Cash Book

Question 1

Explain the purpose of the Cash Book.

Answer 1

The cash book is used to record cash/cheque receipts and payments.

Question 2

State 2 causes/reasons for a dishonoured cheque.

Answer 2

1. The cheque has expired.
2. There is insufficient funds in the bank account
3. The cheque is post-dated.
4. There is an error in the cheque such as missing signature, date is not written etc.

Question 3

Define what is a trade discount.

Answer 3

A trade discount is a deduction off the list price of goods or services.

Question 4

Explain why a business gives trade discounts.

Answer 4

To encourage bulk purchases.

Question 5

Define what is a cash discount.

Answer 5

A cash discount is a deduction off the amount payable stated in the invoice.

Question 6

Explain why a business gives cash discounts.

Answer 6

To encourage early/prompt payment.

Question 7

Explain 2 differences between a cash discount and a trade discount.

Answer 7

1. Cash discount is given to encourage prompt payment whereas trade discount is given to encourage bulk purchases
2. Cash discount is given at the point of payment whereas trade discount is given at the point of sale/purchase
3. Cash discount is a deduction off the amount due whereas trade discount is a deduction off the list price
4. Cash discount is recorded in the ledgers but trade discount is not recorded in the ledgers