Why do we do contra entry of cheque drew on office use?
Answers
Method of Recording in Three Columnar Cash Book:
All cash receipts are entered on debit side of the Cash Book in the cash column and all payments are entered on the credit side of the cash book in cash column.
All cheques received are entered in the cash column on the debit side. Then, these cheques are sent to bank for collection and the treatment is similar to cash paid into bank, which is explained below. If the cheque received from a customer is sent to the bank on the same day, the amount is entered in the bank column on the debit side.
Cash Paid into Bank:
When cash is paid into bank, Bank Account receives and Cash Account gives the benefit and the double entry is complete by debiting the Bank Account and crediting the Cash Account. An Account cannot receive and give both at the same time. An Account that receives is debited and the Account that gives is credited.
ADVERTISEMENTS:
Since here, the Cash Book contains two Accounts Cash Account and Bank Account, the credit and the debit may be found in the two Accounts, in the same book. Thus, when cash is paid into bank, the entry is Bank Account Dr. to Cash Account. This means, on the debit side of Cash Book, that amount is written, in Bank Column as “To Cash” and on the credit side of cash book, the amount is written in Cash Column as “By Bank”.
Since, both the entries appear in Cash Book, letter “C” is written in L.F. column. C stands for contra and contra means opposite or against, which indicates that the other aspect of the transaction is found on the opposite side.
Cash Withdrawn from Bank:
It is possible that a businessman withdraw some amount from the bank for office. Bank Account gives the benefit and Cash Account receives the benefit. Since, Cash Account and Bank Account appear in Cash Book; both the aspects can be entered in the cash book. When cash is drawn, cash comes in and is debited in the cash book in cash column as “To Bank” and credit in cash book in Bank Column as “To Cash”. This is a contra entry.
Remember the following points when writing a three column Cash Book:
Three Column Cash Book
Illustration 1:
From the following transactions, write up the cash book with three columns and bring downs the balances 2004:
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Transactions
Solution:
Solution
Illustration 2:
Enter the following transactions of the Premier Trading Company in Cash Book with three columns- Discount, Cash and Bank and balance the accounts as on 31st December 2004:
2004
ADVERTISEMENTS:
Dec. 1 Cash in hand Rs 4,000
1 Bank Rs 1,000 (Cr.)
3 Received a cheque from A Rs 290 and allowed him discount of Rs 40
7 A’s cheque deposited into the bank
ADVERTISEMENTS:
10 Withdrew from bank for office use Rs 800
12 Paid B/P by cheque Rs 600
15 B/R from Ram. Rs 2,500: Discounted it, crediting with bank Rs 2,400
20 Issued a cheque for Petty Cashier Rs 100
25 Paid to Gupta by cheque Rs 920; discount received Rs 30
28 Made cash-sales Rs 900.
Solution:
Solution
Cash Book With Two Bank Columns:
Illustration 3:
Mr. Lal operates two bank accounts both of which are maintained in the columnar cash book itself, You are required to prepare a proforma of the Cash Book, record the following transactions therein and draw the closing balances as on 30th June.
Transactions
Solution:
Solution