Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement: formula sheet

Key formulas

Closing cash balance

Closing cash = Opening cash + Cash receipts − Cash payments

Always a debit balance. A credit cash balance signals an error.

Closing bank balance

Closing bank = Opening bank + Bank receipts − Bank payments

A credit balance means an overdraft. It arises when bank payments exceed bank receipts, so the credit total exceeds the debit total. The difference is entered on the debit side as 'To Balance c/d' to make the totals agree. It represents an overdraft, which is a credit balance in the books. An opening overdraft is the item placed on the credit side.

Discount allowed entry

Debit side: Discount column. Cash received = Amount due − Discount allowed

Total posted to the debit of Discount Allowed Account. It is an expense or loss.

Discount received entry

Credit side: Discount column. Cash paid = Amount due − Discount received

Total posted to the credit of Discount Received Account. It is a gain.

Contra entry rule

Cash deposited: Dr Bank column, Cr Cash column. Cash withdrawn: Dr Cash column, Cr Bank column

Both sides are in the cash book. Mark C, and do not post to the ledger.

Balancing rule

Balancing figure = Larger side total − Smaller side total

Put it on the smaller side as 'By Balance c/d' or 'To Balance c/d'. Discount columns are only totalled, not balanced.

Amount to be reimbursed

Reimbursement = Total payments made during the period

Under the strict imprest system the float is restored to the fixed amount, so reimbursement equals expenses.

Imprest check

Imprest amount = Closing petty cash balance + Total payments

Use this to find a missing closing balance or total payments.

Closing balance

Closing balance = Opening balance + Amount received − Total payments

Opening balance plus reimbursement received at the start of a period gives the total cash available.

Column check

Total payments column = Sum of all analysis column totals

If these do not agree, you have missed or misplaced an entry.

Opening float for a new period

Opening balance + Reimbursement = Imprest amount

After reimbursement the petty cashier holds the full imprest again.

Receipt in bank

Debit Bank column

Deposits, cheques banked, direct credits, interest received, cash deposited.

Payment from bank

Credit Bank column

Cheques issued, bank charges, direct debits, standing instructions, cash withdrawn.

Dishonoured cheque received

Credit Bank column, Debit Customer (Debtor) account

The customer's debt revives. Add any bank charge for dishonour as a further credit to bank.

Cash deposited into bank (contra)

Debit Bank column, Credit Cash column

Entered on opposite sides of the cash book, in different columns (Bank debit, Cash credit). It needs no ledger posting.

Cash withdrawn from bank (contra)

Debit Cash column, Credit Bank column

Another contra entry marked C. It appears on opposite sides in different columns. No ledger posting.

Overdraft

Credit balance in bank column = Bank overdraft

Show as a liability. Do not treat as an asset.

Bank book vs passbook

Bank book debit = Passbook credit

The bank sees your deposit as a liability to you, so sides are reversed.

Items that only affect the passbook (cash book already has them)

Cheques issued but not yet presented; cheques deposited but not yet collected

These are timing differences. The cash book needs no correction.

Bank-only items that increase the cash book balance

Interest and dividends credited by the bank; direct deposits by customers (add to the cash book)

The bank has recorded these first. Enter them in the cash book as receipts when you find them in the passbook.

Bank-only items that reduce the cash book balance

Bank charges; interest charged; direct payments (standing instructions); dishonoured cheques (subtract from the cash book)

A cheque you deposited and the bank returned unpaid is recorded by the bank first. Enter it in the cash book as a reduction. If you have already recorded the dishonour, it is not a reconciling item.

Effect on passbook balance

Issued but not presented: passbook balance is higher than the cash book. Deposited but not collected: passbook balance is lower than the cash book.

Use this to judge the direction of each item.

Favourable and unfavourable balance

Favourable = debit balance in cash book (money in bank). Unfavourable = credit balance in cash book (overdraft).

The signs reverse in the passbook: an overdraft is a debit balance there.

Starting from cash book (favourable balance)

Passbook balance = Cash book balance + Cheques issued not yet presented + Cheques/ amounts credited by bank not in cash book (direct deposits, interest) − Cheques deposited not yet credited − Amounts debited by bank not in cash book (charges, direct payments, dishonour)

Use this when the starting balance is a debit (favourable) balance.

Starting from passbook (favourable balance)

Cash book balance = Passbook balance + Cheques deposited not yet credited + Amounts debited by bank not in cash book − Cheques issued not yet presented − Amounts credited by bank not in cash book

Each item is the reverse of the cash book starting case.

Overdraft rule

For an overdraft balance, reverse every plus and minus used for a favourable balance

Cheques issued not presented are deducted from an overdraft figure when you work from the cash book overdraft. Cheques deposited not credited are added.

Adjusted cash book

Adjusted cash book balance = Old cash book balance + Items credited by bank not in cash book − Items debited by bank not in cash book (± errors)

After adjusting, only timing items remain between the adjusted balance and the passbook.

Items that never appear in the BRS

Items recorded by both sides on the same date need no adjustment

Only differences are listed.

Quick revision

• Cash book is both a book of original entry and a ledger account.
• Double column cash book has cash and bank columns. Triple column adds a discount column.
• A contra entry affects both cash and bank, so it appears on the debit and credit sides of the cash book.
• Cash deposited into bank: debit bank column, credit cash column.
• Discount columns are only totalled and posted to the discount accounts. They are not balanced.
• Imprest system: a fixed amount is advanced and the exact amount spent is reimbursed.
• Petty cashier's analytical columns help in posting expenses in totals.
• Cheque issued but not yet presented lowers the cash book balance first, and the passbook later.
• Cheque deposited but not yet collected raises the cash book balance first, and the passbook later.
• Bank charges, interest and direct debits appear in the passbook first, so adjust the cash book.
• A debit balance in the cash book bank column means money at bank. A credit balance means overdraft.
• The BRS is a memorandum statement. It is not part of the double entry and does not change the books by itself. The cash book is corrected by journal or cash book entries for items such as bank charges, interest and direct debits.

Common mistakes

• Entering the full invoice amount in the Cash column when discount is given. Fix: Enter the net cash in Cash or Bank. Enter the discount in the Discount column on the same side.
• Putting discount allowed on the credit side. Fix: Discount allowed is a loss to you, so it is on the debit side. Discount received is a gain, so it is on the credit side.
• Reimbursing the imprest amount instead of the amount spent. Fix: Reimburse only what was spent. The float is restored to its fixed level by that payment.
• Entering a payment only in the analysis column. Fix: Every payment goes in both the Total Payment column and one analysis column.
• Debiting the bank column for a cheque issued. Fix: Ask whether money leaves the bank. If yes, credit the bank column.
• Recording a dishonoured cheque as a debit to bank. Fix: Reverse the earlier entry. Credit bank and debit the customer.
• Adjusting the cash book for cheques issued but not presented. Fix: The cash book already has the cheque. Only the passbook is waiting. Make no entry.
• Treating a deposited but uncollected cheque as a bank error. Fix: It is a timing difference. The bank credits it after clearing.
• Using the same plus and minus signs when the balance is an overdraft Fix: Treat an overdraft as a negative number and use signed arithmetic, or reverse every sign. Then state the answer as an overdraft.
• Adding a cheque issued but not presented to the passbook balance Fix: When going from the passbook to the cash book, deduct it. When going from the cash book to the passbook, add it.

Exam tips

• Practise reading transactions for the side first. Receipt is debit and payment is credit, whatever the column.
• In MCQs, look for discount trick options. A wrong answer often adds discount to the cash balance.
• If a question says 'cheque deposited into bank', enter it in the Bank column. If it says the cheque is not yet deposited, follow the instruction given in the question. Some treat it as cash in hand, so do not assume a fixed rule.
• Remember the contra rule. A transaction that appears on both sides of the cash book is never posted to the ledger.
• Check the sign of your closing cash. A credit cash balance means you made an error.
• For MCQs, reimbursement under the imprest system equals total expenses. Do not add the opening balance.
• Check that analysis columns add up to the Total Payment column. This catches slips quickly.
• Read carefully whether the question asks for the balance before or after reimbursement.