CASH BOOK AND BANK RECONCILIATION

Cash is defined to include cheques, money order, coins and paper money that a bank will
accept for immediate deposit from a customer. Cash is the assets most susceptible to loss
through theft and other means; therefore there is a need for proper internal control over cash
to minimise the loss of cash.

THE NEED FOR CONTROL OVER CASH

A good internal control over cash will help management to achieve the following objectives:
1. There will be accurate accounting for cash transactions
2. Management will maintain sufficient amount of cash at all times
3. Management will not keep excessive cash rather they will invest idle cash in
profitable ventures
4. It will prevent losses of cash from fraud or theft

HOW TO HANDLE CASH

In order to have good internal control over cash, the following steps should be considered:
1. Cash must be deposited daily in the bank
2. All payments (except for petty cash transactions) should be made by cheque
3. The function of receiving cashier should be separated from that of maintaining
records of cash. Each function should be performed by different persons
4. All cash receipts must be recorded in a cash register
5. At the end of each day, the amount in the cash register should be compared with the
physical cash
6. Notice to all customer to always obtain receipts for payments made
7. Carbonised receipts must be issued for cash sales and receipts
8. All payment must be checked and approved in writing by responsible officer before
payments are made
9. When payments are made for transactions , the invoice and other supporting
documents must be stamped paid to avoid paying twice
10. Independent cash count in a regular and surprise basis by responsible official

CASH BOOK
The cash book is a subsidiary book or book of first entry for all cash transactions. It is
also a ledger book because it has balances at the end of the period like all other ledger
accounts. There are three types of cash book:
 The single column cash book
 The double column cash book
 The three column cash book

SINGLE COLUMN CASH BOOK

A single or one column cash book is the cash book with one column for amount which is
usually a cash column. The cash book has two sides, the debit and the credit sides. All
cash receipts are entered on the debit (receiving) side and all cash payments (money given
out) are entered on the credit side of the account. The general rule in recording
transactions into the cash book is to debit all receipts and credit all payments.
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 CASH BOOK
DR. CR.
Date Particulars Amount (N) Date Particulars Amount (N)

Balancing the Cash book

After recording the transactions into the cash book, it is necessary to balance it at the end
of the period. The essence is to ascertain the cash in hand and at bank at the end of the
period. This is done by adding up the receipt side and payment side separately. The cash
in hand otherwise known as the balance carried down (bal c/d) is the difference between
total receipts and total payments. The idea of carrying down the balance is to agree the
two sides of receipts and payments. The account is balanced, when you carry down the
balance on the smaller side to make the two totals equal. The balance carried down at the
end of the period is the opening balance brought down at the beginning of the next period

Illustration 1
Alhaji Biobaku’s account shows the following for the month of May, 2019
N
May 1: Balance in hand from last month 90,000
4: Cash sales to date 80,000
8: Bought goods for cash 50,000
10: Bought office table for cash 20,000
15: Paid insurance premium 10,000
20: E. Folake paid cash 40,000
22; Cash sales 60,000
27: Paid wages 25,000
29: Paid travelling expenses 8,000
30: Withdraw cash for personal use 5,000

Required:
Record the above transactions in the appropriate cash book and balance the account

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Solution to Illustration 1

ALHAJI BIOBAKU

Single Column Cash Book

Date Particulars Amount Date Particulars Amount

N N
2019 2019
May 1 Balance b/d 90,000 May 8 Purchases 50,000
May 4 Sales 80,000 May 10 Furniture 20,000
May 20 Trade receivables 40,000 May 15 Insurance premium 10,000
May 22 Sales 60,000 May 27 Wages 25,000
May 29 Travelling expenses 8,000
May 30 Drawings 5,000
_______ Balance c/d 152,000
270,000 270,000
Balance b/d 152,000

NOTE

All receipts (income) are debited to the cash book; this means whenever cash is received, it is
entered on the left hand side of the cash book

All payments (expenses) are credited to the cashbook; this means whenever cash is paid, it is
entered on the right hand side of the cash book

Debit to the cash book will increase cash balance while credit to the cash book will reduce
cash balance

Balance carried down is derived by following the steps below:

 Add the debit side of the account separately and the credit side separately.
 The total of the debit side is N270,000 while total of the credit side is N118,000.
 Put the greater figure as total for both debit and credit sides
 Balance up the smaller side to make up N270,000
 What figure will be added to N118,000 to arrive at N 270,000? It is N152,000
(N270,000 less N118,000) .
 Insert the balancing figure and call it balance carried down (Bal. c/d)
 All balances carried down are taken to the other side of the account as balance
brought down. This represents the opening balance for the next accounting period

When goods are bought for resale it is called purchases. That is why goods bought on the 8 th
of May is called purchases in the cashbook

When other items are bought for use in the business but not for resale, the item bought is
recorded using its name or classification. For instance, table bought on the 10 th of May is
recorded as furniture

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When goods are sold on credit it gives rise to receivables (Debtors). E. Folake paid cash of
what she bought; as a result it is recorded as receivables. For her name to be mentioned in the
transaction, it means she bought on credit

THE TWO COLUMN CASH BOOK

The two columns or double column cash book is the subsidiary book for recording receipts
and payments of cash and cheques. Being a ledger, it has two columns on each side (i.e. debit
and credit sides). Cash are recorded under cash column and cheques are recorded under the
bank column.

CASH BOOK
DR. CR.
Date Particulars Cash(N) Bank (N) Date Particulars Cash (N) Bank (N)

Contra Entry
Where a double column cash book is kept for both cash and bank account, movement of fund
between the two accounts is often debited and credited simultaneously in the cash book, one
entry opposite the other. Such two entries of the same amount that are posted opposite each
other is referred to as “contra” entries and are designated by the letter “C”. For example,
when office cash is paid into the bank, the bank column is debited and the cash column is
credited thus completing the double entry within the cash book. The entries are reversed
where cash is withdrawn from the bank for office use.

Overdraft
Overdraft is the excess of payments out of bank over the receipts through the bank. Before an
account is overdrawn by the owner, it must be previously arranged with the bank manager. A
credit balance on the bank column of the cash book indicates an overdraft.

Illustration 2
Oje Enterprises, a sole trader, started business with N80,000 in the bank and N20,000 cash on
February 1, 2019. Other transactions in the business are shown below:
N
Feb. 3: Withdraw cash from bank for business use 50,000
6: Purchased goods by cash 35,000
10: Cash sales 40,000
15: Received cash from S. Gbenga 10,000
18: Received cheque from B. Adeola 20,000
20: Cash paid into bank 30,000
23: Paid cheque to T. Abiodun 15,000
25: Cash purchases 8,000
27: Paid rent with cheque 10,000
28: Paid electricity bill by cash 5,000

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Required:
Record the above transactions in the appropriate cash book and balance the account

Solution to Illustration 2

OJEI ENTERPRISES

Double column cashbook

Date Particulars Cash Bank Date Particulars Cash Bank

N N N N
2019 2019
1/2 Opening bal. 20,000 80,000 3/2 Cash C 50,000
3/2 Bank C 50,000 6/2 Purchases 35,000
10/2 Sales 40,000 20/2 Bank C 30,000
15/2 Receivables 10,000 23/2 Payables 15,000
18/2 receivables 20,000 25/2 Purchases 8,000
20/2 Cash C 30,000 27/2 Rent 10,000
28/2 Electricity 5,000
______ _______ Bal. c/d 42,000 55,000
120,000 130,000 120,000 130,000
Balance b/d 42,000 55,000

NOTE

The cash column on the debit side of the account is balanced against the cash column on the
credit side of the account while the bank column on the debit side of the account is also
balanced against the bank column on the credit side of the account.

All cash transactions are posted under cash column while all transactions through bank are
posted under the bank column

The bank column is also called the bank account

Contra entry is treated following the steps below:

 Identify the column paying and the column receiving

 Recall that when payment is made, the cashbook is credited and when cash is
received, it is credited. Therefore;
 Credit the paying column and debit the receiving column.
 Put “C” in front of each particular to signify contra entry.

When cash was withdrawn from the bank on February 3; the following posting were made:

Bank column was credited with N50,000 and cash was written under details. Bank column
was credited because bank made payment, which invariably reduced cash balance in the

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 bank. To who did bank pay to? Bank paid to cash. That is why cash was written under
details.

Cash column was debited with N50,000 and bank written under details/particulars. Cash
column was debited because cash received money and that increased the cash balance while
bank was written under details because cash received money from bank.

When payment is made to a supplier; it is called trade payables. That was why cheque paid to
T. Abiodun on the 23rd of February was recorded as Payable

THE THREE COLUMN CASH BOOK

The three columns cash book is also a subsidiary book for recording cash discounts, cash and
bank transactions. Being a ledger, it has three columns on each side of the account. Cash are
recorded under cash column; cheques are recorded under the bank column and discount under
the discount column.

CASH BOOK
DR. CR.
Date Particulars Disc. Cash Bank Date Particulars Disc. Cash Bank
Allowed Received
(N) (N) (N) (N) (N) (N)

Cash Discount
A cash discount is an allowance received by a business or given by the business to encourage
early settlement of debts. There are two types of cash discounts namely discount allowed and
discount received. If a business gives cash discount to its customer; to the business, it is
discount allowed while to the customer, it is discount received.

Discount Allowed
This is an allowance given by a business to its customers to encourage the customers to settle
their debt on time. If a discount is given, the amount of debt to be paid will be reduced. For
instance, a customer bought goods worth N1,500 and he is given a cash discount of 10%. It
means that the customer will pay 90% of N1,500 which is N1,350 and that settles the whole
of the debt. The 10% discount is an expense to the business and it is recorded on the debit
side of the cash book under discount column.

Discount Received
This is an allowance received by the business for early settlement of debt. It is recorded on
the credit side of the cash book under the discount column

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 Illustration 3
Isiewu Ventures started business on April.1, 2020 with N120,000 in the business bank
account. The following transactions were made during the month.
Jan 2: Withdraw N30,000 from the bank for business use
5: Cash purchases of goods N25,000
7: The following debtors paid their debts less 5% cash discount by cheque:
S. Kujore N50,000
S. Oridota N20,000
9: Cash sales: N100,000
10: Paid the following creditor less 10% discount:
Olu & Co. N30,000
Sola enterprises N15,000
15: Cash sales N6,000
20: Paid cash into bank: N20,000
25: Bought fixture and fittings by cheque: N40,000
27: Paid salaries with cheque: N36,000
28: Paid rent for cash: N10,000

Required:
Record the above transactions in the appropriate cash book and balance the account

Solution to Illustration 3

ISIEWU VENTURES

Three Column Cashbook

Date Particulars Disc. Cash Bank Date Particulars Disc. Cash Bank
Allowed Received
N N N N N N
2020 2020
1/4 Opening bal. 120,000 2/4 Cash C 30,000
2/4 Bank C 30,000 5/4 Purchases 25,000
7/4 Receivables 2,500 47,500 10/4 Payables 3,000 27,000
Receivables 1,000 19,000 Payables 1,500 13,500
9/4 Sales 100,000 20/4 Bank C 20,000
15/4 Sales 6,000 25/4 F& fitting 40,000
20/4 Cash C 20,000 27/4 Salary 36,000
28/4 Rent 10,000
_____ ______ ______ 40,500 100,500
Bal. c/d 5,000
3,500 136,000 206,500 136,000 206,500
1/6 Balance b/d 40,500 100,500

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NOTE:

Discount allowed is not balanced against discount received. Rather, discount allowed is
added and recorded under its column and eventually transferred to the debit side of discount
allowed account in the general ledger. Likewise, discount received is also added and recorded
under its column and also transferred to the credit side of discount received in the general
ledger.

FUNCTION OF THE CASH BOOK

1. It serves as a prime or subsidiary book for daily cash transactions
2. It forms part of the ledger accounts
3. To ascertain the amount of the day’s balance against which physical cash is checked
and bank reconciliation prepared
4. It serves as full record of some transactions e.g. cash paid or withdrawn from the bank
5. It reveals the liquidity position of the organisation at any given time
6. It allows enterprise to plan for its future cash requirements

THE PETTY CASH BOOK

The petty cash book is used for recording expenses of a smaller size than those recorded in
the main cash book. The petty cash book is usually operated on the imprest system in which
cash float is maintained. The cash float is reimbursed by the amount spent at the end of a
specific period. The only source of cash inflow to the petty cash is the imprest. The expenses
are spread on various items which are separately analysed. At the end of specific periods, the
column are added and posted to the debit side of the ledger accounts to which they relate.

The cash allocated for petty expenses for a specified period is entered on the credit side of the
general cask book and on the debit side of the petty cash book.

Illustration 4
Black out Limited operates an imprest system with replenishment directly from the chief
Casier. The following transaction occurred for the period to 31 st July 2020 starting with
voucher serial number 6.
N
20 Oct. Balance in hand 750
21 ,, Received cash for reimbursement 19,250
22 ,, Paid for transport 1,150
23 ,, Paid for stationery 450
23 ,, Paid for printing of letter head 4,950
25 ,, Paid for electricity bill for Sept. 1,950
25 ,, Paid photocopies and binding 685
25 ,, Paid postage stamps 720
26 ,, Paid loading expenses 2,500
26 ,, Paid postage stamps 850
26 ,, Paid for transport to Oyingbo 400
27 ,, Paid photocopying 725
27 ,, Paid for stapling machine 150
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 27 ,, Paid for photocopying 125
27 ,, Paid for transport to V.I 540
28 ,, Paid cash courier service 1,650
28 ,, Paid for minerals for M.D’s visitors 310
29 ,, Paid fuel to delivery van 450
29 ,, Paid insurance premium for the month 1,500
30 ,, Paid transport to Ota and Ifo 350
30 ,, Paid balance on letter head 450

You are required to prepare the petty cash accounts for the period

Receipt Date Particulars VN Total Transp Station Offic Electr Delive Insura
ortatio ery e icity ry nce
n Exp. Exp. Exp. Exp. Exp.
N N N N N N N N
2020
750 20/7 Bal. b/d
19,250 21/7 Cash
22/7 Transport 6 1,150 1,150
23/7 Stationery 7 450 450
Letter head 8 4,950 4,950
25/7 Electricity 9 1,950 1,950
10 685 685
Photocopy
11 720 720
Stamp 2,500
26/7 Loading 12 2.500
13 850 850
Stamp 400
Transport 14 400
27/7 725
Photocopy 15 725 150
Stapler 16 150 125
Photocopy 17 125 540
Transport 18 540 1,650
28/7 19 1,650
Courier ser. 310
Entertainment 20 310 450
29/7 1,500
Fuel 21 450
Ins premium 22 1,500 350
30/7 ____ 450 ____ _____ _____
Transport 23 350 ____
24 450 2,440 6,000 3,415 1,950 4,600 1,500
______ Letter head
19,905
20,000
Balance c/d 95
95
20,000
19,905 1/8
1/8 Balance b/d
Cash

NOTE:

When an imprest system is operated, the total disbursement is the amount to be reimbursed
by the chief cashier. A N20,000 float is maintained in the above example. If at the end of the
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period, N 17,7000 was disbursed, the petty cashier will have a balance of N2,300 with him.
The float needs to go back to the original amount; therefore, the chief cashier will reimburse
the petty cashier with the total amount spent which is N17,70

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