HOW TO PREPARE TRIPLE COLUMN CASH BOOK?

Hey! Everyone. 😀Till now we have learned how to prepare simple cash book and double column cash book with Discount and cash column. Right! 😄Well we can record only cash transactions in these cash books but what if our business is engaged with bank 🏦as well, so instead of preparing separate bank account we can just include it in our cash book itself which is called Triple column cash book.

Triple column cash book: The cash book which contain bank column in addition to discount and cash columns is called triple column cash book or three column cash book.

The following points must be noted while preparing three column cash book:

1. Opening balance of cash in hand and cash at bank is written on debit side as “To balance b/d”. The amount of cash in hand is taken in cash column and cash at bank is taken in bank column. In case of bank overdraft, it is written on credit side as “By balance b/d”.
2. All the receipts will be recorded on the debit side. (Dr)
Cash receipts amount will be entered in cash column and cheques amount in bank column.
If any discount is allowed while receiving cash/cheque then it should be entered in Discount column on the debit side.
3. All payments are recorded on the credit side. (Cr)
Cash payment amounts are entered in cash column and cheque payment amounts are recorded in Bank column.
If any discount received while making payment, then it should be entered in Discount column on the credit side.
4. A cheque received but not deposited in bank on the same day must be debited in cash column and when it is deposited in bank on some other day it should be treated as deposit of cash in the bank thus, contra entries are passed. However, in the absence of any information cheque received may be assumed to be deposited in bank for collection on the same day itself and no contra entries are passed.
5. Contra entries: If cash is deposited in the bank, it should be entered in the bank column on the debit side as “To cash” and again on the credit side in cash column as “By Bank”.
6. If cash is withdrawn from Bank for office use, it should be entered in cash column on the debit side as “To Bank” and again on the credit side in the Bank column as “By Cash”.
7. These transactions are not posted in the ledger as both the accounts (cash and bank) are in the cash book itself.
8. For such entries letter “C” is written in L.F column on each side to indicate that contra effect of this transaction is recorded on the opposite side. Such entries are called “contra entries”.
9. If cheque received from a customer & deposited in the bank is dishonored, then the entry passed for receipt of cheque has to be cancelled by reversing it. i.e., it should be entered on the credit side of Cash book in Bank column as “By concerned party name”.
10. Similarly, if a cheque issued to creditor is dishonored then the entry passed for the issue of cheque has to be cancelled by reversing it, i.e., it should be written on the debit side in bank column as “To concern party name”.

Three column cash book is ruled as follows: 

Lets me show you an example problem and explain it in detail!

Example problem

Explanation: let me first explain the problem to you:
On June 1  cash in hand and cash at bank is an opening balances – cash in coming into business/bank – so both are debited – as “To Balance b/d” and enter amount of Rs 730 in cash column and 9,200 in Bank column.
On June 3 cheque is received from Indira and discount is allowed to her – as bank is the receiver of the cheque – so debited – as “To Indira” and the cheque amount 868 is entered in bank column and discount amount 32 is entered in discount allowed column.
On June 5 paid cheque for advertisement – cheque is cleared by the bank, bank is the giver – so credited – as “By Advertisement” and the cheque amount 300 is entered in bank column.
On June 6 sold for cash – cash is coming into business – so debited – as “To sales” and amount 500 is entered into cash column.
On June 8 salaries are paid – cash is going out of business – so credited – as “To Salaries” and amount 650 is entered in cash column.
On June 9 amount is withdrawn for office use so here there is a contra entry means you have to enter this entry twice in the three column cash book as this book records both cash and bank transactions and there will be no ledger posting for this entry.
First, cash is coming into business – so debited – as “To Bank” and the amount 800 is entered into cash column. Secondly, as bank is the giver of that cash – so credited – as “By Cash” and the amount 800 is entered into Bank column. For both entries a letter “C” is written in L.F no column indicating it is a contra entry.
On June 10 cash is deposited into bank, here as well we will record contra entry means recording twice and there will be ledger posting for this entry.
First, cash is going out of business – so credited – as “By Bank” and the amount of 500 is entered into cash column. Secondly, as bank is receiving that cash – so debited – as “To Cash” and the amount of 500 is entered into bank column. For both entries a letter “C” is written in L.F no column indicating it is a contra entry.
On June 12  cash is withdrawn by businessmen for his personal use, cash is going out of the business – so credited – as “By Drawings” and the amount of 400 is entered into cash column.
On June 14 cheque is issued to J.K Rao and discount is received from him, as the payment is through cheque, bank is the giver – so credited – as “By J.K Rao” and the amount of 790 is entered in bank column and discount amount of 50 in discount received column.
On June 18 cheque is received from Dinesh and discount is allowed to him, as the cheque is received by the bank, bank is the receiver – so debited – as “To Dinesh” and the amount of 986 is entered in bank column and discount amount of 26 in discount allowed column.
On June 20 machinery is sold and in return cheque is received, as the receipt is a cheque, bank is the receiver – so debited – as “To Machinery” and the amount of 4000 is entered in bank column.
On June 22 cheque received from Dinesh on June 18 is being returned by the bank as the cheque is dishonored, here you have to reverse the actual entry, means entry made on June 18 which was debited, will be reversed by crediting the same entry. Cheque is returned by the bank – so credited – as “By Dinesh” and cheque amount of 986 is entered in bank column and discount amount of 26 is entered in discount received column as we will disallow the discount as well.
On June 24 new machinery is purchased and payment is made through cheque – cheque is cleared by the bank, bank is the giver – so credited – as “By Machinery” and the cheque amount of 20,000 is entered in bank column.
On June 30 bank charges as per pass book means bank charges some amount for its services – so credited – as “By Bank charges” and the amount of 20 is entered in bank column because charges are deducted from the bank balance itself.

Here, how our triple column cash book will be like:

Note: while balancing triple column cash book, we merely total discount columns and post it in discount account as we did in double column cash book. We will balance cash column as we did in simple column cash, Here we found debit side total is more than credit side total; there is a difference of 480 so balance amount is written on credit side as “By Balance c/d” and the amount is entered in cash column, which is brought forward to the next month as “To Balance B/d” and the amount of 480 is entered into cash column. Next we will also balance bank column as we did for cash column, here we found debit side total is less than credit side total, that means we have a bank overdraft; there is a difference of 7,342 so balance amount is written on debit side as “To Balance c/d” and the amount is entered in bank column, which is brought forward to the next month as “By Balance B/d” amount of 7,342 is entered into bank column.

Remember, 🤷‍♀️while balancing cash column the total of the debit side should always be more than the total of the credit side, as the cash payments cannot be more than cash receipts. The balance indicated the cash on hand at the end of the period. But, for bank column sometime bank 🏦may allow the firm to withdraw more than the amount deposited means to have an overdraft. In such a case the total of the bank column on the credit side will be more than the one on the debit side. The difference is written on the debit side as “To Balance c/d”. Then the both cash and bank balances are written on the two sides opposite one another. 

Now let me give you one ☝️(DIY) for your practice✍ let’s see how you will do! 🤗Well practice makes us perfect, right! Well I have shared my knowledge with you let’s see did you gained that knowledge?🤔

 DO IT YOURSELF (DIY):

To end the cash book lesson next time, 😀Inshallah, I will teach you how to prepare Analytical petty cash book following imprest system.😊

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