Ca$h Book II

What are we going to learn today?

• Dishonoured cheques and treatment in Cash Book

• Bank loan• Bank overdraft

A cheque is an order to the bank to pay some other person a fixed sum of money on demand.

Bobby TanDollars Fifty only

50/=

A specimen cheque

A dishonoured cheque

Reasons for cheques being dishonoured:(a) signature not the same as the specimen given;(b) insufficient funds;(c) amount in words and in figures not the same;

(d) cheque post-dated

(e) signature missing;(f) incomplete particulars, etc..

What happen when a cheque is dishonoured?

• Reverse the entries recorded in the Cash Book.

Dishonoured cheque

Example 1March 1 Joe owed you from sales $500 3 Joe gave a cheque of $500 5 Joe’s cheque was dishonoured by the bank.

Record the entries into the Cash Book and ledger.

Journal Entry1) Joe 500

Sales 5003) Bank 500

Joe 5005) Joe 500

Bank 500

Reversed

2002Mar 3 Joe 500

2002Mar 5 Joe 500

AmountParticularsDateAmountParticularsDateDr Cr

2002 $ 2002 $

Joe

Mar 1 Sales 500 Mar 3 Bank 500

Mar 5 Bank 500

Date BankCashDiscountParticularsDateBankCashDiscountParticularsCash BookDr (IN) Cr (OUT)

Dishonoured cheque

Exercise March 1 James owed you from sales $150 7 James gave a cheque of $120 in full settlement of his account. Discount allowed $30 9 Jame’s cheque was dishonoured by the bank.

Record the entries into the Cash Book and ledgers.

What happen when we need more cash?

Bank loan Bank overdraft

Bank Loan• a certain sum of money borrowed from the bank

Accounting entries:

Dr Bank Account XXCr Bank Loan XX

Bank LoanExample: On May 1, we borrowed $10000 from the bank. We put the money into our bank account.

BankCashDiscountParticularsDateBankCashDiscountParticularsDateCash BookDr Cr

2002May 1 Bank loan 10000

Can we draw out more cash than what we have in the bank account?

Yes, we can provided our application for overdraft has been approved by the bank.

So when does it have a credit balance?

Usually, bank account has a debit balance.

When we draw on the bank overdraft facility.

Example 1 – Bank Overdraft

2002Jan 1 Christine’s Bank account in the cash book

shows a debit balance of $500. She has an overdraft facility of $10 000.

Jan 10 Christine bought an office equipment for $4 000 and paid by cheque.

How much is Christine drawing on her overdraft facility?

Is the bank account showing a debit or credit balance?

Cr

$$$2002$$$2002

BankCashDiscountParticularsDateBankCashDiscountParticularsDateCash BookDr

Jan 1 Bal b/d 500 Jan 10 Office

Equipment 4000

Note:

Christine is drawing $3500 on her bank overdraft facility. Christine’s bank account has a credit balance.

She can continue to draw from her current account as long as the total credit amount does not exceed $10 000.

The overdraft facility limit is not to be recorded in the Cash Book.

31 Bal c/d 3500

What have I learnt today?• Dishonoured cheques and

treatment in Cash Book• Bank loan• Bank overdraft