Cash and Bank Accounts
Where there is only a journal being maintained for the purpose of recording transactions in an organisation, Cash Account and Bank Account are nothing but ledger accounts. Every transaction is recorded in the journal and posted therefrom into the ledger. Therefore with regard to cash and bank transactions (or for that matter any transactions) we see recording and posting taking place.
Some Cash and Bank Transactions
- June 5th :: Sold Goods for Cash Rs. 50,000
- June 6th :: Paid into Bank Rs. 40,000
- June 8th :: Paid Ram by cheque Rs. 3,000
- June 8th :: Bought Goods for Cash Rs. 8,000
- June 9th :: Withdrawn from bank for parnters personal use Rs. 1,000
- June 10th :: Received payment from Ghanshyam on account by cheque Rs. 12,000
Petty cash
Petty cash is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by check, because of the inconvenience and costs of writing, signing and then cashing the check.
The most common way of accounting expenditures is to use the imprest system. The initial fund would be created by issuing a check for the desired amount. Usually $100 would be sufficient for most small business needs. The entry for this initial fund would be to debit Petty Cash and credit cash.
As expenditures are made, the custodian of the fund will reimburse employees and secure a petty cash voucher in return. At any given time the total of cash on hand plus reimbursed vouchers must equal the original fund.
When the fund gets low the custodian submits the vouchers for reimbursement. Assuming the vouchers add up to $80 and that the majority of expenditures were for office supplies, an $80 check is issued and an $80 debit towards office expenses is marked. Once the check is cashed, the custodian has cash at the original amount.
There are some business software packages that manage petty cash to have bookkeeping records. Many Point Of Sale systems use petty cash management modules to keep account for all the funds. This solves a problem for small businesses that do a lot of small cash purchases.
Oversight of petty cash is important because of the potential for abuse. Examples of petty cash controls include a limit (such as 10% of the total fund) on disbursements and monthly audits by someone other than the custodian. Use of petty cash is sufficiently widespread that vouchers for use in reimbursement are available at any office supply store.
The most common way of accounting expenditures is to use the imprest system. The initial fund would be created by issuing a check for the desired amount. Usually $100 would be sufficient for most small business needs. The entry for this initial fund would be to debit Petty Cash and credit cash.
As expenditures are made, the custodian of the fund will reimburse employees and secure a petty cash voucher in return. At any given time the total of cash on hand plus reimbursed vouchers must equal the original fund.
When the fund gets low the custodian submits the vouchers for reimbursement. Assuming the vouchers add up to $80 and that the majority of expenditures were for office supplies, an $80 check is issued and an $80 debit towards office expenses is marked. Once the check is cashed, the custodian has cash at the original amount.
There are some business software packages that manage petty cash to have bookkeeping records. Many Point Of Sale systems use petty cash management modules to keep account for all the funds. This solves a problem for small businesses that do a lot of small cash purchases.
Oversight of petty cash is important because of the potential for abuse. Examples of petty cash controls include a limit (such as 10% of the total fund) on disbursements and monthly audits by someone other than the custodian. Use of petty cash is sufficiently widespread that vouchers for use in reimbursement are available at any office supply store.
Double Column Cash Book
A double column cash book or two column cash book is one which consists of two separate columns on the debit side as well as credit side for recording cash and discount. In many concerns it is customary for the trader to allow or to receive small allowance off or against the dues. These allowances are made for prompt settlement of accounts. In certain business almost all receipts or payments are accompanied by such discounts and in order to avoid unnecessary postings separate columns in the cash book are introduced to record the discounts received or allowed. These discount columns are memorandum columns only. They do not form the discount account. The discount column on the debit side of the cash book will record discounts allowed and that on the credit side discounts received.
Posting
The cash columns will be posted in the same way as single column cash book. But as regards discount column, each item of discount allowed (Dr. side of the cash book) will be posted to the credit of the respective personal accounts. Similarly each item of discount received will be posted to the debit of the respective personal account. Total of the discount column on the debit side of the cash book will be posted to the debit side of the discount account in the ledger and the total of discount column on the credit side of the cash book on the credit side of the discount account. The discount columns are not balanced like cash column of the tow column cash book.
Format of the Double Column Cash Book:
Date | Particulars | V.N. | L.F. | Discount | Cash | Date | Particulars | V.N. | L.F. | Discount | Cash |
From the following transactions write up a two column cash book and post into ledger:
1991 Jan. 1Cash in hand $2,000"
7Received from Riaz & Co. $200;
discount allowed $10" 12
Cash sales $1,000"
15Paid Zahoor Sons $500;
discount received $15"
20Purchased goods for cash $300"
25Received from Salman $500;
discount allowed $15"
27Paid Hussan & Sons $300."
28Bought furniture for cash $100"
31Paid rent $100
1991 Jan. 1Cash in hand $2,000"
7Received from Riaz & Co. $200;
discount allowed $10" 12
Cash sales $1,000"
15Paid Zahoor Sons $500;
discount received $15"
20Purchased goods for cash $300"
25Received from Salman $500;
discount allowed $15"
27Paid Hussan & Sons $300."
28Bought furniture for cash $100"
31Paid rent $100
Solution:
Cash Book
Debit Side Credit Side
Date | Particulars | V.N. | L.F. | Discount | Cash | Date | Particulars | V.N. | L.F. | Discount | Cash |
1991 |
To Balance b/d To Riaz & Co. To Sales a/c To Salman To Balance b/d |
|
10 15 |
2,000 200 1,000 500 |
1991 |
By Zahoor & Sons By purchase a/c By Hussan&Sons By Furniture a/c By Rent a/c By Balance c/d |
15 |
500 300 300 100 100 2,400 |
|||
25 | 3,700 | 15 | 3,700 | ||||||||
2,400 |