Ca$h Book III

1. Ca$h Book III

2. What are we going to learn today? • Dishonoured cheques and treatment in Cash Book • Bank loan • Bank overdraft

3. A specimen cheque Bobby Tan Dollars Fifty only 50/= A cheque is an order to the bank to pay some other person a fixed sum of money on demand.

4. Reasons for cheques being dishonoured: (a) signature not the same as the specimen given; (b) insufficient funds; (c) amount in words and in figures not the same; (d) cheque post-dated (e) signature missing; (f) incomplete particulars, etc.. A dishonoured cheque

5. What happen when a cheque is dishonoured? • Reverse the entries recorded in the Cash Book.

6. Dishonoured cheque Example 1 March 1 Joe owed you $500 3 Joe gave a cheque of $500 5 Joe’s cheque was dishonoured by the bank. Record the entries into the Cash Book and ledger.

7. Cr (OUT) Dr (IN) Cash Book Date Discount Cash Particulars Discount Cash Bank Date Particulars Bank Joe Mar 1 Bal b/d 500 2002 Mar 3 Joe 500 2002 Mar 5 Joe 500 Mar 3 Bank 500 Mar 5 Bank 500

8. Dishonoured cheque Example 2 March 1 James owed you $150 7 James gave a cheque of $120 in full settlement of his account. Discount allowed $30 9 Jame’s cheque was dishonoured by the bank. Record the entries into the Cash Book and ledgers.

9. Cash Book Cr (OUT) Dr (IN) Date Discount Cash Particulars Discount Cash Bank Date Particulars Bank Discount allowed Dr Cr Date Particulars Amount Date Particulars Amount 2002 $ 2002 $ 2002 Mar 7 James 30 120 2002 Mar 9 James 120 James Dr Cr Date Particulars Amount Date Particulars Amount 2002 $ 2002 $ Mar 1 Bal b/d 150 Mar 7 Bank 120 Discount 30 9 Bank 120 Discount 30 Mar 9 James 30

10. In pairs, discuss and complete worksheet 3.

11. Bank loan Bank overdraft What happen when we need more cash?

12. Bank Loan • a certain sum of money borrowed from the bank Accounting entries: Dr Bank Account XX Cr Bank Loan XX

13. Dr Cash Book Cr Date Particulars Discount Cash Bank Date Particulars Discount Cash Bank Bank Loan Example: On May 1, we borrowed $10000 from the bank. We put the money into our bank account. 2002 May 1 Bank loan 10000

14. Can we draw out more cash than what we have in the bank account?

15. Yes, we can provided our application for overdraft has been approved by the bank.

16. Usually, bank account has a debit balance. So when does it have a credit balance? When we draw on the bank overdraft facility.

17. Example 1 – Bank Overdraft 2002 Jan 1 Christine’s Bank account in the cash book shows a debit balance of $500. She has an overdraft facility of $10 000. Christine bought an office equipment for $4 000 and paid by cheque. Jan 10 How much is Christine drawing on her overdraft facility? Is the bank account showing a debit or credit balance?

18. Dr Cash Book Date Particulars Discount Cash Bank Date Particulars Discount Cash Bank 2002 $ $ $ 2002 $ $ $ Jan 1 Bal b/d 500 Cr Jan 10 Office Equipment 4000 31 Bal c/d 3500 Note: Christine is drawing $3500 on her bank overdraft facility. Christine’s bank account has a credit balance. She can continue to draw from her current account as long as the total credit amount does not exceed $10 000. The overdraft facility limit is not to be recorded in the Cash Book.

19. What have I learnt today? • Dishonoured cheques and treatment in Cash Book • Bank loan • Bank overdraft