Three-Column Cash Book

Three-Column Cash Book Cash Book Discounts Allowed Discounts Received Accounting Financial Records Bookkeeping
A three-column cash book is an extended form of the cashbook which includes columns for discounts allowed and received in addition to cash and bank transactions.
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Definition

A three-column cash book is an accounting ledger that provides a detailed record of all cash transactions. Unlike a basic cash book, the three-column variant includes separate columns for:

  1. Cash
  2. Bank
  3. Discounts allowed and received

These columns provide a comprehensive view of the entity’s cash flow and discount transactions. The totals of discounts allowed and received are periodically posted to their respective accounts in the general ledger.

Examples

  1. Cash Transaction:

    • On January 1, XYZ Ltd. received $5,000 in cash from Customer A for settling an invoice. This transaction will be entered in the cash column under receipts.

  2. Bank Transaction:

    • On January 5, XYZ Ltd. paid $3,000 to Supplier B via bank transfer. This transaction will be entered in the bank column under payments.

  3. Discounts Allowed:

    • On January 10, XYZ Ltd. allowed a discount of $200 to Customer C for early payment. This transaction will be recorded in the discount allowed column.

  4. Discounts Received:

    • On January 15, XYZ Ltd. received a $150 discount from Supplier D for early payment. This transaction will be recorded in the discount received column.

Frequently Asked Questions (FAQs)

What is the primary purpose of a three-column cash book?

The primary purpose of a three-column cash book is to provide a detailed record of all cash, bank, and discount transactions, making it easier for businesses to track and reconcile their finances regularly.

How is a three-column cash book different from a two-column cash book?

A three-column cash book includes an additional column for discounts (both allowed and received), whereas a two-column cash book only includes columns for cash and bank transactions.

How are discounts recorded in a three-column cash book?

Discounts allowed are recorded on the debit side (left) of the cash book, whereas discounts received are recorded on the credit side (right).

How often should the totals in a three-column cash book be posted to the general ledger?

The totals should be posted periodically, often at the end of each accounting period (weekly, monthly, etc.), to their respective discount accounts in the general ledger.

Two-Column Cash Book

A cash book that includes only two columns – one for cash transactions and the other for bank transactions. Unlike the three-column cash book, it does not capture discounts.

Discounts Allowed

Discounts that a business provides to its customers as an incentive for early or prompt payment.

Discounts Received

Discounts that a business receives from its suppliers as an incentive for early or prompt payment.

General Ledger

A complete record of all financial transactions over the life of a company, used to prepare financial statements and monitor a company’s financial status.

Online References

  1. Investopedia - Cash Book
  2. Accounting Coach - Cash Book
  3. Corporate Finance Institute (CFI) - Three Column Cash Book

Suggested Books for Further Studies

  1. “Financial Accounting” by Jerry J. Weygandt, Donald E. Kieso, and Paul D. Kimmel
  2. “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
  3. “Principles of Accounting” by Belverd E. Needles, Marian Powers, and Susan V. Crosson

Accounting Basics: Three-Column Cash Book Fundamentals Quiz

### What differentiates a three-column cash book from a two-column cash book? - [x] It includes columns for discounts allowed and received. - [ ] It includes a column for inventory. - [ ] It records only cash transactions. - [ ] It includes a profit-loss statement. > **Explanation:** A three-column cash book includes columns for discounts allowed and discounts received in addition to the columns for cash and bank transactions. ### Where are discounts allowed recorded in a three-column cash book? - [x] Debit side - [ ] Credit side - [ ] Both debit and credit sides - [ ] Separate discount journal > **Explanation:** Discounts allowed are recorded on the debit side of the three-column cash book. ### Where are discounts received recorded in a three-column cash book? - [ ] Debit side - [x] Credit side - [ ] Both debit and credit sides - [ ] Separate discount journal > **Explanation:** Discounts received are recorded on the credit side of the three-column cash book. ### How frequently should you post the totals from a three-column cash book to the general ledger? - [ ] Daily - [ ] At the end of the financial year - [ ] Every transaction - [x] Periodically, often monthly > **Explanation:** The totals should be posted to the general ledger at the end of each accounting period, often monthly. ### In which section of a three-column cash book would a bank deposit appear? - [ ] Discount allowed column - [x] Bank column under receipts - [ ] Cash column under payments - [ ] Sales column > **Explanation:** A bank deposit will appear in the bank column under receipts in a three-column cash book. ### What column is used to record a cash purchase in a three-column cash book? - [ ] Discount received column - [ ] Bank column under receipts - [x] Cash column under payments - [ ] Sales column > **Explanation:** A cash purchase is recorded in the cash column under payments in a three-column cash book. ### Where in the three-column cash book would you record a discount received? - [ ] Expense column - [ ] Cash column under payments - [ ] Discount allowed column - [x] Discount received column > **Explanation:** Discounts received should be recorded in the discount received column in a three-column cash book. ### What is the purpose of a three-column cash book? - [x] To record cash, bank, and discount transactions - [ ] To track inventory levels - [ ] To prepare the financial statements directly - [ ] To serve as a subsidiary ledger > **Explanation:** The primary purpose of a three-column cash book is to record cash, bank, and discount transactions comprehensively. ### How are bank transactions different from cash transactions in a three-column cash book? - [ ] Both are recorded under the cash column - [x] Bank transactions are recorded under the bank columns - [ ] Cash transactions are recorded under discounts allowed - [ ] Bank transactions affect only the credit side > **Explanation:** Bank transactions are recorded under the bank columns, distinguishing them from cash transactions. ### Why is it important to include discounts in a three-column cash book? - [ ] To increase profits - [ ] To reduce the need for a general ledger - [x] To track discounts allowed and received for better financial management - [ ] To avoid any financial discrepancies > **Explanation:** Including discounts in a three-column cash book helps in tracking discounts allowed and received, thereby aiding in better financial management.

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