88Describe the knowledge of the importance of banks in business transaction.

a. Business transaction.

Are all activities of business which involve transfer of money or goods or services between two
people or two Accounts. Example of business transaction; Purchase of goods, Sale of goods,
Borrowing from bank, Lending of money.

b. Banks.
Are financial institutions which deals with receiving deposits and provide credit to people.

Functions of Bank in business transaction.

Accepting deposits. The bank accept deposits from their customers who can withdraw their
money at will. Also customers can deposit their money in any type of bank account. Example Saving
account, Fixed account, Current account.

Lending Loans and Advances. A bank lends funds to people at a certain rate of interest. Banks
provide loan mainly to agriculturists, industrialists and businessmen for their own profit and to
contribute to the economic development of the country.

Issuing currency. A bank is also responsible for issuing notes and creating other inexpensive
modes in the form of drafts or cliques. For example in Tanzania, BOT is responsible for issuing notes and
coins. The banks create and enable the transfer of credit instruments such as bank notes, bank drafts,
letters of credit, cliques and so on.

Credit Deposits. The bank may create deposits by providing loans to its customers. The
customer usually deposit the money borrowed from the bank in the same bank.

c. Describe relationship between a business and bank in business transaction.

Bank facilitates collections of servings and advancing loans to the business.

Acceptance of deposit and advancing the loans is the basic function of commercial banks, on this
function all other function depend accordingly. Bank operates different types of accounts for its
customers like saving account, malkia account, fixed account and so on.

Bank encourages savings to the business.

Banks perform an invaluable service by encouraging savings among the people. They induce them to
save for profitable investment for themselves and for the national interest. These savings help in
capital formation in business.

Bank enable saving into investment in the business.

Bank transfer the savings collected from the different people into investment and thus increase the
amount of effective capital, which helps the process of economic growth.

Bank facilitate overdraft facilities to the business.

The banks allow the overdraft facilities to their trusted customers and thus help them in
overcoming temporary financial difficulties.
Bank financing internal and external trade to the business.

Banks help traders in financing internal and external trade by discounting a foreign bill of exchange,
issuing of letters of credit and other guarantees for their customers.

Bank act as an agent to the business.

The bank act as an agent and help their customers in the purchase and sales of shares, provision of
lockers payment of monthly and dividends on the stock.

Explain the documents used in bank transaction.

Cheque

Is a bill of exchange in which one party orders the bank to transfer the money to the bank account
of another party.

Pay in slip

Is a document or small form which relates to bank transaction .It gives details of the date ,account
name,deposted mount and the name of account holder

New Delhi

A Withdrawal slip
Is a written request to the bank to pay the account holder the specified sum. The sum are ded7cted
from a specified account number a bank withdrawal slip it makes easier for the bank to keep track of
withdrawals

Bank statement

Is an official document that summarizes the account activity over a certain period of time. It gives
records of all transactions both incoming and outgoing so you know exactly what was going on with
funds during that period
 FIRST BANK
1 234 Main Street, Capital City, OH 1 2345-0123
1-800-555-1234
USA Small Business, LLC Account Name: USA Small Business
Checking
Mr. Jack Smith Account Number: 000000012345
345 Maple Street
Capital City, OH 12345-0123 Statement Period: 03/01 /2021 to 04/01 /2021
123-555-5678

ACCOUNT SUMMARY
Balance on March 1:
$27,584.38 Total money in:
$10,273.39 Total money out:
$10,510.07
Balance on April 1: $27,347.70

DATE DISCRIPTION WITHDRAW DEPOSIT BALANCE

Previous balance 27,584.38

03/02 Internet Bill 75.99 27,508.39

03/05 Electric Bill 253.68 27,254.71

03/06 456.84 27,711.55
Check No. 4598
Payment from Lisa Williams.

03/10 Deposit from Credit Card Processor 5,891.26 33,602.81

03/12 Payroll Run 3,894.75 29,708.06

03/16 243.46 29,464.60
Debit Transaction
Main Office Wholesale
 03/21 Rent Bill 750.00 28,714.60
03/21 268.84 28,983.44
Check No. 234
Payment From Mark Moore

03/26 Payroll Run 3,743.23 25,240.21

03/28 Deposit 3,656.45 28,896.66

03/29 Debit Transaction 1 ,548.96 27,347.70

ABC Business Supplies

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This is not intended as legal advice.
Cheque deposit

Is a payee that accepts a Cheque will typically deposit it in an account at the payee’s bank and have
the bank process the [Link] some cases the payee will take the Cheque to a branch of the
drawee bank and cash the Cheque there

Cash book

Is a book used to record receipts and payments of cash .it works as a book of original entry as well as
ledger account

Types of cashbook

a. Single column cash book

Is a type of cash book used to record only cash transaction of a business its very identical to cash
account in which all cash receipts are recorded on left hand side (debit) and all cash payments
are recorded on right hand side (credit) in a chronological order
Columns of single column

Date

Is a column used to record year amount and actual date of each transaction .this column ensure the
chronological of each business transaction involving receipts and payment of cash

Details/particulars

It’s a column used to record account tittle to be debited or credited .it gives a short explanation of each
cash transaction

Folio

It’s a column used to provide page references of the second transaction

Amount

It’s a column used to record money values of a transaction

*cash book balances and all balances extracted from ledger are used to prepare a trial balance

Example

Record the transactions shown below in a single column cash book .

For the year 2016, the transactions are as follows:

• Sep. 01: Cash in hand (balance b/d) $2,327

• Sep. 02: Paid salaries for August $1,500
• Sep. 05: Cash received from S & Co. $1,360
• Sep. 06: Purchased merchandise for cash $ 700
• Sep. 07: Cash sales for the first week $2,350
• Sep. 10: Paid cash for office furniture $1,540
• Sep. 12: Purchased stationery for cash $85
• Sep. 15: Cash sales for the second week $4,500
• Sep. 17: Cash paid to A & Co. $890
• Sep. 20: Purchased merchandise for cash $1,230
• Sep. 21: Cash sales for the third week $1,200
• Sep. 24: Cash received from S & Co. $1,200
• Sep. 28: Paid office rent $800
• Sep. 30: Cash sales for the last week $3,600
Solution

Cash Book

b. Two column cash book

this is a cash and bank accounts brought together in one book .its called two column cash book because
it has two money columns that is the bank and cash money columns .some transactions affects two
accounts at the sane time the term is known as contra entries for example when you deposit cash into
bank or withdraw cash from bank the two accounts are directly affected.

Example

The Edward Company uses a double column cash book to record its cash and bank
related transactions. It engaged in the following transactions during the month of
March 2018:

• March 01: Cash balance $1,450 (Dr.), bank balance $1,500 (Dr.).
• March 02: Paid Mark & Co. by check $120.
• March 04: Received from John & Co. a check amounting to $400.
• March 05: Deposited into bank the check received from John & Co. on March
04.
• March 08: Purchased stationary for cash, $25.
 • March 12: Purchased merchandise for cash, $525.
• March 13: Sold merchandise for cash, $1,800.
• March 15: Cash deposited into bank, $850.
• March 17: Withdrew from bank for personal expenses, $40.
• March 19: Issued a check for merchandise purchased, $630.
• March 20: Drew from bank for office use, $150.
• March 22: Received a check from Peter & Co. and deposited the same into
bank immediately, $880.
• March 25: Paid a check to Daniel Inc. for $270.
• March 26: Bought furniture for cash for office use, $175.
• March 28: Paid office rent by check, $120.
• March 29: Cash sales, $650.
• March 30: Withdrew from bank for office use, $145.
• March 31: Paid salary to employees by check, $300.

Required: Record the above transactions in a double column cash

Solution

Cash book:
Three column cash book
Is a type of cash book with three money columns. The discount column is added to two column to each
side. Discount allowed to the credit side and the discount received to the debit side

The firm may encounter cash discount from two different angles (ways)

Discount allowed
A business may allow a cash discount to costumers for goods sold. To a firm discount allowed is an
expenses and it’s recorded on debit side

Discount received
It’s a type of discount in which a firm receives once it purchases goods or services
Example

The P&G LLC records its cash and bank transactions in a triple column cash book.
The following transactions were performed by the company during the month of
June 2018.

• Jun 01: Cash in hand $800 (debit balance), Cash at bank $3,365 (debit
balance).
• Jun 03: Paid James & Co. by check $1,175, discount received from him $25.
• Jun 05: Received from David & Co. a check amounting to $990, discount
allowed to him $10.
• Jun 07: Deposited into bank the check received from David & Co.
• Jun 10: Purchased stationary for cash, $170.
• Jun 15: Purchased merchandise for cash, $1,280.
• Jun 15: Cash sales for the first half of the month, $2,450.
• Jun 16: Deposited into bank $1,250.
• Jun 18: Withdrawn from bank for personal expenses $100.
• Jun 19: Issued a check amounting to $1,630 to James & Co. and discount
received from him $20.
• Jun 21: Drew from bank for office use, $420.
• Jun 24: Received a check amounting to $1,435 from Henry & Co. and
allowed him a discount of $15. The Henry’s check was deposited into bank
immediately.
• Jun 25: Paid a check to Jacob Inc. amounting to $385 and received a
discount of $15.
• Jun 27: Bought furniture for cash for office use, $380.
• Jun 29: Paid office rent by check, $350.
• Jun 30: Cash sales for the second half of the month $4,550.
• Jun 30: Paid salaries by check $760.
• Jun 30: Withdrew from bank for office use $470.

Required:

1. Record the above transactions in a triple/three column cash book of P & G

LLC and balance the cash and bank columns of the cash book.
Solution

1. Triple/three column cash book