Topic 8: The Cash Book

Question 1

1. What is a cash book?

Answer 1

A cash book records transactions that involve cash and cheque payments and receipts, and it also records cash discounts (i.e. discount allowed and discount received).

Question 2

2. What is the purpose of a cash book?

Answer 2

To show how much cash in hand and cash at bank business has at a particular date.

Question 3

3. Explain what is dishonoured cheque..

Answer 3

A dishonoured cheque means that the cheque is rejected payment by the bank.

Question 4

4. State reasons why a cheque may be rejected payment by the bank (dishonoured cheque).

Answer 4

● Insufficient funds in the payer’s (person who issued the cheque) account.
● Discrepancies on the cheque, such as the amount written on the cheque not tallying with its descriptions in words, missing or wrong signature.
● The payer had already closed his bank account.
● Post-dated cheque
● Expired cheque

Question 5

5. State the journal entry to record dishonoured cheque, where discount is previously given.

Answer 5

Dr Trade receivables
Cr Cash at bank (dishonoured cheque)
Cr Discount allowed (withdrawn)

Question 6

6. Differentiate between the cash in hand and cash at bank accounts.

Answer 6

Cash in hand account refers to the amount of money kept in the office while cash at bank account refers to the amount of money kept in the business bank account.

Question 7

7. Differentiate between the cash at bank and bank overdraft.

Answer 7

Cash at bank refers to the amount of money the business has that is kept in the business bank account while bank overdraft means that the business has a negative amount of money in the business bank account as they have spent more than what they have in the bank account.

Question 8

8. State the differences between trade discount and cash discount.

Answer 8

TRADE DISCOUNT

1) It is a reduction off the list price of the goods (original price).
2) It is given at the point of trade.
3) It is given to encourage bulk purchase.
4) Trade discount is not separately recorded in the ledger. The discount is deducted directly from the list price.

CASH DISCOUNT

1) It is a reduction off the amount due for payment.
2) It is given at the point of payment of debts.
3) It is given to encourage prompt payment.
4) It is separately recorded in the ledger as a discount allowed or discount received.