Cash & Bank (Cambridge (CIE) IGCSE Accounting): Revision Note

Cash or bank

Do I enter a transaction in the cash account or the bank account?

• Enter the transaction in the cash account if physical money is exchanged

  • Paying a supplier using cash

  • Receiving cash from a customer

  • Taking money from the till for personal use

• Enter the transaction in the bank account if there is no physical money involved

  • Transactions involving a bank transfer

  • Paying an invoice or bill by cheque

  • Receiving a cheque from a customer

  • Standing orders and direct debits

• Some transactions are entered into both the cash and bank accounts

  • Depositing cash from the business into the business bank account

  • Withdrawing cash from the business bank account for business use

Benefits & limitations of keeping cash

What are the benefits of a business keeping cash on the premises?

• A business might choose to keep cash on the premises

  • This includes petty cash

• The business is able to use cash to pay for purchases or expenses immediately

• Some suppliers might require cash payments

• Cash can be used even when there are power cuts or Internet outages

What are the limitations of a business keeping cash on the premises?

• Cash might be stolen or lost if it is kept on the premises

• Money in the bank can earn interest

  • Keeping physical cash reduces the amount of interest earned

• A business needs someone to manage the cash and cash columns of the cash book