Accounting for Bill

The date of selling note discounted to the bank

General Journal A/C Debit Page 1
No.
Date Transactions 12,069 08 Credit

25x1 12,000 -
May 29 Cash / Bank 69 08

Notes Receivable Discounted
Interest Income
Sold note discounted to the bank.

Calculation

The maturity value = The face value + Interest = 12,236.71 Baht
= 167.63 Baht
Minus the bank’s discount (12,236.71 x 10% x 50/365) =
12,069.08 Baht
The amount received from the discounted (12,236.71 – 167.63)

Accounting record on the date the note dishonored

General Journal A/C Debit Page 3
No.
Date Transactions 12,296 71 Credit

25x1 12,296 71
Aug 18 Account Receivable - Somchok

Cash / Bank Account
Paid the bank for Mr.Somchoke on the date the note
dishonored.
12,000 + 236.71 + 60

Accounting for Bill BUNYAWEE SUWANNABOOL

General Journal A/C Page 3
No.
Date Transactions Debit Credit

25x1 12,000 -
Aug 18 Notes Receivable Discounted
12,000 -
Notes Receivable
Cancelled the discounted note because it is dishonored.

The date of receiving the payment from Mr.Somchok

General Journal A/C Debit Page 4
No.
Date Transactions 12,326 88. Credit

25x1 12,296 71
Sep 2 Cash / Bank Account 30 17

Account Receivable -Somchok
Interest income (12,236.71 x 6% x15/365)
Payment received from Mr.Somchok with an overdue
interest.
12,000 + 236.71

Dishonored Transferred Note Receivable

Dishonored transferred note receivable means a note receivable that business received and
endorsed before transferred to others; however when reaching the maturity date, drawee cannot pay.

The endorsee can request the endorser to pay and do the same accounting record as the
dishonored note receivable. The endorser will have the former debtor as a new debtor to pay the total
amount that already paid on behalf. Then it will demand drawee to pay the amount with an overdue
interest.

Example 3 On 8 June 25x1, business received a 60 days promissory note worth 14,200 Baht with
an interest rate of 8% p.a. as a debt payment from Mr.Chokanan. Then on 23 June 25x1, business
endorsed the note and transferred to Mr.Udomchok to partially pay its debts. Mr.Udomchok called for a
discount of 10% p.a. When it was due on 7 August 25x1, Mr.Udomchok cannot collect money from

Accounting for Bill BUNYAWEE SUWANNABOOL

Mr.Chokanan and paid 80 Baht for a note of protest fee and inform the business, and the business made a
payment on behalf of Mr.Chokanan. Then on 18 August 25x1, Mr.Chokanan paid debts to the business
plus an overdue interest 5% p.a.

Accounting record on the debt payment from Mr.Chokanan

General Journal Page 1

Date Transactions A/C Debit Credit
No.

25x1 Note Receivable 14,200 -
Jun 8 Account Receivable - Chokanan

Payment received from Mr. Chokanan. 14,200 -

23 Account Payable – Udomchok. 14,209 37
Note Receivable
Interest Income 14,200 -
9 37
Transferred bills as a payment to Mr.Udomchok.

Calculation

The maturity value = The face value + Interest

= 14,200 + (14,200 x 8% x 60/365)

= 14,200 + 186.74

= 14,386.74 Baht

Minus the discount (14,386.74 x 10% x 45/365) = 177.37 Baht

The transferred amount that Mr.Udomchok accepted = 14,209.37 Baht

(14,386.74 – 177.37)

Accounting for Bill BUNYAWEE SUWANNABOOL

Accounting record on the date the note dishonored

General Journal Page 1

Date Transactions A/C Debit Credit
No.
14,466 74 14,466 74
25x1 Account Receivable - Chokanan
Aug 7 Cash / Bank Account

Paid Mr.Udomchok on behalf of Mr.Chokanan.
14,200 +186.74+ 80

18 Cash / Bank 14,488 42
Account Receivable - Chokanun
Interest Income (14,386.74 x 5% x 11/365) 14,466 74
21 68
Payment received with an overdue interest.(8-18 Aug)

Definition of Dishonor Note Payable

Dishonor of note payable means a promissory note that business made or a bill of exchange that
business issued but it cannot pay when due.

Holder or payee can request the business to pay the principal plus the maturity interest (if it is an
interest bearing note) and plus fees on note of protest and an overdue interest. An overdue interest can be
any rate that both parties agree. If nothing has been agreed, the law enforcement rate of 5% p.a. can be
used by calculating the overdue period from the date of dishonored note to the payment date.

Calculating and Recording Dishonored Note Payable Entry

In accounting, holder will cancel the note payable entry and make the former debtor to be a new
debtor. If it is an interest bearing note, interest expense is also recorded until the maturity date.

When the debtor can pay the money, the payment will be recorded the amount of money that set
by creditor with fees on note of protest (other fees) and an overdue interest.

Accounting for Bill BUNYAWEE SUWANNABOOL

Example 4 Business issued a 90days bill of exchange worth 18,000 Baht with an interest rate of 9% p.a.;
dated 23 July 25x1 as a debt payment to Thaweesin shop. On 21 October 25x1, the business cannot pay
money. Thaweesin shop reported the police and paid 50 Baht for a note of protest fee. Then on 2
November 25x1, the business paid debts to Thaweesin shop plus a note of protest fee and an overdue
interest of 5% p.a.

Accounting record on the date the note dishonored

General Journal A/C Page 1
No.
Date Transactions Debit Credit

25x1 18,000 -
Oct 21 Note Payable 399 45

Interest expense (18,000 x 9% x 90/365) 18,399 45
Account Payable - Taweesin

Dishonored note payable.

The date of receiving the payment

General Journal Page 1

Date Transactions A/C Debit Credit
No.

25x1 Account Payable - Taweesin 18,399 45
Nov 2 Miscellaneous expense 50 -
Interest expense 29 59

Cash / Bank Account 18,479 04
Paid Thaweesin shop with a note of protest fee
and an overdue interest.

Accounting for Bill BUNYAWEE SUWANNABOOL

Calculate an overdue interest

- Overdue time Oct (31 - 21) = 10 days
25x1 Nov = 2 days
Total = 12 days

- Overdue interest
= The Face Value x Overdue Time x Overdue Interest
= (18,000 x 12/365 x 5/100)
= 29.59 Baht

Accounting for Bill BUNYAWEE SUWANNABOOL

Chapter 7
Note Interest Adjusting

Contents
1. Adjusting accrued interest income (A)(accrued interest receivable)
2. Adjusting deferred interest income (L)
3. Reversing entry on the adjusting interest of note receivable
4. Adjusting accrued interest expense (L) (accrued interest payable))
5. Adjusting prepaid interest expense (A) (prepaid interest payable)
6. Reversing entry on the adjusting interest of note payable
7. Benefits of note registered book
8. Recording entry in note receivable book
9. Recording entry in note payable book

Learning Objectives
1. To be able to calculate interest of note receivable at the end of accounting period
2. To be able to calculate interest of note payable at the end of accounting period
3. To be able to record adjusting interest of note entry at the end of accounting period
4. To be able to record reversing entry
5. To be able to explain the benefits of note registered book
6. To be able to record entry in note registered book
7. To be able to recording note receivable account

Accounting for Bill BUNYAWEE SUWANNABOOL

Chapter 7
Note Interest Adjusting

At the end of accounting period, business that needs to find its accrual basis will have to do
accounting correctly and completely on transactions of assets, liabilities, income and expenses of each
accrual basis. Any transactions that belong to the next accrual basis need to be adjusted at the end of
accounting period in order to make income and expense on the business’s note to be transferred accurately
to the business’s account in that accrual basis. Time period for adjusting interest on note counts in days.

Calculating interest of note receivable that needs to adjust at the end of accounting

period

Calculating interest of note receivable that needs to adjust at the end of accounting period, there
are transactions as follow;

Accrued Interest Income Adjusting (Receivable) (A)

This will happen when business has interest bearing note receivable on hand with the maturity

date in the next accrual basis. The business receives partial income from interest income but has not yet

received it in this accrual basis. Thus, adjusting accrued interest receivable needs to be done at the end of

accounting period. Accrued interest receivable is a business’s current asset. Calculate the time period of

accrued interest receivable by starting from the day after the note issuing date until the end of accounting

period.

Note issuing date The end of accounting period The note’s maturity date

31 December

Time period of accrued interest receivable

Accounting for Bill BUNYAWEE SUWANNABOOL

Example 1 Business has a 45-day note receivable worth 9,000 Baht with an interest rate of 9%
p.a.; dated 25 November 25x1. The business’s annual closing is on 31 December.

Calculating time period of accrued interest receivable
25x1 Nov (30 – 25) = 5 days
Dec = 31 days
Total = 36 days

Calculating accrued interest receivable
Accrued Interest Receivable = The Face Value x Time Period x Interest Rate
= 9,000 x 9% x 36/365 = 79.89 Baht

General Journal A/C Page 1
No.
Date Transactions Debit Credit

25x1 9,000 -
Nov 25 Note Receivable
9,000 -
Account Receivable
Business has a 45-day note receivable with an
interest rate of 9%

Dec 31 Accrued Interest Income 1 79 89
Interest Income 4
79 89
Adjusting accrued interest income for 36 days

Deferred Interest Receivable Adjusting ( Deferred Interest Income)

This will happen when business has non-interest bearing note transferred from debtor as a
payment. For note transferring, the endorser allows the business to deduct an amount lower than the face
value. The lower amount deducts is the business’s interest income and fully records in interest income
account. If the note is due in this accrual basis, the interest income occurred will wholly belong to this
accrual basis. However, if it is due in the next accrual basis, interest income that already recorded may
have partial amount that belongs to the next accrual basis. Therefore, business needs to adjust prepaid

Accounting for Bill BUNYAWEE SUWANNABOOL

interest receivable as it is a business’s current asset. Calculate the time period of prepaid interest
receivable by starting from the first day of the next accounting period until the maturity date.

Note issuing date The start of accounting period The note’s maturity date
1 Jan

Time period of prepaid interest receivable

Example 2 On 14 December 25x1, business received a 60-day non-interest bearing promissory

note worth 10,000 Baht and deducted discount of 10% p.a. The business’s annual closing is on 31

December.

Calculating the maturity date

25x1 Dec (31 – 14) = 17 days

25x2 Jan = 31 days

Feb = 12 days

Total = 60 days

The note’s maturity date is 12 February 25x2

Calculating time period of prepaid interest receivable

25x2 Jan = 31 days

Feb = 12 days

Total = 43 days

Calculating Deferred Interest income

Deferred Interest income = The Face Value x Interest Rate x Time Period

= 10,000 x 10% x 43/365 = 117.81 Baht

Accounting for Bill BUNYAWEE SUWANNABOOL

General Journal A/C Page 1
No.
Date Transactions Debit Credit

25x1 10,000 -
Dec 14 Note Receivable
10,000 -
Account Receivable
Business has a 60-day note receivable non-interest

Cash 164 39
¤ Interest Income
Business deduct 10% discount 164 39
10,000 x 10% x 60/365
Dec 31 Interest Income 117 81

Deferred Interest Income 117 81
Adjusting deferred interest income for 43 days

Reversing Entry on the Adjusting Interest of Note Receivable

Reversing entry for the adjusting interest of note receivable on the start date of accounting
period

On the accrual basis, the business already adjusted account that related to accrue and prepaid
interest receivable. When it becomes the first accounting period, the transaction will be reversed. As if
not transferring back, interest income will be doubled up leading to the business’s interest income to be
higher than in the reality.

Accounting for Bill BUNYAWEE SUWANNABOOL

Recording the reversing entry will be opposite to the adjusted entry.

1. Recording the reversing entry on accrued interest receivable from example 1

General Journal Page 15

Date Transactions A/C Debit Credit
No.

25x1 79 89
Dec 31 Accrued Interest Income
79 89
Interest Income
Adjusting accrued interest income for 36 days

25x2 1 Interest Income 79 89
Jan Accrued Interest Income
79 89
Reversing entry on accrued interest receivable.

2. Recording the reversing entry on prepaid interest receivable from example 2

General Journal Page 16

Date Transactions A/C Debit Credit
No.

25x1 117 81
Dec 31 Interest Income
117 81
Deferred Interest Income
Adjusting deferred interest income for 43 days

25x2 1 Deferred Interest Income 117 81
Jan Interest Income
117 81
Reversing entry on deferred interest income

Accounting for Bill BUNYAWEE SUWANNABOOL

Calculating interest of note payable that needs to adjust at the end of accounting period
Calculating interest of note payable that needs to adjust at the end of accounting period, there are

transactions as follow;

Accrued Interest Payable Adjusting (Accrued Interest Expense)

Accrued interest payable will occur when business issued interest bearing note payable that due in
the next accrual basis. The business creates partial expenses from interest expense but has not yet paid it
in this accrual basis. Thus, adjusting accrued interest payable needs to be done at the end of accounting
period. Accrued interest payable is a business’s current liability. Calculate the time period of accrued
interest payable by starting from the day after the note issuing date until the end of accounting period.

Note issuing date The end of accounting period The note’s maturity date
31 December

Time period of accrued interest payable

Example 3 Business made a 3-month promissory note worth 16,000 Baht with an interest rate of
8% p.a. to its creditor on 15 November 25x1. The business’s annual closing is on 31 December.

Calculating time period of accrued interest receivable
25x1 Nov (30 – 15) = 15 days
Dec = 31 days
Total = 46 days

Calculating accrued interest payable = The Face Value x Interest Rate x Time Period
Accrued Interest payable = 16,000 x 8% x 46/365
= 161.32 Baht

Accounting for Bill BUNYAWEE SUWANNABOOL

General Journal A/C Page 16
No.
Date Transactions Debit Credit

25x1 16,000 -
Nov 15 Account Payable
16,000 -
Note Payable
Business made a 3-month promissory note
with an interest rate of 8% p.a.

Dec 31 Interest Expense 161 32
Accrued Interest Expense
161 32
Adjusting accrued interest expense for 46 days

Prepaid Interest Payable Adjusting

This will happen when business issues non-interest bearing note for the bank’s loans. The bank
has already deducted the amount of discount or prepaid interest. The business fully records in interest
expense account. If the note is due in this accrual basis, the interest expense occurred will wholly belong
to this accrual basis. However, if it is due in the next accrual basis, interest expense that already recorded
may have partial amount that belongs to the next accrual basis. Therefore, business needs to adjust prepaid
interest payable as it is a business’s current assets. Calculate the time period of prepaid interest payable by
starting from the first day of the next accounting period until the maturity date.

Note issuing date The start of accounting period The note’s maturity date

Time period of prepaid interest payable

Accounting for Bill BUNYAWEE SUWANNABOOL

Example 4 On 25 November 25x1, business issue a 90-day promissory note worth 30,000 Baht with an

interest rate of 9% p.a. and deducted discount of 10% yearly. The business’s annual closing is on 31

December.

Calculating the maturity date

25x1 Nov (30 – 25) = 5 days

Dec = 31 days

25x2 Jan = 31 days

Feb = 23 days

Total = 90 days

The note’s maturity date is 23 February 25x2

Calculating time period of prepaid interest expense

25x2 Jan = 31 days

Feb = 23 days

Total = 54 days

Calculating prepaid interest receivable

Prepaid Interest Receivable = The Face Value x Interest Rate x Time Period

= 30,000 x 9% x 54/365

= 399.45 Baht

General Journal Page 16

Date Transactions A/C Debit Credit
No.

25x1 30,000 -
Nov 25 Account Payable
30,000 -
Note Payable
Business issue 90-day 9% p.a.

Interest Expense (90) 665 75
Cash
665 75
Paid prepaid interest expense
30,000 x 9% x 90/365

Accounting for Bill BUNYAWEE SUWANNABOOL

General Journal A/C Page 16
No.
Date Transactions Debit Credit

25x1 399 45
Dec 31 Prepaid Interest Expense (54)
399 45
Interest Expense (54)
Adjusting prepaid interest expense for 54 days
30,000 x 9% x 54/365

Reversing Entry on the Adjusting Interest of Note Payable

Reversing entry for the adjusting interest of note payable on the start date of accounting

period

On the accrual basis, the business already adjusted account that related to accrue and prepaid

interest payable. When it becomes the first accounting period, the transaction will be reversed. As if not

transferring back, interest expense will be doubled up leading to the business’s expense to be higher than

in the reality.

Recording the reversing entry will be opposite to the adjusted entry.

1. Accrued interest expense from example 3

General Journal Page 16

Date Transactions A/C Debit Credit
No.

25x1 161 32
Dec 31 Interest Expense
161 32
Accrued Interest Expense
Adjusting accrued interest expense for 43 days

25x2 1 Accrued Interest Expense 161 32
Jan Interest Expense
161 32
Reversing entry on accrued expense receivable.

Accounting for Bill BUNYAWEE SUWANNABOOL

2. Prepaid interest payable from example 4 A/C Page 16
General Journal No.
Debit Credit
Date Transactions
399 45
25x1
Dec 31 Prepaid Interest Expense 399 45

Interest Expense
Adjusting prepaid interest expense for 54 days

25x2 1 Interest Expense 399 45
Jan Deferred Interest Expense
399 45
Reversing entry on deferred interest expense

Recording entry to note registered book

In business operation that has a lot of goods trading, payment receiving, payment in promissory
note and bill of exchange, the business surely has many note receivable and payable and needs to know
the detail of notes which are the approver, the endorser, the date of note or the date of note’s approval, the
time of notes, the maturity date for receiving money or paying money, the notes numbers, the face value,
the interest rate, and other details.

Above mentioned detail does not show in note receivable or note payable accounts, because when
receiving note receivable, it is recorded to debit account and when receiving payment on the face value, it
is recorded to credit account. For note payable, when paying with or approving note payable, it is recorded
to credit account and when paying the face value, it is recorded to debit account. Detail can be found in
notes file that put in the maturity date of receiving or paying orders, but it takes a lot of time and cannot
keep all detail.

Thus, business needs to register notes by separating note receivable and note payable for more
convenience of auditing and controlling.

Accounting for Bill BUNYAWEE SUWANNABOOL

Benefits of Note Registered Book

Note registered book has benefits as below;
1. It is a reminder to prevent defects and damages causing to business in case the
business has a lot of notes.
2. It gives details of note receivable which are the approver, the endorser, the date
of note or the date of note’s approval, the time of notes, the maturity date for receiving money, the notes
numbers, the face value, the interest rate, and other details.
3. It gives details of note payable which are the issuing date or the date of note’s
approval, the time of notes, the maturity date for paying money, the notes numbers, the face value, the
interest rate, and other details.

Recording Entry in Note Receivable Book

Example 5 Business has note receivable as follows;

No Issued Date Time of Note Face Value Interest Payer
8% Mr.Rakthai
102 14 Feb x1 45-day 8,000 9% Mr.Choochart
10% Mr.Rakchart
83 8 Mar x1 2-month 19,000

116 5 Apr x1 90-day 17,000

Recording entries in note receivable book

Note Receivable Book

No. Payer Note Issue Maturity Period Amount Interest Amount Note
No. Date Date Note Rate Interest

1 Mr.Rakthai 102 14 Feb x1 31 Mar x1 45 D 8,000 8% 78.90

2 Mr.Choochart 83 8 Mar x1 8 Apr x1 2 M 19,000 8% 285.00

3 Mr.Rakchart 116 5 Apr x1 4 Jul x1 90 D 17,000 10% 419.18

Accounting for Bill BUNYAWEE SUWANNABOOL

Recording Entry in Note Payable Book

Example 6 Business issued note payable as follows;

No Issued Date Time of Note Face Value Interest Payer
8% Mr.Sornchai
1 9 Jan x1 45-day 14,000 8% Mr.Chaiwat
9% Mr.Wattanasak
2 13 May x1 2-month 17,000

3 20 Jul x1 90-day 21,000

Recording entries in note payable book

Note Payable Book

No. Payer Note Issue Date Maturity Period Amount Interest Amount Note
No. Date Note Rate Interest
1
1 Mr.Sornchai 1 9 Jan x1 23 Feb x1 45 D 14,000 8% 138.08 2
3
2 Mr.Chaiwat 2 13 Apr x1 13 Jul x1 2 M 17,000 8% 226.67

3 Mr.Wattanasak 3 20 Oct x1 18 Oct x1 90 D 21,000 9% 466.03

Accounting for Bill BUNYAWEE SUWANNABOOL

Chapter 8
Accounting for Bills of Exchange

Contents
1. Types of bills of exchange
2. Domestic bills of exchange account recording
3. Foreign bills of exchange account recording
4. Exchange rate hedging

Learning Objectives
1. To be able to categorize types of bills of exchange
2. To be able to record domestic bills of exchange entry
3. To be able to record foreign bills of exchange entry

Accounting for Bill BUNYAWEE SUWANNABOOL

Chapter 8
Accounting for Bills of Exchange

Types of Bills of Exchange

1. Domestic bill of exchange is a bill of exchange that the residence of the drawer, drawee

and payee are in the same country.

2. Foreign bill of exchange is a bill of exchange that the residence of the drawer, drawee

and payee are in the different country.

Domestic Bills of Exchange Account Recording

Domestic bill of exchange can divided by related parties which are

1. Bill of exchange with 2 related parties which are payee and drawee. The detail and

accounting records are in Unit 2 and 3.

2. Bill of exchange with 3 related parties which are drawer, drawee and payee. In this

case, the drawer specifies other person as a payee and it cancels out debts between debtor and
creditor accounts.

For accounting record on 3 related parties;
- Drawer only records the date that payee receives money
- Drawee records the bill’s approval date and the maturity date
- Payee records the bill receiving date and the maturity date

Example 1 On 9 April 25x1, Mr.A issued a 3-month bill of exchange 15,000 Baht with an
interest rate of 8% p.a. for Mr.B’s approval to pay Mr.C, his creditor. Mr.B accepted the bill on 10 April
25x1 and returned it to Mr.A. Then Mr.A gave the bill to Mr.C on 11 April 25x1.

Accounting for Bill BUNYAWEE SUWANNABOOL

Domestic Bills of Exchange Account Recording

Transactions Drawee/Payer A Payee
B C
Mr. B accepted the bill
on 10 April 25x1 A/P – A 15,000 N/R 15,000

N/P 15,000 A/R-B 15,000

Mr.C received Note A/P - C 15,000 N/R 15,000
On 11 April 25x1
N/R 15,000 A/R- A 15,000

Maturity Date N/P 15,000 Cash 15,300
On 9 June 25x1 Interest expense 300 N/R 15,000

Cash 15,300 Interest income 300

15,000 x 8% x 3/12 = 300

Foreign Bills of Exchange Account Recording

Foreign Bills of Exchange Account Recording can be considered on 2 sides.

1. Exporter or seller

If the business exports goods to foreign countries and receives an immediate bill of exchange as a
payment, after receiving money, seller will record it as selling goods in cash and use the exchange rate on
the date it receives money from the bank. If it is a term bill (normally the time of bill are between 30 days
to 180 days), seller will record it as debit of Note receivable (bill receivable), selling goods on credit
(the face value x an exchange rate on the bill’s receiving date).

Then when reaching maturity date for receiving payment and using an exchange rate on the
maturity date. The rate has changed and created the differences in exchange rate. As if an exchange rate
on the maturity date is higher than the amount recorded in the account, it is a profit from exchange rate
that can be credited in the exchange rate variance account. However, if an exchange rate on the maturity
date is lower, it is a loss from exchange rate that can be debited in the exchange rate variance account. The
total variance of exchange rate at the end of accounting period will be transferred to the financial
statement.

Accounting for Bill BUNYAWEE SUWANNABOOL

Example 2 On 30 April 25x1, business exported goods to USA and received a 2-month bill of
exchange worth 3,000 Dollar as a payment. Business sent the bill to the bank on 30 April 25x1 when the
exchange rate is 35.19 Baht per Dollar. On the maturity date, an exchange rate is 35.21 Baht per Dollar.

Accounting record on the date that sent the bill to the bank

General Journal A/C Page 1
No.
Date Transactions Debit Credit

25x1 105,570 -
Apr 30 Notes Receivable (3,000 x 35.19) 105,570 -

Sales
Sold goods to foreign customer who paid with
a 2-month BoE.

Accounting record on the maturity date for receiving money

General Journal A/C Page 1
No.
Date Transactions Debit Credit

25x1 105,630 -
Jun 30 Cash (3,000 x 35.21)
105,570 -
Note Receivable (3,000 x 35.19) 60 -
Exchange Rate Variance (3,000 x 0.02)
Received payment from BoE.

BoE = Bill of Exchange

Accounting for Bill BUNYAWEE SUWANNABOOL

Example 3 From example 2 if business sent the bill to the bank when the exchange rate is 35.19
Baht per Dollar. On the maturity date, an exchange rate is 35.05 Baht per Dollar.

Accounting record on the date that sent the bill to the bank Page 1
General Journal
Credit
Date Transactions A/C Debit
No. 105,570 -

25x1 105,570 -
Apr 30 Note Receivable (3,000 x 35.19)

Sales
Sold goods to foreign customer who paid with a
2-month BoE.

Accounting record on the maturity date for receiving money Page 2
General Journal
Credit
Date Transactions A/C Debit
No. 105,570 -

25x1 105,150 -
Jun 30 Cash (3,000 x 35.05) 420 -

Exchange Rate Variance (3,000 x 0.14)
Note Receivable (3,000 x 35.19)

Received payment from BoE.

2. Order Purchaser or Buyer

When business orders goods from foreign countries, if buyer or importer approves an immediate
bill of exchange on the date that goods documents were received and already paid the bank, buyer will
record it as buying goods with debit, cash credit and use the exchange rate on the payment date. If it is a
term bill, such as 30 days or 60 days, on the bill’s approval date to the bank, buyer will record it as debit
for buying goods of bill payable credit (the face value x an exchange rate on the bill’s approval date).

Accounting for Bill BUNYAWEE SUWANNABOOL

Then when reaching maturity date for paying money and using an exchange rate on the maturity
date. The rate has changed and created the differences in exchange rate. As if an exchange rate on the
maturity date is higher than the amount recorded in the account, it is a loss from exchange rate that can be
debited in the exchange rate variance account. However, if an exchange rate on the maturity date is lower,
it is a profit from exchange rate to be credited in the exchange rate variance account.

Example 4 Business approved a 60-day BoE on 24 January 25x1 as a 4,000 Dollar worth of
goods payment ordered from USA. The business approved the bill and goods documents on 29 January
25x1 when the exchange rate is 35.15 Baht per Dollar. On the maturity date, an exchange rate is 35.12
Baht per Dollar.

Accounting record on the bill’s approval date Page 2
General Journal
Credit
Date Transactions A/C Debit
No. 140,600 -

25x1 140,600 -
Jan 29 Purchase

Note Payable ( 4,000 x 35.15)
Approved a 60-day BoE for goods payment
ordered from foreign country

Accounting record on the maturity date for paying money Page 2
General Journal
Credit
Date Transactions A/C Debit
No. 140,480 -
120 -
25x1 140,600 -
Mar 25 Note Payable (4,000 x 35.15)

Cash ( 4,000 x 35.12)
Exchange Rate Variance (4,000 x 0.03)
Paid money of BoE.

Accounting for Bill BUNYAWEE SUWANNABOOL

For international business operation, there is a problem on foreign exchange rate from trading
goods from one country to another may have different currency on payment leading to risks from
exchange rate. In the case that trading agreement date and payment date are different, because exchange
rate is unstable, changing, increasing or decreasing all the time, business may face problem on paying
more or receive less amount than what had been agreed in the sale contract due to the different in
exchange rate of trading date and payment date.

Thus, business should do hedging that may happen in order to prevent damages or losses in the
future. Hedging can be considered in 2 cases;

1. Buying foreign currency in advance
Buying foreign currency in advance will help prevent risks of buyer if buyer buys goods from
foreign countries and does not want to have burden from exchange risks that may cause higher payment in
the future.
Buyer can prevent risks by having a forward contract with an agent, which can be a bank or a
financial institution, in order to avoid burden from unstable foreign exchange rate on the payment date. In
this case, if there are changes in exchange rate on the payment date, any profit and loss from exchange
rate will not affect the business as it becomes agent’s burden instead. The business only pays the amount
that agreed on the date of making a sales contract.

Example 5 Below are international trading entries of Import Company
25x1
Mar 5 Purchased merchandise from foreign country and accepted payment in Dollar. The business

approved a 2-month bill $10,000 and made a forward contract with an agent with the equal
amount of payment today. (An exchange rate is 35 Baht per Dollar)
May 5 On the maturity date, business bought Dollars from agent as agreed in the contract and paid as
face value. (An exchange rate is 36 Baht per Dollar)

Accounting for Bill BUNYAWEE SUWANNABOOL

General Journal A/C Page 2
No.
Date Transactions Debit Credit

25x1 350,000 -
Mar 5 Purchase 350,000 -

Note Payable
Bought(Purchased) $10,000 of goods from
foreign country. Exchange rate 1 : 35

Dollar Receivable from agent 350,000 -
Baht Payable to agent 350,000 -

Made a forward contract.

May 5 Baht Payable to agent 350,000 -
Cash 350,000 -

Paid cash for buying Dollars as agreed on 360,000 -
contract
Dollar (1 : 36) 350,000 -
10,000 -
Dollar Receivable from agent
Exchange rate variance
Received money in Dollars from currency
exchange agent as agreed

Note Payable 350,000 -
Exchange rate Varian 10,000 -

Dollars 360,000 -
Paid money on the maturity date.

Accounting for Bill BUNYAWEE SUWANNABOOL

From example On the payment date, the exchange rate is higher than the contract making date.
If the business did not make a forward contract, it has to accept loss of 10,000 Baht. However, as the
business made a forward contract, the occurred burden belongs to agent.

On the other hand, if the exchange rate on the payment date is lower that the contract making
date, profit occurred also belongs to agent.

Example 6 From example 5, if the exchange rate on the payment date equal to 34.50 Baht per
Dollar.

Accounting record
*Accounting records on 5 March are the same as in example 5

General Journal A/C Page 2
No.
Date Transactions Debit Credit

25x1 350,000 -
Mar 5 Purchase
350,000 -
Note Payable
Bought $10,000 of goods from foreign country.
Exchange rate 1 : 35

Dollar Receivable from agent 350,000 -
Baht Payable to agent
350,000 -
Made a forward contract.

May 5 Baht Payable to agent 350,000 -
Cash
350,000 -
Paid cash for buying Dollars as agreed on contract

Dollar (1 : 34.50) 345,000 -
Exchange Rate Variance 5,000 -

Dollar Receivable from agent 350,000 -
Received money in Dollars from currency exchange
agent as agreed

General Journal Page 3

Accounting for Bill BUNYAWEE SUWANNABOOL

Date Transactions A/C Debit Credit
No.
25x1
Mar 5 Note Payable 350,000 -

Dollar 345,000 -
Exchange Rate Variance 5,000 -
Paid money on the maturity date.

2. Selling foreign currency in advance

Selling foreign currency in advance will help prevent risks of seller, if seller exports its goods to
foreign countries and does not want to have burden from exchange risks that may cause lower debt
payment than the amount on the sale date.

Seller can prevent risks by having a forward contract with an agent, which can be a bank or a
financial institution, in order to avoid burden from unstable foreign exchange rate on the payment date. In
this case, if there are changes in exchange rate on the payment date, any profit and loss from exchange
rate will not affect the business as it becomes agent’s burden instead. The business only receives the
amount that agreed on the date of making a sales contract.

Example 7 Below are international trading entries of Export Company
25x1
Mar 5 Exported goods to foreign country and accepted payment in Dollar. The business issued a

2-month bill of exchange worth $20,000 for customer’s approval and made a forward contract
with an agent with the equal amount of payment today. (An exchange rate is 35 Baht per Dollar)
May 5 On the maturity date, business received payment in Dollars and sold Dollars to agent as agreed
in the contract. (An exchange rate is 34.50 Baht per Dollar)

General Journal Page 2

Accounting for Bill BUNYAWEE SUWANNABOOL

Date Transactions A/C Debit Credit
No.
25x1
Mar 5 Note Receivable 700,000 -

Sales 700,000 -
Sold $20,000 worth of goods to foreign country.
Exchange rate 1 : 35

Baht Receivable from agent 700,000 -
¤ Dollar Payable to agent
Made a forward contract. 700,000 -

May 5 Dollar (20,000 x 34.50) 690,000 -
Exchange Rate Variance 10,000 -
¤ Note Receivable
Receive payment as face value. 700,000 -
Exchange rate 1 : 34.50

Dollar Payable to agent 700,000 -
Dollars
Exchange Rate Variance 690,000 -
10,000 -
Received money in Dollar from currency exchange
agent as agreed.

Cash 700,000 -
Baht Receivable from Agent
700,000 -
Received money in Baht from currency exchange agent
as agreed.

From example on the payment date, the exchange rate is lower than the contract making date
causing lower payment receiving. If the business did not make a forward contract, it has to accept loss.

Accounting for Bill BUNYAWEE SUWANNABOOL

However, as the business made a forward contract, the occurred burden belongs to agent. On the other
hand, if the exchange rate on the payment date is higher that the contract making date, profit occurred also
belongs to agent.

Example 8 From example 7, if the exchange rate on the payment date equal to 36 Baht per
Dollar.

Accounting record
*Accounting records on 5 March are the same as in example 7

General Journal A/C Page 2
No.
Date Transactions Debit Credit

25x1 720,000 -
May 5 Dollar (20,000 x 36)
700,000 -
¤ Note Receivable 20,000 -
¤ Exchange Rate Variance
Receive payment as face value.
Exchange rate 1 : 36

Dollar Payable to agent 700,000 -
Exchange Rate Variance 20,000 -

Dollars 720,000 -
Received money in Dollar from currency exchange
agent as agreed.

Cash 700,000 -
Baht Receivable from Agent 700,000 -

Received money in Baht from currency exchange
agent as agreed.

Accounting for Bill BUNYAWEE SUWANNABOOL

Chapter 9
Cheques

Contents

1. Definition of cheque
2. Benefits and restrictions of using cheque
3. Ethics of using cheque
4. Contacting the bank for cheque account opening
5. Writing cheque
6. Time period of cheque cash in with the bank
7. Account recording on deposits and withdrawals from the bank and posting to other related

ledgers on deposits and withdrawals from the bank

Learning Objectives

1. To be able to define and explain cheques
2. To be able to contact the bank for cheque account opening
3. To be able to write cheques
4. To be able to record deposits and withdrawals from the bank in the book of original entry
5. To be able to post to other related ledgers on deposits and withdrawals from the bank

Accounting for Bill BUNYAWEE SUWANNABOOL

Chapter 9

Cheques

Definition of Cheques

In accordance with CCC Section 987, A cheque is a written instrument by which a person, called
the drawer, orders a banker to pay on demand a sum of money to, or to the order of, a person, called the
payee.

CCC Section 988 stated that a cheque must contain the following particulars:
1. The designation of it as a cheque.
2. An unconditional order to pay a sum certain in money.
3. The name of trade name and address of the banker.
4. The name of trade name of the payee or a mention that it is payable to bearer.
5. The place of payment.
6. The date and place where the cheque is issued.
7. The signature of the drawer.

To use a cheque, there are 3 related parties

1. The drawer or cheque issuer is a person who writes a cheque to pay its creditor.
In order to issue a cheque, a current account must be opened with the bank. Then the bank will give
bank’s cheque book to the business. When business needs to withdraw or pay debts, it can write a cheque
to pay at a desired amount.

2. The drawee is a bank that has to pay the specified amount on cheque to customer by
considering other details as follow:

2.1 Cheque must not older than 6 months from the date on the cheque.
2.2 Drawer’s signature mismatches with the signature given to the bank.
2.3 No suspension of payments from account’s owner.
2.4 Not a crossed cheque.
2.5 Not a post-dated cheque.
2.6 Not a damaged cheque.
2.7 No authentication on corrections in the cheque.

Accounting for Bill BUNYAWEE SUWANNABOOL

2.8 Payment value is higher than the amount in the account .
2.9 The amount in words differs from the amount in writing.
3. The payee is a cheque bearer and has the right to request the amount of money
on the cheque.

Benefits and Restrictions of Using Cheque
Most of businesses usually open a current account, because this type of saving account can

withdraw money by writing cheques which benefits businesses;
1. It is an internal control of cash, because if business pays all transactions in cash and has to

keep a lot of cash, it may easily face risks on corruption and robbery. Therefore, when business receives
money each day, it will deposit to the bank and when business needs to pay, it should pay with cheque.

Moreover, cheque is easy for auditing because the bank will send a report at the end of the month
and the report can also be used as a confirmation of business payments.

2. It is more convenient because cheque can be written any time with any desired amount.
3. Business can pay debts by writing post-dated cheque in case insufficient money in the account.

Ethics of Using Cheque

Using cheque can benefit the business; nonetheless, cheque user should have ethics of use which
are;

1. Cheque issuer needs to have a good discipline because issuer must check sufficient balance in
each cheque writing. If the account balance is insufficient, signed cheques will be dishonored.
The business loses its credibility and may be enforced by law leading to bad reputation.

2. Cheque issuer also needs to be careful on cheque usage such as writing numbers on cheque,
the amount in words must be the same as the amount in writing, and writing a cheque with
very high amount should not issue cashier’s cheque, crossed cheque should be issued instead
to prevent the loss.

Contacting the Bank for Cheque Account Opening

Business needs to contact a bank to open a current account. The bank’s staff will request business
to fill-in information on the request form;

1. Signature card BUNYAWEE SUWANNABOOL

Accounting for Bill

Drawer must signed the same signature on both signature cards and the bank will keep both
cards to compare with drawer’s signature in each cheque writing.

2. Current account opening request form

3. Deposit slip for current account
For each deposit transaction at the bank, the depositor is a writer of the deposit slip.
Deposit slip has a copy. An original is kept by the bank and a copy is returned to depositor to keep for
accounting record.
When depositor opened a current account with the banks, the bank will give a cheque book and
specific the account number in the cheque. Depositor will have to pay fees and revenue stamp for
cheque usage to the bank.

Example of cheque

Cheque is divided in 2 parts;

Part 1 is cheque counterfoil which has
- Date means the day of cheque writing
- Pay means pay to who
- Baht means the amount of each payment

Accounting for Bill BUNYAWEE SUWANNABOOL

Other details such as last balance, deposit, balance are account reminders. For small businesses
with few cheque payments can write those details, but for big-sized business with a lot of cheque
payments does not need to write those details.

Cheque counterfoil can be used as an evident of accounting record, payment details need to be
clearly write and a cheque register is recommended.

Part 2 is cheque which has
- Date means the day month year of cheque payment
- Pay means pay to who
- Baht means the amount of each payment in writing
- Baht writing in numbers such as 30,000 xx/100. If it has stang unit, it is 30,000 x
30/100
- Drawer’s signature must match with what is signed in the signature card

Cheque register

It is a register created by the business to record details on each cheque about when were these
cheques are paid, to who, paid for what, how many and who signed as a payee. It is easy to find and check
the cheque counterfoil. For recording the entry on the cheque register, entry should be recorded in
payment date sequences.

Example of cheques register

Date of Cheque Cheque Detail Amount Note

Payment No. Water charge 4,856 -
24/04/09 8771552 Purchased merchandise 34,500 -
24/04/09 8771553 Pay debts to ST shop 18,900 50
25/04/09 8771554 Electricity charge 13,500 -
27/04/09 8771555

Accounting for Bill BUNYAWEE SUWANNABOOL

Writing Cheque

Writing a cheque to get money from the bank can be done as follows;
1. Cashier cheque or bearer’s cheque is a cheque that drawer wrote cash on pay part or
specifies payee name and did not cross out on or bearer, so anyone can be the cheque’s bearer. When cash
in at the bank, the bank will pay cash equal to amount on the face value.

19 11 25x1 1 9 1 1 25 x 1

CASH CASH
Two hundred thousand Baht Only =200,000 1x0x0
=200,000 xx
100
=1,500,000.-

Thanont S

2. Order cheque is a cheque that specifies the payment from payee and crosses out
or bearer. The payee is the person whose name is on the cheque only.

19 11 25x1 Miss Bunyayee Suwannabool 1 9 1 1 25 x 1
-----------
Bunyayee Two hundred thousand Baht Only
=200,000 1x0x0
=200,000 xx
100 Thanont S

Accounting for Bill BUNYAWEE SUWANNABOOL

3. Crossed cheque; has two types:
3.1 General crossing means a cheque that is written two parallel lines in front of

the cheque (on the top left hand corner) without any writing or has ‚& CO.‛ wording between two lines.
The cheque’s bearer cannot be immediately cashed by a bank; it may only be deposited directly into
bearer’s account. When the bank collected the money, it can be cashed. If a crossed cheque has a specific
bearer’s name, it means this cheque can be deposit to any accounts.

19 11 25x1 Miss Bunyayee Suwannabool 1 9 1 1 25 x 1

Bunyayee Two hundred thousand Baht Only =200,000 1x0x0
Thanont S
=200,000 xx
100

If a crossed cheque has a specific bearer’s name and also crosses out on or bearer, it means
this cheque can be deposit only to bearer’s account.

19 11 25x1 Miss Bunyayee Suwannabool 1 9 1 1 25 x 1

Bunyayee Two hundred thousand Baht Only =200,000 1x0x0
Thanont S
=200,000 xx
100

3.2 Special crossing means a cheque that is written two parallel lines in front of

Accounting for Bill BUNYAWEE SUWANNABOOL

the cheque (on the top left hand corner) and there are notes written between the lines such as

19 11 25x1 Miss Bunyayee Suwannabool 1 9 1 1 25 x 1

Bunyayee Two hundred thousand Baht Only =200,000 1x0x0
Thanont S
=200,000 xx
100

- A/c Payee Only means cheque is deposited directly into bearer’s account only.

19 11 25x1 Miss Bunyayee Suwannabool 1 9 1 1 25 x 1
=200,000 1x0x0
Bunyayee Two hundred thousand Baht Only

=200,000 xx
100

Thanont S

- A/c Payee Only with the specification of bank’s name means cheque is deposited
directly into bearer’s bank account that the bank name is written only.

- It cannot be transferred to others and need to be deposited into bearer’s account only.

Accounting for Bill BUNYAWEE SUWANNABOOL

Time Period of Cheque Cash In with the Bank

Cheque is a bill that needs to be paid when request, when bearer request cash from the bank, the

bank needs to pay immediately under the time condition that bearer needs to deposit a cheque to the bank

within the timeframe below;

1. If the cheque is issued and deposited in the same province, cheque is needed

to be cash in within 1 month from the cheque date.

2. If the cheque is issued and deposited in the different province, cheque is needed

to be cash in within 3 months from the cheque’s date.

In case the business is receiving cheques

Receiving cheque in accounting can be categorized into 3 cases, which are;

1. To cash in the cheque at the bank immediately; it is considered as cash.

2. To receive the cheque and keep it, not yet cash in or deposit, it is considered as cash on hand.

3. To receive the cheque and cash it at the bank immediately, it is considered as bank deposit.

For business operation, sometimes business does not make money, it will negotiate with the

creditor and its accounts receivable to pay post-dated cheque. The creditor agrees to receive post-dated

cheque from the business and the business agrees to accept post-dated cheques from its accounts

receivable.

For a reminder, post-dated cheque receiving and issuing to whom, how much and when the

maturity is date, business should create ‘Post-dated cheque registered book’. In accounting, when business

receives or issues a post dated cheque, it will not yet be recorder until money is completely received or

paid.

Example of post-dated cheque registered

Date of Date of Cheque Customers’

No. Cheque Cheque No. name Bank’s Name Amount

Receiving Payment

1 10 Jan x1 2 Feb x1 240135 KT shop Krungthai Bank, 20,000 -

Bangjak branch

2 8 Mar x1 26 Mar x1 751102 RS shop Kasikorn Bank, 24,000 -

Udumsuk branch

3 25 May x2 10 Jun x2 318861 KP shop Thahanthai, 18,400 -

Udumsuk branch

Accounting for Bill BUNYAWEE SUWANNABOOL

Account Recording on Deposits and Withdrawals from the Bank

To record about the deposit and withdraw from the bank means when the business receives a
cheque from other parties and deposits to it bank’s account, it is recorded as debited deposit. On the other
hand, if the business pays cheque to its creditor to pay for debts or other expenses, it is recorded as
credited deposit. Both debited and credited entry will be recorded in the book of original entry and posting
to related ledgers which are two columns cash book, three columns cash book or cash payment journal.
Each entry business can use any book depends on business consideration, but in this section, only
explanation in general journal is provided.

Transactions of cheque are as following

1. Deposit cash in order to open a new account.
2. Cheque receiving in cases below;

2.1. From selling goods
2.2. From debt payment from debtors
2.3. From selling assets
2.4. From other income
3. Cheque issuing in cases below;
3.1. For buying goods
3.2. For debt payment to creditor
3.3. For other expenses
3.4. For buying assets
3.5. For personal use
3.6. For business use
4. Additional deposit to the bank
4.1. Deposit in cash
4.2. Deposit in cheque

Saving Bank เงนิ ฝากประเภทออมทรพั ย์
Current Bank เงนิ ฝากกระแสรายวนั ถอนเงินดว้ ยเช็คเทา่ น้นั
Fixed Account เงินฝากประจา

Accounting for Bill BUNYAWEE SUWANNABOOL

Posting to Other Related Ledgers on Deposits and Withdrawals from the Bank

Account recording on deposits and withdrawals from the bank and posting to other related ledgers
Example Below is Meechok shop’s entry on cheque and deposit in May 25x1
25x1
May 2 Meechok shop deposited cash of 300,000 Baht for current account opening and

100,000 Baht for savings account
5 Paid a cheque no 6855651 of 26,500 Baht as a debt payment to creditor
8 Paid a cheque no 6855652 of 48,000 Baht with 7% value added tax, for buying

goods
9 Received a cheque no 23242169 of 21,500 Baht from debtor and deposited to

the current account today
12 Sold goods and received a cheque no 5186132 of 32,000 Baht,

7% value added tax included, as a payment and deposited to the savings account
13 Bought office equipment worth 45,000 Baht with 7% value added tax and paid

with a cheque no 6855653
15 Issued a cheque no 6855654 of 10,000 Baht for business use
17 Issued a cheque no 6855655 of 4,700 Baht for advertisement
20 Withdrew 30,000 Baht from the savings account and deposited to the current

account

Accounting for Bill BUNYAWEE SUWANNABOOL

General Journal Page 1
Credit
Date Transactions A/C Debit
No. 400,000
May 2 Bank – Current Account 300,000
Bank – Savings Account 102 100,000
103
Cash
Business deposited to the bank

5 Account Payable 26,500 -
Bank – Current Account
102 26,500 -
Issued a cheque no 6855651 for debt payment

8 Purchase 48,000 -
Input Tax 3,360 -
Bank – Current Account
Issued a cheque no 6855652 for buying goods 102 51,360 -

9 Bank – Current Account 102 21,500 -
Account Receivable
21,500 -
Received a cheque from debtor and deposited to
the bank

12 Bank – Savings Account 103 32,000 -
Sales
Output Tax 29,906 54
2,093 46
Sold goods and received cheque as a payment and
deposited to the bank

13 Office Equipment 45,000 -
Input Tax 3,150 -
Bank – Current Account
Issued a cheque no 6855653 for payment 102 48,150 -

Accounting for Bill BUNYAWEE SUWANNABOOL

General Journal A/C Debit Page 1
No. 10,000 - Credit
Date Transactions 102
10,000 -
May 15 Cash 102
Bank – Current Account 4,700 -
102
Withdrew money for business use 103 4,700 -

17 Advertising Expense 30,000 -
Bank – Current Account
30,000 -
Issued a cheque no 6855655 for buying goods

20 Bank – Current Account
Bank – Savings Account

Withdrew money from savings account and
deposited to current account

Posting to Other Related Ledgers shown only savings account

Bank – Current Account 102

Date Transactions Post Dr. Date Transactions Post Cr.
Ref Ref

25x1 25x1

Apr 2 Cash J.1 300,000 - Apr 5 Account Payable J.1 26,500 -

9 Account Receivable J.1 21,500 - 8 Purchase J.1 48,000 -

20 Saving Account J.2 30,000 - Input Tax J.1 3,360 -

13 Office Equipment J.1 45,000 -

Input Tax J.1 3,150 -

15 Cash J.2 10,000 -

17 Advertising Expense J.2 4,700 -

Accounting for Bill BUNYAWEE SUWANNABOOL

Bank – Saving Account 103

Date Transactions Post Dr. Date Transactions Post Cr.
Ref Ref
25x1
25x1
Apr 2 Cash
12 Account Receivable J.1 100,000 - Apr 20 Bank -Current J.2 30,000 -
Output Tax
J.1 29,596 55

J.1 2,093 45

Accounting for Bill BUNYAWEE SUWANNABOOL

Chapter 10
Petty Cash

Contents

1. Definition of Petty Cash
2. Duties of Petty Cash Holder
3. Imprest System
4. Setting Up Petty Cash Limit
5. Petty Cash Book Payment Entry
6. Benefits of Petty Cash
7. Cash Short and Over
8. Petty Cash Accounting Record
9. Posting to Other Related Ledgers
10. Adjusting Petty Cash Account at the end of Period
11. Increasing or Decreasing Petty Cash Credit Limit

Learning Objectives

1. To be able to define and explain petty cash
2. To be able to explain petty cash disbursement of Imprest system
3. To be able to record payment in petty cash book
4. To be able to explain benefits of petty cash
5. To be able to record petty cash account
6. To be able to post to other related ledgers

Accounting for Bill BUNYAWEE SUWANNABOOL

Chapter 10
Petty Cash

Definition of Petty Cash

Petty cash means small amounts of cash that business has set up to meet small miscellaneous
payments that cannot pay with cheque or is convenient to issue order cheque such as entertaining fee,
postal fee, transportation fee. Petty cash is under the responsibility of finance staff, or it can be any staff
which is called ‘Petty Cash Custodian’.

Duties of Petty Cash Custodian

Petty cash custodian is responsible for;
1. Holding cash and paying it out when disburse with evidence of receipts
2. Record payment in petty cash book to remind what has been paid out
3. Collecting invoices and creating request for reimbursement of petty cash

Imprest System / Petty Cash

How to set up Imprest System
Imprest system is widely-used by setting up a fixed amount such as 3,000 Baht, 5,000 Baht or
10,000 Baht. When petty cash custodian paid out, he/she will collect evidence of receipts and create a
reimbursement request to get cash back from finance staff which equals to the expenses paid through
petty cash. After the reimbursement, the holding amount of petty cash custodian will equal to the petty
cash set up amount.

Setting Up Petty Cash Limit

Setting up petty cash limit is depending on the necessary and appropriate of cash usage of the
business. It can be set at 3,000 Baht, 5,000 Baht or 10,000 Baht.

Example 1 On 2nd January 25x1 , business set up a petty cash of 5,000 Baht and issued a
cheque to petty cash custodian today and petty cash is reimbursed on the last day of each month.

Accounting for Bill BUNYAWEE SUWANNABOOL

General Journal Page 1

Date Transactions A/C Debit Credit
No.

25x1 Petty Cash เงินสดย่อย 5,000 -
Jan 2 Bank Account

Set up petty cash 5,000 -

Bank Account No.102

Date Transactions Post Dr. Date Transactions Post Cr.
Ref Ref

25x1

Jan 2 Pretty Cash J.1 5,000 -

Petty Cash No.103

Date Transactions Post Dr. Date Transactions Post Cr.
Ref Ref
25x1
Jan 2 Bank Account J.1 5,000 -

Accounting for Bill BUNYAWEE SUWANNABOOL

Petty Cash Book Payment Entry

Paying out petty cash

Paying out petty cash when there are disbursement for small miscellaneous payments, petty
cash custodian need to create petty cash form enclosed with approval document. In general, petty cash
custodian will sign to confirm the accuracy and ask the superior executive for an approved signature
and then petty cash can be paid out.

Example of petty cash form

CHARI COMPANY LIMITED

PAYMENT VOUCHER No…………..

Date…………………………

Paid To ………………………………………………………………………………………………

By  Cash  Bank …………….. Cheque No………………. Due Date…………..

Amount ………………………………………. Paid for…………………………………………..

Item Bill No. List Amount

Prepared Voucher by Approval by Paid by The Payee

Accounting for Bill BUNYAWEE SUWANNABOOL

PAYMENT VOUCHUR No………………….
Date……………………………

Paid from…….…………………………………………………………………………………………….

By.  Cash  Bank…………………… Cheque No………………… Due Date……………

Amount…………………………………………. Paid for……………………………………………..

 Other…………………………………………………………………………………………………….

Account No. Particulars Amount
Baht St

Prepared By…………………………………….. Received By…………………………………………
Received cash or cheque completed.…………. Authorized By……………………………………….

When expenses have already paid, petty cash custodian need to record entries in the petty cash
book, which is not the same as the book of original entry but a book used as a reminder for petty cash
custodian. Hence, when entries are recorded to the petty cash book, they do not need to be posting to
general ledger.

Petty cash book consists of detail as follow;

1. Name of petty cash book
2. Column for date month year to record the paid out date
3. Description to explain petty cash entry’s expense
4. Form number means the number of petty cash reimbursement form creating in

chronological order. It is not prescribed by using receipt number from other people
5. Total amount to sum all expenses happening each day
6. Expenses are various depending on business. To define which column to fill in

expenses, business has to consider the frequent of use. If an expense is often paid, it
should be in a specific column. For those seldom used, they should be put in others

Accounting for Bill BUNYAWEE SUWANNABOOL