Cash books

10 important questions on Cash books

What is a contra item?

When both debit and credit entries are in the same book.

What is a folio column and why is it added?

It is a column with the name of the other book and the number of the page in the other book where the other part of the double entry was made. This is done to find the other account more quickly. With a contra item, c is used.

Where do cash discounts appear?

Cash discounts always appear in the profit and loss section of the income statement. They are not part of the cost of goods sold. Nor are they a deduction from selling price.
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What are discounts allowed?

Cash discounts allowed by a business to its customers when they pay their accounts quickly.

What are discounts received?

Cash discounts received by a business from its suppliers when it pays what it owes them quickly.

What is the journal for a discount allowed?

1. Debit cash account with amount received
2. Credit accounts receivable with account received

3. Credit accounts receivable with discount amount.
4. Debit discounts allowed account with discount amount.

Where are the discounts allowed and discount received accounts located?

They are in the general ledger along with all the other revenue and expense accounts.

How do you make entries in the discounts accounts in the general ledger?

- The total of discounts column on the receipts side of cash book --> Enter on debit side of discounts allowed account.
- Total discounts column on payments side of cash book --> Enter on credit side of discounts received account.

How can you check if the method of entering discounts is correct?

By checking the double entry, adding up all the discounts and then checking it with either discounts received or discounts allowed.

What is a bank overdraft and where is it shown on a statement of financial position?

When a business borrows money from a bank trough an overdraft. (rood staan) It is shown under the heading 'current liabilities'.

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