Content Standard 4.4
Cash Book
Buku Tunai
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Explanation
The Cash Book is one of the books of prime entry devoted to recording every transaction involving the receipt and payment of cash and money at the bank. Its main purpose is to gather all inflows and outflows of money in an orderly way by date, so that the owner always knows how much cash is in hand and how much money is in the bank at any time. The distinctive feature of the Cash Book is its dual role: it acts both as a book of prime entry and, at the same time, replaces the Cash Account and the Bank Account in the ledger. For this reason, we no longer open a separate Cash Account or Bank Account inside the ledger.
The format studied at SPM level is the three-column Cash Book. On each side (debit and credit) there are three amount columns, namely the Discount column, the Cash column and the Bank column, alongside the Date, Particulars and Folio columns. The Folio column matters because it provides a cross-reference to the opposite account in the ledger (for example BB for Buku Besar, or a ledger page number), while a contra transaction is marked with the letter K in the Folio column. The debit side of the Cash Book records all receipts (money in), while the credit side records all payments (money out). The basic principle still applies: anything that increases the cash or bank asset is entered on the debit, and anything that reduces it is entered on the credit.
When recording transactions, make sure every cash receipt enters the Cash column (debit) and every receipt by cheque or bank transfer enters the Bank column (debit). Likewise, payments in cash are recorded in the Cash column (credit) and payments by cheque are recorded in the Bank column (credit). Capital brought in as cash, cash sales and receipts from debtors will appear on the debit side, whereas cash purchases, payments to creditors and various expenses will appear on the credit side.
Cash discounts are recorded in the discount columns. Discount Allowed (given to debtors who pay early) is entered in the discount column on the debit side, while Discount Received (from creditors) is entered in the discount column on the credit side. Remember that the discount columns are not part of the double entry within the Cash Book; they are only memorandum columns. These columns are not balanced, only totalled. The total of the Discount Allowed column is then posted to the debit side of the Discount Allowed Account, and the total of the Discount Received column is posted to the credit side of the Discount Received Account in the ledger. A contra entry, on the other hand, is a transaction between the Cash column and the Bank column within the same Cash Book, for example cash banked or money withdrawn from the bank for office use; both effects are recorded in the Cash Book and marked with K.
The final step is to balance the Cash Book. The Cash column and the Bank column are balanced separately, just like an ordinary ledger account: total both sides, find the difference, enter the Balance c/d on the smaller side so that both sides agree, and bring down the Balance b/d into the next period. The Cash column normally shows a debit balance (cash in hand) or zero and can never show a credit balance. The Bank column may show a debit balance (money in the bank) or a credit balance, which is a bank overdraft where withdrawals exceed the money available. These cash and bank balances brought down are later shown in the Statement of Financial Position as current assets or, for an overdraft, as a current liability.
Worked examples
Recording transactions in a three-column Cash Book (Maju Jaya Enterprise)
On 1 May, Mr Rahim started the business with cash capital of RM3,000 and RM7,000 in the bank. Entry: Debit the Cash column RM3,000 and the Bank column RM7,000 (particulars: Capital).
On 4 May, cash sales of RM1,500 were received. Entry: Debit the Cash column RM1,500 (particulars: Sales).
On 7 May, goods costing RM2,000 were bought by cheque. Entry: Credit the Bank column RM2,000 (particulars: Purchases).
On 10 May, shop rent of RM600 was paid in cash. Entry: Credit the Cash column RM600 (particulars: Rent). Each entry follows the principle: receipts on the debit, payments on the credit.
Discount Allowed and Discount Received
A debtor, Salmah, owed RM1,000. On 12 May she paid RM980 by cheque after being given a cash discount of RM20. In the Cash Book (debit side): Bank column RM980 and Discount column RM20, particulars Salmah. Effect in the ledger: Credit Salmah's Account RM1,000 (RM980 + RM20). The Discount Allowed column total is then posted: Debit the Discount Allowed Account.
The business settled a debt of RM800 owed to a creditor, Setia Enterprise. On 15 May it paid a cheque of RM760 and received a discount of RM40. In the Cash Book (credit side): Bank column RM760 and Discount column RM40, particulars Setia Enterprise. Effect in the ledger: Debit Setia Enterprise's Account RM800. The Discount Received column total is posted: Credit the Discount Received Account.
Remember: the discount columns are not balanced, only totalled and posted to the ledger.
Contra entries and balancing the Cash Book
On 20 May, RM1,000 cash was banked. This is a contra transaction: Debit the Bank column RM1,000 and Credit the Cash column RM1,000, with the folio marked K on both entries.
On 25 May, RM300 was withdrawn from the bank for office use: Debit the Cash column RM300, Credit the Bank column RM300, folio K.
Balancing: suppose the Cash column totals RM5,800 on the debit side and RM900 on the credit side. The Balance c/d of RM4,900 is entered on the credit side, and the Balance b/d of RM4,900 is brought down to the debit side. For the Bank column, if the credit exceeds the debit, the result is a credit Balance b/d, which means a bank overdraft.
Practice
State two purposes of preparing a Cash Book and explain the meaning of the dual role of the Cash Book.
Explain the difference in treatment between Discount Allowed and Discount Received in a three-column Cash Book, including posting to the ledger.
On 8 June, Indah Enterprise banked RM2,500 cash, and on 9 June withdrew RM400 from the bank for office use. Show the entries in the Cash Book and state the type of these transactions.
The Bank column of a Cash Book shows total debit RM6,200 and total credit RM6,900. Calculate the balance, explain its meaning, and state where it is reported.
Exam tips
Key terms
- Cash Book (Buku Tunai)
- A book of prime entry that records all receipts and payments of cash and money at bank; it has a dual role, as a book of prime entry and as a replacement for the Cash Account and Bank Account.
- Discount Allowed (Diskaun Diberi)
- A cash deduction given to debtors for paying early; entered in the discount column on the debit side of the Cash Book and posted to the debit of the Discount Allowed Account.
- Discount Received (Diskaun Diterima)
- A cash deduction received from creditors; entered in the discount column on the credit side of the Cash Book and posted to the credit of the Discount Received Account.
- Contra (Kontra)
- A transaction between the Cash column and the Bank column within the same Cash Book, such as cash banked; marked with the letter K in the Folio column.
Source: DSKP KSSM Prinsip Perakaunan Tingkatan 4