The Cash transaction is a transaction carried out only out of cash . The cash transactions are recorded in the subsidiary book known as cash book. The cash book can be classified into three categories
Single columnar cash book: It is a book generally records the transactions into two classification viz Payments and Receipts. The receipts and payments are recorded in the debit and credit side of the cash book respectively. The debit and credit side transactions of the cash book are prefixed with "To" and "By" respectively.
Double Columnar Cash Book
It is another kind of cash book which is nothing but extension of earlier versioned single columnar cash book. The double columnar cash book includes the operations of the enterprise into two different categories viz transactions through Cash and Bank. It means that the entire receipts and payments of the business routed through cash and bank. The transaction of the business with the bank either at the moment of cash withdrawal or cash deposit leads to register the movement of cash from one entity to another through the contra entries.
The contra entries are posted in two different occasions viz cash withdrawal and cash deposit.
During the cash withdrawal, the movement of cash is depicted below for easier understanding, which is nothing but the movement of asset from bank to firm.
Transaction No 1
Jan 5, 2006, Cash withdrawal Rs.10,000 from the bank is having the following journal entry
Cash A/c Dr Rs.10,000
To Bank A/c Cr Rs.10,000
(Being cash withdrawn from the bank A/c)
From the above entry, it is obviously understood that the bank is the giver of the cash resources from the savings bank a/c and cash receipts are made only due to withdrawal of cash from the bank. There are two different angles of cash withdrawal one is in the dimension of firm and another is bank.
The above table of double columnar cash book clearly elucidates the contra entry process taken place in between two entities viz firm and bank .
Three Columnar Cash Book
It is another dimension of cash book which has three component of operations of the enterprise viz Cash, Bank and Discount. This cash book is extension of the early one, not only which incorporates the receipts and payments of the firm through cash and bank but also discount allowed and received.
Why discount allowed is brought under the debit side?
The discount is allowed at the time of receipts out of sale . The discounts are categorized into two categories viz cash discount and trade discount.
Cash discount is the discount allowed by the firm only at the moment of making the payment with in the stipulated time frame i.e. 7% @ 10 days means that 7% discount will be given to the parties who are able to make the payment of dues within 10 days of stipulated time period.
Trade discount is the discount allowed by the firm to encourage the regular customers to buy more and more. This type of discount is allowed by the firm only on the total value of the invoice. The discount is granted on the gross value of the goods purchased by the regular customer from the enterprise.
Why discount received is brought under the credit side?
The reason for showing the discount received under the credit side of the cash book is that the amount of discount received availed only during the moment of payment of overdue only due to credit purchase
Multi columnar Cash Book
The regular receipts and payments on various heads require the firm to design not only a most suited cash book which is in a position to incorporate all the entries of cash in nature but also to reduce the excessive labour involved in the process of sorting out them. To replace the bottlenecks of the three columnar cash book, multi columnar cash book is developed which is in a position to highlight the receipts and payments of a firm under various accounting heads within a specified period. Under this system of cash book, the firm is required to register the payments and receipts of the respective heads only in the columns especially provided for determining the balance under each at the end of the specified month.
Petty cash Book
It is a book maintained by the petty cashier who is especially appointed for the purpose to assist the cashier of the business enterprise in order to meet the day to day expenses of meager in volume. The cashier normally hands over a certain sum of money to the petty cashier to meet out tiny expenses of the enterprise based on the early estimation on the daily requirement e.g., postage, refreshment charges. The meager amount which is given by the cashier is known in other words as petty cash or float. The vouchers and receipts are finally examined by the cashier based on the presentation of petty cash book balance.
Example 1: The following are extracted information from the books of M/s Brown & Co. Prepare the trial balance
The first step is to determine the debit and credit balance of the business transactions in terms of Expense, Revenue, Assets and Liabilities
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