Principles of Accounts (POA) | MOE-Registered

Topic 6 - Cashbook

 

Cash Book
For recording cash transactions involving Cash and Book Accounts
 

Petty Cash Book
For recording spending of petty cash and its reimbursements to maintain a stable petty cash fund
 

Why businesses prefer paying by cheque?

·         It is safer to pay by cheque than cash.

·         There is an automatic verification from the bank statement if payment is made by cheque.
 

What are the advantages of keeping cash in the bank?

For security reasons and for convenience, only a small amount of money is kept in the office, while the rest is kept in a current account at a bank.

 

What are the advantages of using Cash Book?

·         The Cash Book reduces the number of entries in the ledger.

·         One person can be put in charge of the book, thus increasing efficiency.

·         Reference to the Cash and Bank Accounts is made easier with the use of a separate book.

 

What is a trade discount?

 

Trade discount is a deduction off the list or catalogue price of goods given by one trader when he sells to another trader.

Why give Trade Discounts?
 

·         Help save on cost of reprinting expensive catalogues each time the cost of production changes.

·         Encourage a particular customer to buy more regularly and in larger amounts from the business by giving him a higher trade discount.

·         Help the business to make a profit when it resells the goods at the list price.

 

What determines the amount of trade discount given?

 

The amount of trade discount given will depend on:

·         The quantity of goods purchased – the larger the quantity purchased, the greater the discount.

·         The regularity of purchase – the more regular the purchase, the bigger the trade discount.

·         The nature of goods – goods which do not sell very quickly such as expensive pianos get a higher discount than those that sell faster like food items.