Page 100 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes 6.2.2 Two Column Cash Book

When cash is received from a debtor, some discount may be allowed to him. Similarly, when
payment is made to a creditor, some discount may be allowed by him. This is termed as Cash
Discount and it has to be recorded in the books of account. While making compound journal
entries for such transactions, you learnt that cash and discount go together. You know that
receipts from debtors and payments to creditors are to be recorded in the cash book. Now the
question arises as to how to record the cash discount. One method is to record the discount aspect
separately in the journal. But this would be cumbersome, and the possibility of failing to record
can also happen. Hence accountants have developed a practice of recording the discount aspect
in tile cash book itself. For this, an extra amount column is added on both sides of the cash book.
Look at the proforma shown below. The discount given to debtors is recorded on the debit side
and the discount received from creditors is recorded on the credit side. Thus, now there are two
amount columns on both sides of the cash book, one for discount and the other for cash. It is
called ’Two Column Cash Book’.

Notes Discount is of two types:
1. Trade Discount: It is given for increasing the volume of sales and it is adjusted in the
invoice, hence no entry is passed in the books of the business, as it is always deducted
from the catalogue price. It is usually allowed by a whole seller to a retailer.
For example, if the printed price of a book is 200 and 10% is offered as a trade
discount, then it is 20/- and the net price would be 180/- i.e., ( 200 – 20) accordingly
entries are to be made by the seller as well as the buyer for 180 in their books.
2. Cash Discount: It is given for prompt payment, hence, it is recorded in the Cash
Book. When discount is given for prompt payment, it is a loss, hence, it is to be
shown on the debit side of the Cash Book whereas discount received is to expedite
payment to the outsiders, hence, it is shown on the credit side of the Cash Book.
No balance of discount columns is taken; simply the total of both the sides is given.

The following is the form of Double Columns Cash Book.
Dr. Cr.
Date Particulars L.F. Discount Cash Date Particulars L.F. Discount Cash
(Receipts) ( ) ( ) (Payment) ( ) ( )

Recording in Two Column Cash Book

Recording of cash transactions in a Two Column Cash Book is similar to Single Column Cash
Book. As for cash discount, it is entered on the debit side if allowed to the debtor and on the
credit side if received from the creditor.

For example, Roop owes 1000 to M/s Goyal Traders of Muzaffar Nagar. The firm offers a
discount of 1% if payment is made within one month. Roop makes the payment within stipulated

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