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The Cash Book

Tue, 26 November 2002

The cash book is where you record all movements of cash, that is, all payments by the business and all receipts to the business.
Receipts
Whenever you receive money (whether as a cheque or cash) you should record it on the receipts page (see the example below).
 
The following columns appear on the receipts page:
• Date: date on which the money was received;
• Details: this might refer to customers who have paid their bills, or to a loan received, or to other money coming into the business;
• Ref: if the receipt is from a customer recorded on the sales ledger, use the invoice number here;
• Bank: show the total receipt here;
• VAT: if the receipt includes VAT but is NOT recorded in the sales ledger, enter the VAT amount here. If you are rigorous in your use of invoices and recording them in the sales ledger this situation is unlikely to occur unless you have cash sales;
• Debtors: record here receipts from customers whose details have already been recorded in the sales ledger. This figure will be equal to the figure in the bank column. Remember also to record in the date received column in the sales ledger. Note that there is no need to record the VAT here because it has already been accounted for in the sales ledger;
• Columns G-H can be used for any other receipts such as bank loans received, capital introduced, etc. The figure in the bank column should be equal to the total of all the other columns.
• Money received by the business should be banked as soon as possible. Use a new page for each month.
 
Example
This example is for the month of June, and relates directly to the examples for May given within the Sales Ledger and Purchase Ledger articles (see links at the bottom of the page). You should be able to relate all the sales in May to their corresponding entry in June’s receipts.

Note, however, the interest received from the bank (shown as other income) and the cash sales on 23 June (Boulter Ltd) and 29 June. Remember to show the VAT (if you are registered) for any sale which does not go through the sales ledger. As you can see, a total of £13,582.50 was received in June.
 
Receipts
 
A
B
C
D
E
F
G
H
 
Date
Details
Ref
Bank
VAT
Debt.
Sales
Other
1
 
Brought down
 
1000.00
 
 
 
 
2
3/6
Ogilvie & Co
300
2350.00
 
2350.00
 
 
3
8/6
Butcher Books
301
822.50
 
822.50
 
 
4
11/6
Gary’s Gardens
302
4112.50
 
4112.50
 
 
5
18/6
Holmes & Gardens
303
587.50
 
587.50
 
 
6
20/6
Watson Inc
304
470.00
 
470.00
 
 
7
21/6
Interest
bnk
70.00
 
 
 
70.00
8
23/6
Lanterns by Latimer
305
235.00
 
235.00
 
 
9
23/6
Boulter Ltd
306
117.50
17.50
 
100.00
 
10
28/6
Shaw Ltd
307
4700.00
 
4700.00
 
 
11
29/6
Cash sales
308
117.50
17.50
 
100.00
 
12
 
 
 
 
 
 
 
 
27
 
 
 
 
 
 
 
 
28
 
Total
 
13582.50
35.00
13277.50
200.00
70.00
29
 
 
 
 
 
 
 
 
30
 
 
 
 
 
 
 
 

Payments
• Whenever you pay out from the business, you should record it on the payments page;
• Date: date on which the payment was made or the cheque issued;
• Details: this might refer to suppliers who are being paid, or to other payments being made by the business;
• Ref: use the cheque number (or, say, STO for standing order, BNK for bank deduction, etc). Cross referencing is important to provide an audit trail. Write the cheque number on the relevant purchase invoice as well as in the cash book;
• Bank: show the total payment;
• VAT: if the payment includes VAT but is NOT recorded in the purchase ledger, enter the VAT amount here. This might occur, for example, for travel expenses that you have incurred personally and which are being repaid. If the purchase ledger is used rigorously there are unlikely to be many occasions when this arises;
• Creditors: record here payments to suppliers whose details have already been recorded in the purchase ledger. This figure will be equal to the figure in the bank column. Remember also to record in the date paid column in the purchase ledger. As with debtors, the VAT is ignored here, because it has already been recorded in the purchase ledger;
• Columns G-N (note: not all columns or rows are shown below) can be used for any other payments, such as loan repayments, interest and bank charges, travel, transfers to petty cash, drawings, etc. The figure in the bank column should be equal to the total of all the other columns;
• Use a new page for each month.
 
Example
Once again, this is for June. You should be able to relate the purchases in May (see Purchase Ledger article) to their corresponding entry in June’s payments. Note, however, that there is an extra payment - to Gee Cards (18 June), a transfer to petty cash (8 June) and payments of wages and tax.  As with the receipts page, remember to show VAT (if you are registered) for any purchase which has not gone through the purchase ledger. Like the purchase ledger, the payments page allows for analysis of payments, other than those already analysed in the purchase ledger. Again don’t feel that you have to use those headings - use whatever is helpful for your business. By the end of June there had been payments of £12,707.50.
 
Payments
 
A
B
C
D
E
F
G
K
L
 
Date
Details
Ref
Bank
VAT
Cred.
Wages
Petty cash
Other
1
 
 
 
 
 
 
 
 
 
2
1/6
Oliver Ltd
523
587.50
 
587.50
 
 
 
3
1/6
Tom & Co
524
705.00
 
705.00
 
 
 
4
2/6
R Clark plc
525
1000.00
 
1000.00
 
 
 
5
8/6
Petty cash
526
100.00
 
 
 
100.00
 
6
10/6
Smith Ltd
527
470.00
 
470.00
 
 
 
7
13/6
Self
528
117.50
17.50
 
 
 
100.00
8
14/6
Hudspeth Plant
529
2350.00
 
2350.00
 
 
 
9
17/6
Revenue and Customs
530
2000.00
 
 
2000.00
 
 
10
18/6
Gee Cards
531
25.00
 
 
 
 
25.00
11
20/6
Wages
bnk
5000.00
 
 
5000.00
 
 
12
29/6
Sampson Ltd
532
352.50
 
352.50
 
 
 
13
 
 
 
 
 
 
 
 
 
26
 
 
 
 
 
 
 
 
 
27
 
 
 
 
 
 
 
 
 
28
 
 
 
12707.50
17.50
5465.00
7000.00
100.00
125.00
29
 
 
 
 
 
 
 
 
 
30
 
 
 
 
 
 
 
 
 

Month end
At the end of every month all the columns for both the receipts and payments pages should be totalled. As a check, ensure that the bank (a.k.a. the gross) column total (D28) equals the sum of all the other totals. If it does not, you have a mistake somewhere. Deduct the payments from the receipts to give the net cash flow for the month. Then add the figure brought forward from the previous month to give the carry forward figure.
 
Total receipts
13,582.50
Total payments
12,707.50
Monthly balance
875.00
Brought forward
1,000.00
Carried forward
1,875.00

As you would expect, this is also the balance that should be in the bank. If the figure is positive - ie you have money in the bank - it is carried forward to the next receipts page, as shown in cell D1 of the receipts table. If the figure is negative - ie you have an overdraft - it is carried forward on to the next payments page.
 
Bank reconciliation
At the end of each month you should compare your cashbook to your bank statement. You need to see that they agree, and that you have remained within your agreed overdraft facility (if you have one). If your cash flow is particularly tight you may need to do reconciliations as often as daily to stay within agreed overdraft limits.
 
 
If there are items that have not been recorded, such as bank charges, interest, standing orders, etc, then these should be recorded on the appropriate page in the cash book.
 
The bank statement above shows that all the transactions in the cash book have been recorded except three that occurred too late in the month. These are the cheque issued to Sampson Ltd, the cheque received from Shaw Ltd and the receipt for the cash sale which had not been banked by the end of the month. Note that the receipts from Lanterns by Latimer and Boulter Ltd, both taken on the 23rd June, appear on the bank statement as the sum of the two amounts.
 
You should reconcile the figures by taking the bank balance you have calculated from your records, deducting uncleared receipts and adding back uncleared payments. This should give the statement balance. If it does not, then you have an error somewhere.
 
Book balance
1,875.00
Less: uncleared receipts
(4,817.50)
Plus: unpresented payments
352.50
Bank statement balance
(2,590.00)

VAT return
If you are registered for VAT you will need to prepare a VAT return every quarter, or annually if your turnover is below £300,000. If you have recorded your figures in the way suggested above, calculating the figures for your VAT return becomes very straightforward. Look at the figures in the example below.
 
 

Output tax
VAT on sales is taken from the sales ledger for each of the three months May, June and July: only the figures from the May page (cell E28) are shown, and from the receipts page of the cash book for each of the three months: only the June figure is shown (cell E28). Total sales for the quarter are shown below - from the sales ledger for each month (May sales (F28) are shown) and from the receipts page (June sales (G28) are shown). Note that interest does not count as income for VAT purposes though you may occasionally have entries in the ‘other’ column that do need to be included.
 
Input tax
VAT on purchases is taken from the purchase ledger for each of the three months: only the figure from the May page (E28) is shown, and from the payments page for each of the three months: only the June figure (E28) is shown. Total purchases for the quarter are shown below - from the purchase ledger for each month (May purchases (sum of cells F28 to M28) are shown) and from the payments page (June expenditure (H28 plus L28) is shown). There may also be both VAT and expenditure to include from the petty cash book. Note that wages, loan repayments and drawings do not count as expenditure for VAT purposes.
 
When you have filled in every box for each month, calculate the totals - and transfer them to the VAT return.
 
Retail schemes
Retailers selling direct to consumers cannot reasonably account for VAT in the method described above, as they would find it difficult to raise the required number of invoices for sales made. Consequently, retailers should use one of the following schemes:
• The Point of Sale scheme: with this scheme you calculate the tax due on supplies by calculating the VAT liability at the point of sale. This normally requires you to have electronic tills (or separate tills for goods carrying different rates of VAT) so that you can distinguish between the different VAT rates on goods. Full details of this scheme can be found in Notice 727/3, How to work the Point of Sale scheme, available from the VAT office. NB. Businesses selling only standard or lower-rated supplies must use this scheme.
 
• The Apportionment Schemes: there are two apportionment schemes available for use by businesses that supply goods at more than one rate of tax. Scheme 1 is simpler and designed for smaller businesses - your total tax exclusive turnover from retail supplies must be less than £1 million. Also, the scheme cannot be used for catering supplies as for goods made or grown by yourself.
 
• Scheme 2 can be complex to operate - there is no annual adjustment to be made; you must use a rolling calculation each tax period - however, over a period of time it will provide a more accurate valuation of supplies.
 
• For more information regarding the apportionment schemes, see Notice 727/4, How to work the Apportionment schemes, available from your local VAT office.
 
• The Direct Calculation schemes: there are two of these. The first is available to businesses whose tax exclusive turnover does not exceed £1 million and can be relatively simple to operate provided you have a small proportion of supplies at one VAT rate. On the other hand, it can be complex to operate if you sell goods at all three VAT rates, and you must be sure to calculate your selling price carefully or it can be inaccurate.
 
• The second scheme is available to businesses whose annual tax exclusive retail turnover does not exceed £10 million, and works in exactly the same way as the first. For full details, see Notice 727/5, How to work the Direct Calculation schemes.

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