ZIMSEC O Level Principles of Accounts Notes: Source Documents: Three Column Cash Book

  • Most businesses offer credit sales in order to increase sales
  • This creates the debtors accounts which are recorded in the ledger and appear in the Statement of Financial Position (Balance Sheet)
  • Cash and by extension working capital is the life blood of the business
  • To prevent cash flow problems businesses prefer that customers pay quickly
  • One way that businesses use to encourage customers to pay promptly is to use cash discounts
  • A cash discount is an incentive used by businesses to encourage customers to pay quickly
  • The business accepts an amount less than what is owed in exchange for a prompt payment
  • On the other hand the business’s own suppliers might  also offer Cash Discounts in exchange for prompt payment
  • When it comes to recording these discounts the business has two options
  • It can choose to keep using the normal two column Cash Book shown below:
    Cash Book    
CashBankCashBank
DateDetails$$DateDetails$$
1 JanCapital50003 JanPurchases500
4 JanBank7004 JanCash700
  • The two column Cash Book has two amount columns on each side:
    1. Cash column
    2. Bank column
  • In this case the business will to maintain  two accounts named Discount Allowed and Discount Received in the General Ledger
  • This would mean that every time we have to record  a discount we would have to make entries across three books:
    1. The Purchases Ledger/Debtors Ledger
    2. The Cash Book
    3. The General Ledger
  • This is rather tedious and repetitive and might result in errors
  • Also in real life each of the above books is in the custody of a different person
  • Recording a single transaction would require all three to coordinate
  • To make life easier a three column Cash Book is used
  • Below is an example of a three column Cash Book
   Cash Book       
DiscountCashBankDiscountCashBank
DateDetails$$$DateDetails$$$
1 JanCapital50003 JanPurchases400
11 JanL Mudadi204804 JanE Mhandu50450
23 JanK Moyo40960
  • Instead of maintaining separate Discount Allowed and Discount Received Accounts they are incorporated as additional columns in the Cash Book
  • This means the Cash Book now has three columns on each side:
    1. Discount Allowed Column on the debit side and Discount Received Column on the Credit Side
    2. A Cash column on either side
    3. A Bank column on either side
  • It is customary to omit the descriptions Allowed and Received
  • Thus there three columns on each side:
    1. Discount Column
    2. Cash Column and a
    3. Bank Column
  • At the end of each accounting period the discount amounts on each side are added
  • The total on the debit side is transferred to the debit side of the Discount Allowed account in the General Ledger
  • The total on the credit side is transferred to the credit side of the Discount Received account in the General Ledger
  • As a result for the most part of the year each payment involving a cash discount is entered in only two books
  • The respective Ledger account and
  • The Cash Book
  • Only totals are transferred to the  General Ledger at the end of the period

Discount Allowed and Discount Received

  • The three column Cash Book is inextricably linked to Cash Discount
  • As a result to learn more about making entries in the three column Cash Book click/tap on each of the following topics:
  • Discount Received
  • Discount Allowed
  • Making entries into the 3 column Cash Book

To access more topics go to the Principles of Accounts Notes.


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