Double Column Cash Book – SS1 Book Keeping Lesson Note (Second Term)

A double-column cash book is a cash book with two money columns, a cash column and a bank column, side by side on each side of the page.

Behavioural objectives

By the end of the lesson, students should be able to:

1. explain why a growing business uses a double-column cash book;
2. state which side of the cash book records money received and which records money paid out;
3. decide whether a transaction goes in the cash column or the bank column;
4. record contra entries correctly;
5. balance the cash and bank columns and state what each balance means.

What is a double-column cash book?

A double-column cash book is a book of original entry and a ledger account that records all cash and bank transactions of a business.

• Cash column: records money received into the till and money paid out of it.
• Bank column: records money paid into the bank, cheques received and payments made by cheque.
• Debit side (left): records all receipts.
• Credit side (right): records all payments.
• Double entry: the cash book is itself the Cash Account and the Bank Account, so it holds one side of each entry.

Why does a business use a double-column cash book?

A growing business uses a double-column cash book because it keeps money in the till and in a bank account.

• Bank account opened: as the business grows, the owner opens a bank account to keep business money safe.
• Two accounts needed: the Cash Account and the Bank Account must both be kept up to date.
• Side by side: placing both in one book saves time and shows all money movements together.
• Easy checking: cash in hand and cash at bank can be found at any time.

How are receipts and payments recorded?

The rules of double-entry bookkeeping still apply: receipts are debited and payments are credited.

Money received

• Rule: any money received is entered on the debit side.
• Cash column: money received and placed in the cash till.
• Bank column: money paid into the bank, or received as a cheque.

Money paid out

• Rule: any money paid out is entered on the credit side.
• Cash column: payments made in cash.
• Bank column: payments made by cheque.

Summary of entries

What are contra entries?

A contra entry is a transaction where both the debit and the credit are in the same cash book, one in each column.

• Cash paid into the bank: debit the bank column and credit the cash column.
• Cash withdrawn from the bank for office use: debit the cash column and credit the bank column.
• Folio: write the letter C (contra) in the folio column on both sides.
• Reason: money only moves from one column to the other, so no other ledger account is involved.

How is the double-column cash book balanced?

The cash column and the bank column are balanced separately at the end of a period, such as a week or a month.

1. Add up the debit and credit sides of the column separately, on scrap paper.
2. Find the difference between the two totals.
3. Write the difference on the smaller side as Balance c/d (carried down).
4. Write the same total on both sides, level with each other.
5. Write the same difference on the opposite side below the totals as Balance b/d (brought down).

What do the balances mean?

• Cash balance: a debit balance is the Cash in Hand. Cash cannot have a credit balance, because a business cannot pay out more cash than it has.
• Bank balance (debit): the Cash at Bank, which is money the business has in the bank.
• Bank balance (credit): a bank overdraft, which means the business has taken out more than it has in the bank.

What does a worked example look like?

The following transactions are recorded in January, with opening balances of ₦5,000 cash and ₦20,000 at the bank.

• Jan 3: sold goods for cash, ₦8,000.
• Jan 5: paid ₦6,000 cash into the bank.
• Jan 8: paid rent by cheque, ₦4,000.
• Jan 10: received a cheque from a customer and banked it, ₦10,000.
• Jan 12: withdrew ₦3,000 from the bank for office use.
• Jan 15: paid wages in cash, ₦2,500.

Double-column cash book (amounts in naira)

• Cash in Hand: ₦7,500.
• Cash at Bank: ₦29,000.

Evaluation

1. Why does a growing business prepare a double-column cash book?
2. On which side of the cash book is money received entered?
3. In which column is a cheque received entered?
4. In which column is a payment made in cash entered?
5. What do we find when the cash and bank columns are balanced?

Assignment

In your own words, explain how a business records money received in cash, money received by cheque, money paid in cash and money paid by cheque in a double-column cash book. State the side and the column for each.