The Three-Column Cash Book, Petty Cash and Discounts

The three-column cash book

The cash book is both a book of prime entry and the ledger account for cash and bank. Each side has three money columns: discount, cash and bank. The debit side records receipts (and discount allowed to customers); the credit side records payments (and discount received from suppliers). The cash and bank columns are balanced like any account; a credit balance b/d in the bank column is a bank overdraft. The discount columns are memorandum columns: they are totalled, never balanced, and the totals are posted Dr Discount allowed (from the debit side) and Cr Discount received (from the credit side). A contra entry, marked C, transfers money between cash and bank: cash paid into the bank is credited in the cash column and debited in the bank column, so both halves of the double entry are inside the cash book and nothing is posted elsewhere.

Trade discount and cash discount

Trade discount is a reduction in the list price given for bulk or trade status; it is deducted on the invoice and never recorded in the books. Cash (settlement) discount is an incentive for prompt payment; it is recorded only when taken, through the discount columns of the cash book, and is an expense (discount allowed) or income (discount received) in the income statement. A discount deducted from the price of a non-current asset is neither: it simply reduces the cost capitalised.

Petty cash and the imprest system

Small payments are made from a petty cash float under the imprest system: the petty cashier starts each period with a fixed imprest amount; payments are supported by petty cash vouchers and analysed in columns (postage, travel, stationery, sundries, ledger); at the period end the cashier is reimbursed exactly the amount spent (less any receipts paid into petty cash) so that the float is restored to the imprest. The analysis column totals are posted to the expense accounts; the ledger column items are posted individually.