Application of The Rules With Ordinary Cash Book - SS1 Accounting Lesson Note
The double-entry bookkeeping system is a method of recording financial transactions where every transaction affects at least two accounts. The system uses a framework of rules called "double-entry rules" to ensure that every transaction is accurately recorded.
Meaning of Cash Book
Cash book is a subsidiary book that records all transactions made in cash. This is either through cash, cheque, postal orders, and bank drafts. By following the double-entry rules and recording transactions accurately in the cash book, businesses can maintain an accurate and reliable record of their financial transactions.
Format and Preparation of a cash book
The cash book has two sides, the debit side and the credit side. The debit side is where all the money received is recorded, while the credit side is where all the money paid out is recorded.
Every transaction recorded in the cash book must follow the double-entry rules. This means that every entry must have two aspects - a debit aspect and a credit aspect - that must be equal in amount. Every transaction is recorded in the cash book using the following format:
|
Debit (Dr) |
Credit (Cr)
Date
Particulars
Folio
Amount
Date
Particulars
Folio
Amount
-
The date column is where the date of the transaction is recorded.
-
The particulars column is where a brief description of the transaction is recorded.
The folio column is where the page number of the ledger account affected by the transaction is recorded.
The debit and credit columns are where the amount of money received and paid out respectively are recorded.
Example:
For example, if a business owner receives ₦10000 cash from a customer on 23/05/2022, the entry in the cash book will be as follows:
|
Debit (Dr) |
Credit (Cr)
Date
Particulars
Folio
Amount
Date
Particulars
Folio
Amount
May 23
Cash
10000
-
In this entry, the debit aspect is ₦100 (as money has been received), and the credit aspect is ₦0 (as no money has been paid out). This entry will be posted to the ledger account for cash, where it will be recorded as a credit.
Similarly, if the business owner pays ₦5000 for office supplies on 13/05/2022, the entry in the cash book will be as follows:
|
Debit (Dr) |
Credit (Cr)
Date
Particulars
Folio
Amount
Date
Particulars
Folio
Amount
May 13
Office Supplies
5000
-
In this entry, the credit aspect is ₦50 (as money has been paid out), and the debit aspect is ₦0 (as no money has been received). This entry will be posted to the ledger account for office supplies, where it will be recorded as a debit.
Preparation of a single-column cash book
The following cash transactions relate to Lionheart Ventures for the month of August 2022.
₦
August 2: balance cash in hand 25,600
August 5: paid rent for the month 13,000
August 6: cash purchases 6250
August 12: paid electricity bills 2400
August 19: paid wages to cashier 5700
August 24: received cash to Joy Ade for the sale of goods 12000
August 25: paid transport expenses 3000
August 26: a credit customer Musa Ventures paid cash 11000
August 29: cash sales 9800
August 30: paid Chioma R. on account of credit purchases 5000
Answer:
Lionheart Ventures Cash Book
For the month of August 2022
|
Debit (Dr) |
Credit (Cr)
Date
Particulars
Folio
Amount
Date
Particulars
Folio
Amount
August 2
August 24
August 26
August 29
Balance
Joy Ade
Musa Ventures
Sales
b/d
10000
12000
11000
9800
August 5
August 6
August 12
August 19
August 25
August 30
Rent
Purchases
Electricity bills
Wages
Transport
Purchases
13000
6250
5700
3000
5000
August 31
Balance
c/d
9850
42800
42800
September 1
Balance
b/d
9850