Cash Book with Discount and Bank Column or Three Column Cash Book

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In three column cash book, the amount columns are divided into three sections.

  • Discount
  • Cash
  • Bank

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

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:

  • Fund deposition into bank
  • Withdrawal of money for corporate use
  • Companies opening current accounts with bank
  • Previously received cheque being deposited into bank

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.

Theoretical Questions

Objective questions

 

True or false

  1. Cash book has the records of only cash payments and cash receipts.
  2. Cash book has two sides which are known as assets and liabilities.
  3. Cash book has records of every cash receipts.
  4. Discount columns in cash book are not balanced.
  5. In cash book,the word ‘C’ against a record denotes that it is not to be entered into the ledger.
  6. Cash Book does not have records of credit transactions.
  7. Cash book displays trade discount.
  8. Statement of account and pass book are the same object as both of these resembles a duplicate of ledger account of a customer which a bank maintains.
  9. Plus balance is always regarded in case of balance of pass book.
  10. Cash book will display plus balance when deposited amount is more than withdrawals from bank.
    11. A debit balance is always displayed in cash book in its bank column.
  11. Credit balance of pass book and a debit balance of the cash book have a similar meaning.
  12. In a pass book, debit balance and minus balance have the same meaning.
  13. It is with either pass book or cash book you can create a bank reconciliation statement.

 Answer

  1. True
  2. False
  3. True
  4. True
  5. True
  6. True
  7. False
  8. True
  9. False
  10. True
  11. False
  12. True
  13. True
  14. True

Find the acceptable alternative answers from the following questions.

  1. Debit balance of pass book is —–
  2. Minus balance
  3. Plus balance

iii. Either minus balance or plus balance

  1. Neither minus balance nor plus balance
  1. You can compose bank reconciliation statement with the help of balance of —–

i.Pass book

  1. Cash book

iii. Either pass book or cash book

  1. Neither pass book nor cash book
  1. If bank reconciliation statement is composed with assistance of balance of cash book, we will get balance of —–
  2. Pass book
  3. Pay-in-slip book

iii. Cash book

  1. Cheque book
  2. Pass book can be termed as —–
  3. A copy of ledger account of a customer which are maintained by bank
  4. Payment and receipt copy of a company

iii. A copy of banking transactions which is recorded in cash book

  1. Record of every cash transactions

5.A discount column of cash book is

  1. Totaled
  2. Balanced

iii. Either totaled or balanced

  1. Neither totaled nor balance
  1. Cash Book makes entry of —–
  2. Every credit transaction
  3. Every transaction

iii. Every cash transaction

  1. Every non-cash transactions
  1. —– may have contra entry.
  2. Every cash book
  3. Discount column cash book and cash

iii. Simple cash book

  1. Three column cash book

Answers

  1. i
  2. iii
  3. i
  4. i
  5. iii
  6. iv
  7. i

 

State ‘Added’ or ‘Deducted’ in given cases while composing a bank reconciliation statement

  1. Bank is making direct payment to debtors, but it does not get debited in cash book.
  2. Cheques are debited in cash book but are not credited in pass book.
  3. Twice the debiting of a cheque into bank column of cash book.
  4. No record of cheque deposition in cash book even though that cheque is deposited into bank.
  5. Cheques recorded in cash book but forgotten to be banked.
  6. Bank is paying factory rent of a company that has been recorded in bank’s pass book but not in company’s cash book.
  7. Cheques are credited in cash book but are not debited in pass book.

Answers

  1. Added
  2. Deducted
  3. Deducted
  4. Added
  5. Deducted
  6. Deducted
  7. Deducted

Answer the questions in brief

  1. Explain the term minus balance and also state the time when it arises.
  2. Study the given items and figure out whether balance of pass book will decrease or increase when compared to balance of cash book. Changes should be as per the effect of items. Given are the causes which are responsible for balances variation between pass book and cash book. You are required to write ‘decrease’ or ‘increase’ against items to state your answer.
  3. Dishonored bills
  4. Retiring bills under rebate which is payable by bank
  • Direct collection by bank in the form of dividend
  1. Cheques which are not presented by customers
  2. Amount charged by bank in the form of locker rent
  3. Cheques that are not debited by bank
  • Collection charges or charges imposed by banks that are not debited by them
  1. What can you understand by the word bank overdraft? Give explanation.
  2. Define contra entry. How can contra entry be identified in cash book amongst different entries?
  3. Describe meanings of the following accounting terms.
  4. Overdraft
  5. Cheques debited in pass book
  • Banks collecting dividend directly
  1. Dishonored cheques
  2. Statement of account or pass book
  3. Cheques debited in cash book
  4. Give a brief explanation regarding the closure of discount column which you can do in your cash book.

Short answer questions

  1. What can you understand by the word plus balance?
  2. If bank reconciliation statement is created with assistance of balance information of pass book, balance of which book will you get at its end?
  3. If you have overdraft balance, what can you expect as the effect of interest which is charged by bank?
  4. What do you understand by the meaning of overdraft? Give your answer in a sentence.
  5. What are the three columns responsible for cash book to be known as three column cash book?
  6. What do you understand by contra? Give a brief explanation regarding it.
  7. A certain transaction entry is made at both credit section and debit section of cash book. Name that entry.
  8. Suppose that you have deposited cheques worth $ 6,000 into your bank. You find that by the date of statement preparation,only cheques for $ 5,000 have been cleared by them. What amount should you deduct or add while composing that statement?
  9. In which way will you handle the interest which is allowed by bank while creating bank reconciliation statement with assistance of balance information of cash book?
  10. Identify that cash book column which is not balanced but is totaled.

Long answer questions

  1. Mention 10 reasons which disagree with balance of pass book with the balance of cash book. Explain any 4 of those reasons in detail.
  2. What do you understand by contra entry? Describe it with the help of3fabricated transactions.
  3. What can you understand by the term bank reconciliation statement? Why is it important for companies to create this statement?
  4. Explain the meaning of cash discount? Describe its accounting treatment.
  5. Explain the accounting term bank reconciliation statement.State 3 reasons of your choice in composing that statement.
  6. What do you understand by minus balance and plus balance? What are the circumstances or situations when you will treat pass book balance or cash book balance as a minus balanced or plus balance?
  7. State the procedure to create bank reconciliation statement.Exemplify your answer with imaginary figures in creating a bank reconciliation statement.

Practical 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.

Answer

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.

Answer

Displayed balance is $ 37,213 according to cash book.

  1. An account holder, Jarvis Stevenson, has few aspects in his pass book on July 31st July 2016. Before July 2016, he had few cheques worth $ 2336 which were not cashed. His pass book was recorded with $ 320 as a 6month interest on overdraft which ended on 31st July. He paid cheques worth $ 4340 which his bank did not clear before 31st July.

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.

Answer

$ 12,664 is found to be overdraft amount according to Jarvis’ pass book.

  1. There is a certain bank called People’s Bank where a customer has his count. As per his pass book on 30th March 2016, $ 1750 was his deposited bank balance. But on analysis, it was found that there were 3 cheques worth $ 135, $180 and $1150 which he did not cash. It was also found that bank has not cleared his other cheques worth $ 1220 till 30th March. Create a bank reconciliation statement till 30th March 2016.

Answer

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.

Answer

According to pass book, balance will be $ 116,510.

 

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