The Three-Column Cash Book With Discounts Well Explained - SS1 Accounting Lesson Note

The three-column cash book is a type of accounting book used to record cash transactions. It consists of three columns: the first column records cash receipts, the second column records cash payments, and the third column records any discounts given or received.

Discounts can be given to customers for early payment of their bills or received from suppliers for early payment of the company's bills. The discount column in the cash book is used to record these transactions. When a discount is given or received, the amount is entered in the discount column and subtracted from the original amount of the transaction in the appropriate cash column

The entry of transactions in a three-column cash book is guided by certain rules. First, all cash received is entered in the cash received column, and all cash payments are entered in the cash payments column. Any discounts given or received are entered in the discount column. Second, the entries should be dated and have a brief description of the transaction. Third, all transactions must be entered in the correct columns and with the correct amounts. Fourth, the cash book must be balanced regularly to ensure that the total of the cash received column equals the total of the cash payments column, and the net balance is the cash in hand or the bank balance. Finally, the entries should be supported by appropriate source documents, such as receipts, invoices, and bank statements, to provide evidence of the transactions.

For example, if a customer pays ₦10,000 for goods purchased and receives a 2% discount for paying within 10 days, the entry in the cash book would be:

Cash A/C ₦ 9,800 

Discount A/C ₦ 200 

Customer A/C ₦10,000

The cash column shows the actual amount received, while the discount column shows the discount received, and the customer's account is credited with the total amount paid. Similarly, if a supplier gives the company a 3% discount for paying within 7 days of receipt of the invoice, the entry would be:

Supplier A/C ₦ 9,700 

Discount A/C ₦ 300 

Cash A/C ₦10,000

Here, the supplier's account is debited with the original amount owed, the discount received is credited to the discount column, and the actual amount paid is debited from the cash column. This way, the company can keep track of discounts given or received and maintain accurate records of its cash transactions.