What's Three Column Cash Book
A three-column cash book adds a cash discount column to the book. So there are cash, bank and discount columns in the debit and credit sides of the cash book. Discount arises when the business buys on credit. The seller will want to collect his/her money on time and may decide to give a discount if the business pays at a specific time.
Note that the discount column is a memorandum one and it is not part of the double entry system. It is mainly used to accumulate the figures for the cash discount before they are posted to the ledger account at the end of the month.
Format for a Three column cash book
| Date | Particular | Folio | Cash | Bank | Disc | Date | Particular | Folio | Cash | Bank | Disc |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | NGN | NGN | NGN | 2025 | NGN | NGN | NGN | ||||
| 01 Jan | Balance b/f | 25,000 | 187,000 | 0 | 2025 | Cheque paid to creditors less discount received | 80,000 | 7,000 |
| Date | Detail | Reference | Cash (Dr) | Bank (Dr) | Disc (Dr) | Cash (Cr) | Bank (Cr) | Disc (Cr) |
|---|---|---|---|---|---|---|---|---|
| 2025 | NGN | NGN | NGN | NGN | NGN | NGN | ||
| 2025 | Balance b/f | 25,000 | 187,000 | 0 | 0 | 0 | 0 | |
| 2025 | Cheque paid to creditors less discount received | 0 | 0 | 0 | 0 | 80,000 | 7,000 |
Explanation of cash discounts
In our discussion of a two-column cash book, we explain the effect of having a cash and bank column. That is, the contra entry, you will need this knowledge to solve a three-column cash book. You can read it here. For triple-column cash books, the problem is with the computation of discounts and the types of cash discounts. Let's discuss them here and in another article.
What is a cash discount?
A discount is given as a reduction in the cash to be paid by a customer to encourage prompt payment. A cash discount is meant to encourage a customer to pay on a particular date. It is usually part of a business credit policy. A company may have several discounts. If a customer pays within one month 10%. If it pays in the next three months 5%. If the customer wants to enjoy a reduced payment, then he has to pay within the period of the discount.
On the part of the customer, he/she will have to consider his/her options. If it has a particular cash flow level and has other things it will use the money for that will give him/her more income than the discount, it might choose to go for its alternatives instead of paying within the cash discount period.
Types of cash discounts
Two types of cash discounts exist. Discount allowed which is the one a business gives to its debtors. It is usually on the debit side of the cash book. The second type of discount received is the price reduction given by the business creditors. It is recorded on the credit side.
Calculating cash discount
In many cases, a cash discount is given as a percentage. However, note that trade discounts are usually deducted before cash discounts. More so, the customer pays the amount that's remaining after deducting the cash discount. The following three examples will explain the points.
Example 1: Mr Taiwo gives a cash discount of 10% to Mrs Toba for goods purchased at NGN 100,000 on December 8th 2024.
Solution 1: The cash discount is 10 ÷ 100 × NGN 100,000. This gives 10,000 Naira. Mrs Toba will pay NGN 90,000 to Mr Taiwo.
Example 2: ABC limited purchase goods from XYZ limited in bulk for NGN 350,000. XYZ Limited offers a trade discount of 5% and a cash discount of 10% if the payment is made within a month. ABC Limited honoured the payment period.
Solution 2: The trade discount is 5 ÷ 100 × 350,000 = 17,500. ABC Limited should pay NGN 332,500 (that is, NGN 350,000 - NGN 17,500) if the company fails to honour the cash discount period. Cash discount computation is 10 ÷ 100 × 332,500 = NGN 33,250. If the company honours the cash discount it should pay NGN 299,250 (that is, NGN 332,500 - NGN 33,250).
Example 3: Ejiro Enterprises pays a cheque of 180,000 Naira to its creditor. If the percentage of cash discount is 10 percent, what is the cash discount in Naira?
Solution 3: The cash discount in Naira is NGN 20,000 (that is, 10 ÷ 90 × 180,000). Since Ejiro Enterprises has already made payment, the base of the percentage becomes 90 and not 100.
Worked Example for triple column cash book
Paul Enterprises has the following transactions for the first six working days of January 2025.
02 Jan. Opening balances:
Cash N25,000
Bank N187,000
03 Jan. Withdraw N32,000 from the bank for business use.
06 Jan. Paid for Utility N15,000 for cash.
07 Jan. Generator repair payment of N19,000 cash.
08 Jan. Sold goods to Toluwa on credit for N102,000 and to George for cash of N31,000.
09 Jan. Sold goods and received the money via bank transfer of N74,000.
10 Jan. Received from Toluwa the amount owed by her after deducting a cash discount of 10%> Then, lodged the amount to the bank on the same date.
You are required to prepare a three-column cash book for the above transactions.
Solution to the three-column cash book
| Date | Detail | Reference | Disc Allowed (Dr) | Cash (Dr) | Bank (Dr) | Disc Received (Cr) | Cash (Cr) | Bank (Cr) |
|---|---|---|---|---|---|---|---|---|
| 2025 | NGN | NGN | NGN | NGN | NGN | NGN | ||
| 2025 | Balance b/f | 0 | 25,000 | 187,000 | 0 | 0 | 0 | |
| 03 Jan | Bank | C | 0 | 32,000 | 0 | 0 | 0 | 0 |
| 03 Jan | Cash | C | 0 | 0 | 0 | 0 | 0 | 32,000 |
| 06 Jan | Utility bill | GL 7 | 0 | 0 | 0 | 0 | 15,000 | 0 |
| 07 Jan | Generator repair | GL 8 | 0 | 0 | 0 | 0 | 19,000 | 0 |
| 08 Jan | Sales | GL3 | 0 | 31,000 | 0 | 0 | 0 | 0 |
| 09 Jan | Sales | C | 0 | 0 | 74,000 | 0 | 0 | 0 |
| 10 Jan | Toluwa | SL26 | 10,200 | 91,800 | 0 | 0 | 0 | 0 |
| 10 Jan | Bank | C | 0 | 91,800 | 0 | 0 | 0 | |
| 10 Jan | Cash | C | 0 | 0 | 91,800 | 0 |
Explanation
The January 2 information represents opening balances for cash and bank. Remember that cash and bank balances should be on the debit side unless in cases of overdraft.
For January 3, cash was withdrawn from the bank. Implying that cash is received and the bank is making payment. So, the debit cash column and credit bank column. You can notice that the reference or folio number is written as “C” used to represent control entry. This is rarely used in recent times.
On January 6 and 7, utility bills and generator repair transactions took place. Since they are payments in cash, they are credited to the cash column. The use of GL 7 and GL 8 shows where they can be found in the general ledger.
January 8, goods were sold on credit to Toluwa for N102,000. Cash books don't record credit transactions. Therefore, it is not posted. However, the second transaction was a cash sale of N31,000. Since cash was received, it is debited to the cash column.
For January 9, a bank transfer was made in respect of a sale. This goes to the bank column (debit side) of the cash book.
Finally, Toluwa made payment for the goods sold to her on January 8 with cash. The N91,800 (less cash discount of 10,200) was then lodged in the bank. The cash received will be debited to the cash column. The SL26 used shows where you can find the transaction in the sales ledger. The contra entry shows that the bank received the money. Therefore, debit the bank column of the cash book and credit the cash column with the amount.
