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Why is cash in hand a debit?

bonniebonnie Settling In NicelyRegistered Posts: 30
in AAT Level 2 (Level 5 in Scotland)
I got all the answers correct for drafting a trial balance except one - 'cash in hand'. I thought it would be an income - so I put it as a credit. But the answers say Cash in hand should be a debit.

Can anyone tell me why?

Thanks

Comments

  • RichardRichard Trusted Regular Registered Posts: 373
    Cash is an asset, and therefore would be shown as a debit figure.
  • bonniebonnie Settling In Nicely Registered Posts: 30
    Thanks for your reply Richard. What is an 'income' then, can you give me some examples?
    Thanks
  • CJCCJC Font Of All Knowledge Registered Posts: 1,657
    Income is basically anything that increases the assets or decreases the liabilities of a business. Income (hopefully) comes from operating activities such as sales - in this form it's often referred to as revenue; other forms or income that don't arise from normal operating activities may include profit on disposals of fixed assets, interest on investments etc.
  • bonniebonnie Settling In Nicely Registered Posts: 30
    Thanks CJC, but I still don't understand why cash in hand isn't an income?
  • CJCCJC Font Of All Knowledge Registered Posts: 1,657
    I can understand why it seems confusing, it's one of those occasions where accounting terminology doesn't coincide with the normal usage. As Richard said, cash-in-hand is an asset and thus a debit. Income in accounting terms is something that increases assets e.g. sales (which is a credit entry). Cash-in-hand may be the result of income but it is not in itself income.

    Think of sales - which are income. When we sell something for cash we credit sales a/c and debit cash a/c.
  • bonniebonnie Settling In Nicely Registered Posts: 30
    CJC - thanks for your help! I guess it will have to be one of those things that just IS! I will certainly remember now, after this conversation, even if it doesn't make any sense yet :-)

    Thanks again.
    B
  • MeltMelt Settling In Nicely Registered Posts: 23
    I started studying at Certificate stage this weekend and I have to say the whole 'expenditure = debit/income = credit' thing really confused me too! It seems to contradict everything else that comes under the heading of debit and credit if that makes sense.
    I too decided that it was going to be one of those things that you just have to accept and hope that it makes sense one day! This thread helped though, good timing for me too!
    :001_smile:
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    Bonnie and Melt

    If you just accept that it is that way for now, all of a sudden you will click and it will all make sense - promise!
  • Jon_1984Jon_1984 Well-Known Registered Posts: 186
    I still use PEARLS to make sure i get it all in the right place on a TB as I come to the end of intermediate:

    Purchases
    Expenses
    Assets all equals debit

    Revenue
    Liabilities
    Sales all equals credits

    Just keep doing it this way as the other peeps have promised it will suddenly all click one day and make perfect sense.

    Think of cash in hand as you would petty cash - it hasnt (as a total figure) been given to the business in relation to any particular activity but the business does own it/have it available for use and it adds value to the business.
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