Record the following in the appropriate book of original entry assumin...
Journal Entry for Cheque Received but not Deposited into Bank
When a company receives a cheque but does not deposit it into the bank on the same day, the transaction needs to be recorded in the appropriate book of original entry. In this case, the cheque is received on January 1 and is not deposited into the bank on the same day. The following journal entry should be recorded:
1. Cash in Hand Account
Debit: Cash in Hand - 12,400
Credit: Bank Overdraft - 12,400
Explanation:
- When the cheque is received, it increases the cash balance in hand. Therefore, the Cash in Hand account is debited to record the increase in cash by 12,400.
- However, since the cheque is not deposited into the bank, the company's bank balance remains unchanged. Therefore, the Bank Overdraft account is credited by the same amount, 12,400, to reflect the increase in the liability owed to the bank.
Reasoning:
- The journal entry follows the double-entry bookkeeping system, where every transaction affects at least two accounts.
- The Cash in Hand account is a real account and represents the physical cash held by the company.
- The Bank Overdraft account is a nominal account and represents the liability owed to the bank when the company's bank balance is negative.
- By debiting the Cash in Hand account, we increase the asset side of the balance sheet, reflecting the increase in cash.
- By crediting the Bank Overdraft account, we increase the liability side of the balance sheet, reflecting the increase in the amount owed to the bank.
Summary:
- Recording the cheque received but not deposited into the bank on the same day requires a journal entry in the appropriate book of original entry.
- The Cash in Hand account is debited to reflect the increase in cash, while the Bank Overdraft account is credited to indicate the increase in the liability owed to the bank.
- This journal entry follows the double-entry bookkeeping system and ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced.
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