LESSON 5: CASH BOOK: TWO COLUMNS AND
THREE COLUMNS
The objectives: After carefully studying this lesson, you should be able to:
1. use either a two-column cash book or a three-column cash book
2. appreciate how cash discount might arise
3. make accounting entries in respect of cash discount

INTRODUCTION
In this lesson, you will see that Cash book serves two purposes; it is a
book of original entry and also part of the double entry system. You will learn how
to record entries for discount received and discount allowed both in the cash
book and in the general ledger.

I.

LAYOUTS OF CASH BOOK

The Cash book combines the cash account and the bank account, using columns
but still with debits on the left and credits on the right.
This becomes a compact and convenient way of recording the receipt and
payment of money using the same rules for double – entry. It also becomes
easy to see at a glance movements between the two accounts.
There are two layouts of the Cash book: Cash book – two columns, and Cash
book – three columns.


I.1. Cash book: two columns
Dr

CASH BOOK
Date

Account Cash
name

(£)

Bank

Date

(£)

Cr
Account Cash
name

Bank (£)

(£)

I.2. Cash book: three columns
Dr

CASH BOOK

Cr

Date Account Discount Cash Bank Date Account Discount Cash Bank
name


allowed

(£)

(£)

name

(£)

received

(£)

(£)

(£)

This layout can be used when there is cash discount: discount allowed and/ or
discount received. If there is no discount, the two-column layout will be applied.

II. CASH DISCOUNT
Cash discount is an allowance to encourage payment of accounts by debtors
within a certain period.
This allowance is usually expressed as percentage, e.g. 5%, 2ẵ%, 1ẳ%.
Sales of goods on credit debtor → discount allowed


Purchases of goods on credit → creditor → discount received


II.1. Discount allowed
Discount allowed is an allowance for debtors who pay their debts within certain
time.
Discount allowed account is an expense account of the business. It will be kept
therefore in the General Ledger. At the end of the trading period its balance will
be transferred to the profit and loss account.
E.g. A Smith owed the business £1,500 for the goods sold to him on May 10,
Year 2. The terms of sale allow for 3% cash discount for payment within 7 days.
On May 15, Year 2, A Smith paid his debt by cheque.
In this example, A Smith paid his amount within required time, hence, 3% cash
discount was given to him: £1,500 x 3% = £45
Therefore, A Smith needs pay only:
£1,500 - £45 discount = £1,455
The entries for this transaction will appear in the books of accounts like this:
Sales
Year 2
May 10 A Smith

£
1,500

A Smith
Year 2

£

Year 2

£
May 10 Sales


1,500

May 15 Bank
“
Bank

15 Discount allowed

1,455
45


Year 2

£

May 15 A Smith

1,455
Discount allowed

Year 2

£

May 15 A Smith

45


The accounts will appear in the cash book like this:
Dr
Date

CASH BOOK
Accoun

Discoun

Cas

t name

t

h (£)

Bank Dat
(£)

e

Cr
Accoun

Discoun

Cas

Ban


t name

t

h (£)

k (£)

allowed

received

(£)

(£)

Year
2
May

A smith

15

1,45
45

5


II.2. Discount received
Discount received is an amount received from creditors when paying them
within required time.
Discount received account is an income account of the business. It also will be
kept in the General Ledger. At the end of the trading period its balance will be
transferred to the profit and loss account.


E.g. Suppose that the business owed L Turner £2,000 for the goods bought from
May 20th Year 2. By paying within a specified time (May 23, Year 2), the business
can receive a cash discount of 5%.
In this example, 5% cash discount was: £2,000 x 5% = £100
Therefore, the business need pay only:
£2,000 - £100 discount = £1,900
The entries for this transaction will appear in the books of accounts like this:
Purchases
Year 2
May 20 L Turner

£
2,000
L Turner

Year 2

£

Year 2

1,900


May 20 Purchases

£
May 23 Bank
2,000
“

23 Discount received

100
Bank
Year 2
May 23 L Turner

£
1,900

Discount received
Year 2
May 23 L Turner

£
100

The accounts will appear in the cash book like this:
Dr

CASH BOOK


Cr


Dat

Accoun

Discoun

Cas

Ban

e

t name

t

h (£)

k (£)

Date

Accoun

Discoun

Cas


Bank

t name

t

h (£)

(£)

allowed
(£)

received
(£)

Year
2
May
23

LTurner

1,90
100

0

The following example shows a three-column cash book for one month together

with the immediate postings to the personal accounts and the end-of-the-month
transfer of the totals of the discount columns to the general ledger.
Year 7
Oct 1 Balances brought forward:
Cash
Bank (Dr)
Debtors: T Salter
L Page

£
65
935
240
320

Creditors: M Thorne
L Barratt

180
280

“4

We pay L barratt by cheque, after deducting 2½% cash discount

273

“7

T Salter pays us by cheque, after deducting 2½% cash discount


234


“ 10

General expenses paid in cash

43

“ 15

We pay M Thorne by cheque, after deducting 5% cash discount

“ 21

Withdrew from bank for office cash

“ 27

L Page pays us by cheque, after deducting 2½% cash discount

171
60

312
Dr

CASH BOOK


Date

Account
name

Discount Cash Bank Date
allowed
(£)
(£)

Cr
Account
name

(£)

Discount Cash Bank
received (£)
(£)
(£)

Y7

Y7

Oct
1

65


935 Oct

L Barratt

7

273

4

Balances
b/d

“

7

T Salter

6

234 “ 10 General

43

Expense
“ 21 Bank C

“ 27 L Page


60

8

“ 15 M
Thorne

9

171

312 “ 21 Cash C

60

“ 31 Balances

82

997

c/d
14
Nov1 Balances
b/d

125 1,481
82

997


16

125 1,481


SALES LEDGER
T Salter
Year 7
£
Oct 1 Balance b/d

£

Year 7

240

Oct 7 Bank
Oct 7 Discount allowed

234
6

240

240
L Page

Year 7


£

Year 7

£
Oct 1 Balance b/d

320

Oct 27

Bank

Oct 7 Discount allowed
320

312
8
320

PURCHASES LEDGER
M Thorne
Year 7

£

Year 7

£

Oct 15 Bank

171

Oct 1 Balance b/d

Oct 15 Discount received

180

9

180

180
L Barratt

Year 7

£

Year 7

£
Oct 4 Bank
Oct 4 Discount received

273

Oct 1 Balance b/d


280

7
280

280
GENERAL LEDGER


General Expenses
Year 7

£

Oct 10 Cash

43
Discount allowed

Year 7
Oct 31 Sundries

£
14
Discount received
Year 7
Oct 31 Sundries

£

16

Note:
- You simply total the discount columns in the cash book. You then transfer those
totals – on the same side – to the respective discount accounts.
- C (in Cash C// Bank C): means contra- used where the double – entry is
complete within the cash book.

SUMMARY
1. The cash book is a combination of the cash accont and the bank account. It
shows columns for cash and bank on both sides.
2. The cash book is a book of original entry and also part of the double entry
records.
3. A cash discount is given to encourage prompt payment. Discount received and
discount allowed are cash discounts.
4. Discount received is an income and discount allowed is an expense.


5. The three-column cash book incorporates columns for discount allowed and
discount received on either side. The discount columns are not part of the double
entry.
6. Discount columns are totalled at the end of the month.
I hope you will be successful!


GLOSSARY
bank overdraft (n)

Thấu chi tiền gửi ngân hàng


cash discount (n)

Chiết khấu thanh toán

discount allowed (n)

Chiết khấu phải trả

discount received (n)

Chiết khấu được nhận