Three column cash book

What is Three Column Cash Book?

Explanation

The three column cash book (also known as triple column cash book) has three money columns on both debit and credit side – one on each side for recording discount, cash and bank amounts. If a business keeps a bank account and receipts and payments are frequently made through bank account than it is useful to maintain a three column cash book rather than a single column cash book or a double column cash book.

It is the custom of the business houses that discount is allowed and received for early payments of dues. If cash is paid early, creditors may allow a discount. On the other hand, if debtors pay early, a discount may be allowed to them. It may be noted that cash and discount are related to each other that’s why discount columns are also provided in Cash Book.

Thus in three column cash book, three columns for amount are provided on each side. One column is used to record cash receipts and payments, the second column is provided to record banking transactions and in third column discount received and discount allowed are recorded.

Where, the single and double column cash books are alternatives to a cash account, the three column cash book serves the purpose of cash as well as bank account.

Some key points regarding discount columns

Following are some key point regarding discount columns of triple column cash book:

1. Discount allowed column is provided on debit side and discount received column is drawn on credit side.
2. Discount Allowed and Discount received columns represent two different accounts. They have no relationship with each other.
3. Discount columns are memorandum columns in nature. Therefore, two sperate account, Discount Allowed” and “Discount Received” are opened is ledger.
4. Since there is no relationship between discount allowed and discount received, that’s why they are not balanced. both columns are separately totaled and aggregate is transferred to ledger accounts.

Format of Tripple/Three Column Cash Book

The common format of three column cash book is given below:

Notice that the format of three column cash book is similar to that of a two column cash book with the exception of an additional column to account for bank-related transactions.

Hints for recording in three/triple column cash book

Remember the following points while recording entries in a three column cash book:

(1). Opening balance: The opening balance of cash in hand and cash at the bank are recorded on the debit side in cash and bank column respectively. If the bank balance is a credit balance (overdraft) then it is entered on the credit side in the bank column.

(2). Receipt of check or cash: If a check is received and is deposited into bank account on the same date, it will appear on the debit side on the cash book in bank column. If the check is not deposited into bank on the same date, the check is treated as cash and therefore the amount will appear in cash column. The receipt of cash is recorded in the cash column in usual manner.

(3). Payment by check or cash: If payment is made by check, it will be recorded in the credit side in the bank column because the cash at bank is decreased. If the payment is made in cash, it will be recorded in cash column in usual manner.

(4). Bank charges: Bank charges are recorded on the credit side of cash book in bank column because cash at bank is decreased as a result of such charges.

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What are Contra entries:

If an entry is made on the debit side and the same entry is recorded on the credit side of the cash book, it is called a “contra entry“. In order to distinguish the contra entries from other entries, letter “C” is put in posting reference column against these entries on both debit and credit sides of the cash book. Letter “C” shows that the contra effect of this transaction is recorded on the opposite side. Contra entries may be of the following types:

1. When cash is deposited into bank by the office two entries are required, one on the credit (payment) side in the cash column to record the reduction in cash in hand and the other on the debit (receipt) side in the bank column to record the increase in cash at bank.
2. When cash is withdrawn from bank for office use, two entries are needed, one on the credit side in the bank column to record the reduction of cash at bank and the other on the debit side in the cash column to record the increase in cash in hand.
3. It has already been explained that when a check is received and not deposited into bank on the same date, the amount will be recorded on the debit side in the cash column. When the same check is deposited into bank account on another date, two entries are required, one on the debit side in the bank column to record the increase in amount at bank and the other on the credit side in the cash column to record the cash (check) paid into bank.

Balancing the three column cash book

Whenever it is desired to ascertain the bank balance, the bank columns are totaled on both sides. If debit column is bigger than the credit column, the difference represents cash at bank. If, on the other hand, credit column is bigger than the debit column, the difference represents “overdrawn balance”. Bank account may have an overdrawn balance because by arranging an overdraft with the bank, it is possible that more money may be withdrawn from the bank than what has been deposited.

The cash columns are balanced as usual. The discount columns are just totaled and not balanced. See the procedure on double column cash book page.

Posting three column cash book to ledger accounts

The method of posting a three column cash book into ledger is as follows:

1. The opening balances of cash book are not posted.
2. Contra entries are not posted because the double entry accounting for these transactions is completed within the cash book.
3. All items on the debit side of the cash book are posted to the credit of respective accounts in the ledger.
4. All items on the credit side of the cash book are posted to the debit of respective accounts in the ledger.
5. The total of discount column on the debit side is posted to the debit of discount allowed account and the total of discount column on credit side is posted to the credit of discount received account in the ledger.

Example

The John trading company has undertaken the following transactions during the month of May 2016.

Year: 2016
May 01: Cash balance $2,200, bank overdraft $365.
May 03: Paid J & Co. by check $1,200, discount received from him $15.
May 05: Received from A & Co. a check for $980, discount allowed to them $20.
May 07: Deposited into bank the check received from A & Co. on May 05.
May 10: Purchased stationary for cash, $150.
May 15: Purchased merchandise for cash, $1,300.
May 15: Cash sales for the first half of the month, 2,350.
May 16: Deposited into bank $1,600.
May 18: Cash withdrawn from bank for personal expenses $150.
May 19: Issued a check for merchandise purchased, $1,650.
May 21: Drew from bank for office use, $650.
May 24: Received a check from S & Sons and deposited the same into bank, $1,560.
May 25: Paid a check to Ali Inc. for $400 and received a discount of $15.
May 27: Bought furniture for cash for office use, $390.
May 29: Paid office rent by check, $450.
May 30: Cash sales for the second half of the month $4,300.
May 31: Paid salaries by check $1,760.
May 31: Withdrew from bank for office use $1,470.

Required: Record the above transactions in a three/triple column cash book.

Solution

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