THREE COLUMN CASH BOOK

When money is received it is recorded on the receipt side and when money is paid, it is recorded on the payment side of cash book.

Example # 1: Cash invested by the owner is the business Rs.400,000.
In this example cash is increased or received in the business. It is recorded on the receipt side cash column as Rs.400,000.

Example # 2: Purchased office furniture for Rs.20,000 cash.
Cash is paid. It is recorded on the payment side cash column of cash book.

Example # 3: Sold merchandise to a customer on credit Rs.20,000.
In this transaction, cash neither received, nor paid. therefore, this transaction will not be recorded in cash book.

Example # 4: Received a cheque from customer Rs.19,000 and allowed him a discount of Rs.1,000.
In this transaction, cheque is received but not deposited into bank so it is treated as cash till it is not deposited into bank. It is recorded on the receipt side cash column as 19,000 and receipt side sales discount column as 1,000.

CONTRA ENTRY
Example # 5: Customer's cheque deposited into bank Rs.19,000.
In this example, cash is decreasing from office and increasing in the bank. it is called contra entry because this affect on the both sides of cash book. it is recorded on the receipt side bank column as 19,000 and payment side cash column as 19,000.

DISHONOURED CHEQUE
Example # 6: Customer's cheque returned by bank bank being dishonoured Rs.19,000.
When we deposited cheque into bank, we recorded it on the receipt side bank column as we received money in our bank account. but now we realize that actually we did not receive money. so it will be recorded on the payment side bank column of cash book as Rs.19,000.

Comments

CORRECTION OF ERRORS EXAMPLE WITH SOLUTION

(a) Purchase of supplies was wrongly debited to supplies expense account Rs.5,000. Step # 1: What was the double entry? Office supplies expense 5,000 Dr. and Cash 5,000 Cr. Step # 2: What should the double entry have been? Office supplies 5,000 Dr. and Cash 5,000 Cr. Step # 3: Correcting entry: Office supplies 5,000 Dr. and office supplies expense 5,000 Cr. (b) Purchase of supplies for cash Rs.580 was recorded as Rs.508. Step # 1: What was the double entry? Office supplies 508 Dr. and Cash 508 Cr. Step # 2: What should the double entry have been? Office supplies 580 Dr. and Cash 580 Cr. Step # 3: Correcting entry: Office supplies 72 Dr. and cash 72Cr. (c) Sales of typewriter credited to sales account Rs.800. Step # 1: What was the double entry? Cash 800 Dr. and Sales 800 Cr. Step # 2: What should the double entry have been? Cash 800 Dr. and Office equipment 800 Cr. Step # 3: Correcting entry: Sales 800 Dr. and Office equipment 800 Cr. (d) Repair of equipment was debited to equipment ac...

ADJUSTING ENTRIES EXAMPLE WITH SOLUTION

Solved Example of Adjusting Entries DEBIT BALACNES: Cash Rs.26,000; Supplies Rs.14,000; Accounts receivable Rs.24,000; Equipment Rs.36,000; Salaries expense Rs.20,000; Advertising expense Rs.16,000. CREDIT BALANCES: Accounts payable Rs.5,000; Accumulated depreciation Rs.5,000; Mobeen Capital Rs.56,000; Commission income Rs.70,000. BALANCE DAY DATA (31.12.08) Unearned commission Rs.5,000. Depreciation expense was estimated at Rs.6,000. Unpaid utility expense for the period Rs.7,000. Supplies expense Rs.8,000. Commission accrued Rs.9,000. Advertising expense for the period is 20%. SOLUTION (a) Trial balance shows commission income Rs.70,000 while adjustment data shows unearned commission Rs.5,000. It means out of Rs.70,000, only Rs.65,000 is earned. Actual income is less than the trial balance amount. It the identification of Unearned income initially recorded as income. Entry will be: Commission income 5,000 (Dr.) Unearn...

BANK RECONCILIATION STATEMENT EXAMPLE WITH SOLUTION

(1) Debit Balance of Cash Book: Bank account is an asset for company and asset has normally debit balance. Cash book shows that bank account has a debit balance it means it has a positive balance. (2) Debit Balance of Bank Statement: For banks, customer's account is a liability and liability has a credit balance. Here bank statement shows debit balance which means negative balance. (3) Error by Bank: Company deposited Rs.14,500 into bank account but ban wrongly added in the company's account only Rs.5,100. It means bank added less amount as deposited by the company. For correction, bank will add further amount Rs.9,400. So it will be added in bank statement. (4) Mark - up: Mark - up charged by the bank but not recorded in the company's book so it will be deducted from the cash book as decrease in bank account. (5) Dishonoured Cheque: Cheque returned by the bank so it will be deducted from the cash book. (6) Error by Company: Equipment purchased for Rs.4,000 but wrongly reco...

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