Question

Explain three column cash book.

Answer 1

A three-column cash book is a type of cash book used by business firms to record cash, bank, and discount transactions in one place. It includes three amount columns on both the debit and credit sides: Discount, Bank, and Cash.

Here are the key points about the three-column cash book:

1. Structure: It has columns for Date, Particulars, Ledger Folio (L.F.), and three amount columns for Discount, Bank, and Cash on both the debit and credit sides.
2. Purpose: It is maintained to record transactions involving cash and bank simultaneously. Many business firms keep surplus cash in the bank for safety and convenience; thus, payments and receipts often happen by cheque and are recorded in the bank column.
3. Contra Entries: Transactions such as cash paid into bank or withdrawn from bank for office use affect both the cash and bank columns and are known as contra entries. These entries are recorded in the cash book but not posted in the ledger separately because they are complete within the cash book.
4. Efficiency: The three-column cash book eliminates the need for a separate bank account in the ledger, saving time and labor for recording and posting transactions. It combines the functions of cash and bank books along with discount columns for complete cash-related recording.
5. Balancing: It is balanced in the same manner as a double-column cash book. Each column is totaled, and balances are carried forward as in standard practice.