Books of Prime Entry - Part 2

The cash book is unique because it serves two functions simultaneously:

1. Book of prime entry — the first place cash and bank transactions are recorded.
2. Ledger account — it IS the Cash Account and Bank Account; no separate ledger accounts are needed for cash or bank.

Three-column layout:

	Dr (Receipts)				Cr (Payments)
Date	Details	Discount	Cash	Bank	Date	Details	Discount

• Discount column (Dr side) = Discount Allowed to customers (a debit in the nominal ledger when totalled at month-end).
• Discount column (Cr side) = Discount Received from suppliers (a credit in the nominal ledger when totalled).
• Discount columns are memorandum only — they are NOT part of the double entry in the cash book itself.

Posting the discount columns:

• End of period: total of Dr discount column → Debit Discount Allowed account in nominal ledger.
• End of period: total of Cr discount column → Credit Discount Received account in nominal ledger.
• The other entries for discounts were already made when the debtor/creditor accounts were updated.

Balancing the cash book:

• The cash and bank columns are balanced just like any ledger account.
• Bank column can show a credit balance = bank overdraft (a liability).
• Cash column should NEVER show a credit balance (cannot pay out more cash than you have).

Cambridge exam tip: In the cash book question, always check whether the bank balance is favourable (Dr) or overdrawn (Cr). An overdrawn bank balance appears on the Cr side of the cash book.

A contra entry (also called a cash-bank contra) occurs when cash is transferred between the cash till and the bank account — or vice versa.

Two types:

1. Cash banked (depositing cash into the bank):

   • Dr Bank column (money goes into bank)
   • Cr Cash column (money leaves the till)

2. Cash withdrawn from bank (taking cash out for the till):

   • Dr Cash column
   • Cr Bank column

Folio column marking: Contra entries are identified by the letter 'C' in the folio (reference) column on both sides. This signals that the other side of the entry is within the same cash book.

Why no nominal ledger posting? Because both entries affect only the cash book (which contains both the cash and bank accounts). No external ledger account is involved.

Exam trap: Students often try to post contra entries to the nominal ledger — there is nothing to post. The debit and credit are BOTH within the cash book itself.

Example: Farida deposits $500 cash into the bank.

• Cr Cash column: $500 (C)
• Dr Bank column: $500 (C) The net effect on the business is zero — cash merely moved between two forms.

The petty cash book records small, routine cash payments (e.g., bus fares, postage stamps, cleaning materials, small stationery purchases) that would be inconvenient to pay by cheque.

The imprest system:

1. A fixed imprest amount (the float) is set at the start (e.g., $100).
2. The petty cashier makes small payments from this float during the period, recording each on a petty cash voucher.
3. At the end of the period, the petty cashier totals all payments.
4. The cashier reimburses the petty cashier with exactly the amount spent, restoring the float to the imprest amount.

Example: Imprest $100. Payments during month: postage $8, bus fares $5, cleaning $12, stationery $6. Total spent = $31. Reimbursement = $31. Opening float restored to $100.

Petty cash book layout:

Receipts (Dr)	Date	Details	Voucher No.	Total (Cr)	Postage	Travel	Cleaning	Stationery

• Analysis columns allow automatic categorisation of spending.
• Totals of analysis columns are posted as debits to the relevant nominal ledger expense accounts at period end.
• The total receipts = total of all analysis columns + closing balance (cross-cast check).

Petty cash voucher: a pre-printed, numbered form signed by the person claiming the payment and authorised by the petty cashier; it is the source document for each entry.

Double-entry for petty cash: when the petty cashier is reimbursed:

• Dr Petty Cash account (restoring the float)
• Cr Bank (payment from the main bank account)

Cambridge exam tip: The imprest system is a control mechanism — it limits how much cash is at risk and requires authorisation for every payment. Examiners often ask you to explain why businesses use the imprest system.