C hapter 16: Cash books and cash

discounts
Contents of chapter
This chapter looks at the grouping of cash accounts and bank accounts into one cash book and also introduces
the use of folio columns. This chapter also examines the nature of cash discounts and the writing up of a three-
column cash book. The posting of discounts to a discounts received account and a discounts allowed account is
demonstrated.

Notes for teachers

Rather than dealing with three-column cash books immediately, it is better if students first learn how
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to enter two-column cash books.

Explain the use of folio columns:

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(i) Without them we would not be able to easily trace the other half of the double entry.
(ii) Without them it would not be easy to ensure that double entry had been completed.

Students often confuse discounts allowed and discounts received. If the word ‘we’ is put after discounts
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for each type, the meaning becomes obvious:
Discount we allowed.
Discount we received.

The discounts columns in the cash book should be seen as being simply listing columns. They are not
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part of double entry.

To ensure that students enter discounts on the correct sides:

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(i) Discounts we allowed are expenses. Therefore enter on the same side as expenses, i.e. debit side of
the discounts allowed account.
(ii) Discounts we received are revenue. Therefore enter on the same side as revenues, i.e. credit side of
the discounts received account.

Ensure that students can bring down overdraft balances of the bank column in the cash book. The bank is
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a creditor for the money, and therefore it is a credit balance in the bank column.

Pay special attention to Section 16.11 The importance of cash discounts. This is the kind of short essay
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question that any examiner would like to set. It is also a very important part of the financing of
businesses, but not understood by a lot of businesspeople who should know better.

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Answers to MCQs and exercises
16.1 A 16.2 B 16.3 C 16.4 A 16.5 B 16.6 D 16.7 A

16.8
Cash Book
Cash Bank Cash Bank
20X5 $ $ 20X5 $ $
May 1 Capital 100 May 2 Rent 10
" 3 Loan from F Lai 500 " 4 W Chun 65
" 5 Sales 98 " 9 Y Yue 22
" 7 P Mou 62 " 16 Bank 50
" 11 Sales 53 " 19 Loan from F Lai 100
" 15 C Ng 65 " 30 Cash 100
" 16 Cash 50 " 31 Wages 97
" 22 Sales 66 " 31 Balance c/f 184 466
" 30 Bank 100
363 731 363 731

16.9X
Cash Book
Cash Bank Cash Bank
20X9 $ $ 20X9 $ $
Jan 1 Capital 5,000 7,000 Jan 2 Rent 1,500
" 6 Sales 680 " 4 Purchases 3,500
" 7 K Tse 460 " 15 Wages 900
" 10 Sales 1,250 " 20 Cash 320
" 13 Y Ng 730 " 24 Stationery 160
" 18 Loan from T Wong 500 " 27 Computer 2,800
" 20 Bank 320 " 28 Drawings 300
" 31 Sales 870 " 31 Balance c/d 2,740 4,590
7,600 9,210 7,600 9,210
Feb 1 Balance b/d 2,740 4,590

16.10
Cash Book
Discount Cash Bank Discount Cash Bank
20X8 $ $ $ 20X8 $ $ $
Mar 1 Balance b/f 1,560 3,820 Mar 2 W Dai 15 285
" 5 H Poon 145 " 2 C Kwok 13 247
" 9 Sales 770 " 2 D Chung 22 418
" 13 S Su 49 441 " 11 Insurance 160
" 13 F Tao 64 576 " 15 Motor expenses 290
" 13 W Ping 52 468 " 21 Salaries 1,500
" 18 Sales 650 " 23 Rent 840
" 28 Loan from L Yeung 500 " 31 Stationery 70
" 31 Balance c/f 850 4,270
165 2,210 6,720 50 2,210 6,720

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 General Ledger
Discounts Allowed
20X8 $
Mar 31 Total for the month 165

Discounts Received
20X8 $
Mar 31 Total for the month 50

16.11
(a) Cash Book
Discount Cash Bank Discount Cash Bank
20X6 $ $ $ 20X6 $ $ $
May 1 Balance b/f 360 May 1 Balance b/f 1,470
" 2 Capital 4,000 " 3 Fixtures 780
" 4 Sales 220 " 6 A Fung 65 585
" 8 Sales 500 " 6 K Ho 24 216
" 15 Bank 400 " 6 T Tai 40 360
" 19 L Young 16 304 " 12 Utilities expenses 130
" 19 C Chen 10 190 " 15 Cash 400
" 19 H Tung 14 266 " 16 Drawings 200
" 28 Cash 330 " 23 Salaries 800
" 26 Insurance 350
" 28 Bank 330
" 31 Cleaning expenses 300
" 31 Balance c/f 20 629
40 1,480 5,090 129 1,480 5,090

General Ledger
Discounts Allowed
20X6 $
May 31 Total for the month 40

Discounts Received
20X6 $
May 31 Total for the month 129

(b) See the text, Section 16.11.

16.12X
Cash Book
Discount Cash Bank Discount Cash Bank
20X8 $ $ $ 20X8 $ $ $
Jun 1 Balance b/f 925 1,170 Jun 5 Rent 780
" 2 R Ho 100 900 " 7 J Chan 20 380
" 2 C Wong 28 252 " 7 W Lau 32 608
" 2 S Kong 31 279 " 7 D Sun 48 912
" 2 Y Tam 60 540 " 14 Wages 840
" 3 Sales 550 " 17 J Shek 30 620
" 10 Sales 630 " 17 D Fung 50 970
" 12 D Fan 6 294 " 20 Fixtures 3,200
" 23 B Yuen 200 " 30 Stationery 60
" 27 Sales 360 " 30 Balance c/f 235
" 30 Balance c/f 2,505
225 1,915 6,690 180 1,915 6,690

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 General Ledger
Discounts Allowed
20X8 $
Jun 30 Total for the month 225

Discounts Received
20X8 $
Jun 30 Total for the month 180

16.13X
(a) Cash Book
Discount Cash Bank Discount Cash Bank
20X9 $ $ $ 20X9 $ $ $
May 1 Balance b/f 595 May 1 Balance b/f 3,220
" 4 Sales 640 " 3 Purchases 2,000
" 5 F Chu 56 504 " 10 Fax machine 3,340
" 5 C Hong 108 972 " 11 L Woo 19 361
" 5 L Lo 48 432 " 11 R So 55 1,045
" 5 P Wan 36 324 " 11 M Wong 12 228
" 6 H Fu 280 " 11 T Chung 33 627
" 15 Capital 5,000 " 16 Bank 4,500
" 16 Cash 4,500 " 20 Bank charge 265
" 31 Balance c/f 11,554 " 25 Wages 1,200
" 29 Drawings 500
" 31 Fixtures 6,000
" 31 Balance c/f 1,515
248 6,515 18,286 119 6,515 18,286

(b) General Ledger

Discounts Allowed
20X9 $
May 31 Total for the month 248

Discounts Received
20X9 $
May 31 Total for the month 119

16.14X
Because you cannot pay out more cash than you have received. Proof – you have $20 cash in hand and then
receive $5,000 = total $5,020 cash. It is then impossible to spend more than the $5,020 in cash. There is nothing
there to pay any extra.

You can, however, have a credit balance on a bank column, as it will be a bank overdraft.

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