CHAPTER 5 - THE CASH BOOK

Question 1

What is the cashbook and where is it kept?

Answer 1

2 accounts recording bank and cash transactions.

Part of the the nominal ledger but kept separately

Question 2

Why is the cashbook separate from the rest of the ledger?

Answer 2

Security reasons

To monitor cashflow

HIgh volume transactions

Extra columns used to analyse

Question 3

What are the main documents used to prepare the cashbook?

Answer 3

Receipts (Debits) - paying in slips, credit card slips, bank statement (for DDs and SOs etc)

Payments (Credits) - cheque counterfoils

Question 4

How do we record the VAT in cash sales and purchases (where items paid for on day of sale)?

Answer 4

Sales

Credit Sales the net amount

Credit VAT account for VAT

Debit Bank the full amount

Purchases

Debit Purchases, expense or asset the net amount

Debit VAT account

Credit bank the full amount

Question 5

How do we record the VAT when credit transactions are settled?

Answer 5

We don’t!!

The VAT was already recorded when we logged the credit transaction (purchase or sale) - so when payment is made we only credit or debit the gross amount