Cashbook and Double Entry System

The cashbook is an important component of the double-entry system of accounting. It records all cash transactions, including receipts and payments, in a chronological order. The cashbook consists of two columns - the cash column and the bank column. The cash column records all cash transactions, while the bank column records transactions related to the bank account.

Nature of Cashbook Balance

The balance in the cashbook can be either a debit balance or a credit balance. A debit balance indicates that there is more cash on hand, while a credit balance indicates that there is an overdraft or insufficient cash.

Recording Errors in the Cashbook

In this scenario, a cheque issued for Rs 250 was recorded as Rs 205 in the cash column. This means that there was an error in recording the transaction in the cashbook. Let's analyze how this error affects the cashbook balance:

1. Cashbook Entry:
- Original Entry: Rs 250 (Cheque issued)
- Recorded Entry: Rs 205

Effect on Cashbook Balance

1. Debit Balance: If the original entry of Rs 250 was correctly recorded, the cashbook balance would have been a debit balance of Rs 250. However, since the recorded entry is Rs 205, the cashbook balance will be affected as follows:

- Decrease in Cashbook Balance: The recorded entry of Rs 205 is less than the original entry of Rs 250. As a result, the cashbook balance will decrease by Rs 45 (Rs 250 - Rs 205).

2. Credit Balance: The cashbook balance will still be a credit balance. However, the credit balance will be reduced by Rs 45 due to the error in recording the cheque amount.

- Decrease in Credit Balance: The original entry of Rs 250 would have increased the credit balance in the cashbook. However, the recorded entry of Rs 205 will now decrease the credit balance by Rs 45.

Conclusion

In conclusion, the error in recording the cheque amount in the cashbook will result in a decrease in the cashbook balance. The balance will still be a credit balance, but it will be reduced by Rs 45. It is important to rectify such errors promptly to ensure accurate financial reporting and prevent any discrepancies in the cashbook balance.

Credit side ,bank column, rs 250
(correct entry as bank balance is reducing due to issuing of cheque it is credit side )
debit side , cash column , rs 205
(wrong entry corrected as earlier it was credited reducing the cash balance now we have debited to balance the effect)