I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS 

 

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(a) A 

cash 

payment is a credit entry in the cash account. Here the asset is decreasing. Cash may be 

paid out, for example, to pay an expense (such as tax) or to purchase an asset (such as a 

machine). The matching debit entry is therefore made in the appropriate expense or asset 

account. 

(b) A 

cash 

receipt is a debit entry in the cash account. Here the asset is increasing. Cash might be 

 

received, for example, by a retailer who makes a cash sale. The credit entry would then be made 

 

in the sales account. 

This can be confusing since bank statements refer to a receipt as a credit, and a payment as a debit. 

Think of accounting entries for cash in the opposite way to how they are referred to on a bank 

statement. 

Furthermore, although we use the term 'cash', this term covers all money going in and out of the bank 

account, eg payments and receipts of physical cash, electronic transfers of money, credit card 

transactions and cheques. Cheques are still used in smaller businesses; however, in larger businesses, 

electronic payment methods are more common, such as electronic transfers, direct debit and credit 

cards. For the purposes of this Interactive Text, we will give examples using the term 'cash', but the 

same principles apply to the other forms of payment and receipt mentioned above. 

4.3 Example: double entry for cash transactions 

In the cash book of a business, the following transactions have been recorded. 

(a) 

A cash sale (ie a receipt) of $250 

(b) 

Payment of a rent bill totalling $150 

(c) 

Buying some goods for cash at $100 

(d) 

Buying some shelves for cash at $200 

How would these four transactions be posted to the ledger accounts and to which ledger accounts 

should they be posted? Don't forget that each transaction will be posted twice, in accordance with the 

rule of double entry. 

Solution

 

(a) 

The two sides of the transaction are: 

(i) 

Cash is received (debit entry in the cash at bank account). 

(ii) 

Sales increase by $250 (credit entry in the sales account). 

CASH AT BANK ACCOUNT 

 $ 

 

 

$ 

Sales a/c 

250   

 

SALES ACCOUNT 

 

$ 

 

$   

 Cash 

a/c 

250 

(Note how the entry in the cash at bank account is cross-referenced to the sales account and vice versa. 

This enables a person looking at one of the accounts to trace where the other half of the double entry can 

be found.) 

(b) 

The two sides of the transaction are: 

(i) 

Cash is paid (credit entry in the cash at bank account). 

(ii) 

Rent expense increases by $150 (debit entry in the rent account). 

CASH AT BANK ACCOUNT 

 $ 

 

$ 

 

  

Rent 

a/c 

150

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CHAPTER 5  

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  LEDGER ACCOUNTS AND DOUBLE ENTRY