## **Learning Outcomes**

After reading this article, you will be able to describe the structure and purpose of single, two-column, and three-column cash books. You will distinguish between each format, explain how entries are made for cash, bank, and discounts, and accurately record receipts and payments using the correct cash book. This knowledge is essential for proper financial record-keeping in preparation for the ACCA FA1 exam.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand how cash transactions are recorded and presented in the accounting system using cash books. This article covers:

- The structure and purpose of single-column, two-column, and three-column cash books
- The distinction between recording cash, bank, and discount entries
- Posting cash book entries to the general ledger and memorandum accounts
- The role of the cash book as a book of prime entry and as a ledger
- Recording receipts and payments including discounts allowed and received

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which columns are included in a three-column cash book?
2. What is the main function of the cash book in the accounting system?
3. How is a discount allowed recorded in the cash book?
4. True or false? A payment by cheque appears only in the cash column of the cash book.

## **Introduction**

The cash book is a central record for all cash and bank transactions, providing an organised way to track receipts and payments. Proper use and structure of the cash book are critical for accurate accounting, internal control, and successful completion of financial statements. This article examines the three main formats—single-column, two-column, and three-column cash books—highlighting their features, differences, and the correct method for entering transaction details in each type.

> **Key Term: cash book**
> A book of prime entry which records all cash and bank receipts and payments, often also serving as a ledger account.

## CASH BOOK FORMATS

Cash books can be set up with one, two, or three columns on each side, depending on the complexity of cash and bank activities in a business.

### Single-Column Cash Book

The single-column cash book is used solely to record transactions in physical cash (notes and coins). It has one column for receipts and one for payments. This format is usually adopted by small businesses with only cash dealings and no bank account.

> **Key Term: single-column cash book**
> A cash book format with only a cash column on each side, recording receipts and payments of physical cash.

### Two-Column Cash Book

The two-column cash book introduces a second column on each side for bank transactions. It is used when the business also operates a current account, allowing for receipts and payments by cheque, transfers, or other bank instruments.

> **Key Term: two-column cash book**
> A cash book with separate columns for both cash and bank on each side, used for recording both types of transactions.

### Three-Column Cash Book

The three-column cash book adds a third column to each side, to record discounts allowed and discounts received. This makes it suitable for businesses that regularly give or receive prompt payment discounts as part of their credit terms.

> **Key Term: three-column cash book**
> A cash book including cash, bank, and discount columns on both sides, for comprehensive recording of receipts and payments with any associated discounts.
>
> **Key Term: discount allowed**
> The reduction in the amount receivable from customers when payment is made promptly; it is shown as an expense in the accounts.
>
> **Key Term: discount received**
> The reduction in the amount payable to suppliers when payment is made promptly; it is shown as income in the accounts.

## STRUCTURE AND USE OF EACH CASH BOOK TYPE

All cash books are divided into two sides:

- The left (debit) side records receipts into cash or bank.
- The right (credit) side records payments out.

### The Single-Column Cash Book

- Records only physical cash movements.
- Each cash receipt (e.g. sales, owner’s capital) is entered on the debit side.
- Each cash payment (e.g. expenses, cash purchases) is entered on the credit side.
- The ending balance should always be a debit (as you cannot have negative cash).

### The Two-Column Cash Book

- Each side has both 'Cash' and 'Bank' columns.
- Receipts can be by cash (notes/coins) or by bank (cheques, transfers).
- Payments are entered in the appropriate column based on the payment method.
- Transfers between cash and bank are recorded in both columns (known as contra entries).

> **Key Term: contra entry**
> A transaction which appears on both sides of the cash book to record the transfer of money between cash and bank within the business.

### The Three-Column Cash Book

- Each side has columns for cash, bank, and discount.
- Discounts allowed (to customers) appear in the discount column on the debit (left) side.
- Discounts received (from suppliers) are entered in the discount column on the credit (right) side.
- The closing balances of cash and bank are carried to the appropriate accounts in the general ledger.
- The totals of discount columns are posted to the respective discount accounts.

### **Worked Example 1.1**

A business receives \$950 in cash sales, pays \$600 rent by cheque, and pays a supplier \$390 by cheque, receiving a \$10 prompt payment discount. All happen in one week. Show the entries in a three-column cash book for these transactions.

> **Answer:**
>
> - On the debit side: cash column receives \$950 (sales).
> - On the credit side: bank column records \$600 (rent) and \$390 (supplier payment).
> - Discounts: \$10 is entered in the discount received column (right side).
>   The totals for the week:
> - Debit side: Cash \$950.
> - Credit side: Bank \$990 (\$600 + \$390). Discount received \$10.

### Posting to the Ledger

- Cash and bank column totals at period-end are posted to the cash and bank accounts in the general ledger.
- Totals from the discount columns are posted to discount allowed (expense) and discount received (income) accounts.

### **Worked Example 1.2**

A cashier withdraws \$200 from the business’s bank account for petty cash. How is this recorded in a two-column cash book?

> **Answer:**
>
> - Credit (right) side, 'Bank' column: \$200 (payment out).
> - Debit (left) side, 'Cash' column: \$200 (receipt in).
> - Both entries are marked 'C' (for contra), identifying them as an internal cash transfer. There is no overall effect on the total cash position.

### **Exam Warning**

> In the three-column cash book, discounts are recorded only when payment is actually made or received—not at the time of the sale or purchase. Posting a discount entry prematurely is a common error.

## ADVANTAGES OF THE CASH BOOK

- Acts as both a book of original entry and a ledger for cash/bank.
- Simplifies the process of recording and reporting receipts and payments.
- Supports the bank reconciliation process.

## **Summary**

Single-column cash books are for cash only; two-column add bank transactions; three-column include discount columns for full detail. Each format is chosen according to the business’s needs. Proper recording and column use ensures accurate financial records and supports internal controls.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define and explain the structure of single, two-column, and three-column cash books
- Identify which transactions are recorded in each column
- Understand how and when to record discounts allowed and received
- Record contra entries for cash-bank transfers
- Post cash book totals correctly to the relevant ledger accounts
- Recognise the importance of the cash book for reliable record-keeping

## **Key Terms and Concepts**

- cash book
- single-column cash book
- two-column cash book
- three-column cash book
- discount allowed
- discount received
- contra entry

Cash book structure and use - Single, two, and three-column cash books