IGC-L10: Cash Book & Petty Cash
Recording cash and bank transactions accurately and maintaining control over minor expenses.
Learning Objectives
By the end of this lesson, you will be able to:
- Explain the purpose of the Cash Book
- Prepare a single and double column Cash Book
- Record cash and bank transactions correctly
- Understand the imprest system of petty cash
Concept Framework
What is a Cash Book?
The Cash Book is a book of prime entry used to record all cash and bank transactions.
It also functions as a ledger account for cash and bank.
Types of Cash Book
Single Column Cash Book – Records only cash transactions.
Double Column Cash Book – Records cash and bank transactions.
Three Column Cash Book – Records cash, bank and discount.
Contra Entries
When cash is deposited into the bank or withdrawn from the bank:
Both cash and bank columns are affected.
These are known as contra entries.
Petty Cash Book
Used to record small and frequent expenses such as stationery, postage and travel.
Operates under the imprest system.
Imprest System
A fixed amount (for example £200) is given to the petty cashier.
At the end of the period, the amount spent is reimbursed to restore the original imprest amount.
This ensures control and accountability.
Worked Examples
Example 1
Transaction:
Started business with £50,000 cash.
Cash Book Entry:
Debit Cash £50,000
Example 2
Transaction:
Deposited £20,000 into the bank.
Cash Book Entry:
Credit Cash £20,000
Debit Bank £20,000
(Contra entry)
Example 3
Petty Cash:
Paid stationery £500.
Petty Cash Book Entry:
Debit Stationery £500
📌 Additional cash book practice with step-by-step explanations is available in the 🎯 Question Papers + YouTube Explanation section.
Structured Practice
Level 1 – Concept Check
Define Cash Book.
What is a contra entry?
Define imprest system.
Level 2 – Application Practice
Record the following in a double column Cash Book:
Cash received £30,000.
Paid wages £5,000 in cash.
Deposited £10,000 into the bank.
Level 3 – Examination Style Questions
Explain the advantages of maintaining a petty cash book under the imprest system. (6 marks)
📌 Additional structured cash book questions are available in the 🎯 Question Papers + YouTube Explanation section.
Proficiency Check
Learn – Unlearn – Relearn Approach
If you believe you have already mastered the Cash Book and Petty Cash system, attempt the following without referring to notes.
If you are unable to answer confidently, revisit the lesson before proceeding.
Why is the Cash Book both a book of prime entry and a ledger account?
A business withdraws £8,000 from the bank for office use. Show the contra entry.
How does the imprest system reduce the risk of fraud?
Why are credit transactions not recorded in the Cash Book?
Detailed Activity Solutions
Solution to Level 3 question
Solution to Structured Practice
Cash £30,000 – Debit
Wages £5,000 – Credit Cash
Deposit £10,000 – Credit Cash / Debit Bank
Solutions to Proficiency Check
Solutions to Proficiency Check
It records transactions first and also serves as the ledger account for cash and bank.
Debit Cash £8,000
Credit Bank £8,000
A fixed imprest amount ensures accountability and limits misuse.
The Cash Book records only cash and bank transactions, not credit transactions.
Marking Logic
2 marks – Correct recording
2 marks – Logical explanation
2 marks – Evaluation
How This Topic Appears in the Examination
This topic commonly assessed in:
• Paper 2 structured Cash Book preparation
• Contra entry questions
• Petty cash explanation questions
Examiners frequently assess:
Correct recording
Balancing accuracy
Logical explanation
Students should practise Cash Book preparation regularly and review video explanations for clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Self-Assessment Checklist
- I can prepare a double column Cash Book accurately
- I understand contra entries
- I understand the imprest system
- I can balance the Cash Book confidently
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