This example follows on from the discussion on control accounts, where a week has passed and we have received some payments. In this accounting system, the cash book is part of the double entry. This means that the total column is equivalent to the debit side of the bank “T” account.
First notice that the cash book opens with “Balance b/d” of £759.50. Since this is cash book “receipts”, it corresponds to the debit side of a “T” account and shows the balance is in the “black”.
The first entry is for sales. This is a cash sale, which means goods were paid for on the spot – no debtors are involved. The VAT amount is shown separately from sales, which is the amount excluding VAT. The total figure - £634.80 – represents a debit entry in the bank account.
Receipts from debtors
Next we received a payment from Doyle Ltd. Recall from the discussion on control accounts, we recorded a credit sale on 6 Jan to Doyle Ltd for £1493.75 in total, for a sale of £1250.00 excluding VAT.
Note also that it was at that time that the sales and VAT amounts were posted to the general ledger. Now we’ve received payment, we don’t need to record that again, as we did for the cash sale above. We do however need to record a credit to the debtors control account (SLCA) and the sales (subsidiary) ledger.
Discount was taken
Now notice that we’ve received £1462.50, not the £1493.75 originally invoiced. Doyle Ltd has taken £31.25 discount for early settlement. This is recorded in the discount column. At the end of the week, all the columns are totalled, and the postings are made.
Posting the ledger summariesVAT control is credited with £266.79, which is how much is added to what we owe HMRC. Sales are credited with £1333.95, which is the total amount of cash sales made that week. SLCA is credited with £4262.65 which is the amount received from the debtors. This should net off what they owe us on the debit side, but it doesn’t quite do that. The reason is because some have paid less that the amount showing on the debit side due to discounts. We therefore post the £76.12 discount to the credit side of the SLCA – now both sides balance. But there is more – we can’t just post a discount to one side of the double entry without posting to the other. The other side in this instance is the discount account.
The double entry is therefore £6622.89 as a debit to the bank account and credits to VAT, sales and SLCA. Discount has both a credit and debit entry for the same amount. Both sides of the double entry now balance. Since the cash book IS part of the double entry, the £6622.89 is not posted anywhere else – it is effectively already the debit side of the bank account.