Cash book, bank transactions, discounts, contra entries, cash drawings, petty cash and imprest system

1. A three-column cash book showed the following for the bank column.

Debit side: balance b/d $2400, cheque from Anas $1600, cash paid into bank $900
Credit side: rent $700, supplier Yusuf $1200, drawings by cheque $500, bank charges $80

What is the bank balance carried down?

A $2420 debit
B $2420 credit
C $3300 debit
D $3300 credit

2. A trader paid a supplier $1940 by cheque in full settlement of a debt of $2000. How is this recorded in the three-column cash book?

A Bank credit $1940, discount allowed debit $60
B Bank credit $1940, discount received credit $60
C Bank debit $1940, discount received debit $60
D Bank credit $2000, discount received credit $60

3. A credit customer owing $1500 paid by cheque after deducting 4% cash discount. Which entries are made in the cash book?

A Bank debit $1440, discount allowed debit $60
B Bank debit $1440, discount received debit $60
C Bank credit $1440, discount allowed credit $60
D Bank debit $1500, discount allowed debit $60

4. Cash sales of $850 were entered in the bank column instead of the cash column. What is the effect before correction?

A Cash overstated $850 and bank understated $850
B Bank overstated $850 and cash understated $850
C Both cash and bank overstated $850
D No effect on any cash book balance

5. A trader withdrew $300 cash from the bank for business use. How is this recorded?

A Debit bank, credit cash
B Debit cash, credit bank
C Debit drawings, credit bank
D Debit bank, credit drawings

6. A trader paid $500 cash into the bank. How does this affect the cash book totals?

A Cash column debit and bank column credit
B Bank column debit and cash column credit
C Cash column credit and discount received column debit
D Bank column credit and discount allowed column credit

7. Which transaction is a contra entry?

A Cash withdrawn from bank for office use
B Cheque paid to a supplier
C Cash withdrawn by owner for personal use
D Bank charges appearing on the bank statement

8. A trader received $970 from a customer in full settlement of a debt of $1000. The amount was paid directly into the bank. Which double entry is correct?

A Debit bank $970, debit discount allowed $30, credit customer $1000
B Debit bank $970, debit discount received $30, credit customer $1000
C Debit customer $1000, credit bank $970, credit discount allowed $30
D Debit bank $1000, credit customer $970, credit discount received $30

9. A trader paid $760 by cheque in full settlement of a supplier’s account of $800. Which double entry is correct?

A Debit supplier $800, credit bank $760, credit discount received $40
B Debit bank $760, debit discount received $40, credit supplier $800
C Debit supplier $800, credit bank $760, credit discount allowed $40
D Debit purchases $800, credit bank $760, credit discount received $40

10. A customer’s cheque for $600, previously entered in the cash book, was dishonoured. Which cash book entry is required?

A Debit bank $600
B Credit bank $600
C Debit discount allowed $600
D Credit sales $600

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A bank account in the cash book has a credit balance brought down of $1200. During the month, cheques received were $3400 and cheques paid were $2700. Bank charges were $90. What is the balance carried down?

A $590 debit
B $590 credit
C $790 debit
D $790 credit

12. Which item appears on the debit side of the cash book?

A Cheque paid to supplier
B Cash received from customer
C Bank charges
D Cash drawings

13. Which item appears on the credit side of the cash book?

A Cheque received from customer
B Cash sales
C Owner introduced cash
D Cash purchases

14. A business pays the owner’s personal electricity bill by cheque. Where is this entered?

A Debit side of bank column
B Credit side of bank column
C Debit side of cash column
D Credit side of discount allowed column

15. A trader allowed a customer discount of $25. The customer paid the remaining balance by cheque. Where is the discount entered?

A Debit side of discount allowed column
B Credit side of discount allowed column
C Debit side of discount received column
D Credit side of discount received column

16. A trader received discount of $35 from a supplier when paying by cheque. Where is the discount entered?

A Debit side of discount allowed column
B Debit side of discount received column
C Credit side of discount allowed column
D Credit side of discount received column

17. Why are discount columns in a three-column cash book not balanced like the cash and bank columns?

A They are memorandum columns and are posted in total to discount accounts
B Discounts are not part of double entry
C Discounts are only recorded when goods are returned
D Discounts are entered only in the sales and purchases journals

18. At the end of the month, the discount allowed column total is $210. What is the posting?

A Debit discount allowed $210
B Credit discount allowed $210
C Debit trade payables $210
D Credit bank $210

19. At the end of the month, the discount received column total is $175. What is the posting?

A Debit discount received $175
B Credit discount received $175
C Debit discount allowed $175
D Credit trade receivables $175

20. A cash book showed cash column debit entries of $3200 and credit entries of $2650. Which statement is correct?

A Balance c/d $550 appears on the debit side
B Balance c/d $550 appears on the credit side
C Balance b/d $550 appears on the credit side next period
D Cash has a credit balance of $550

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. A bank column showed debit entries of $5000 and credit entries of $6200. Which balance exists?

A $1200 debit balance
B $1200 credit balance
C $11 200 debit balance
D $11 200 credit balance

22. Which transaction could cause a bank overdraft to increase?

A Cheque received from customer
B Bank charges
C Cash paid into bank
D Owner introduced cheque into business bank

23. A trader started with a cash balance of $400. During the week, cash sales were $900, cash paid into bank was $1000, cash wages were $150, and cash drawings were $80. What was the closing cash balance?

A $70
B $170
C $250
D $1170

24. A trader started with a bank overdraft of $600. During the month, cheques received were $2800, cheques paid were $3500, and cash paid into bank was $900. What was the closing bank balance?

A $400 debit
B $400 credit
C $1400 debit
D $1400 credit

25. A customer paid $1188 by cheque after deducting a cash discount of 1%. What was the original debt?

A $1176.12
B $1200
C $1199.88
D $1212

26. A supplier was paid $2325 by cheque after allowing the trader a 7% discount. What was the original debt?

A $2162.25
B $2487.75
C $2500
D $2497.50

27. A cash discount allowed to a customer is recorded in the wrong discount column. What is the effect?

A Discount allowed understated and discount received overstated
B Discount allowed overstated and discount received understated
C Bank overstated and customer understated
D No effect on profit

28. Discount received from a supplier is entered correctly in the cash book but posted to discount allowed account. What is the effect on profit?

A Profit overstated by the amount of discount
B Profit understated by twice the amount of discount
C Profit overstated by twice the amount of discount
D Profit understated by the amount of discount

29. A cheque paid to a supplier is correctly entered in the cash book but omitted from the supplier’s account. Which balance is affected?

A Bank balance only
B Supplier’s account only
C Discount received account only
D Sales account only

30. A cheque received from a customer is entered on the credit side of the bank column. What is the effect on the bank balance?

A Bank balance understated by the cheque amount
B Bank balance overstated by the cheque amount
C Bank balance understated by twice the cheque amount
D No effect on the bank balance

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A petty cashier starts the month with an imprest of $200. During the month, petty cash payments total $146. At the end of the month, there is cash in hand of $49 and vouchers of $146. What amount is missing?

A $5
B $49
C $54
D $151

32. A petty cash imprest is $300. Petty cash vouchers for the month total $218. Cash in hand is $82. How much will be reimbursed?

A $82
B $218
C $300
D $382

33. A petty cash imprest is $150. During the week, payments are postage $28, stationery $44, travelling $35 and cleaning $18. How much cash should remain before reimbursement?

A $25
B $100
C $125
D $150

34. Under the imprest system, the amount reimbursed to the petty cashier equals:

A The opening petty cash float
B The closing cash in hand
C The total petty cash payments supported by vouchers
D The total cash received from customers

35. Petty cash vouchers are used mainly to:

A Prove and classify petty cash payments
B Record credit sales
C Replace the bank statement
D Calculate discount received

36. A petty cashier has an opening float of $250. Payments were: postage $36, stationery $69, travelling $52, cleaning $23. Cash remaining is $65. How much cash is unaccounted for?

A $0
B $5
C $65
D $180

37. A business increases its petty cash imprest from $200 to $300 at the start of a new month. Petty cash payments from the previous month were $160. How much should the main cashier give the petty cashier to restore and increase the float?

A $100
B $160
C $260
D $300

38. A petty cash book has analysis columns for postage, stationery and travelling. A payment for office tea should be entered:

A Only in the total payment column
B In the total payment column and a suitable analysis column such as sundry expenses
C In the receipts column
D In the bank column of the main cash book only

39. The petty cashier pays $12 for postage but records it in the stationery analysis column. What is the effect on the total petty cash balance?

A Petty cash balance overstated by $12
B Petty cash balance understated by $12
C No effect on petty cash balance, but expense classification is wrong
D Postage and stationery both understated

40. A petty cash book starts with an imprest of $100. Payments total $73. The petty cashier is reimbursed $73. What is the balance after reimbursement?

A $27
B $73
C $100
D $173

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. Which transaction should not be entered in the petty cash book?

A Bus fare of $6 paid in cash
B Postage stamps bought for $15
C Supplier paid $2500 by cheque
D Cleaning materials bought for $9 cash

42. A petty cash payment of $18 for postage was entered as $81. What is the effect before correction?

A Petty cash balance understated by $63
B Petty cash balance overstated by $63
C Postage understated by $63
D No effect on total petty cash payments

43. A petty cash float is $120. Vouchers total $96 but cash in hand is $20. Which statement is correct?

A There is surplus cash of $4
B There is missing cash of $4
C Reimbursement should be $20
D Reimbursement should be $116

44. A trader withdrew $400 from the business bank account for private use. Which book and column record this first?

A Cash book, bank column credit side
B Cash book, bank column debit side
C Petty cash book, receipts column
D Sales journal

45. A trader withdrew $150 cash from the till for private use. Which entry is correct?

A Debit drawings, credit cash
B Debit cash, credit drawings
C Debit drawings, credit bank
D Debit bank, credit cash

46. A bank lodgement of cash is entered only on the debit side of the bank column and omitted from the credit side of the cash column. What is the effect?

A Bank overstated and cash overstated
B Bank correct and cash overstated
C Bank overstated and cash correct
D Bank understated and cash overstated

47. A cash withdrawal from bank for office use is entered only on the credit side of the bank column and omitted from the debit side of the cash column. What is the effect?

A Bank correct and cash understated
B Bank understated and cash correct
C Bank overstated and cash understated
D Cash overstated and bank understated

48. A business received a cheque of $700 from a customer and allowed discount of $30. The receipt was entered correctly in the cash book, but no posting was made to the customer’s account. What is the effect on the customer’s account?

A Customer balance overstated by $730
B Customer balance understated by $730
C Customer balance overstated by $700 only
D Customer balance overstated by $30 only

49. A business paid a supplier $960 by cheque and received discount of $40. The cash book was entered correctly, but the supplier’s account was debited with $960 only. What is the remaining error?

A Supplier account is overstated by $40
B Supplier account is understated by $40
C Bank account is overstated by $40
D Discount received is understated by $40

50. A main cashier gives the petty cashier $225 at the beginning of the month. During the month, petty cash payments are $176. At the end of the month, the petty cashier has $49 cash. The main cashier then gives $176 to restore the float. Which statement is correct?

A The imprest amount is $176
B The imprest amount is $225
C The petty cash balance after reimbursement is $176
D The cash shortage is $49

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. A
   Debit bank = 2400 + 1600 + 900 = 4900.
   Credit bank = 700 + 1200 + 500 + 80 = 2480.
   Balance = 4900 − 2480 = $2420 debit.

2. B
   Supplier is paid $1940 by cheque, so bank is credited. The $60 difference is discount received, entered on the credit side of the discount received column.

3. A
   Original debt = $1500.
   Discount = 4% × 1500 = $60.
   Cheque received = 1500 − 60 = $1440.
   Debit bank $1440, debit discount allowed $60.

4. B
   Cash sales should increase cash. They were wrongly entered in bank, so bank is overstated and cash is understated by $850.

5. B
   Cash withdrawn from bank for business use is a contra entry: debit cash, credit bank.

6. B
   Cash paid into bank is also a contra entry: debit bank, credit cash.

7. A
   A contra entry is a transfer between cash and bank columns. Cash withdrawn from bank for office use is a contra entry.

8. A
   Customer’s debt cleared = $1000.
   Bank received = $970.
   Discount allowed = $30.
   Debit bank $970, debit discount allowed $30, credit customer $1000.

9. A
   Supplier’s debt cleared = $800.
   Bank paid = $760.
   Discount received = $40.
   Debit supplier $800, credit bank $760, credit discount received $40.

10. B
    A dishonoured cheque reverses the original receipt. Bank is reduced, so credit bank $600.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. B
    Opening bank overdraft = credit $1200.
    Debit entries = $3400.
    Credit entries = 1200 + 2700 + 90 = $3990.
    Difference = $590 credit balance.

12. B
    Cash received from a customer is a receipt, so it appears on the debit side of the cash book.

13. D
    Cash purchases are payments, so they appear on the credit side of the cash book.

14. B
    The owner’s personal electricity bill paid by cheque is drawings. The bank decreases, so it is entered on the credit side of the bank column.

15. A
    Discount allowed is entered on the debit side of the discount allowed column.

16. D
    Discount received is entered on the credit side of the discount received column.

17. A
    Discount columns are memorandum columns. They are not balanced like cash and bank columns; their totals are posted to the discount accounts.

18. A
    Discount allowed is an expense. The total is posted as debit discount allowed $210.

19. B
    Discount received is income. The total is posted as credit discount received $175.

20. B
    Cash debit entries = $3200.
    Cash credit entries = $2650.
    Difference = $550 debit balance.
    Balance c/d is placed on the credit side to balance the cash column.

21. B
    Bank debit entries = $5000.
    Bank credit entries = $6200.
    Difference = $1200 credit balance, meaning overdraft.

22. B
    Bank charges reduce the bank balance. If the bank is already overdrawn, bank charges increase the overdraft.

23. A
    Closing cash = 400 + 900 − 1000 − 150 − 80 = $70.

24. B
    Opening overdraft = credit $600.
    Debit entries = 2800 + 900 = $3700.
    Credit entries = 600 + 3500 = $4100.
    Closing balance = $400 credit.

25. B
    $1188 is 99% of the original debt.
    Original debt = 1188 / 0.99 = $1200.

26. C
    $2325 is 93% of the original debt.
    Original debt = 2325 / 0.93 = $2500.

27. A
    Discount allowed should be in the discount allowed column. If placed in discount received, discount allowed is understated and discount received is overstated.

28. B
    Discount received should increase profit. If it is treated as discount allowed, it becomes an expense instead of income. Profit is understated by twice the discount amount.

29. B
    The bank entry is correct, but the supplier’s account was not updated. Only the supplier’s account balance is affected.

30. C
    Cheque received should debit bank. It was credited instead.
    Effect = bank understated by double the cheque amount. Classic evil examiner trap.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A
    Imprest = $200.
    Vouchers + cash = 146 + 49 = $195.
    Missing cash = 200 − 195 = $5.

32. B
    Under the imprest system, reimbursement equals the total petty cash payments.
    Reimbursement = $218.

33. A
    Total payments = 28 + 44 + 35 + 18 = $125.
    Cash remaining = 150 − 125 = $25.

34. C
    Under imprest, reimbursement equals the total petty cash payments supported by vouchers.

35. A
    Petty cash vouchers prove that petty cash payments were made and help classify them into expense categories.

36. B
    Total payments = 36 + 69 + 52 + 23 = $180.
    Expected cash = 250 − 180 = $70.
    Actual cash = $65.
    Missing cash = $5.

37. C
    To restore the old float: $160.
    To increase imprest from $200 to $300: extra $100.
    Total given = 160 + 100 = $260.

38. B
    It should be entered in the total payment column and an analysis column, usually sundry expenses.

39. C
    The total paid is still $12. Only the expense classification is wrong. Petty cash balance is unaffected.

40. C
    Cash before reimbursement = 100 − 73 = $27.
    Reimbursement = $73.
    Cash after reimbursement = 27 + 73 = $100.

41. C
    A supplier paid $2500 by cheque is recorded in the main cash book, not the petty cash book.

42. A
    Actual payment = $18.
    Recorded payment = $81.
    Overstatement = $63.
    Petty cash balance is understated by $63.

43. B
    Vouchers + cash = 96 + 20 = $116.
    Float = $120.
    Missing cash = $4.

44. A
    Private withdrawal from bank is drawings. It is entered first in the cash book, bank column, credit side.

45. A
    Cash taken from the till for private use: debit drawings, credit cash.

46. B
    Correct entry should be debit bank and credit cash.
    Bank entry is made, so bank is correct.
    Cash credit is omitted, so cash is overstated.

47. A
    Correct entry should be credit bank and debit cash.
    Bank entry is made, so bank is correct.
    Cash debit is omitted, so cash is understated.

48. A
    Customer’s account should be credited with cheque $700 plus discount $30 = $730.
    No posting means the customer’s balance is overstated by $730.

49. A
    Supplier’s account should be debited with $1000: bank $960 + discount received $40.
    It was debited with only $960, so the supplier’s balance is overstated by $40.

50. B
    The initial float/imprest is $225.
    Payments $176 and cash $49 total $225, so no shortage.
    Reimbursement of $176 restores the float to $225.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.