 130

2 Received Cash from Adesola a credit customer 3, 600

4 Paid rent for the month 1, 750

5 Paid cash to Lawal, a supplier 3, 200

9 Cash Sales 22, 110

10 Cash Purchases 15, 235

12 Cash received from D. Bright as a loan 10, 000

18 Paid Ayodele a supplier on account 6, 250

19 Received cash from Bonik Ventures, a customer 14, 000[mediator_tech]

22 Credit sales to Owoyemi 42, 000

24 Purchases on credit from F. Lawal 18, 550

26 Paid wages to shop clerk 4, 500

28 Paid electricity bills 1, 200

30 Paid carriage on purchases 2, 500

Cash Book

Date Narration Folio Amount Date Narration Folio Amount

2017 N 2017 N

Mar 1 Balance b/d 14, 130 Mar 4 Rent 1, 750

Mar 2 Adesola 3, 600 Mar 5 F.Lawal 3, 200

Mar 9 Sales 22, 110 Mar 10 Purchases 15, 235

Mar 12 D. Bright – Loan 10, 000 Mar 18 Ayodele 6, 250

Mar 19 Bonik Ventures 14, 000 Mar 26 Wages 4, 500

Mar 28 Electricity 1, 200

Mar 30 Carriage Inwards 2, 500

Mar 31 Balance c/d 29, 205

63, 840 63, 840

Note: The credit sale of March 22 and credit purchases of March 24 are not posted to the cash book because they do not involve movement of cash. The two transactions can only be posted in the Sales Journal and the Purchases Journal respectively. Students should watch out for transactions like these during examinations.

Two Column Cash Book

As a business grows, the owner will realize the need to open a bank account where the business money can be kept. The business will therefore prepare a two column (or double column) Cash Book to record the movements of money. The Cash Account and the Bank Account will appear side-by-side in the Cash Book.

The rules of double entry bookkeeping are still applied. Any money received is debited in the Cash Book. If the money is placed in the cash till, it will be entered in the cash column and if it is paid into the bank or received as cheque, it will be entered in the bank column.

Any money paid out is credited in the Cash Book. If the money is paid in cash it will be entered in the cash column and if it is paid by cheque, it will be entered in the bank column.

The Cash Account and the Bank Accounts must be balanced separately at appropriate interval to determine the Cash in Hand and the Cash at Bank.

ContraEntries

Sometimes surplus cash is paid into the bank, or money may be withdrawn from the bank to the office. Such transactions are known contra entries because they appear on both sides of the Cash Book.

A contra entry occurs when the double entry records of a transaction occurs in the same ledger.

To record cash removed from the office and paid into the bank:

Debit Bank Account

Credit Cash Account

To record cash withdrawn from the bank for office use:

Debit Cash Account

Credit Bank Account

In each case, the letter “c”is usually entered in the folio column of the cash book to indicate that the double entry is on the opposite side of the same book.

EVALUATION

1. List four features of the Cash Book[mediator_tech]
2. Explain using suitable example the meaning of the term – Contra Entries

Illustration

The following information has been extracted from the books of C.Bintu for January 2015

Jan 1 Balance brought forward from last month:

Cash in hand N9, 000

Cash at Bank N6, 800

Jan 2 Paid rent by cash N2, 500

Jan 4 Cash sales N7, 400

Jan 7 Cash paid into the bank N10, 000

Jan 8 Bought office furniture, paying by cheque N7, 000

Jan 9 We paid C. Asafo by cheque N1, 200

Jan 15 Cash drawings by proprietor N1, 000

Jan 20 J.Oloye paid us by cheque N4, 000

Jan 21 Cash sales paid directly into the bank N8, 500

Jan 25 Sold goods for cash N15, 000

Jan 27 Withdrew N5,000 from the bank for business use

Jan 29 Paid wages in cash N14, 000

Jan 30 Paid motor expenses by cheque N3, 000

Jan 31 We banked all the cash in our possession except for N2, 000 in the cash till

You are required to prepare the Cash Book of the trader for the month of January 2015

Cash Book

Date Narration Folio Cash Bank Date Narration Folio Cash Bank 2015 N N 2015 N N

Jan 1 Balance b/f 9,000 6,800 Jan 2 Rent 2,500

Jan 4 Sales 7,400 Jan 7 Bank c 10,000

Jan 7 Cash c 10,000 Jan 8 Office furniture 7,000

Jan 20 J.Oloye 4,000 Jan 9 C.Asafo 1,200

Jan 21 Sales 8,500 Jan 15 Drawings 1,000

Jan 25 Sales 15,000 Jan 27 Cash c 5,000

Jan 27 Bank c 5,000 Jan 29 Wages 14,000

Jan 31 Cash c 6,900 Jan 30 Motor Expenses 3,000

Jan 31 Bank c 6,900

Balance c/d 2,000 20,000

36,400 36,200 36,400 36,200

The balance on the cash column will always be brought down as a debit balance at the start of the next month. The only exception to this is when there is no cash left in the cash account in which case the balance will be nil.

It is not possible to have a credit balance on a Cash Account.

The bank may however allow the business to have a bank overdraft. This means that the bank allows the business to pay out more from its bank account than the money they have deposited with the bank. The bank will charge interest on the amount overdrawn.

In the Cash Book, the bank account (i.e bank column) is balanced in the usual way and the balance will be brought down on the credit side. This represents the amount the business owes the bank and is a liability.

EVALUATION

1. Business Accounting 1 Exercise 12.1 and 12.2
2. Simplified and Amplified Financial Accounting Exercise 5x and 6 Page 67

READING ASSIGNMENT

1. Simplified and Amplified Financial Accounting Page 59 – 71
2. Business Accounting 1 Page 90 – 96

GENERAL EVALUATION QUESTIONS

1. Explain the principle of double entry system
2. List eight users of accounting information[mediator_tech]
3. List eight books of account that are used to keep accounting records
4. State four differences between book-keeping and accounting
5. Explain the term ‘contra entries’

WEEKEND ASSIGNMENT

1. Which of the following subsidiary books involves cash movement A. Sales Day Book B. Purchases Day Book C. Returns Inwards Book D. Cash Book
2. Which of the following books of original entry also serves as a ledger A. Purchases Day Book B. Cash Book C. The Journal D. Sales Day Book
3. The lodgement of business cash into the business bank account is an example of A. bank reconciliation B. self balancing ledger C. contra entry D. reversal entry
4. Nwoye buys goods and pays by cheque. The entries in the books of Nwoye is debit A. Purchases; Credit Cheque B. Purchases; Credit Bank C. Bank; Credit Purchases D. Cheques; Credit Purchases
5. A debit entry in the Cash Account and a corresponding credit entry in Aliu’s Account indicate a A. sales of goods to Aliu for cash B. purchase of goods from Aliu for cash C. receipt of cash from Aliu D. payment of cash to Aliu

THEORY

1. List three source documents that are used in preparing the Cash Book
2. Explain the term ‘Bank Overdraft’