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UNIT-8Accounting for Cash

In order to keep proper records for information in future ,the business concerns maintains many books. In each book it records a separate nature of transactions. For example in purchase book only credit purchases are recorded , while in sales book only credit sales are recorded and in cash book only cash transactions are recorded.

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Generally business units maintain the following books of account.1.Purchase Book2.Sales Book 3.Purchase Return Book4.Sales Return Book5.Cash Book6.Bills Receivable Book7.Bills Payable Book and8.Journal Proper.

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Cash-Book

Cash book is the book in which all cash transactions are recoded. The credit transactions and losses are not recorded in it.It is mainly a summary of cash inflow and outflow. Different types of cash book are maintained by the business units as per their requirements.

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A specimen of a simple cash book is as follows:Cash-Book

Date Particulars Amount Date Particulars Amount

To Balance b/dTo All cash receipts--(like-cash sales, collection from debtors,rent,commission,interest,etc)

----

----

-------

By All payments—(like-cash purchase of any items, payments for wages,salaries rent,advertisement,commission,interest etc.)By Balance c/d

-----

-----

---------

----------

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The cash book is divided into two equal sides of debit and credit. Left hand side is called debit side while right hand side is known as credit side. In the debit side all the receipts in cash are recorded and all cash payments so in credit side. In the beginning if any old balance is there that is transferred to the debit side as, To, balance b/d, at very first. At the end of the month the balance if any left, is transferred to the credit side as, By balance c/d . It is very important to note that in a single column cash book debit side eighter is greater or equal to credit side.

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Illustration no.1From the following prepare a suitable cash book.2015 SRJan.01 Business started with cash 20,000Jan.02 Purchased for goods for cash 12,000Jan.03 Purchased furniture 3,000Jan.04 Sold goods for cash 10,000Jan.05 Sold goods to Mr. Ahmad on credit 2,000Jan.14 Paid wages 200Jan.26 Received from Mr. Ahmad 1,980Jan.30 Paid rent for the month 1,000Jan.31 Purchased a machine 5,000

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Cash-BookSolution no.1

Date Particulars Amount Date Particulars Amount2015 Jan.01Jan.04Jan.26

To Capital a/cTo Sales a/cTo Mr. Ahmad

20,00010,000 1,980

----------- 31,980

2015Jan.02Jan.03Jan.14Jan.30Jan.31Jan.31

By Purchase a/cBy Furniture a/cBY Wages a/cBy Rent a/cBy Machine a/cBy Balance c/d

12,000 3,000 200 1,000 5,000 10,780----------- 31,980

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Illustration no.2 From the following balances transactions a cash book.2015 SRJan.01 Mr Abdul Aziz started his grocery store with 50,000Jan.02 He Purchased grocer’s items 35,000Jan.03 Purchased basmati rice from Suhail on credit 8,000Jan.07 Sold goods for cash 6,000Jan.12 Paid carriage 100Jan.20 Paid for stationary 200Jan.25 Paid to Suhail 8000Jan.28 Sold goods 12000Jan.29 Paid for salaries 500Jan.30 Telephone charges 50

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Cash-BookSolution n.2

Date Particulars Amount Date Particulars Amount

2015Jan.01Jan.07Jan.28

To Capital a/cTo Sales a/cTo Sales a/c

50,000 6,000 12,000

----------68,000

2015Jan.02Jan.12Jan.20Jan.25Jan.29Jan.30

Jan.31

By Purchase a/cBy Carriage a/cBy Stationary a/cBy SuhailBy Salaries a/cBy Telephone charges a/cBy Balance c/d

35,000 100

2008,000

50050

24,150-----------

68,000

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Illustration n.3Opening balance on1st Jan.2015 is SR 16150. SR

Jan.01 Goods purchased for cash 3,000Jan.02 Goods purchased from Mr. White on credit 5,000Jan.04 Goods sold for cash 4,000Jan.05 Goods sold Mr Black on credit 6,000Jan.06 Paid to Mr White 5,000Jan.07 Received from Mr Black 6,000Jan.08 Paid commission 100Jan.09 Paid electric charges 200Jan.10 Paid general expenses 20Jan.31 Commission received 150

Prepare cash book from the above information.

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Cash-Book Date Particulars Amount Date Particulars Amount

2015Jan.01Jan.04Jan.07Jan.31

To Balance b/dTo Sales a/cTo Mr BlackTo Com.a/c

16,150 4,000 6,000 150

---------26,300

2015Jan.01Jan.06Jan.08Jan.09

Jan.10

Jan.31

By Purchase a/cBy Mr WhiteBy Comm.a/cBy Electric--- charges a/c By General Exp- enses a/cBy Balance c/d

3,0005,000 100 200

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17,980

-----------26,300

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Question no.1 What is a cash book?Answer : Cash book is a summary of cash inflow and cash outflow during a particular period.Question no.2 What is meant by inflow? Answer : The receipts of cash through which the Cash balance is increased is called inflow.Question no.3 What is outflow?Answer : The payment of cash through which the cash balance is decrease is known as out- flow.Question no.4 Why do we not record the credit transa- ction in the cash book?Answer : Cash book is a summary of only cash transaction. In credit transactions no inflow or outflow is there. So credit transactions are not recorded in it.

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Question no.5 Is preparation of cash book necessary?Answer : Almost for every business units the cash book is necessary. But for the big organizations it is more relevant and is almost compulsory.Question no.6 Where do we record the cash sales in a cash book?Answer : Cash sale is recorded in the debit side of cash book.Question no. 7 Where do you record the cash purchase in the cash book.?Answer : It is recorded in the credit side of cash book.

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Question no.08 Where do we record the loss by fire in a cash book?Answer : We do not record the loss by fire in cash book.Question no.09 Why do we not record the loss by fire in cash book?Answer : Loss by fire does not record in the cash book because there is no inflow or outflow of cash due to this fire.Question no.10 Where are all the payments recorded in the cash book?Answer : All payments are recorded in the credit side of cash book.

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Ques.11. Where are all the receipts recorded in the cash book?Ans. All the receipts are recorded in the debit side of cash book.Ques.12. Does it necessary that the cash book start always with opening balance?Ans. No, it does not necessary that cash book start always with opening balance.Ques.13. Does it necessary that the cash book end always with closing balance?Ans. . No, it does not necessary that cash book end always with closing balance.

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Double Columns Cash-BookLike the single column cash book the double columns cash book is also prepared simply by adding one column of bank on both the sides.This is because the payments are also made through cheques and money is also deposited in the bank and withdrawn from the bank by the business concern.

Specimen of Double Columns Cash BookDate Particulars Cash Bank Date Particulars Cash Bank

To Balance b/d ----

----------

------

----------

By Balance c/d ---

---------

----

---------

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Illustration no.4From the following prepare a suitable cash book.2015 SRMarch 01 Business started with cash 50,000March 02 Deposited into bank 30,000March03 Goods purchased for cash 5,000March04 Goods purchased through cheque 3,000 March05 Goods sold for cash 2,500March06 Goods sold and deposited into bank 3,000March07 Withdrawn from bank for office use 10,000March08 Withdrawn from bank for personal use 2,000March13 Salaries paid through cheque 4,000

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Cash BookDate Particulars cash Bank Date Particulars cash Bank2015Mar.01Mar.02Mar.05Mar.06Mar.07

To Capital a/cTo Cash a/cTo Sales a/cTo Sales a/cTo Bank a/c

50,000

2,500

10,000

---------62,500

30,000

3,000

---------33,000

2015Mar.02Mar.03Mar.04Mar.07Mar.08Mar.13Mar.31

By Bank a/cBy Purchase a/cBy Purchase a/cBy Cash a/cBy Drawing a/cBy salaries a/cBy Balance c/d

30,000 5,000

27,500

----------62,500

3,00010,000 2,000 4,000

14,000

---------33,000

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2015 SR.March 01 Cash in hand 80,000

March0 1 Bank Balance 120,000

March 03 Received a cheque from Osman 24,000

March 04 Deposited Osman's cheque with bank --

March 08 Withdrawn from bank for business use 20,000

March 10 Goods sold for cash 30,000

March 15 Goods bought for cash 80,000

March 18 Goods sold for cash 60,000

March 20 Paid Rahim by cheque 26,000

March 30 Deposited into bank 16,000

March 31 Paid salary in cash 10,000

March 31 Paid rent by cheque

5,000

Illustration no.5Enter the following transactions in a double column cash book/two column cash book.

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Illustration no.5 Cash Book

Date Particulars Cash Bank Date Particulars

Cash Bank

2015Mar.01Mar.03Mar.04Mar.08Mar.10Mar.18Mar.30

To Balance b/dTo OsmanTo Cash a/cTo Bank a/cTo Sales a/cTo Sales a/cTo Cash a/c

80,00024,000-----20,00030,00060,000----

---------2,14,000-------------

1,20,000------24,000------------------16,000

----------1,40,000-----------

2015Mar.04Mar.08Mar.15Mar.20Mar.30Mar.31Mar.31Mar.31

By Bank a/cBy Cash a/cBy Purchase a/cBy RahimBy Bank a/cBy Salary a/cBy Rent a/cBy Balance c/d

24,000-----80,000---16,00010,000---84,000---------2,14,000----------

-----20,000----26,000---

5,00089,000---------1,40,000-----------

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Question no.14. What is a contra entry ? Answer . If a transaction requires entries on both the debit and the credit sides simultaneously, it is called 'Contra entry'.

Usually, the contra entries will appear in the following occasions.

a. When an account is opened with a bank.b. The firm's cash is deposited in the bank.c. The cash is withdrawn from bank for office use.d. The cheques received from debtors, are deposited in the bank.

In transactions a&b, the cash balance available with the firm is decreased, the cash in bank is increased. In transaction 'c', the cash in

the bank is decreased and the cash in the firm is increased.

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Question no.15 Do you think that business cash deposited into a bank is a contra entry?Answer Yes, business cash deposited into a bank is a contra entry.Question no.16 Do you know that cash withdrawn from the bank for private use is a contra entry? Answer. No, cash withdrawn from the bank for private use is not a contra entry?Question.no17 At which side of the cash book will you record the credit purchase of machinery for SR 20000?Answer It will not be recorded at any side of cash book because there is no inflow or outflow of cash in this transaction.

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Question no.18. Fill in the blanks- (a) Cash Book is a summary of --------------transactions. (cash) (b) Credit transactions are ------------recorded in the cash book.(not) (c) Cash columns of cash book either is ------or------ balance. (equal or has the debit) (d) Cash column in cash book never has ------balance.(credit) (e ) Credit balance of bank column in cash book means --------. (overdraft) (g) Bank column of cash book either has -----balance or ----- balance or -----balance. (no, or debit or credit)

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Practical Problems1.Enter the following transactions into a single column cash book.Date SR2015Jan.01 Business started with cash 50,000Jan.04 Goods purchased for cash 30,000Jan.05 Paid carriage charges 500Jan.09 Goods purchased from Mr Ali 6,000Jan.12 Sold for cash 8,000Jan15 Sold to Mr Amir 10,000Jan.20 Paid to MR Ali 6,000Jan 25 Paid rent for the month 1,000Jan.28 paid general expenses 200Jan.29 Received from Mr Amir 10,000Jan.30 Furniture purchased 4,000 Ans. Cash Balance : SR. 26,300

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2.Enter the following transactions into a single column cash book.Date SR2015Jan.01 Business started with cash 20,000Jan.04 Goods purchased for cash 10,000Jan.05 Paid wages 1, 500Jan.09 Goods purchased from Mr Abdullah 5,000 Jan.12 Sold to Tufail 8,000Jan15 Sold to Mr Anwar 10,000Jan.20 Paid to Mr.Abdullah 5,000 Jan 25 Paid carriage 1,000Jan.28 paid general expenses 200Jan.29 Received from Mr Tufail 8,000Jan.30 Machinery purchased 4,000Jan.31 Drawn for personal use 2,000 Ans. Cash Balance: SR 4,300

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3.Enter the following transactions into a suitable cash book.Date SR2015Mar.01 Business started with cash SR.15000 and goods SR.5000 20,000Mar.04 Goods purchased for cash SR.8000 and credit SR.2,000 10,000Mar05 Paid salary 1, 500Mar09 Goods sold to Mr. Wahid 7,000 Mar.12 Sold for cash 8,000Mar.20 Paid furniture 6000 Mar25 Paid carriage 500Mar.28 paid postage expenses 200Mar.29 Received from Mr. Wahid 7,000Mar.30 Machinery purchased 9,000Mar.31 Drawn for personal use cash SR.3000 and goods SR.2000 5,000Mar.31 Purchased from Mr. Shadab Ahmad 2,000

Answer. Cash Balance : SR. 1,800

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4.Prepare cash book with cash and bank columns from the following transactions.2015 SRFeb. 01 Business started with cash 50,000Feb. 02 Deposited into Samba bank 20,000Feb.03 Purchase for cash 18,000Feb.04 Purchase on credit 6,000Feb.05 Purchase through cheque 5,000Feb.10 Sold for cash 7,000Feb.12 Sold on credit 2,000Feb.14 Sold goods , cheque received and deposited into Samba 4,000Feb 15 Sold and received a cheque 8,000Feb 18 Cheque deposited into bankFeb.20 paid for postage 200Feb.22 Paid electric charges through cheque 400Feb.26 Drawn from bank for office use 3,000Feb.28 Drawn from Samba for personal use. 1,000 Ans.Cash Balance: SR 21,800 Bank Balance:SR22,600

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5.Prepare cash book with cash and bank columns from the following informations.2015 SRFeb. 01 Business started with cash 150,000Feb. 02 Deposited into Samba bank 70,000Feb.03 Purchase for cash 38,000Feb.04 Purchase on credit 16,000Feb.05 Purchase through cheque 1 5,000Feb.12 Sold for cash 14,000Feb.13 Sold goods , cheque received and deposited into Samba 8,000Feb 14 Sold and received a cheque 16,000Feb 16 Cheque deposited into bankFeb.19 paid for postage 1, 200Feb.24 Paid electric charges through cheque 1,000Feb.27 Drawn from bank for office use 9,000Feb.28 Drawn from Samba for personal use. 10,000 Ans.Cash Balance: SR 63,800 Bank Balance:SR59,000

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6. From the following informations draw a suitable cash book.2014 SRDec. 01 Business started with cash 90,000Dec. 03 Deposited into bank 50,000Dec.05 Purchase on credit 30,000Dec.06 Purchase for cash 12,000Dec.08 Purchase through cheque 1 3,000Dec.11 Sold for cash 18,000Dec.12 Sold goods , cheque received and deposited into bank 9,000Dec 15 Sold and received a cheque 15,000Dec 17 Cheque deposited into bankDec.20 paid for carriage 1, 000Dec.23 Paid electric charges through cheque 1,500Dec 26 Drawn from bank for office use 10,000Dec 27Paid for personal travelling expenses. 8,000 Ans.Cash Balance: SR 47,000 Bank Balance:SR 49,500