Ca$h Book III

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 $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.

2002Mar 3 Joe 500

2002Mar 5 Joe 500

AmountParticularsDateAmountParticularsDate

Dr Cr

2002 $ 2002 $

Joe

Mar 1 Bal b/d 500 Mar 3 Bank 500

Mar 5 Bank 500

Date BankCashDiscountParticularsDateBankCashDiscountParticulars

Cash BookDr (IN) Cr (OUT)

Dishonoured cheque

Example 2March 1 James owed you $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.

2002Mar 7 James 30 120

AmountParticularsDateAmountParticularsDate

Dr Cr

2002 $ 2002 $

James

Mar 1 Bal b/d 150

2002Mar 9 James 120

Mar 7 Bank 120 Discount 30

Mar 9 James 30

9 Bank 120 Discount 30

AmountParticularsDateAmountParticularsDate

Dr Cr

2002 $ 2002 $

Discount allowed

Date BankCashDiscountParticularsDateBankCashDiscountParticulars

Cash BookDr (IN) Cr (OUT)

In pairs, discuss and complete worksheet 3.

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.

BankCashDiscountParticularsDateBankCashDiscountParticularsDate

Cash 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 Overdraft2002Jan 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