Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

Ledger Accounts and the Cash Book Explained

Updated 11 October 2026 · Fact-checked

Ledger accounts record each transaction as equal debits and credits, grouped by account. The cash book is both a book of prime entry and a ledger account for the bank. To solve questions, identify the two accounts, decide debit or credit, post the amounts, and balance off. Petty cash uses an imprest float topped up to its fixed amount.

Understand Ledger Accounts and the Cash Book

A ledger account is a page (or screen) that collects every transaction affecting one item, such as sales, rent, bank or a customer. Each account has a debit side (left) and a credit side (right). Every transaction is recorded twice, once as a debit and once as a credit, for the same amount. This is double entry.

The ledger is split into parts. The nominal (general) ledger holds accounts for assets, liabilities, capital, income and expenses, for example sales, purchases, rent and the bank. The receivables ledger (sales ledger) holds one account per customer, showing what each owes you. The payables ledger (purchase ledger) holds one account per supplier, showing what you owe. In the nominal ledger, control accounts hold the totals of these two ledgers.

The cash book records receipts and payments of money through the bank (and sometimes cash). It is a book of prime entry, so transactions are first written there. In many businesses it is also the ledger account for bank, so its balance goes straight into the trial balance. Debit side = money received. Credit side = money paid. A debit balance means money in the bank. A credit balance means an overdraft.

A cash book can have columns for discounts. Discount allowed is a settlement discount you give to a customer who pays early. It is an expense (debit). Discount received is one you get from a supplier for paying early. It is income (credit). The discount columns are totalled and posted once, at the end of the period, to the discount accounts. The individual customer and supplier accounts are updated for the cash and the discount.

Petty cash covers small day-to-day costs. Under the imprest system you start with a fixed float. The cashier pays out small amounts against vouchers. Periodically you top the float back up to the original amount by exactly the sum spent. The petty cash book analyses spending by type of expense. At any time, cash in hand plus vouchers must equal the float.

Key formulas to remember

Basic posting rule: Debit = assets and expenses increase; Credit = liabilities, capital and income increase; Total debits must always equal total credits for each transaction.
Cash book receipt: Receipt: Dr Bank, Cr the other account (sales, receivable, etc.); The bank is debited when money comes in.
Cash book payment: Payment: Cr Bank, Dr the other account (expense, payable, asset, etc.); The bank is credited when money goes out.
Cash book balance: Closing balance = opening balance + receipts − payments; A positive result is a debit balance (cash at bank). A negative result is an overdraft (credit balance).
Discount allowed: Dr Bank (cash received); Dr Discount allowed; Cr Receivable (cash + discount); Discount allowed is an expense. The customer's account is cleared in full.
Discount received: Cr Bank (cash paid); Cr Discount received; Dr Payable (cash + discount); Discount received is income. The supplier's account is cleared in full.
Imprest reimbursement: Amount to reimburse = float − cash in hand = total of vouchers paid; Entry: Dr Petty cash, Cr Bank. The expense accounts are debited from the analysis columns.
Petty cash expenses: Dr each expense account; Cr Petty cash (total spent); Post the analysis column totals, not each voucher.

How to solve Ledger Accounts and the Cash Book questions

Use this method for any ledger or cash book question. It keeps your debits and credits in the right place.

1Read the question and list each transaction. Note whether it goes through the bank, cash, petty cash or on credit.
2For each transaction, name the two accounts affected and say which increases or decreases.
3Decide the debit and the credit. Use the rule: money in = debit bank, money out = credit bank.
4If discounts appear, work out the full invoice amount. Customer account = cash received + discount allowed. Supplier account = cash paid + discount received.
5Post each entry to the correct account. Use the opening balance first, on the correct side.
6Total each side and balance off. Write the balance carried down on the smaller side. Bring it down on the opposite side.
7For petty cash, add the vouchers, check float − spent = cash left, and reimburse the amount spent.
8Check your answer: total debits equal total credits, and the balance is on the sensible side.

Quickest way: Two-account shortcut for objective test questions

When to use it: Use this in Section A multiple choice and number entry questions, where you only need one balance or one entry.

Ask: what is the bank doing? Money in is a debit. Money out is a credit.
Say the other side out loud: 'Dr expense, Cr bank' or 'Dr bank, Cr receivable'.
For an asset or expense, think debit increases. For a liability, income or capital, think credit increases.
For a balance, calculate on rough paper with one line: opening + debits − credits.
With discounts, add the discount to the cash to find what was cleared on the receivable or payable.
For petty cash, the reimbursement is the float less the cash left. Do not add the opening cash to it.
Reject any option where the entry would not balance or has debit and credit on the same account.

Common mistakes in Ledger Accounts and the Cash Book

Debiting the bank when money is paid out (or crediting it when money is received).
Students think of the bank statement, where a credit means money in. The bank account in your own books is the opposite.
Fix: In your own ledger, the bank is an asset. Money in increases it, so debit. Money out reduces it, so credit.
Posting only the cash received to the customer's account and leaving a small balance.
The settlement discount is forgotten, so the receivable is not fully cleared.
Fix: Credit the receivable with cash plus discount allowed. Debit the discount allowed account with the discount.
Treating discount allowed as income and discount received as an expense.
The names sound confusing, and 'received' sounds like money in.
Fix: Discount allowed is a cost to you (debit, expense). Discount received is a benefit to you (credit, income).
Reimbursing petty cash with the opening float or the closing cash instead of the amount spent.
Students forget that the imprest system restores the float to its fixed amount.
Fix: Reimbursement = total of vouchers = float − cash in hand. Then cash in hand plus reimbursement equals the float again.
Confusing the nominal ledger with the receivables ledger.
Both contain 'accounts', and students post customer names in the nominal ledger.
Fix: The receivables ledger has one account per customer. The nominal ledger has accounts by type (sales, rent, bank, receivables control). The two are linked through the control account.
Bringing down the balance on the wrong side.
Students copy the 'balance c/d' side instead of the opposite one.
Fix: Balance c/d goes on the smaller side to make the totals equal. Balance b/d goes on the opposite side, on the next line.

Worked examples

Example 1

On 1 May a business had $4,000 in the bank (debit balance). During May: (1) a customer owing $1,000 paid by cheque, taking a $50 settlement discount; (2) the business paid a supplier owed $1,500 by cheque, after deducting a $30 discount; (3) cash sales of $600 were banked; (4) rent of $800 was paid by cheque. Write up the bank account, find the closing balance, and state the discount entries.

Show the solution

Receipts (debit bank): opening balance $4,000. Customer cheque $1,000 − $50 = $950. Cash sales $600.
Total debits = 4,000 + 950 + 600 = $5,550.
Payments (credit bank): supplier $1,500 − $30 = $1,470. Rent $800.
Total credits = 1,470 + 800 = $2,270.
Closing balance = 5,550 − 2,270 = $3,280 debit, brought down on 1 June.
Customer account: credit $950 (bank) and credit $50 (discount allowed). This clears the $1,000.
Supplier account: debit $1,470 (bank) and debit $30 (discount received). This clears the $1,500.
Discount allowed account: debit $50 (expense). Discount received account: credit $30 (income).

Answer: Closing bank balance is $3,280 debit. Discount allowed $50 is debited as an expense, and discount received $30 is credited as income.

Example 2

A business runs petty cash on the imprest system with a float of $200. During the month the cashier paid out: postage $45, travel $62, stationery $38 and refreshments $25. Calculate the cash left, the reimbursement needed, and give the ledger entries.

Show the solution

Total paid out = 45 + 62 + 38 + 25 = $170.
Cash left in the tin = float − spent = 200 − 170 = $30.
Reimbursement needed = $170, to restore the float to $200.
Check: 30 cash left + 170 reimbursement = $200.
Expense entries: Dr Postage $45, Dr Travel $62, Dr Stationery $38, Dr Refreshments $25, Cr Petty cash $170.
Reimbursement entry: Dr Petty cash $170, Cr Bank $170.

Answer: Cash left is $30. The reimbursement is $170 (Dr Petty cash, Cr Bank), and the expense accounts are debited with their totals from the analysis columns.

Exam tips

In objective tests, the most common trap is the wrong side of the bank. Say 'money in = debit' before you read the options.
If a question mentions discounts, work out which discount it is first. Allowed means a customer paid you. Received means you paid a supplier.
For imprest questions, the reimbursement equals the amount spent. Do not add or subtract the opening float.
Number entry answers need the right sign or label. Check whether you are asked for a debit balance or an overdraft.
Multiple response questions often list valid and invalid entries. Test each one with: do the debit and credit equal, and is each on the correct account?

Practice questions from Double-entry bookkeeping principles including the maintenance of accounting records

Ledger Accounts and the 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.

Ledger Accounts and the Cash Book: frequently asked questions

What is the difference between the nominal ledger and the sales ledger?

The nominal ledger holds accounts by type, such as sales, rent, bank and the receivables control account. The sales (receivables) ledger holds an account for each customer showing what they owe. The total of the customer accounts equals the receivables control account balance in the nominal ledger.

How do I write up a cash book with discounts?

Put receipts on the debit side and payments on the credit side, each with a discount column. Enter the cash actually received or paid in the bank column. At the period end, total the discount columns and post the totals to the discount allowed and discount received accounts.

How does the petty cash imprest system work?

You start with a fixed float. Small payments are made against vouchers. At the end of the period you top up the cash by exactly the amount spent, so the float returns to its original amount.

Is the cash book a ledger account or a book of prime entry?

It can be both. It is a book of prime entry because transactions are first recorded there. In many exam questions it also serves as the bank ledger account, so its balance goes directly to the trial balance.

What does a credit balance in the cash book mean?

It means the business is overdrawn, because it has paid out more than it has received. The overdraft is shown as a liability in the statement of financial position.