The cash book and cash discount Cambridge IGCSE Accounting revision
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In plain words
The cash book records every amount of money that comes in or goes out. It has a column for cash, the notes and coins, and a column for the bank account.
It is unusual in doing two jobs at once: it is a book of prime entry, and it is also the ledger account for cash and for bank.
7 things to know
- Money received is entered on the debit side of the cash book. Money paid out is entered on the credit side.
- The cash book has a dual function. It is the book of prime entry for receipts and payments, and it is the ledger account for cash and for bank.
- Cash discount is a reduction offered for paying promptly. Discount allowed is given to customers and is an expense. Discount received is given by suppliers and is income.
- Cash discount is recorded when the payment is made. In a three-column cash book the discount columns are lists, not accounts: the total of discount allowed is debited to the discount allowed account, and the total of discount received is credited to the discount received account.
- A contra entry is a transfer between cash and bank. Cash paid into the bank is debited in the bank column and credited in the cash column. It appears on both sides of the cash book.
- The cash column can never have a credit balance: you cannot pay out cash you do not have. A credit balance in the bank column is a bank overdraft.
- Receipts and payments can be made by cash, cheque, debit card, credit card, and online or bank transfer.
Worked example
Sam owes $600. He pays by bank transfer within the discount period, taking the 2.5% cash discount. State the entries.
- Discount = 2.5% of 600 = $15. Sam pays 600 − 15 = $585.
- Cash book, debit side: bank column $585, discount allowed column $15.
- Sam's account is credited with $600: the payment and the discount together clear the debt.
- At the end of the month the total of the discount allowed column is debited to the discount allowed account.
Tips and tricks
- Trade discount: taken off the invoice, never recorded. Cash discount: only if the customer pays on time, and always recorded.
- Discount allowed and discount received are easy to swap. Allowed is what the business allows its customers, so it is an expense.
It lands in your notebook with its questions as flashcards.
The cash book and cash discount: 6 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
On which side of the cash book is money received entered?
Bank and cash are assets, and receipts increase them.
What is discount allowed?
It is an expense of the business.
A customer owes $400 and pays within the period for a 5% cash discount. How much is received?
5% of 400 is 20.
What is a contra entry in the cash book?
It appears on both sides of the cash book.
What does a credit balance in the bank column show?
The business owes the bank.
Where is the total of the discount received column posted?
Discount received is income, so the account is credited.
Quiz
6 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
2 questions, 5 marks. Write your answers on paper, then check them.
The cash book and cash discount
Cambridge IGCSE Accounting 0452 · 5 marks · papermunch.org
Name ______________________________ Date ______________
Explain what is meant by the dual function of the cash book.[2]
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It is a book of prime entry, in which receipts and payments are first recorded. It is also part of the ledger: the accounts for cash and bank.
A business owes a supplier $800 and pays in time to take 3% cash discount. Calculate the amount paid and state where the discount is finally posted.[3]
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$776 is paid (800 − 24). The discount of $24 is included in the total credited to the discount received account.
Answers: The cash book and cash discount
- 1. It is a book of prime entry, in which receipts and payments are first recorded. It is also part of the ledger: the accounts for cash and bank.
- 2. $776 is paid (800 − 24). The discount of $24 is included in the total credited to the discount received account.