Mada za sehemu hiiRecord business transactions using source documentsMada 2
- Describe cash and banking transactions (types of cash books)
- Record cash/bank receipts and payments from various source documents in the Cash Book (double column, three-column or petty cash book)
Recording Cash and Bank Transactions in the Cash Book
A cash book is a special journal used to record all cash and bank receipts and payments. It serves as both a book of original entry and a ledger account. In this topic, you will learn how to record transactions using three types of cash books: double column, three column, and petty cash book.
A double column cash book has two amount columns on each side—one for cash transactions and one for bank transactions. This allows businesses to record both physical cash payments and cheque or bank transfer payments in one book.
Rules for Recording
- Debit side (receipts): Record all cash and bank receipts
- Credit side (payments): Record all cash and bank payments
Contra Entries
A contra entry occurs when cash is transferred between the cash column and the bank column. For example:
- Depositing cash into the bank: debit bank column, credit cash column
- Withdrawing cash from the bank for business use: debit cash column, credit bank column
Contra entries are marked with the letter C in the folio column.
Worked Example: Double Column Cash Book
The following transactions occurred in Juma's shop during January 2022:
| Date | Transaction | TZS |
|---|---|---|
| 1/1/2022 | Balance b/d: cash 450,000; bank 2,500,000 | |
| 3/1/2022 | Sold goods for cash | 800,000 |
| 5/1/2022 | Received cheque from Hamisi, a debtor | 350,000 |
| 7/1/2022 | Paid rent by cheque | 300,000 |
| 10/1/2022 | Bought goods by cheque | 1,200,000 |
| 12/1/2022 | Cash sales | 600,000 |
| 15/1/2022 | Deposited cash into bank | 500,000 |
| 18/1/2022 | Paid wages in cash | 250,000 |
Solution:
| Dr | Juma's Cash Book | Cr | ||
|---|---|---|---|---|
| Date | Details | Cash (TZS) | Bank (TZS) | Date |
| 1/1 | Balance b/d | 450,000 | 2,500,000 | 7/1 |
| 3/1 | Sales | 800,000 | 10/1 | |
| 5/1 | Hamisi (debtor) | 350,000 | 15/1 | |
| 12/1 | Sales | 600,000 | 18/1 | |
| 15/1 | Cash (C) | 500,000 | 31/1 | |
| 1,850,000 | 3,350,000 | |||
| 1/2 | Balance b/d | 1,100,000 | 850,000 |
A three column cash book adds a third column for cash discounts. This column records:
- Discount allowed: Discount given to customers (debtors) who pay early
- Discount received: Discount received from suppliers (creditors) who pay early
Format
The three column cash book has three amount columns on each side: Discount, Cash, and Bank.
Discount Terms
Credit terms often include cash discounts to encourage early payment. For example:
- 5%/10, n/30 means 5% discount if paid within 10 days, full amount due within 30 days
Worked Example: Three Column Cash Book
The following transactions occurred in Amina's business during April 2022:
| Date | Transaction | TZS |
|---|---|---|
| 1/4/2022 | Balance b/d: cash 200,000; bank 1,500,000 | |
| 2/4/2022 | Sold goods and received cheque | 500,000 |
| 4/4/2022 | Received from Rashidi, debtor 400,000, less 5% discount | |
| 6/4/2022 | Paid to Salim, creditor 300,000, less 10% discount | |
| 8/4/2022 | Cash sales | 350,000 |
| 10/4/2022 | Paid rent by cheque | 180,000 |
Solution:
| Dr | Amina's Cash Book | Cr | ||
|---|---|---|---|---|
| Date | Details | Disc | Cash | Bank |
| 1/4 | Balance b/d | 200,000 | 1,500,000 | |
| 2/4 | Sales | 500,000 | ||
| 4/4 | Rashidi | 20,000 | 380,000 | |
| 8/4 | Sales | 350,000 | ||
| 20,000 | 550,000 | 2,380,000 |
Note: Discount allowed (20,000) is recorded on the debit side, and discount received (30,000) is recorded on the credit side.
Petty cash is used to record small cash payments such as transport, stationery, and postage. A petty cash book has analysis columns for different categories of expenses.
The Imprest System
Under the imprest system:
- The chief cashier gives the petty cashier a fixed amount (the imprest float)
- The petty cashier makes payments and keeps all receipts/vouchers
- At the end of the period, the petty cashier is reimbursed the amount spent, restoring the float to its original level
Worked Example: Petty Cash Book
Mwalimu's school maintains a petty cash float of TZS 300,000. The following transactions occurred in the first week:
| Date | Transaction | TZS |
|---|---|---|
| 1/5/2022 | Received petty cash float | 300,000 |
| 2/5/2022 | Bought stationery (PCV 001) | 45,000 |
| 3/5/2022 | Paid transport (PCV 002) | 30,000 |
| 4/5/2022 | Bought postage stamps (PCV 003) | 25,000 |
| 5/5/2022 | Paid for cleaning materials (PCV 004) | 60,000 |
| 6/5/2022 | Paid bus fare for school trip (PCV 005) | 40,000 |
| 7/5/2022 | Received reimbursement from chief cashier | 200,000 |
Solution:
| Dr | Petty Cash Book | Cr |
|---|---|---|
| Receipts | Date | Details |
| 300,000 | 1/5 | Balance b/d |
| 2/5 | Stationery | |
| 3/5 | Transport | |
| 4/5 | Postage | |
| 5/5 | Cleaning | |
| 6/5 | Transport | |
| 200,000 | 7/5 | Reimbursement |
| 500,000 | ||
| 300,000 | 8/5 | Balance b/d |
- Always identify whether transactions involve cash or bank before recording
- Use the contra entry marker (C) when cash is transferred between cash and bank columns
- Cash discounts are recorded in the discount column of the three column cash book
- The petty cash book is balanced by comparing receipts with the total of payment columns
- Under the imprest system, the balance at the end of the period should equal the original float amount
In Tanzania, small business owners such as market vendors in Kariakoo or shop owners in Mwanza use cash books to track their daily cash sales and payments. For example, a mama lishe selling vitenge at Mlimani City would record her daily cash sales in the cash column and any payments for transport or supplies in either the cash or bank column, helping her know exactly how much money she has at the end of each day.
Swali
In a three column cash book, what is recorded in the third amount column?
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