The cash book: practice questions

How to approach these questions

Start by working out which cash book you must prepare, because the columns decide everything. A two-column cash book has cash and bank columns on each side. A three-column cash book adds a discount column on both the debit and credit sides.

The discount columns are memorandum columns. They are not part of the double entry inside the cash book. They are totalled and posted separately to the discount accounts in the nominal ledger.

If the question mentions discount allowed or discount received, you almost certainly need the three-column version.

Enter the opening balances first, then the transactions in date order. Cash and bank normally open with debit balances, because they are assets. Put the opening cash in hand and cash at bank on the debit side.

If the bank is overdrawn, it opens on the credit side instead. Spotting an overdraft early prevents a whole column of reversed entries. Then go through the transactions one date at a time.

Decide whether each affects cash, bank or both, and whether it is a receipt or a payment. Money coming in goes on the debit side.

Money going out goes on the credit side. This rule carries the most marks, so keep repeating it.

Contra entries are the technique examiners like to test. When cash is paid into the bank, or drawn from the bank for office use, both sides of the entry sit inside the cash book. Money leaves cash and enters bank, or the reverse.

Mark each with a "C" in the folio column to show it is a contra item that needs no posting elsewhere. For example, paying RM500 of till cash into the bank is credited in the cash column and debited in the bank column on the same date. The "C" shows you understand there is no ledger posting to make.

Discounts generate marks and errors in equal measure. Discount allowed goes in the discount column on the debit (receipts) side, beside the reduced amount the customer actually pays. Discount received goes in the discount column on the credit (payments) side, beside the reduced amount you pay the supplier.

For example, a customer owing RM400 settles for RM380. Enter RM380 in the bank column and RM20 in the discount allowed column. At the period end, total each discount column.

Post the discount allowed total to the debit of the discount allowed account. Post the discount received total to the credit of the discount received account.

The columns are cast and carried to the ledger. They are never balanced.

Balance the cash and bank columns separately, and show your working. Total both sides of a column, find the difference, and insert it as the balancing figure, labelled "balance carried down". Bring it down below the totals as "balance brought down" on the opposite side.

Cash can never be a credit balance, because you cannot pay out more physical cash than you hold. A credit cash balance means an error. Bank can carry down on the credit side when the account is overdrawn, and that is correct.

Avoid these traps. Do not put discounts inside the double entry, because they are memorandum figures. Do not forget the contra letter.

Do not enter a receipt on the credit side out of habit. Do not balance the discount columns as if they were money columns.

Do not confuse cash discount with trade discount. Trade discount never appears in the cash book, because it is deducted before the invoice is recorded.

If contra entries and discount columns still trip you up, one of our teachers can drill them with you on past-paper cash books until each entry is automatic. Book a trial class