Financial Accounting · Cash

Cash Book and Petty Cash Book Explained

Updated 11 October 2026 · Fact-checked

The cash book records every receipt and payment through the bank account, with columns for discounts and contra entries. The petty cash book records small payments from a float under the imprest system. To solve questions, post each item to the correct side, balance off, and top up the float by the amount spent.

Understand Cash Book and Petty Cash Book

The cash book is both a book of prime entry and part of the ledger. It records receipts and payments of cash and bank, using a cash column and a bank column. Receipts go on the debit side. Payments go on the credit side. The balance brought down is the cash and/or bank balance, a debit if you have money and a credit if the bank account is overdrawn.

A three column cash book adds discount columns. Discount allowed is given to customers who pay early. It sits in the debit column because it goes with receipts from customers. Discount received is given by suppliers when you pay early. It sits in the credit column because it goes with payments to suppliers. The discount columns are memorandum columns. They are not the double entry themselves. You do not balance them like the bank column. You total them and post the totals: debit Discount allowed (an expense) and credit Receivables, and debit Payables and credit Discount received (income). Discounts are not cash, so they never change the bank balance.

A contra entry happens when cash moves between the cash account and the bank account, for example paying cash takings into the bank. You record both sides in the cash book: debit one column, credit the other. No other ledger account is involved.

A petty cash book records small, regular expenses such as stamps, tea and taxi fares. Under the imprest system, the petty cashier starts with a fixed float. At the end of the period, the cashier claims back exactly what was spent. The float then returns to its original amount. Total spending analysed by expense type is posted to the ledger.

The difference is simple. The cash book handles large receipts and payments through the bank, handled by the main cashier. The petty cash book handles small payments in cash, handled by a petty cashier. In the exam, you often need to find a balance, the top-up amount, or a ledger posting.

Key formulas to remember

Cash book sides: Debit = receipts. Credit = payments.; Applies to bank and cash columns. An overdraft is a credit balance.
Discount allowed: Dr Discount allowed (expense) ; Cr Receivables; Shown in the debit discount column. The bank receives the amount net of discount.
Discount received: Dr Payables ; Cr Discount received (income); Shown in the credit discount column. The bank pays the amount net of discount.
Contra entry: Cash into bank: Dr Bank, Cr Cash. Cash drawn from bank: Dr Cash, Cr Bank; Both entries stay inside the cash book.
Imprest reimbursement: Top-up = total petty cash payments in the period = float − closing petty cash; This holds only if no extra cash was put in or taken out during the period. The top-up is posted Dr Petty cash, Cr Bank.
Petty cash check: Opening float + receipts − payments = closing cash; Closing cash plus vouchers (payments) equals the float. After the top-up, the cash returns to the float.

How to solve Cash Book and Petty Cash Book questions

Use this order for any cash book or petty cash question.

1Read the question and note which book you are asked about: cash book or petty cash book.
2Draw the debit and credit sides, with discount columns if the cash book has three columns.
3Enter the opening balance on the correct side, debit if money is held and credit if overdrawn.
4Enter each receipt on the debit side and each payment on the credit side. Use the net cash amount in the bank column and put discount in its own column.
5Record contra entries on both sides, in different columns.
6Total the bank column, balance it, and carry down the balance. Total the discount columns and post the totals to the ledger.
7For petty cash, analyse payments by expense type, then total them. The reimbursement equals the total spent. Post the payments: debit each expense account and credit Petty cash. Post the top-up: debit Petty cash and credit Bank.
8Check the answer: closing cash plus vouchers (payments) must equal the float, and after the top-up the cash returns to the float.

Quickest way: Net amount and side check

When to use it: Use this for multiple choice and number entry questions where you only need a balance or a top-up.

Ignore the discount columns unless the question asks about them. They do not affect the bank balance.
Add all debits and all credits in the bank column only. The difference is the balance.
For imprest, add up the payments. That is the top-up.
Confirm the sign: more debits than credits means a positive bank balance, otherwise an overdraft.

Common mistakes in Cash Book and Petty Cash Book

Putting discount allowed on the credit side.
Students think a discount reduces money, so it must be a credit.
Fix: Discount allowed is an expense, so it is a debit. Remember: allowed goes with receipts on the debit side.
Including the discount in the bank column.
The discount columns look like part of the cash movement.
Fix: The bank column holds only the money actually received or paid. Discount stays in its own column.
Treating a contra entry as a ledger posting to another account.
Students expect every entry to involve a ledger account.
Fix: A contra has both entries inside the cash book. Debit one column and credit the other for the same amount.
Topping up petty cash to a different amount from the spend.
Students confuse the float with the amount to top up.
Fix: Under the imprest system, the top-up equals the money spent. The float stays fixed.
Balancing the discount columns like the bank column.
All three columns look alike.
Fix: Total each discount column and post the totals to the discount accounts. Do not carry down a balance.
Ignoring sales tax in petty cash.
The analysis columns look simple.
Fix: Where tax is recoverable, show it in its own column and post it to the sales tax account.

Worked examples

Example 1

A business has a bank balance of $4,000 debit. It receives $950 from a customer after allowing $50 discount. It pays a supplier $1,176 after receiving $24 discount. It pays $500 of cash takings into the bank. What is the closing bank balance, and what are the totals of discount allowed and discount received?

Show the solution

Opening bank balance: $4,000 debit.
Receipt from customer: add the net $950 to the debit side. Discount allowed of $50 goes in the discount column only.
Payment to supplier: put the net $1,176 on the credit side. Discount received of $24 goes in its own column.
Contra: cash paid into the bank is a debit in the bank column of $500, with the credit in the cash column.
Bank debits: $4,000 + $950 + $500 = $5,450. Bank credits: $1,176.
Closing bank balance: $5,450 − $1,176 = $4,274 debit.

Answer: Closing bank balance is $4,274 debit. Discount allowed is $50 and discount received is $24.

Example 2

A petty cash float is $200 under the imprest system. During the month the petty cashier pays out: postage $45, travel $62, refreshments $38 and cleaning $25. How much cash remains, and how much must be reimbursed?

Show the solution

Add the payments: $45 + $62 + $38 + $25 = $170.
Cash remaining: $200 − $170 = $30.
Reimbursement is the amount spent: $170.
Check: closing cash $30 plus vouchers $170 = $200, which equals the float. After the top-up of $170, cash is back to $200.
Ledger posting for the payments: debit postage $45, travel $62, refreshments $38 and cleaning $25. Credit Petty cash $170.
Ledger posting for the top-up: debit Petty cash $170 and credit Bank $170.

Answer: Cash remaining is $30 and the reimbursement is $170.

Exam tips

In objective test questions, read for the word net. The bank figure is usually after discount.
For number entry, work only in the bank column and check whether the answer is a debit or an overdraft.
For multiple response, check each statement on its own. Typical traps are discount side and which book is the book of prime entry.
Always check that float equals cash held plus vouchers in petty cash questions.
In multi-task questions, write the ledger posting for the discount totals separately.

Practice questions from Cash

Cash Book and Petty Cash Book in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cash Book and Petty Cash Book: frequently asked questions

What is the difference between a cash book and a petty cash book?

The cash book records the main receipts and payments through the bank. The petty cash book records small cash payments from a fixed float. The cash book is kept by the main cashier and the petty cash book by a petty cashier.

How do you write up a three column cash book?

Draw debit and credit sides with discount, cash and bank columns. Enter receipts on the debit side and payments on the credit side. Total the discount columns and post them to the ledger, and balance the cash and bank columns.

How does the imprest system work?

The petty cashier holds a fixed float. When money is spent, vouchers are kept. At the end of the period, the cashier is reimbursed exactly the amount spent, which restores the float.

Is the cash book part of the ledger?

It can be both. It is a book of prime entry, but the cash and bank columns also work as ledger accounts. The discount columns are only totals and must be posted to the discount accounts.