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Cash Book: How to record cash, bank and discounts

“Cash is King” is a common saying in business. While satisfying your passion and filling the needs of consumers are also rewarding, the handling of cash and cash equivalents is the main concern of any business owner. This is why the Cash Book is dedicated to recording all transactions that involve cash, cheques and bank transfers.

The Cash Book is one of the books of original entry in the Accounting Cycle. It displays the most liquid asset of a business during a specific financial period. This helps in monitoring performance and making decisions. The more liquid the business is, the more it is capable of paying off its liabilities.

Many companies set a limit of $500 to be recorded in the Cash Book. Accounting students and bookkeepers will be informed of the limit that should be posted beforehand.

If it is your business, then you can decide on the least amount of money that can be posted to the Cash Book.

Double entry system

The Cash Book uses the double entry system. This means that every transaction has two entries that show one item coming in while another is going out. When you buy something, a product comes in and your money goes out. When you sell something, money comes in and a product goes out.

This transaction is recorded in an account that is shaped like a capital T. The left side is called debit and the right side is called credit. When money comes into the business, it is recorded on the debit side of the Cash Book. When money goes out of the business, it is recorded on the credit side of the Cash Book. This occurrence is referred to as the double entry system.

Columns of the Cash Book

The columns on both the debit and credit sides are labelled Date, Details, Folio, Cash and Bank. Date records the day, month and year that the transaction occurred. Details record the name of the buyer from which the business received money or seller to which the business paid money.

Folio records the initials of the other book and account number in which the transaction is also recorded to complete the double entry system. When doing the Cash Book, the Folio column stays blank until you record the transaction in the Ledger called book of second entry. This also has a Folio column which will be filled with say CB1 which means Cash Book Page 1. The Cash Book Folio column for this transaction will be filled with say GL3 which means General Ledger Account 3.

The Cash columns on the debit and credit sides record cash transactions received. The Bank columns record transactions that involve receiving and paying money through the bank such as cheques, bank transfers and use of debit cards.

Calculating discounts

A 3-column Cash Book has a third column for recording money that is placed after the Folio column. Discount Allowed goes on the debit side and Discount Received goes on the credit side.

Discount Allowed is a reduction in the price given to a credit customer who pays off his debt in cash. It is an incentive to encourage him to continue doing business with you and is an expense to your business.

Discount Received is a reduction in the price given to your business when you pay off a debt in cash to a supplier. It is an incentive to encourage your business to purchase more supplies in the future.

A discount is usually calculated as a percentage of the debt. Students are given instructions such as 5 percent discount is to be given to a debtor or by a creditor. Here is the calculation:

  • Multiply the 5 percent by the debt, say 5% of $500, which gives a discount of $25.
  • To find the final cash payment, subtract the $25 from $500 which is $475.
  • Record the $475 in the Cash or Bank column depending on the transaction.
  • Record the $25 in the Discount Allowed or Discount Received column depending on the transaction.

How to balance the Cash Book

When all transactions involving cash, bank and discounts are recorded, the Cash Book must be balanced off to show how much money the business has in hand and in the bank. Here are the steps:

  • Total the Discount allowed and Discount received columns and write down the figures at the bottom of the Cash Book.
  • Add up the Cash and Bank columns on the debit and credit sides and write down the totals on scrap paper.
  • Record the larger totals for Cash and Bank on both sides of the Cash Book.
  • Subtract the smaller totals from the larger ones.
  • Write the difference in the column with the smaller amounts. This is called “balance carried down” written as “Balance c/d”.
  • Bring down the figure to the opposite side of the Cash Book. This is called “balance brought down” written as “Balance b/d”.

Usually, the figure for Cash is on the debit side. This means that the business has money in hand. It is impossible to have a credit balance for Cash because if you spend money when you don’t have it in hand, it would be a credit transaction, and therefore it would not be recorded in the Cash Book.

The Bank however can have either a debit or credit balance. A debit balance means the business has money in the bank which is an asset. A credit balance means the business withdrew more money than it has in the bank and therefore it owes the bank. This is called Bank Overdraft which is a liability.


Writing up a Cash Book is a crucial step when doing the books of original entry in the Accounting Cycle. It records money going in and out of the business along with discounts allowed and received during a financial period. Students and bookkeepers can record transactions that are cash and cash equivalent, and then balance the columns to see if the business has enough cash available to keep it free of debt.


See also:

Accounting Cycle: Complete basic accounting in 8 steps

Debit and Credit: Simple view of in and out

Increase and decrease of ALICE accounts

Assets: Owned fixed and liquid items with a debit balance

Liabilities: Owed long and short-term items with a credit balance

Income: Earned, unearned and contributed money

Capital: Invested assets and the liquidity of a business

Expenses: Spending that’s direct, indirect, operating and non-operating

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