CASH BOOK AND

BANK
RECONCILIATION
LECTURE # 9
INTRODUCTION TO ACCOUNTING
 CASH BOOK

• The book in which all cash transactions (either cash is received or paid) are primarily recorded
according to dates is called as cash book.
Basic Features of Cash Book
• All cash transactions are recorded are primarily recorded in cash book as soon as it takes place.
• It has two identical sides (LHS-Debit side) and (RHS-Credit side)
• The difference between the two sides shows cash in hand
• All entries that do not include any cash transactions will never come in cash book
FORMAT OF SINGLE COLUMN CASH BOOK
• Date: The date column of the cash book is used to record the year, month and actual date of each 
cash transaction. This column ensures the chronological record of each business transaction involving receipt or
payment of cash.

• Description: The description column is used to record the account titles to be debited or credited as a result of
each cash transaction. A short explanation (also known as narration) of each cash transaction may also be written
in this column. This column is sometime titled as “particulars”.

• Voucher No: Voucher is a document that supports a business transaction. This column is used to record the
serial number of a receipt voucher or payment voucher.

• Posting reference: This column is used to write the page number of each ledger account named in the
description column of the cash book.

• Amount: The amount column of single column cash book is used to record the money value of each cash
transaction
 EXAMPLE QUESTION
• Sep.01: Cash in hand at start of the month $4,654.
• Sep.02: Paid salaries to employees for the last month
$3,000.
• Sep.17: Cash paid to A & Co. for a previous credit
purchase $1,780.
• Sep.20: Merchandise purchased for cash $2,460.

• Sep.05: Cash received from S & Co. for a previous • Sep.21: Merchandise sold for cash $4,680.
credit sale $2,720.
• Sep.24: Cash received from S & Co. for a previous
• Sep.06: Merchandise purchased for cash $1,400. credit sale $2,400.

• Sep.07: Merchandise sold for cash $4,700. • Sep.28: Cash paid for office rent $1,600.

• Sep.10: Office furniture purchased for cash $3,080. • Sep.30: Merchandise sold for cash $7,200

• Sep.12: Stationary purchased for cash $170.

• Sep.15: Merchandise sold for cash $9,000.

SOLUTION
FORMAT OF DOUBLE COLUMN CASH BOOK
IMPORTANT POINTS TO REMEMBER WHILE MAKING
ENTRIES IN A DOUBLE COLUMN CASH BOOK

• Recording cash transactions:

• All cash receipts are recorded in cash column on the debit side and all cash payments are
recorded in cash column on credit side of the double column cash book.
• If cash is received from a debtor or customer and is deposited into the bank account on
the same date, the entry will be made in the bank column on the debit side, not in the cash
column.
• Recording bank transactions:
• When a check is received and the same is deposited into the bank account on the same date, the
amount of the check is entered in the bank column on the debit side.
• When a check is received and the same is not deposited into the bank on the same date, the amount
of the check is entered in the cash column, not in the bank column.
• When a check received from a receivable on a date subsequent to its receipt is deposited into the
bank account, the entry is made in the bank column on the debit side and in the cash column on
credit side. It is called a contra entry.
• When a check is issued, the amount of the check is entered in the bank column on the credit side.
 RECORDING CONTRA ENTRIES:

• The “contra” is a Latin word which means against or opposite. The contra entry is an
entry which involves a cash account and a bank account and which is recorded on both
debit and credit sides of the double column cash book at the same time. This entry is not
posted to any ledger account because both debit and credit aspects of transaction are
handled within the cash book and the double entry work is completed. In posting
reference column, the letter “C” is written to denote that the entry is a contra entry and
will not be posted to any ledger account. A contra entry is made in the following
circumstances:
 SITUATIONS WHEN CONTRA ENTRY IS MADE
• (1). When cash is deposited into the bank account:
• The entry for depositing cash into the bank account is:
• Bank [Dr]
Cash [Cr]
• The deposited amount is written in the bank column on debit side and cash column on
credit side.
• 2). When cash is withdrawn from bank account for business use:
• The entry for withdrawal of cash from bank account for business purpose is:
• Cash [Dr]
Bank [Cr]
• The withdrawn amount is written in the cash column on debit side and bank column on credit side.
• Important: The contra entry is made only when the cash is withdrawn for business use. If cash is
withdrawn for personal use, it will be recorded only in the bank column on credit side of the cash
book.
• (3). When a check received from a receivable or customer on a date subsequent to its receipt is
deposited into the bank account:
• When a check is received and is not deposited into the bank account on the same date, it is
recorded in the cash book just like a normal cash receipt. On a subsequent date, when the check is
deposited into the bank account, the following entry is made:
• Bank [Dr]
Cash [Cr]
• The amount of the check is recorded in the bank column on debit side and cash column on credit
side
 EXAMPLE
• March 01: Cash balance $1,450 (Dr.), bank balance $1,500 • March 19: Issued a check for merchandise purchased, $630.
(Dr.). • March 20: Drew from bank for office use, $150.
• March 02: Paid Mark & Co. by check $120. • March 22: Received a check from Peter & Co. and deposited
• March 04: Received from John & Co. a check amounting to the same into bank immediately, $880.
$400. • March 25: Paid a check to Daniel Inc. for $270.
• March 05: Deposited into bank the check received from John • March 26: Bought furniture for cash for office use, $175.
& Co. on March 04.
• March 28: Paid office rent by check, $120.
• March 08: Purchased stationary for cash, $25.
• March 29: Cash sales, $650.
• March 12: Purchased merchandise for cash, $525.
• March 30: Withdrew from bank for office use, $145.
• March 13: Sold merchandise for cash, $1,800.
• March 31: Paid salary to employees by check, $300.
• March 15: Cash deposited into bank, $850.
• March 17: Withdrew from bank for personal expenses, $40.
 BANK RECONCILIATION STATEMENT
• A bank reconciliation statement is a summary of banking and business
activity that reconciles an entity's bank account with its financial records.
The statement outlines the deposits, withdrawals, and other activities
affecting a bank account for a specific period.
• BRS is prepared on a periodical basis for checking that bank related
transactions are recorded properly in cash book's bank column and also by
the bank in their books. BRS helps to detect errors in recording
transactions and determining the exact bank balance as on a specified date
1- CHEQUE ISSUED OR DRAWN TO CREDITORS BUT NOT PAID BY
BANK OR NOT PRESENTED IN BANK

When a cheque/check is issued to a creditor or third party, it is immediately recorded in the

bank column on the credit side of Cash Book. It reduces the bank balance in Cash Book.
But the receiving party may not present the cheque to the bank for payment on the same
date. The bank will only debit the depositor’s account when cheque will be presented to it
and will be paid by the bank. So as long the cheque will remain unpresented, the difference
between the balances of both the books will be there.
Hint: Cash book will show less balance and pass book will show more
2- CHEQUE DEPOSITED FOR COLLECTION BUT NOT YET
COLLECTED AND CREDITED BY BANK

When cheques are deposited into bank, the firm immediately enters it on the debit side of
the bank column of cash book. It increases the bank balance as per the cash book. But, the
bank credits the firm’s account after these cheques are actually realized. A few days are
taken in clearing of local cheques and in case of outstation cheques few more days are
taken. This may cause the difference between cash book and pass book balance.
Hint: Cash book will show more bank balance and pass book will show less balance
3- AMOUNT DEPOSITED DIRECTLY IN TO THE BANK BY
CUSTOMERS/DEBTORS

• Some times the debtors deposit the amount directly in to our account instead of paying
cash to us. In such a case the bank will transfer the amount to our account. The bank will
intimate us but some times due to certain reasons the intimation may be delayed.
Therefore, the cash book balance and pass book balance will disagree
• Hint: The cash book will show less balance and pass book will show more balance
 4- DIVIDEND OR INTEREST COLLECTED BY
THE BANK
Some times the bank collects and credits our account with dividend on shares, interest on
bank deposits etc. as per our instructions and sends us an intimation but some times due to
certain reasons the intimation may be delayed. Therefore, the cash book balance and pass
book balance will disagree
Hint: The cash book will show less balance and pass book will show more balance
 5- EXPENSES PAID DIRECTLY BY THE BANK
• Some times bank pays insurance premium, factory rent, office rent, interest on
debentures, trade subscriptions etc. on our behalf as per our orders. The bank debits our
account and sends us intimation but some times due to certain reasons the intimation may
be delayed. Therefore, the cash book balance and pass book balance will disagree
• Hint: The cash book will show more balance and the pass book will show less balance.
 IMPORTANT POINTS TO REMEMBER
• Bank balance as per cash book (DR)
• Bank balance as per pass book (CR)
• Bank balance as per cash book overdraft (CR)
• Bank balance as per pass book overdraft (DR)
• An overdraft occurs when money is withdrawn from a bank account and the available
balance goes below zero.
FORMAT FOR BANK RECONCILIATION
STATEMENT
 EXAMPLE QUESTION
• Ali enterprises has a 64000 Rs balance as per cash book for the month of Dec, 2020
• Bank charged expenses for issuance of ATM card amounting 100 RS
• Interest on shares is collected directly by bank for RS 500
• Cheques are received by Ali enterprises from their respective customers and the same has
been paid in to bank but the bank didn’t deposited on the same day for RS 40400
• Ali enterprises issued cheques to customers of RS 26000, but these cheques are not yet
paid by bank.
 EXAMPLE QUESTION
• Ali enterprises has a 64000 Rs balance as per Pass book for the month of Dec, 2020
• Bank charged expenses for issuance of ATM card amounting 100 RS
• Interest on shares is collected directly by bank for RS 500
• Cheques are received by Ali enterprises from their respective customers and the same has
been paid in to bank but the bank didn’t deposited on the same day for RS 40400
• Ali enterprises issued cheques to customers of RS 26000, but these cheques are not yet
paid by bank.