How does one book record both cash and bank, and where does discount fit in?
Write up a two-column cash book recording cash and bank receipts and payments, with discount columns
A simple answer to the N(A)-Level Principles of Accounts outcome on the cash book. How the two-column cash book records cash and bank together, how receipts and payments are entered, and how the discount columns work.
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What this dot point is asking
SEAB wants you to write up a two-column cash book, recording cash and bank receipts and payments, and to use the discount columns. The cash book is special: it is both a book of prime entry and a ledger account for cash and bank. The central insight is that the two money columns (cash and bank) record actual money, while the discount columns are memorandum totals that are later posted to the discount accounts.
The answer
What the two-column cash book is
The "two columns" are cash and bank, side by side. Receipts go on the debit (left) side and payments go on the credit (right) side, just like any asset account. Because the cash book is also the cash and bank ledger account, there is no separate cash or bank account elsewhere.
The layout
| Side | Columns | Records |
|---|---|---|
| Debit (receipts) | Discount allowed, Cash, Bank | Money coming in |
| Credit (payments) | Discount received, Cash, Bank | Money going out |
The discount columns
- Discount allowed sits on the receipts side. It records cash discount we give customers for prompt payment. It is an expense.
- Discount received sits on the payments side. It records cash discount suppliers give us. It is an income.
These columns are memorandum: they are not part of the double entry inside the cash book. Their totals are posted separately, the discount allowed total to the debit of the discount allowed account, and the discount received total to the credit of the discount received account.
Cash discount versus trade discount
Cash (settlement) discount is for paying promptly and is recorded, through these columns. Trade discount is for bulk buying and is not recorded; it is deducted before the invoice is entered.
Examples in context
Example 1. Encouraging prompt payment. A business offers customers a cash discount for paying within a week. When a customer who owes \2,000\ after \100\ in the bank column and \100$ in the discount allowed column. The discount is an expense the business accepts to bring cash in sooner, which is why it is recorded while trade discount is not.
Example 2. A supplier's prompt-payment offer. A sole trader pays a supplier early and receives \60\, later posted as income. This shows the cash book capturing both sides of cash discount, as an expense when given and as income when received.
Try this
Q1. State the side of the cash book on which payments are recorded. [1 mark]
- Cue. The credit (payments) side, because money going out reduces cash and bank.
Q2. A supplier owed \500\ after cash discount. State the discount and the column it goes in. [2 marks]
- Cue. Discount received = \25$, recorded in the discount received column on the payments side.
Q3. Explain why the cash book does not need a separate cash or bank account in the ledger. [2 marks]
- Cue. The cash book is itself the ledger account for cash and bank, so those balances are kept there rather than duplicated elsewhere.
Exam-style practice questions
Practice questions written in the style of SEAB exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Original6 marksEnter these in a two-column cash book and balance the bank column: opening bank balance \2\,000\; paid rent by cheque \700\. State the closing bank balance.Show worked answer →
Debit (receipts) bank column: Balance b/d \2,000\; Cash sale \300= \.
Credit (payments) bank column: Rent \700$.
Balance = 2\,800 - 700 = \2,100\; brought down on the debit side \2,100$.
The closing bank balance is a debit balance of \2,100\ at the bank.
What markers reward: receipts on the debit side and the payment on the credit side, the correct total, and the \2,100$ closing debit balance brought down.
Original5 marksA customer owes \1\,0005\%$ cash discount for prompt payment, paying the rest by cheque. Show the entries in the cash book and state the double entry for the discount.Show worked answer →
Cash discount = 5\% \times 1\,000 = \501,000 - 50 = \ by cheque.
In the cash book: the bank column (debit/receipts side) shows \950\.
The double entry for the discount: debit Discount allowed \50\. So the customer's account is cleared by \950\ discount allowed.
What markers reward: the \950\ in the discount allowed column, and the correct double entry debiting discount allowed and crediting the customer.
Related dot points
- Identify common source documents and state which book of prime entry each one is recorded in
A simple answer to the N(A)-Level Principles of Accounts outcome on source documents. The invoice, credit note, receipt, cheque counterfoil and others, what each one proves, and the book of prime entry it leads to.
- Write up the sales, purchases and returns journals and the general journal, and total them
A simple answer to the N(A)-Level Principles of Accounts outcome on the journals. What the sales, purchases and returns journals and the general journal are for, how to write them up, and how their totals are used.
- Post from the books of prime entry to the sales, purchases and general ledgers
A simple answer to the N(A)-Level Principles of Accounts outcome on posting to the ledgers. The three ledgers, how journal totals and individual entries are posted, and why the ledger is divided this way.
- Update the cash book for items appearing on the bank statement but not yet in the cash book
A simple answer to the N(A)-Level Principles of Accounts outcome on updating the cash book. The items found on the bank statement first (direct debits, standing orders, bank charges, interest, dishonoured cheques) and how to bring the cash book up to date.