Study tips: Posting the cashbook – processing bookkeeping transactions

Understanding & posting the cashbook series (AAT foundation level)

This is the second part of our look at the topic of transferring data from a cash-book. 

If you missed part one, it would be worth having a quick read before continuing, as it focused on understanding the cash-book in preparation for thinking through the postings required.

If you recall our scenario is based on a small VAT registered company called E&J Consultancy. They have a cash-book which is both a book of prime entry as well as part of the double entry bookkeeping system. 

The totals of the columns in the credit side of the cash-book at the end of the month are:


What do we already know?

  • That we’re working with the credit side of an integrated cash-book.
  • There’s a column for payments made using cash (Cash) and a column for payments made directly out of the bank account (Bank).
  • We deal with both cash and credit transactions.
  • That as it’s an analysed cash-book, the analysis columns explain the purpose of the expenditure and separate any cash transactions into the NET and VAT amounts.

Okay, now that we’ve re-capped our understanding of the cash-book a little, we can think about what entries are required in the general ledger.

The first question we might ask ourselves is…

If I were doing the ‘T’ accounts, what would the postings be?

Shown like this, we can clearly see that we are posting the totals of the analysis columns to the opposite side of the general ledger accounts. 

Sometimes we may be asked to state what needs to happen, rather than to actually do it. If this were the case, we could use the information from our ‘T’ accounts and it would look like this:

Before we go any further, let’s supposed this was a non-integrated cash-book and think about what the postings would be then. 

The only difference is that the cash-book is just doing one job now i.e. being a day-book. Therefore we need to post to the Bank account in the general ledger as well as all the other general ledger accounts.

There would now be five entries required in the general ledger, which would be:

This looks like a journal now and your total debits should equal your total credits.

Returning to E&J Consultancy’s integrated cash-book, let’s suppose one of the bank payments to trade payables was to Shipmans & Sons for £560.

Our thought process here then, starts with the question…

Why have I just paid Shipmans £560?

Simple answer… because we owed them £560.

Which begs the question – what effect does the payment have on our accounts? 

It reduces the amount now owed to Shipmans & Sons.

Okay, but are we going to enter a debit or credit?

Well that’s a bit more complicated, the amount we owe Shipmans is recorded in their account in the purchase ledger.

It’s there because of a memorandum posting from the PDB, made when we bought something from them a while ago. The memorandum posting isn’t double entry but is a repeat of the posting made to the PLCA.

The PLCA was credited with the invoice amount, so Shipmans account would have been credited too. Now that we’ve paid Shipmans we need to debit their account to reduce the balance.

Is there a simpler way to remember all that?

Yes, learn that whatever you do in the PLCA needs to be repeated in the individual supplier’s account in the purchase ledger i.e.:

  • Post to the same side
  • Use the same reference
  • Always post the VAT inclusive amount.

So, we just need to check what we posted to the PLCA in the general ledger as the debit there should be repeated in the purchase ledger, just using the supplier’s name and the invoice total, like this:

In summary

Good luck working with cash books.

Just keep in mind that cash book layouts vary so what is important is that you can understand how the cash-book works in relation to the rest of the accounting system.

Learn to use debits and credits to increase and decrease accounts, and then you can apply the theory to any manual layout and transfer your understanding to computerised systems too.

Read more from AAT Comment:

Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.

Related articles