In three column cash book, the amount columns are divided into three sections.
Preparation of this cash book is similar to the preparation of double column cash book or usual cash book. Bank column is the only added feature in this three column cash book. When there is an increase in your bank balance through transactions, those transactions are entered into the debit section in this bank column.
Banks only allow discounts in your deposited amount when finding an increase in it. This is because bank itself is an asset increase when deposits in it also increase. Due to this increased deposit in banks, records are entered and posted at debit side of this cash book.
With the help of this method, you can find records of cheque and cash deposit into banks and interest on that amount which is credited by bank on your account. You can find all these information displayed at bank column at the debit section of this three column cash book.
Cash column in this cash book is also known as office column. This showcases cash paid which is displayed at credit side and cash received which is displayed at debit side.
Every transaction which makes a deduction in your bank balance is displayed at bank column of three column cash book at its credit section. These debit making transactions are generally interests which are charged by banks, or they are those interests which are on overdraft. Usually, these charges which are imposed by banks or commonly known as collection charges or any other types of payments, are made by banks. These transactions are made on your behalf by banks.
Debit section of this cash book displays a decrease in cash, or in collective form, payments at bank. In case of a hike in cash or to be precisely said receipts, they can be seen at debit section of three column cash book.
Format example of three column cash book are as follows:
Contra entry according to accounting principle is a transaction which involves transfer of money from one cash account in a bank to another cash account in another bank. In here, there are three amount columns which are divided in three column cash book. As per the definition, banks and cash are both concerned with transactions. This is because both of them together represents cash book and transaction details are entered in both bank and cash column in this book.
Contra entry either deducts your cash at a bank or increases your cash on hand, or it just reverses the procedure. That is, it either hikes your cash at a bank or makes a deduction of your cash present with you. Although every transaction is entered on cash and bank section, but the records are made in separate columns. These transactions come under:
First, third and fourth instances are cases where funds are being deposited into banks. In this case, such transactions will make a hike in cash at bank. Side by side of increasing cash at bank, it is also deducting cash at hand. This is because funds are taken from company’s available cash deposit.
At the bank column in debit section, a hike in cash at bank is displayed in cash book. Apart from cash in bank, these transactions are also related to cash in hand; its record will be made at cash column of cash book. Records at bank column are also stated and written as ‘Office’ or ‘To Cash.’
A drop in cash in hand is displayed as ‘By Bank Account’ in credit section of cash book. You can find its deducted amount displayed in cash column. Indicated with ‘C,’ the transaction is entered into both credit and debit section of cash book. Here ‘C’ is the abbreviated form of opposite or reverse or to be specific contrary. In this context, contra entries are those records which you will find on reverse sections of cash books.
Transaction related to the second instance, i.e., withdrawing funds from bank account means raising the cash in hand. This kind of transaction is denoted as ‘To Bank Account’ where its record will be entered at debit section of cash book. Side by side of increase in an amount in hand, exactly similar amount is also getting decreased at bank. That transaction is also recorded in cash book but on credit section where it will be displayed as ‘C’ on both cash and bank side. It will be written as ‘Office’ or ‘By Cash’ under which these transactions will be recorded.
True or false
Find the acceptable alternative answers from the following questions.
iii. Either minus balance or plus balance
iii. Either pass book or cash book
iii. Cash book
iii. A copy of banking transactions which is recorded in cash book
5.A discount column of cash book is
iii. Either totaled or balanced
iii. Every cash transaction
iii. Simple cash book
State ‘Added’ or ‘Deducted’ in given cases while composing a bank reconciliation statement
Answer the questions in brief
Short answer questions
Long answer questions
1.Suppose your cash book is displaying a total of $ 18,170 in your bank account by the end of 30th June 2015. While going through your pass book and cash book, you come to know about the fact that your bank has not passed $ 2,140. You also see that a certain amount, say $ 840 has not been credited to your account.
Addition to that amount you see that your account is debited with $ 140 which is charges like discount and other of similar types. After going through all these amounts, you lastly find an addition of $ 220 which is an interest of your principle amount.
Create a bank reconciliation statement as per the provided information.
Final balance displayed as per pass book comes to be $ 19,550.
2.A credit balance on 30th June 2016 in a dealer’s pass book displays amount of $ 33570. The dealer sends drafts and cheques worth $ 1790 to bank but those are not collected by them. The dealer also draws 3 cheques worth $ 1150, $ 1200 and $ 1300 but does not cash it till 1st July 2016. For his outstanding cheques, bank charges dealer with $ 113 but pays him $ 110 as an interest amount.
That dealer has no idea that bank has credited $ 4000 as bills payable which is not recorded in his cash book. Added to it, bill receivable worth $ 1500 was dishonored at the due date by drawee.
Now prepare a bank reconciliation statement which will display your balance according to your cash book.
Displayed balance is $ 37,213 according to cash book.
According to cash book, bank overdraft was found to be $ 12,680. For those 6 months (overdraft interest) bank made a charge of $ 60 which was debited to his pass book. Bank collected an interest of $ 2400 on investment which was later added to his pass book. Calculate his overdraft according to his pass book.
$ 12,664 is found to be overdraft amount according to Jarvis’ pass book.
Calculated balance of that customer stands at $ 1995 according to his/her pass book.
5.According to cash book, displayed balance is $ 114,400. 2 cheques were sent but were not collected. Values of those cheques were $ 1850 and $ 11500.
During March 3 cheques were issued worth $ 1350, $ 1870 and $ 11250 which were cashed on April 2016. As its commission, bank imposed a charge of $ 180 and credited an amount of $ 1170 in account.These are few pointers given with whose assistance create a bank reconciliation statement as on 30th March 2016.
According to pass book, balance will be $ 116,510.