At the close of trading on Saturday the school canteen holds $640 in cash and pays $500 of it into the bank account the same afternoon. Both the cash column...
Question 1 Report
At the close of trading on Saturday the school canteen holds $640 in cash and pays $500 of it into the bank account the same afternoon. Both the cash column and the bank column sit in one cash book. Which pair of entries records the $500 banked?
Answer Details
Money moving between the till and the bank account is a contra entry, because both accounts affected sit inside the same cash book and no third account is involved.
The bank account gains $500, and an increase in an asset is a debit, so the bank column is debited. The cash held falls by $500, and a decrease in an asset is a credit, so the cash column is credited. The correct pair is debit bank, credit cash. The entry is usually marked with the letter C in the folio column to show that the double entry is complete within the cash book. The canteen still holds $640 in total; only $140 of it now remains as cash.
Debiting cash and crediting bank is the exact reverse and would record money being withdrawn from the bank instead of paid in. Crediting sales is wrong because the sale was already recorded when the takings were received; banking part of the money is not a second sale and would double count the revenue. Crediting capital would suggest the owner had introduced $500 of new funds, which is not what happened.
Watch the figure as well as the direction: only $500 of the $640 was banked, so using the full takings would overstate the amount transferred.
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