Double Column Cash Book

Double Column Cash Book

A double column cash book has two amount columns on each side — one for cash and one for bank. This format is used when a business has a large number of bank transactions. Most organisations today route all receipts and payments through the bank wherever possible.

Bank Account Basics

A businessman opens a current account with a bank. The bank does not pay any interest on the balance in a current account. Instead, it charges a small fee called incidental charges for the services it provides.

Pay-in-slip: To deposit cash or a cheque into the bank account, a form called a pay-in-slip is filled. It has a counterfoil that is returned to the depositor with the cashier's signature as a receipt.

Cheque: The bank issues blank cheque forms to the account holder for withdrawing money. The depositor writes the name of the party to whom payment is to be made after the word "Pay" printed on the cheque.

Bearer cheque: Cheque forms have the printed word "bearer", which means payment is to be made to the person whose name is written after "Pay" or to the bearer of the cheque.

Order cheque: When the word "bearer" is struck off by drawing a line, the cheque becomes an order cheque. Payment is then made only to the person whose name is written on the cheque, or to his order, after proper identification.

Crossed cheque: In practice, cheques are generally crossed. When two parallel lines are drawn across the cheque, it is said to be crossed. The payment of a crossed cheque cannot be made directly to the party over the counter — it must be paid only through a bank.

Types of crossing:

• A/c Payee only: The amount can be deposited only in the account of the person whose name appears on the cheque.
• Special crossing: When the name of a bank is written between the two parallel lines, payment can be made only to that bank.

Transfer of cheques: A cheque can be transferred by the payee (the person in whose favour the cheque is drawn) to another person, if it is not crossed "A/c Payee only". A bearer cheque can be passed on by mere delivery. An order cheque can be transferred by endorsement and delivery — endorsement means writing instructions to pay the cheque to a particular person and then signing it on the back of the cheque.

Recording in the Double Column Cash Book

When the number of bank transactions is large, it is convenient to have a separate bank column in the cash book itself instead of recording bank transactions in the journal. This helps in getting information about the position of the bank account from time to time.

Just like cash transactions:

• All payments into the bank are recorded on the left (debit) side in the bank column.
• All withdrawals/payments through the bank are recorded on the right (credit) side in the bank column.

Contra Entries

When cash is deposited in the bank or cash is withdrawn from the bank, both aspects of the transaction appear in the cash book itself. Such entries are called contra entries.

• Cash deposited into bank: The amount is written on the left (debit) side in the bank column, and the same amount is entered on the right (credit) side in the cash column.
• Cash withdrawn from bank for office use: The reverse entries are recorded — debit the cash column and credit the bank column.

Against such entries, the letter C is written in the L.F. (Ledger Folio) column, indicating that these entries are not to be posted to the ledger accounts.

Balancing the Bank Column

The bank column is balanced in the same way as the cash column. However, the bank column can also have a credit balance because of an overdraft — a situation where cash withdrawn from the bank exceeds the amount deposited.

Treatment of Cheques Received

When a cheque is received from a customer:

• If deposited on the same day: The amount is recorded in the bank column on the receipts (debit) side.
• If deposited on another day:
  • On the date of receipt, it is treated as cash received and recorded in the cash column on the receipts side.
  • On the day of deposit to the bank, it is shown in the bank column on the receipt (debit) side and in the cash column on the payment (credit) side. This is a contra entry.

Dishonour of a Cheque

Dishonour of a cheque means the cheque is returned unpaid, generally due to insufficient funds in the customer's account with the bank.

When a cheque received from a customer is dishonoured, the bank returns the dishonoured cheque and debits the firm's account. On receiving such a cheque or intimation from the bank, the firm makes an entry on the credit side of the cash book by entering the amount of the dishonoured cheque in the bank column and the name of the customer in the particulars column. This entry restores the position that existed before the receipt of the cheque from the customer and its deposit in the bank.

Bank Charges and Interest

• If the bank debits the firm's account on account of interest, commission, or other charges for bank services, the entry is made on the credit side in the bank column.
• If the bank credits the firm's account, the entry is made on the debit side of the cash book in the appropriate column.

Format of Double Column Cash Book

Worked Example: M/s Tools India

Transactions for September 2017:

Double Column Cash Book of M/s Tools India

Posting to Ledger Accounts

When the bank column is maintained in the cash book, the bank account is not opened in the ledger. The bank column itself serves the purpose of the bank account.

Entries marked C (contra entries) are ignored while posting from the cash book to the ledger. These entries represent debit or credit of the cash account against the bank account or vice-versa.

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