Cash Book & Petty Cash Interview Questions & Answers

Q: How are drawings recorded in the cash book?

Drawings are cash or goods taken by the owner for personal use. Cash drawings are a payment: credit the cash/bank column and debit the drawings account (which reduces capital at year-end). Drawings are not an expense of the business.

Q: What is a two-column versus three-column difference in one line?

A two-column cash book has cash and bank money columns only; a three-column cash book adds a discount memorandum column on each side for discounts allowed (receipts side) and discounts received (payments side). The extra columns speed the recording and posting of settlement discounts.

Q: How do you post the totals of an analysed petty cash book with VAT?

Total each analysis column and the VAT column. Debit each expense account with its column total and the VAT account with the VAT column total; the total payments reduce the petty cash balance, which is restored by the reimbursement (Dr Petty Cash, Cr Bank). This posts many small items efficiently in a few entries.

Q: What is the treatment of cash discounts versus the cash received in the cash book?

When a customer settles early taking a cash discount, the cash book records the actual cash in the bank/cash column and the discount in the discount-allowed column; together they clear the invoice. The cash column affects the double entry immediately; the discount column is a memorandum posted in total to discounts allowed.

Q: Why must cash receipts be banked promptly?

Prompt banking reduces the risk of theft or loss of physical cash, improves the accuracy of bank records, keeps the business's funds secure and available, and supports timely bank reconciliation. Holding large amounts of cash on the premises is a control weakness.

Q: How do you record wages paid net, with deductions, through the cash book?

Net wages paid to employees are a cash book payment: credit bank with the net pay and debit the wages/net wages control. Deductions (tax, NI, pension) are held as liabilities until paid over; the gross wage is the total expense. The cash book captures only the actual cash movements (net pay and later the deductions payment).

How are drawings recorded in the cash book?

Intermediate

Drawings are cash or goods taken by the owner for personal use. Cash drawings are a payment: credit the cash/bank column and debit the drawings account (which reduces capital at year-end). Drawings are not an expense of the business.

Owner takes 200 cash: Dr Drawings 200; Cr Cash 200.

Real-world example The owner withdrawing money for personal use is debited to drawings, not to any expense.

Common follow-ups: Are drawings an expense? | How do drawings affect capital?

Trial Balance Books of Prime Entry Cash Book & Petty Cash

What is a two-column versus three-column difference in one line?

Beginner

A two-column cash book has cash and bank money columns only; a three-column cash book adds a discount memorandum column on each side for discounts allowed (receipts side) and discounts received (payments side). The extra columns speed the recording and posting of settlement discounts.

Real-world example A business offering prompt-payment discounts adds discount columns, making its cash book three-column.

Common follow-ups: What does the third column add? | Which discounts go on the receipts side?

Books of Prime Entry Sales & Purchase Ledgers Cash Book & Petty Cash

How do you post the totals of an analysed petty cash book with VAT?

Advanced

Total each analysis column and the VAT column. Debit each expense account with its column total and the VAT account with the VAT column total; the total payments reduce the petty cash balance, which is restored by the reimbursement (Dr Petty Cash, Cr Bank). This posts many small items efficiently in a few entries.

Postage 40, Stationery 30, VAT 14: Dr Postage 40; Dr Stationery 30; Dr VAT 14.

Real-world example The month's petty cash analysis columns post in total to postage, stationery, and VAT accounts.

Common follow-ups: How is VAT on petty cash reclaimed? | What restores the float?

Books of Prime Entry Control Accounts Cash Book & Petty Cash

What is the treatment of cash discounts versus the cash received in the cash book?

Intermediate

When a customer settles early taking a cash discount, the cash book records the actual cash in the bank/cash column and the discount in the discount-allowed column; together they clear the invoice. The cash column affects the double entry immediately; the discount column is a memorandum posted in total to discounts allowed.

Invoice 500, pay 490 + 10 discount: Bank 490 + Discount allowed 10 = 500 cleared.

Real-world example Early payment records 490 in the bank column and 10 in the discount column to settle a 500 invoice.

Common follow-ups: Which part is a memorandum? | How is the invoice fully cleared?

Sales & Purchase Ledgers Control Accounts Cash Book & Petty Cash

Why must cash receipts be banked promptly?

Beginner

Prompt banking reduces the risk of theft or loss of physical cash, improves the accuracy of bank records, keeps the business's funds secure and available, and supports timely bank reconciliation. Holding large amounts of cash on the premises is a control weakness.

Real-world example The shop banks each day's takings the next morning to minimize cash held overnight.

Common follow-ups: What risk does prompt banking reduce? | How does it aid reconciliation?

Bank Reconciliation Correcting Errors Cash Book & Petty Cash

How do you record wages paid net, with deductions, through the cash book?

Advanced

Net wages paid to employees are a cash book payment: credit bank with the net pay and debit the wages/net wages control. Deductions (tax, NI, pension) are held as liabilities until paid over; the gross wage is the total expense. The cash book captures only the actual cash movements (net pay and later the deductions payment).

Gross 1,000, deductions 250, net 750: Cr Bank 750 (net); later Cr Bank 250 (to authorities).

Real-world example The cash book records the 750 net paid to staff now and the 250 deductions paid to the authorities later.

Common follow-ups: Why are deductions a liability first? | What is the gross wage's role?

Control Accounts Books of Prime Entry Cash Book & Petty Cash