Double Entry Model

The Cash Book

The cash book is unique: it is both a book of prime entry and part of the double entry system. The cash and bank columns are ledger accounts.

Two-Column Cash Book

The cash book has two sides — receipts (left) and payments (right) — each with columns for cash and bank.

Rules:

• Each transaction is categorised: (a) receipt or payment? (b) cash or bank?
• Cash cannot have a credit balance — a business cannot physically hold negative cash
• Bank can have a credit balance — this represents a bank overdraft (a current liability)
• The cash and bank columns are balanced separately as two independent pairs

Contra entry (transfer between cash and bank):

• When cash is paid into the bank, the same amount appears on both sides — cash payments side and bank receipts side — marked with an asterisk (*) or labelled 'Cash' / 'Bank'
• This entry is recorded once on each side; it is not a new transaction

Three-Column Cash Book

Adds a discount column on each side:

• Discount allowed column on the receipts side — discounts given to customers for prompt payment
• Discount received column on the payments side — discounts received from suppliers for prompt payment

Important: Discount columns are memorandum only — they are not monetary columns and do not form part of the cash or bank balance. The column totals are posted separately to the discount allowed and discount received accounts in the general ledger.

Double entry for discounts:

• Discount allowed: DR Discount Allowed / CR Trade Receivables (the customer still owes the amount; the discount writes it off)
• Discount received: DR Trade Payables / CR Discount Received

Balancing Example

Cash receipts = £1,400; Cash payments (excluding bal c/d) = £950 Cash bal c/d = 1,400 − 950 = £450 (entered on payments side; £450 brought down on receipts side next period)

Bank receipts = £3,200; Bank payments (excluding bal c/d) = £3,800 Bank bal c/d = 3,800 − 3,200 = £600 overdraft (entered on receipts side; £600 on payments side as bal b/d — a credit balance = overdraft)