How to prepare a three-column Cash Book

Books of Prime Entry

What you need

• Opening balances (balance b/d) of cash and bank at the start of the accounting period.
• Source documents such as receipts, cheque counterfoils and bank slips for each transaction.
• A list of receipt and payment transactions together with any cash-discount terms.
• An understanding of double-entry: debit the receiver, credit the giver.

Step by step

1. 1

   Set up the three-column format

   Draw the Cash Book with two opposite sides: the left (Debit) for receipts and the right (Credit) for payments. Each side has columns for Date, Particulars, Folio and three money columns: Discount, Cash and Bank. Our example is Perniagaan Setia for July 2024. Rule up this format before recording any transaction.

2. 2

   Enter the opening balances (balance b/d)

   Enter opening balances on the debit side because cash and bank normally carry debit balances (they are assets). On 1 July 2024: record Balance b/d Cash RM800 in the Cash column (debit) and Balance b/d Bank RM5,000 in the Bank column (debit). The discount columns have no opening balance.

3. 3

   Record receipts on the debit side

   Every receipt is recorded on the debit side. On 5 July the debtor Kedai Harmoni settled a RM1,000 debt by cheque after being given a RM50 cash discount, so RM950 was received: record RM50 in the Discount column (debit) and RM950 in the Bank column (debit). On 20 July, cash sales of RM300: record RM300 in the Cash column (debit).

4. 4

   Record payments on the credit side

   Every payment is recorded on the credit side. On 10 July the business paid creditor Pembekal Jaya a RM600 debt by cheque after receiving a RM12 cash discount, so RM588 was paid: record RM12 in the Discount column (credit) and RM588 in the Bank column (credit). On 28 July, rent paid in cash RM200: record RM200 in the Cash column (credit).

5. 5

   Record the contra entry

   A contra entry arises when money is transferred between cash and bank within the same business. On 15 July, RM500 cash was banked: Credit the Cash column RM500 (money leaving the cash box) and Debit the Bank column RM500 (money entering the bank). Mark the folio with the letter 'C' (contra) on both entries because the double entry is completed inside the Cash Book itself.

6. 6

   Total the discount columns

   The discount columns are memorandum columns only: they are totalled, not balanced. The Discount column on the debit side totals RM50 (Discount Allowed) and on the credit side totals RM12 (Discount Received). The debit total of RM50 is posted to the debit of the Discount Allowed account, and the credit total of RM12 is posted to the credit of the Discount Received account in the ledger.

7. 7

   Balance the cash and bank columns

   Total each money column on both sides, find the difference, and insert the Balance c/d. Cash column: debit RM800 + RM300 = RM1,100; credit RM500 + RM200 = RM700; so Balance c/d RM400 is placed on the credit side to make both sides total RM1,100. Bank column: debit RM5,000 + RM950 + RM500 = RM6,450; credit RM588; so Balance c/d RM5,862 is placed on the credit side to make both sides total RM6,450.

8. 8

   Bring down the balances and post to the ledger

   On 1 August 2024, bring down the balances: Balance b/d Cash RM400 and Balance b/d Bank RM5,862 on the debit side, showing assets carried into the next period. Post the other items to the ledger: credit Kedai Harmoni account RM1,000, credit Sales account RM300, debit Pembekal Jaya account RM600, and debit Rent account RM200. The contra entry needs no further posting because its double entry is already complete in the Cash Book.

Second example

Second example: Kedai Buku Ilmu began August 2024 with Balance b/d Cash RM250 on the debit side, but its bank account was overdrawn, so Balance b/d Bank RM1,200 is recorded on the credit side. On 6 August it received a RM380 cheque from a debtor with no discount: debit the Bank column RM380. On 12 August, RM150 was withdrawn from the bank for petty cash use. This is a contra entry: debit the Cash column RM150 and credit the Bank column RM150, marked 'C'.

When balancing, remember the Bank column can show a credit balance when payments and withdrawals exceed receipts. Here the Bank column: debit RM380; credit RM1,200 + RM150 = RM1,350; so Balance c/d RM970 is placed on the debit side to make both sides total RM1,350. This is brought down as Balance b/d Bank RM970 on the credit side on 1 September, signalling a bank overdraft that still has to be settled.

Common mistakes

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