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4: Sources, records and books of prime entry Part C The use of double entry and accounting systems
CASH BOOK (RECEIPTS)
Date
Narrative
Total
20X7
$
1 Sept
Balance b/d*
900
Cash sale
80
Accounts receivable: Hay
380
Accounts receivable: Been
720
Accounts receivable: Seed
140
Loan: Len Dinger
1,800
Cash sale
150
Sale of non-current asset
200
4,370
* 'b/d' = brought down (ie brought forward)
There is space on the right hand side of the cash book so that the receipts can be analysed under
various headings – for example, 'cash from receivables', 'cash sales' and 'other receipts'.
The cash received in the day amounted to $3,470. Added to the $900 at the start of the day, this
comes to $4,370. This is not the amount to be carried forward to the next day, because first we
have to subtract all the payments made during 1 September.
The payments part of the cash book for 1 September would look like this.
CASH BOOK (PAYMENTS)
Date
Narrative
Total
20X7
$
1 Sept
Accounts payable: Kew
120
Accounts payable: Hare
310
Telephone
400
Gas bill
280
Petty cash
100
Machinery
purchase
1,500
Balance c/d (balancing figure)
1,660
4,370
As you can see, this is very similar to the receipts part of the cash book. The only points to note are
as follows.
(a)
The analysis on the right would be under headings like 'payments to payables, 'payments into petty
cash', 'wages' and 'other payments'.
(b)
Payments during 1 September totalled $2,710. We know that the total of receipts was $4,370. That
means that there is a balance of $4,370 – $2,710 = $1,660 to be 'carried down' to the start of the
next day. As you can see this 'balance carried down' is noted at the end of the payments column, so
that the receipts and payments totals show the same figure of $4,370 at the end of 1 September.
With analysis columns completed, the cash book given in the examples above might look as follows.
CASH BOOK (RECEIPTS)
Accounts
Cash
Date
Narrative
Total
receivable
sales
Other
20X7
$
$
$
$
1 Sept
Balance b/d
900
Cash sale
80
80
Accounts receivable: Hay
380
380
Accounts receivable: Been
720
720
Accounts receivable: Seed
140
140
Loan: Len Dinger
1,800
1,800
Cash sale
150
150
Sale of non-current asset
200
200
4,370
1,240
230
2,000
Points to
note
Part C The use of double entry and accounting systems
4: Sources, records and books of prime entry
65
CASH BOOK (PAYMENTS)
Accounts
Petty
Date
Narrative
Total
payable
cash
Wages
Other
$
$
$
$
$
20X7
1 Sept
Account payable: Kew
120
120
Account payable: Hare
310
310
Telephone
400
400
Gas bill
280
280
Petty cash
100
100
Machinery purchase
1,500
1,500
Balance c/d
1,660
4,370
430
100
–
2,180
4.3 Bank statements
Weekly or monthly, a business will receive a
bank statement. Bank statements should be used to check
that the amount shown as a balance in the cash book agrees with the amount on the bank statement, and
that no cash has 'gone missing'. This agreement or 'reconciliation' of the cash book with a bank statement
is the subject of a later chapter.
5 Petty cash
Most businesses keep
petty cash on the premises, which is topped up from the main bank account. Under
the
imprest system, the petty cash is kept at an agreed sum, so that each topping up is equal to the
amount paid out in the period.
5.1 What is petty cash?
Most businesses keep a small amount of cash on the premises to make occasional small payments in
cash, eg staff refreshments, postage stamps, to pay the office cleaner, taxi fares, etc. This is often called
the cash float or
petty cash account. The cash float can also be the resting place for occasional small
receipts, eg cash paid by a visitor to make a phone call, etc.
5.2 Security
As you will appreciate, keeping cash (even in small amounts) on the premises is a security risk. Therefore
a petty cash system is usually subject to strict controls.
Payment is only made in respect of
authorised claims.
All claims are supported by
evidence.
In addition, the business may use the
imprest system (see
Section 5.4
below).
5.2.1 Authorisation
An employee must complete a
petty cash voucher detailing the expenses claimed. Usually receipts must
be attached to the voucher (see below: evidence). The completed voucher then needs to be signed by
(say) the employee’s manager to
authorise payment. Some times the petty cashier may be authorised to
sign vouchers for small amounts (eg $5 or less) if these are supported by receipts.
5.2.2 Evidence
All petty cash vouchers must have receipts for the expenditure attached, as
evidence that the employee
has really incurred that cost. Sometimes receipts may not be available (eg taxi fares) and the employer
may then have systems in place to authorise claims without evidence.
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