BOOK KEEPING FORM TWO – THREE COLUMN CASH BOOK

THE THREE COLUMN CASH AND DISCOUNT.

 Is the cash book which contains three columns namely;-  cash column, bank column and discount column.

DISCOUNT

        Is an allowance or deduction made to the business due sell/purchase of goods.

There are two types of discount:-

1.      Trade discount.
2.      Cash discount.

1.    TRADE DISCOUNT

Is an allowance made by wholesaler/seller to his/her buyers/retailers off the catalogue or invoice price is given trade discount to enable them to sell goods later at mentioned price.  

CASH DISCOUNT

Is an allowance made by the receiver of cash to the payer for prompt quick payment(within a specified period). The allowance maybe received or allowed.

Cash discount may be divided into two kinds:-

i.                    Discount allowed

ii.                 Discount received

         DISCOUNT ALLOWED / SALES DISCOUNT

Is allowed by the business to his/her customers with considerations of prompt payment aims is to ennglish-swahili/courage” target=”_blank”>courage them to pay within a specified period.

        DISCOUNT RECEIVED / PURCHASES DISCOUNT

Is the discount which is received from a creditor it is regarded as gain and it is shown on the debt side of the profit and loss account. OR
It will be received by the business when pays their accounts prompt by or within a specified period.

Difference between Trade discount and Cash discount:

     I.   Trade discount allowed or made at the date of sale irrespective of the date of payment WHILE Cash discount is allowed or made only if and when the account is paid with the specified period.

   II.   Trade discount is deducted only on sales or purchases invoice nowhere else recorded WHILE Cash discount goes through the Cash book and posted to the ledger and eventually appear in the final a/c.

  III.  Discount column in the Cash book are not accounts but they save only as memorandum columns then; The total discount allowed is posted or transferred to the Dr of the Discount allowed a/c and completed to the Cr of the debtors a/c (Discount) WHILE The total discount received is transferred to the Cr of the discount received a/c (Discount a/c) and Dr to the Creditors a/c in order to complete double entry.

 
 

To the final a/c:

 
 

Dr; Discount allowed (P and L a/c) Loss

 
 

Cr; Discount received (P and L a/c) Profit (gain).

 
 

THE STRUCTURE OF THREE COLUMN CASH BOOK

DR                                THREE COLUMN CASH BOOK                                        CR

EXAMPLES:

1.      2009  May  1 Balance brought down. April

                             Cash balance    290

                              Bank balance 6840

                 2 .debtors account;-

                           R. Omary       1200

                           S. Ayoub         2800

                           S.Manji             400

                3. Creditors account;-

                            T. Othman        600

                            L. Kilua          4400

                            J. Makapi        1000

May 2; Omary pay us by cheque having 2 ½% cash account discount 

May 8; We pay J. Makapi his account by cheque deduct 2 ½% cash discount

May 10; Ayoub pay us his account by cheque deduct 70 cash discount.

May 25; we pay wages in cash   920

May 28; S. Manji pay us in cash after deducting 5% cash discount .

May 29; we pay T. Othman by cheque less 5% cash discount .

May 30; we pay L. Kilua by cheque less 2 1/2% cash discount .

Required:

Draw the three column cash book and balance the ledger .

Notes:

There is no double entry in discount received / allowed account.

 Solution;-

 DR                                   THREE COLUMN CASH BOOK                             CR

 
 

EXERCISE

From the following details to write  up three column cash book balance it at the end of the month and then show the relevant document account as it appear in the generally ledger :-

March 1; balance brought forward

                  Cash in hand 21110

                  Cash at bank 3984

March 2; paid up each of the following account by cheque in each base deducted  5%.

                   T. Abdul ____________      800

                    B.Borge ____________    2600

                    A.Daud _____________   4400

March 4; Othman pay us on cheque sh      950

March 5; cash sales paid direct into bank   490

March 7; paid insurance by cash                650

March 9; the following pay us they account by cheque in each account deducted a discount up to 2% .

R. Salum_________________              1600

S. Tumba ___________________         6400

Z. Qassim ___________________        5200

March 12; paid motor expenses by cash __________1000

March 18; cash sales _______________________ _980

March 21; paid sales by cash ___________________600

March 28; receive cheque for 5000 from ramadhan

March 31; paid stationary by cash ________________270