CASH BOOKS

A cashbook records all the receipts (cash and cheques from customers and debtors or other
sources of income) and all the payments (to creditors or suppliers and other expenses) for a
particular financial period. The cashbook will thereby reveal the cash at bank and cash in hand
of the firm.
There are two types of cashbooks:
i. Cash in hand cashbook, which records the cash transactions in the firm or business.
ii. Cash at bank cashbook, which records the transactions at/with, the bank.
The cash at bank cashbook and cash in hand cashbook are combined together to get a two-
column cashbook. The format is as follows
Two-column cashbook.
CASH BOOK

Date Details Cash Bank Date Details Cash Bank

(sh) (sh) (sh) (sh)

Additional columns for discounts allowed and discounts received can be included with the cash
at bank columns to get a 3 – column cashbook. The format is as follows:

Date Details Discount Cash Bank Date Details Discounts Bank Cash
Allowed (sh) (sh) Received (sh) (sh)

The balance carried down (Bal c/d) for cash in hand and cash at bank will form part of the ledger
balances and the discounts allowed and discounts received columns will be added and the totals
posted to the respective discount accounts. Cash at bank can have either a credit or debit
balance. A debit balance means the firm has some cash at the bank and a credit balance means
that the account at the bank is overdrawn

Illustration 1
Write up a two-column cashbook from the following details, and balance off as at the end of the
month:

1
2013
May 1 Started business with capital in cash £1,000.
“ 2 Paid rent by cash £100.
“ 3 F Juma lent us £5,000, paid by cheque.
“ 4 We paid B Munga by cheque £650.
“ 5 Cash sales £980.
“ 7 N Miller paid us by cheque £620.
“ 9 We paid B Mundia in cash £220.
“ 11 Cash sales paid direct into the bank £530.
“ 15 G Moses paid us in cash £650.
“ 16 We took £500 out of the cash till and paid it into the bank account.
“ 19 We repaid F Lake £1,000 by cheque.
“ 22 Cash sales paid direct into the bank £660.
“ 26 Paid motor expenses by cheque £120.
“ 30 Withdrew £1,000 cash from the bank for business use.
“ 31 Paid wages in cash £970.

Cash Book
Cash Bank Cash Bank
Capital 1000 Rent 100
F. Lake 5000 B McKenzie 650
(Loan)
Sales 980 B Burton 220
N Miller 620 Bank C 500
Sales 530 F Lake (loan) 1000
G Moores 650 Motor 120 100
Expenses
Cash C 500 Cash C
Sales 660 Wages 970
Bank C 1000 Balances c/d 1840 4540
3630 7310 3630 7310

NB: INCLUDE DATES

Illustration 2
A three-column cashbook is to be written up from the following details, balanced off, and the
relevant discount accounts in the general ledger shown.

2
2013
March 1 Balances brought forward: Cash £230; Bank £4,756.
“ 2 The following paid their accounts by cheque, in each case deducting 5 percent
discounts: R Burton £140; E Taylor £220; R Harris £800.
“ 4 Paid rent by cheque £120.
“ 6 J Cotton lent us £1,000 paying by cheque.
“ 8 We paid the following accounts by cheque in each case deducting a 2 ½ per cent
cash discount: N Black £360; P Towers £480; C Rowse £300.
“ 10 Paid motor expenses in cash £44.
“ 12 H Hankins pays his account of £77, by cheque £74, deducting £3 cash discount.
“ 15 Paid wages in cash £160.
“ 18 The following paid their accounts by cheque, in each case deducting 5 per cent
cash discount: C Winston £260; R Wilson & Son £340; H Winter £460.
“ 21 Cash withdrawn from the bank £350 for business use.
“ 24 Cash Drawings £120.
“ 25 Paid T Briers his account of £140, by cash £133, having deducted £7 cash
discount.
“ 29 Bought fixtures paying by cheque £650.
“ 31 Received commission by cheque £88.
Answer

Cash Book
Disct Cash Bank Disct Cash Bank
Bank
Bal b/d 230 4756 Rent 120
R Burton 7 133 N Black 9 351
E Taylor 11 209 P Towers 12 468
R Harris 15 285 C Rowse 20 780
J Cotton: loan 1000 Motor 44
expenses
H Hankins 3 74 Wages 160
C Winston 13 247 Cash 350
R Wison & 17 323 Drawings 120
Son
H Winter 23 437 T Briers 7 133
Bank 350 Fixtures 650
Commission 88 Balances c/d 123 4833
89 580 7552 48 580 7552

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 Discounts Received
3/1 Sundry Creditors 48

Discounts Allowed
3/1 Sundry 89
Debtors

Petty Cash Book and the imprest system of Accounting.

Petty Cash Book is a record of all the petty cash vouchers raised and kept by the cashier. The
petty cash vouchers will show summary expenses paid by the cashier and this information is
listed and classified in the petty cash book under the headings of the relevant expenses such as:
 Postage and stationery
 Traveling
 Cleaning expenses.

The format is as shown:

Petty Cash Book

Receipts Date Detail Payments Expenses The

Amount Postage Stationery Traveling Ledger

The balance c/d of the petty cash book will signify the balance of cash in hand or form part of
cash in hand. The totals of the expenses are posted to the debit side of the expense accounts. If a
firm operates another cashbook in addition to the petty cash book, then the totals of the expenses
will also be posted on the credit side of the cash in hand cashbook.

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The Imprest system
This system of accounting operates on a simple principle that the cashier is refunded the exact
amount spent on the expenses during a particular financial period. At the beginning of each
period, a cash float is agreed upon and the cashier is given this amount to start with. Once the
cashier makes payments for the period he will get a total of all the payments made against which
he will claim a reimbursement of the same amount that will bring back the amount to the cash
float at the beginning of the period.
Illustration 3
A cashier in a firm starts with £2,000 in the month of March (that is the cash float). I n the
following week, the following payments are made:
£
st
1 March – bought stamps for 80
nd
2 March – paid bus fare for 120
nd
2 March – cleaning materials 240
rd
3 March – bought fuel 150
rd
3 March – cleaning wages 300
4th March – bought stamps 200
th
4 March – paid L. Thompson (creditor) 400
th
5 March – fuel costs 150
th
On the 5 of March the cashier requested for a refund of the cash spent and this amount was
reimbursed back.

Required:
Prepare a detailed petty cash book showing the balance to be carried forward to the next period
and the relevant expense accounts, as they would appear on the General Ledger.

Answer

Receipts Date Detail Payments Expenses The

Ledger
Amount Postage Cleaning Travel
(£) (£) (£) (£) (£) (£)
2000 1/3 Bal b/d
1/3 Stamps 80 80
2/3 Bus Fare 120 120
2/3 Cleaning 240 240
Materials
3/3 Fuel 150 150
3/3 Cleaning wages 300 300

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 4/3 Stamps 200 200
4/3 L Thompson 400 400
5/3 Fuel 150 . . 150 .
1640 280 540 420 400
1640 5/3
5/3 Bal c/d 2000
3640 3640
2000 6/3 Bal b/d

BANK RECONCILIATION STATMENTS

The records as per the bank and the cashbook should be the same and therefore the balance
carried down in the cashbook should be the same as the balance carried down by the bank in the
bank statement. However, this is not always the case and the two (balance as per the bank and
firm) are different. A bank reconciliation statement explains the difference between the balance
at the bank as per the cashbook and balance at bank as per the bank statement.
Causes of the differences include:

1. Items Appearing In The Cashbook And Not Reflected In The Bank Statement.
i) Unpresented Cheques: Cheques issued by the firm for payment to the creditors or to
other supplies but have not been presented to the firm’s bank for payment.
ii) Uncredited deposits/cheques: These are cheques received from customers and other
sources for which the firm has banked but the bank has not yet availed the funds by
crediting the firm’s account.
iii) Errors made in the cashbook
These include:
 Payments over/understated
 Deposits over/understated
 Deposits and payments misposted
 Overcastting and undercasting the Bal c/d in the cashbook.
2. Items appearing in the bank statement and not reflected in the cashbook:
i) Bank charges: These charges include service, commission or cheques.
ii) Interest charges on overdrafts.
iii) Direct Debits (standing orders) e.g. to pay Alico insurance.
iv) Dishonored cheques
A cheque would be dishonored because:
 Stale cheques
 Post – dated cheques

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  Insufficient funds
 Differences in amounts in words and figures.
v) Direct credits
vi) Interest Income/Dividend incomes
vii) Errors of The Bank Statement (Made By The Bank).
Such errors include:
 Overstating/understating.
 Deposits
 Withdrawals
The Purposes of a bank reconciliation statement.
1. To update the cashbook with some of the items appearing in the bank statement e.g. bank
charges, interest charges and dishonoured cheques and make adjustments for any errors
reflected in the cashbook.
2. To detect and prevent errors or frauds relating to the cashbook.
3. To detect and prevent errors or frauds relating to the bank.
Steps in preparing a bank reconciliation statement.
1. To update the cashbook with the items appearing in the bank statement and not appearing
in the cashbook except for errors in the bank statement. Adjustments should also be
made for errors in the cashbook.
2. Compare the debit side of the cashbook with the credit side of the bank statement to
determine the uncredited deposits by the bank.
3. Compare the credit side of the cashbook with the debit side of the bank statement to
determine the unpresented cheques.
4. Prepare the bank reconciliation statement which will show:
a) Unpresented cheques
b) Uncredited deposits
c) Errors on the bank statement
d) The updated cashbook balance.
The format is as follows:
(Format 1)
Name:
Bank Reconciliation Statement as at 31/12/2013

£ £
Balance at bank as per cashbook (updated) x
Add: Un presented cheques x
Errors on Bank Statement (see note 1) x x
x
Less: Uncredited deposits x
Errors on Bank Statement (see note 2) x (x)
Balance at bank as per Balance Sheet x

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Note 1: These types of errors will have an effect of increasing the balance at bank e.g. an
overstated deposit or an understated payment by the bank.
Note 2: These types of errors will have an effect of decreasing the balance at bank e.g. an
understated deposit or an overstated payment by the bank, or making an unknown payment.

Format 2
Name:
Bank Reconciliation Statement as at 31/12

£ £
Balance at bank as per bank statement x
Add: Uncredited deposits x
Add errors on bank statement (note 2) x x
x
Less: Unpresented cheques x
Errors on bank statement (note 1) x (x)
Balance at bank as per cashbook (updated) x
===
Illustration 4
Draw up a bank reconciliation statement, after writing the cashbook up to date, ascertaining the
balance on the bank statement, from the following as on 31 March 2003:

£
Cash at bank as per bank column of the cashbook (Dr) 38,960
Bankings made but not yet entered on bank statement 6,060
Bank charges on bank statement but not yet in cashbook 280
Un presented cheques C Clarke 1170
Standing order to ABC Ltd entered on bank statement, but not in cash book 550
Credit transfer from A Wood entered on bank statement, but not yet in cashbook 1,890

Solution
Adjusted Cashbook – Bank
19X9 £ 19X9 £
31/3 Bal b/d Bank charges
38960 280
ABC (standing order) 550
A Wood (credit transfer) 1890 31/3 Bal C/D 40,020
40,850 40,850

Bank Reconciliation as at 31/03/2003

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 £ £
Balance at bank as per cashbook 40,020
Add: Unpresented cheques 1,170
41,190
Less: Uncredited deposits (6,060)
Balance at bank as per Balance Sheet 35,130
=====
Illustration 5
The following are extracts from the cashbook and the bank statement of J Richards. You are
required to:

a) Write the cashbook up to date, and state the new balance as on 31 December 2002, and
b) Draw up a bank reconciliation statement as on 31 December 2002.

Cashbook
2002 Dr £ 2002 Cr £
Dec 1 Balance b/d 1,740 Dec 8 A Dailey 349
Dec 7 J Map 88 Dec 15 R Mason 33
Dec 22 J Cream 73 Dec 28 G Small
115
Dec 31 K Wood 249 Dec 31 Balance c/d
1,831
Dec 31 M Barrett 178
2,328
2,328

Bank Statement
2002 Dr Cr Balance
£ £ £
Dec 1 Balance b/d 1,740
Dec 7 Cheque 88 1,828
Dec 11 A Dailey 349 1,479
Dec 20 R Mason 33 1,446
Dec 22 Cheque 73 1,519
Dec 31 Credit transfer: J Walters 54 1,573
Dec 31 Bank charges 22 1,551

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 Adjusted Cashbook –Bank

2002 £ 2002 £
31/12 Bal b/d 1,831 31/1 Bank charges 22
31/12 J. Walters (C/T) 54 31/12 Bal C/D
1,863

1,885
1,885

J. Richards
Bank Reconciliation Statement as at 31/12/2002

£ £
Balance at bank as per cashbook – bank 1,863
Add: Unpresented cheques – (G Small) 115
1,978
Less: Uncredited deposits
K Wood 249
M. Barret 178 (427)
Balance at bank as per balance sheet 1,551

OR:
Balance at bank as per balance sheet 1,551
Add: Uncredited deposits:
K. Wood 249
M. Barret 178
1,978
Less: Unpresented cheques (115)
Balance at bank as per cashbook – bank 1,863

QUESTION give as practical qstn

(a) Explain the term “bank reconciliation” and state the reasons for its preparation.
(b) Ssemakula, a sole trader received his bank statement for the month of June 2001. At that
date the bank balance was Sh. 706,500 whereas his cash book balance was Sh.2,366,500.
His accountant investigated the matter and discovered the following discrepancies:
1. Bank charges of Sh.3, 000 had not been entered in the cashbook.

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 2. Cheques drawn by Ssemakula totaling Sh.22, 500 had not yet been presented to the
bank.
3. He had not entered receipts of Sh.26, 500 in his cashbook.
4. The bank had not credited Mr Ssemakula with receipts of Sh.98, 500 paid into the
bank on 30 June 2001.
5. Standing order payments amounting to Sh.62, 000 had not been entered into the
cashbook.
6. In the cashbook Ssemakula had entered a payment of Sh.74, 900 as Sh.79, 400.
7. A cheque for Sh.15, 000 from a debtor had been returned by the bank marked “refer
to drawer” but had not been written back into the cashbook.
8. Ssemakula had brought forward the opening cash balance of Sh.329, 250 as a debit
balance instead of a credit balance.
9. An old cheque payment amounting to Sh.44, 000 had been written back in the
cashbook but the bank had already honored it.
10. Some of Ssemakula’s customers had agreed to settle their debts by paying directly
into his bank account. Unfortunately, the bank had credited some deposits amounting
to Sh.832, 500 to another customer’s account. However acting on information from
his customers Ssemakula had actually entered the expected receipts from the debtors
in is cashbook

Required:
i. A statement showing Ssemakula’s adjusted cashbook balance as at 30 June 2001. (9
marks)
ii. A bank reconciliation statement as at 30 June 2001. (5marks)
(Total: 20 marks)

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