Recording of Transactions II | CBSE Class 11 Accountancy Notes

This note covers the special purpose books used to record business transactions: why the journal is divided into subsidiary books, the single column and double column cash book, pay-in-slips, cheques and crossings, contra entries and dishonoured cheques, the petty cash book and the imprest system, the purchases and purchases return books, debit and credit notes, the sales and sales return books, analytical books with GST columns, the journal proper, posting to the ledger and the balancing of accounts.

Why is the journal divided into special purpose books?

All business transactions are first recorded in the journal and then posted to accounts in the ledger. A small business may record everything in the journal alone. As transactions become many, journalising each one becomes cumbersome.

Many business transactions are repetitive in nature. For quick, efficient and accurate recording, the journal is sub-divided into special journals, each meant for transactions of a similar nature: all cash transactions in one book, all credit sales in another, all credit purchases in a third.

Definition: Special journals, also called daybooks or subsidiary books, are books in which transactions of a similar nature are recorded together. Transactions that cannot be recorded in any special journal go into the Journal Proper.

Special journals prove economical and make division of labour possible in accounting work.

What is a cash book, and how is a single column cash book kept?

Definition: A cash book is a book in which all transactions relating to cash receipts and cash payments are recorded. It starts with the cash or bank balances at the beginning of the period.

A cash book is generally made on a monthly basis and is maintained by all organisations, big or small, profit or not-for-profit. It serves the purpose of both the journal and the ledger (cash) account, and is also called the book of original entry.

When a cash book is maintained, cash transactions are not recorded in the journal, and no separate account for cash or bank is required in the ledger.

What does the single column format look like?

The single column cash book records all cash transactions in chronological order, a complete record of cash receipts and payments. When all receipts and payments are made in cash only, it has one amount column on each side.

A ruling headed Cash Book, marked Dr. at the top left and Cr. at the top right. The left half has columns for Date, Receipts, L.F. and Amount (₹); the right half has Date, Payments, L.F. and Amount (₹).

See Fig. 4.1 in your NCERT textbook

Worked example 1. Single column cash book of M/s Roopa Traders, November 2017. Cash in hand ₹30,000 on Nov. 01. Receipts: from Gurmeet ₹12,000; cash sales ₹28,000 and ₹18,200. Payments: insurance ₹6,000, furniture ₹13,800, goods from Mudit ₹17,400, stationery ₹1,100, Rukmani ₹12,500, rent ₹2,500, salary ₹3,500, and ₹8,000 deposited in bank.

Working: receipts 30,000 + 12,000 + 28,000 + 18,200 = 88,200; payments total 64,800.

Answer: Balance c/d on Nov. 30 = ₹23,400. Both sides total ₹88,200, and ₹23,400 is brought down as Balance b/d on Dec. 01.

How is the cash book posted to the ledger and balanced?

The left side of the cash book shows receipts and the right side shows payments. Accounts on the debit side of the cash book are credited in the ledger, because cash has been received in respect of them. Accounts on the credit side are debited, because cash or a cheque has been paid in respect of them.

In the Roopa Traders example, "cash received from Gurmeet" is on the debit side of the cash book. So Gurmeet's account is credited by writing "Cash" in the particulars column. Likewise, Furniture account is debited with ₹13,800.

How is the cash book balanced?

The cash book is balanced in the same way as a ledger account:

Closing cash balance = Total receipts − Total payments

The cash column will always show a debit balance, because cash payments can never exceed cash receipts plus cash in hand at the beginning of the period.

What are its source documents?

For cash receipts the source document is generally the duplicate copy of the receipt issued by the cashier. For payments, any invoice, bill or receipt on which payment has been made serves. These documents, known as vouchers, are serially numbered and filed for future reference and verification.

Worked example 2. Settlements and drawings, M/s Kuntia Traders, September 2017. Puneet paid ₹11,700 in full settlement of a claim of ₹12,000, and Rukmani was paid ₹6,850 in full settlement of ₹7,000. A premium of ₹2,740 was paid on a policy for the proprietor's wife, and ₹5,000 was withdrawn for household use.

Treatment: only the cash that changes hands is entered, so Puneet appears at ₹11,700 and Rukmani at ₹6,850. The premium and the household withdrawal are both entered as Drawings.

Answer: receipts total ₹1,19,600 and payments ₹91,640, so Balance c/d = ₹27,960.

What are pay-in-slips, cheques and crossings?

A businessman generally opens a current account with a bank. Banks allow no interest on a current account balance but charge a small amount, called incidental charges, for their services.

To deposit cash or cheques, a form called a pay-in-slip is filled. Its counterfoil is returned to the depositor, signed by the cashier, as a receipt.

A State Bank of India pay-in-slip: a narrow counterfoil on the left and the main slip on the right, each with spaces for the account number, the account to be credited, a ruled table of particulars and amounts, and signature boxes.

See Fig. 4.2 in your NCERT textbook

The bank issues blank cheque forms for withdrawing money. The name of the party to be paid is written after the printed word "Pay". The printed word bearer means payment is made to the person named or to the bearer. When "bearer" is struck off, the cheque becomes an order cheque, paid to the person named or to his order after proper identification.

A State Bank of India cheque leaf with a DATE line at the top right, a PAY line ending in OR BEARER, a RUPEES line, and a box marked Rs. for the amount. Small boxes on the left read A/c No., L.F. and INTLS, and code numbers run along the bottom edge.

See Fig. 4.3 in your NCERT textbook

Cheques are generally crossed: two parallel lines are drawn across them. A crossed cheque cannot be paid at the counter; it is paid only through a bank.

Five pairs of parallel lines slanting up to the right. The first pair is blank; the others carry "& Co.", "Not Negotiable", "A/c Payee Only" and "State Bank of India, New Delhi" between the lines.

See Fig. 4.4 in your NCERT textbook

Endorsement means writing instructions on the back of a cheque to pay it to a particular person, and then signing it.

How does a double column cash book record bank and contra entries?

Bank transactions are now very large in number, and many organisations make receipts and payments through the bank as far as possible. A double column cash book therefore has two amount columns, Cash and Bank, on each side. The bank column serves as the bank account, so no bank account is opened in the ledger.

A Cash Book ruling marked Dr on the left and Cr on the right, each half with columns for Date, Receipts or Payments, L.F., Cash (₹) and Bank (₹).

See Fig. 4.5 in your NCERT textbook

Payments into the bank go on the left side and withdrawals or payments through the bank on the right. The bank column is balanced like the cash column, but it can show a credit balance because of an overdraft: cash withdrawn from the bank exceeding the amount deposited.

What is a contra entry?

When cash is deposited in or withdrawn from the bank, both aspects of the transaction appear in the cash book itself. Such an entry is a contra entry, and the letter C is written in its L.F. column. For cash paid into the bank:

1. Write the amount on the left side in the bank column, with "Cash" in the particulars.
2. Enter the same amount on the right side in the cash column, with "Bank" in the particulars.
3. Write C in the L.F. column against both entries.
4. Ignore both entries while posting from the cash book to the ledger.

The reverse entries are made when cash is withdrawn from the bank.

How are cheques received and dishonoured recorded?

A cheque deposited on the day it is received is entered in the bank column on the receipts side. If it is deposited on another day, it is first treated as cash received in the cash column; on the day of deposit a contra entry moves it to the bank column.

Dishonour of a cheque means its return unpaid, generally because of insufficient funds. The bank debits the firm, and the firm enters the amount on the credit side in the bank column, with the customer's name in the particulars. Bank charges and interest debited by the bank also go on the credit side in the bank column; amounts the bank credits go on the debit side.

Worked example 3. Double column cash book of M/s Tools India, September 2017. Opening balances: bank ₹42,000, cash ₹15,000. Cash in: sales ₹6,000 and ₹10,000 withdrawn from the bank (contra). Cash out: goods ₹17,400, salary ₹3,500. Bank in: a sales cheque of ₹4,500 deposited the same day. Bank out: cheques for goods ₹12,000, machinery ₹5,500, stationery ₹1,100, Rohit ₹1,500, rent ₹2,500, and the ₹10,000 withdrawal.

Answer: cash 31,000 − 20,900 = ₹10,100; bank 46,500 − 32,600 = ₹13,900 carried down.

Worked example 4. Opening with an overdraft, M/s Laser Zone, January. Cash ₹4,000 and an overdraft of ₹3,200 at the start; the overdraft is entered as Balance b/d in the bank column on the payments side. Cash received: sales ₹7,000 and ₹4,500. Bank received: ₹7,000 deposited (contra), a sales cheque ₹3,000 and interest collected ₹1,700. Bank paid: goods ₹2,000, overdraft interest ₹200, telephone ₹600.

Answer: cash column totals ₹15,500 with ₹1,600 carried down; bank column totals ₹11,700 with ₹5,700 carried down.

What is a petty cash book, and how does the imprest system work?

Every organisation makes many small, repetitive payments, such as conveyance, cartage, postage and telegrams, and other expenses recorded under miscellaneous expenses. Recording them in the main cash book is cumbersome: the cashier may be overburdened and the cash book very bulky. Large organisations normally appoint a petty cashier, who keeps a separate petty cash book.

How does the imprest cycle run?

1. A definite sum, say ₹2,000, is given to the petty cashier at the start of a period: the imprest amount.
2. The petty cashier makes all small payments out of it.
3. When a substantial portion, say ₹1,780, has been spent, the head cashier reimburses the amount spent.
4. The petty cashier again holds the full imprest amount at the start of the next period.

Reimbursement may be weekly, fortnightly or monthly. In certain cases petty cash is operated through the main cash book, and no separate petty cash book is kept.

What columns does it have?

The payment side has a total amount column and several analysis columns, each for a common type of payment. The last is Miscellaneous, followed by a Remarks column for the nature of the payment. The receipt side has one amount column; date, voucher number and particulars are common to both.

What are its advantages?

• Saving of time and effort: the chief cashier can concentrate on large cash transactions.
• Effective control over cash disbursements: the head cashier checks the petty cashier, so fraud and embezzlement become very difficult.
• Convenient recording: the materiality principle keeps insignificant details out of the main cash book, and only expense totals are posted to the ledger.

In a nutshell, a petty cash book is a cost reduction control measure.

Worked example 5. Petty cash book of M/s Samaira Traders, May 2017. Mr. Mohit, the petty cashier, received ₹2,000 on May 01 and made twenty small payments, from an auto fare of ₹55 on May 02 to a bus fare of ₹15 on May 30.

Working: 325 + 121 + 349 + 390 + 302 = 1,487 spent; 2,000 − 1,487 = 513.

Answer: Balance c/d on May 31 = ₹513. On June 01 the petty cashier is paid ₹1,487, restoring the imprest of ₹2,000.

Petty cash balance = Imprest amount − Amount spent

Reimbursement = Total of the amount paid column

How is it posted?

A petty cash account is opened in the ledger and debited with the amount given to the petty cashier. Each expense account is debited with its column total by writing "Petty cash". The petty cash account is credited with the total spent as "Sundries as per petty cash book", and its balance shows the actual cash with the petty cashier.

How are the purchases book and the purchases return book kept?

All credit purchases of goods are recorded in the purchases journal; cash purchases go to the cash book. Other purchases, such as office equipment, furniture or a building, go to the journal proper if bought on credit, or to the cash book if bought for cash.

The source documents are the invoices or bills received from suppliers. Entries are made at the net amount of the invoice; trade discount and other details need not be recorded.

Net invoice amount = List price − Trade discount

One ruled table with five columns: Date, Invoice No., Name of Supplier (Account to be credited), L.F., and Amount (₹).

See Fig. 4.6 in your NCERT textbook

Each supplier's account is credited daily. The book's total is posted periodically, normally monthly, to the debit of the purchases account; with very many transactions it may be posted daily, weekly or fortnightly.

The purchases return book

Goods may be returned because they are not of the required quality or are defective. For every return a debit note is prepared in duplicate, and the original is sent to the supplier. The debit note, generally the source document for this book, names the party, details the goods and gives the reason. Each is serially numbered and dated.

One ruled table with five columns: Date, Debit Note No., Name of the Supplier (Account to be debited), L.F., and Amount (₹).

See Fig. 4.7(a) in your NCERT textbook

Each supplier's account is debited with the return, and the purchases return account is credited with the periodic total.

Worked example 6. Purchases and returns of M/s Hi-Life Fashions, September. Ratna Traders supplied 25 shirts at ₹300 and 20 pants at ₹700, less 10% trade discount: 21,500 − 2,150 = 19,350.

Answer: the purchases book totals ₹54,350, debited to the purchases account as "Sundries as per purchases journal". The purchases return book totals ₹4,670, credited to the purchases return account.

What are debit notes and credit notes?

A debit note evidences a debit raised against a party for reasons other than a credit sale. It is prepared when defective goods are returned to the supplier, or when an additional sum is recoverable from a customer.

A credit note is prepared when a party is to be given credit for reasons other than a credit purchase. It is commonly made in red ink, and it should be sent to a customer whose goods are received back.

Two boxed forms headed "Name of the Firm Issuing the Note", with No., address and date of issue. The DEBIT NOTE is made against the supplier's name, the CREDIT NOTE against the customer's name. Both show the challan number, details of goods returned, the amount in figures and words, and the manager's signature with date.

See Figs. 4.7(b) and 4.7(c) in your NCERT textbook

For example, M/s Kanika Traders returned defective goods to Neema Electronics under debit note no. 03/2017. The purchases return book shows ₹13,200 against Neema Electronics, whose account is debited.

How are the sales book and the sales return book kept?

All credit sales of merchandise are recorded in the sales journal; cash sales go to the cash book. The source documents are sales invoices. Two or more copies are prepared for each sale, and entries are made from one copy.

The sales journal records the date, invoice number, customer's name and amount. An additional column may record sales tax recovered from the customer and payable to the government within the stipulated time.

One ruled table with five columns: Date, Invoice No., Name of the Customer (Account to be debited), L.F., and Amount (₹).

See Fig. 4.8 in your NCERT textbook

Customers' accounts are debited, generally daily. The book is totalled periodically, generally monthly, and the total is credited to the sales account.

Worked example 7. Sales book of M/s Koina Supplies, April 2017. Credit sales: two water purifiers at ₹2,100 and five buckets at ₹130 to Raman Traders (invoice 178); five roadside containers at ₹4,200 to Nutan Enterprises (invoice 180); 100 big buckets at ₹850 to Raman Traders (invoice 209).

Working: 4,200 + 650 = 4,850; 5 × 4,200 = 21,000; 100 × 850 = 85,000.

Answer: the sales book totals ₹1,10,850, credited to the sales account as "Sundries as per sales book". Raman Traders is debited with ₹4,850 and ₹85,000, and Nutan Enterprises with ₹21,000.

The sales return book

The sales return book records goods returned by customers to whom they were sold on credit. The seller prepares a credit note in duplicate, giving the customer's name, the goods received back and the amount. It is serially numbered and dated, and is generally the source document for this book.

One ruled table with five columns: Date, Credit Note No., Name of the Customer (Account to be credited), L.F., and Amount (₹).

See Fig. 4.9 in your NCERT textbook

Each customer's account is credited, and the sales return account is debited with the periodic total. When Raman Traders returned one water purifier with a manufacturing defect, credit note no. 10/2017 for ₹2,100 was entered.

How do analytical purchases and sales books record GST?

A purchases or sales book can be kept in analytical form, with separate tax columns. The analytical purchases book has columns for Date, Invoice No., Name of Supplier, L.F., Detail, Total, Purchases, CGST, SGST and IGST. Sales and sales return books can be ruled the same way.

The Detail column works out each invoice: list price, less trade discount, plus tax. The Total column carries the invoice amount including GST; the Purchases column carries only the net value of goods.

Invoice total = Net amount + CGST + SGST (or Net amount + IGST)

Worked example 8. Analytical purchases book, August 2017. From M/s Ramakant, Delhi (invoice 6780): 20 televisions at ₹15,000 and 5 DVD players at ₹10,000, trade discount 10%, CGST 9% and SGST 9%. From M/s Samay Electronics, Haryana (invoice 1011): 10 washing machines at ₹5,000 and 5 televisions at ₹25,000, trade discount 5%, IGST 18%.

Working: Ramakant 3,50,000 − 35,000 = 3,15,000, plus 28,350 + 28,350 = 3,71,700. Samay 1,75,000 − 8,750 = 1,66,250, plus 29,925 = 1,96,175.

Answer: column totals are Total ₹5,67,875, Purchases ₹4,81,250, CGST ₹28,350, SGST ₹28,350 and IGST ₹29,925.

When two of Ramakant's televisions were returned, the analytical purchases return book showed 30,000 less 10% = 27,000 as purchases return, CGST 2,430, SGST 2,430, and a total of ₹31,860.

What is the journal proper, and which entries go into it?

Definition: The Journal Proper, also called the Journal Residual, is the book that records transactions which do not find a place in the special journals.

1. Opening entry: records the opening balances of assets, liabilities and capital in a new set of books at the start of an accounting year.
2. Adjustment entries: update ledger accounts on the accrual basis at the end of the period, such as rent outstanding, prepaid insurance, depreciation and commission received in advance.
3. Rectification entries: rectify errors in the books of original entry and in posting.
4. Transfer entries, also called closing entries: drawings are transferred to capital, and accounts such as sales, purchases, opening stock, incomes, gains and expenses are closed to the trading and profit and loss account.
5. Other entries: cancelling discount on the dishonour of a cheque; credit purchase or sale of items other than goods; goods withdrawn for personal use; goods distributed as samples; endorsement and dishonour of bills of exchange; consignment and joint venture; loss of goods by fire, theft or spoilage.

Choosing the right book: an April example

A business that started on April 01, 2017 with ₹1,00,000 cash traded in electrical goods. Its transactions went to these books.

The journal proper held four entries totalling ₹12,800: furniture ₹8,000, stationery ₹3,200, and discount received from Burari Ltd. ₹320 and from Kochhar ₹1,280.

How are ledger accounts balanced?

Ledger accounts are balanced periodically, generally at the end of the accounting period, to find the net position of each. Balancing means totalling both sides and showing the difference on the shorter side, so that the totals become equal.

Balance c/d = Total of larger side − Total of smaller side

The words "Balance c/d" are written against the difference, and it is brought down as "Balance b/d" in the next period. This shows the account continues until finally settled or closed.

If the debit side exceeds the credit side, the difference goes on the credit side and the account has a debit balance. If the credit side is larger, the difference goes on the debit side: a credit balance. Accounts of expenses, losses and gains or revenues are not balanced but closed to the trading and profit and loss account.

Worked example 9. Balancing personal accounts, April example. Daman bought goods on account for ₹1,300 and ₹2,300 and paid nothing. Burari Ltd. supplied goods for ₹6,400 and ₹2,280; ₹632 was returned, and Burari was paid ₹7,728 by cheque with ₹320 discount.

Working: Daman 1,300 + 2,300 = 3,600 on the debit side only. Burari credit side 6,400 + 2,280 = 8,680; debit side 632 + 7,728 + 320 = 8,680.

Answer: Daman's account carries down ₹3,600, a debit balance. Burari Ltd.'s account totals ₹8,680 on both sides and is closed with no balance.

Glossary

• Special journal — A book in which transactions of a similar nature are recorded together; also called a daybook or subsidiary book.
• Cash book — A book in which all cash receipts and cash payments are recorded; it serves as both the journal and the cash account.
• Contra entry — A transaction recorded on both sides of the cash book, such as cash deposited into the bank, marked C in the L.F. column.
• Overdraft — A situation in which the cash withdrawn from the bank exceeds the amount deposited, giving a credit balance in the bank column.
• Pay-in-slip — The form filled in to deposit cash or cheques in a bank account; its counterfoil is returned signed by the cashier.
• Order cheque — A cheque on which the word bearer is struck off, so payment is made to the named person or his order.
• Endorsement — Writing instructions on the back of a cheque to pay it to a particular person, and then signing it.
• Dishonour of a cheque — The return of a cheque unpaid, generally because of insufficient funds in the customer's account with the bank.
• Imprest amount — The definite sum given to the petty cashier at the start of a period, restored by reimbursing the amount spent.
• Debit note — A document evidencing a debit raised against a party for reasons other than a credit sale, such as goods returned to a supplier.
• Credit note — A document giving credit to a party for reasons other than a credit purchase, such as goods returned by a customer.
• Journal proper — The book, also called the journal residual, that records transactions which do not find a place in any special journal.

Common errors and misconceptions

• Misconception: The purchases book records every purchase. Correct: It records only credit purchases of goods. Cash purchases go to the cash book, and credit purchases of furniture or equipment go to the journal proper.
• Misconception: Assets sold on credit are entered in the sales book. Correct: The sales book records only credit sales of merchandise. A credit sale of items other than goods goes to the journal proper.
• Misconception: Trade discount is entered separately in the purchases book. Correct: Entries are made at the net amount of the invoice; trade discount and other invoice details need not be recorded.
• Misconception: Contra entries are posted to cash and bank accounts in the ledger. Correct: Both aspects already appear in the cash book, so entries marked C are ignored while posting.
• Misconception: A cheque received always goes straight into the bank column. Correct: Only if it is deposited the same day. Otherwise it is entered as cash received, and a contra entry is made on the day of deposit.
• Misconception: The cash column can show a credit balance. Correct: Cash payments can never exceed receipts plus opening cash, so the cash column always has a debit balance; only the bank column can show an overdraft.
• Misconception: The petty cashier receives a fresh fixed sum every period. Correct: Under the imprest system the petty cashier is reimbursed only the amount actually spent, which restores the imprest amount.

Exam-style questions with model answers

Q1. What is a contra entry? [1 mark]

1. A contra entry is a transaction recorded on both the debit and credit sides of the cash book, such as cash deposited into or withdrawn from the bank. C is written in the L.F. column, and such entries are not posted to the ledger.

Q2. Distinguish between a bearer cheque and an order cheque. [2 marks]

1. A bearer cheque is paid to the person named on it or to its bearer, and it can be passed on by mere delivery.
2. An order cheque has the word bearer struck off. It is paid to the named person or his order after proper identification, and it is transferred by endorsement and delivery.

Q3. State three advantages of maintaining a petty cash book. [3 marks]

1. It saves the time and effort of the chief cashier, who can concentrate on transactions involving large amounts of cash.
2. It gives effective control over cash disbursements through division of work: the head cashier checks the petty cashier, so fraud and embezzlement become very difficult.
3. It makes recording convenient, because only the totals of each type of expense are posted to the ledger, in line with the materiality principle.

Q4. Explain how a cheque received from a customer is recorded in a double column cash book when it is (a) deposited the same day, (b) deposited on a later day, and (c) later dishonoured. [4 marks]

1. (a) If deposited on the day of receipt, it is entered on the receipts side in the bank column.
2. (b) If deposited on another day, it is treated as cash received and entered on the receipts side in the cash column. On the day of deposit a contra entry is made: bank column on the receipts side, cash column on the payments side, with C in the L.F. column.
3. (c) If dishonoured, the bank returns it and debits the firm. The firm enters the amount on the credit side in the bank column, with the customer's name in the particulars, restoring the position before the cheque was received.

Q5. Record the following in a petty cash book with a weekly imprest of ₹500, and find the balance: stationery ₹100, bus fare ₹12, cartage ₹40, taxi fare ₹80, wages to casual labour ₹90, postage ₹80. [4 marks]

1. Receipts side: cash received ₹500 at the start of the week.
2. Payments side: each item goes in the Amount paid column and an analysis column, for example Stationery 100, Conveyance 92 (bus 12 and taxi 80), Cartage 40, Wages 90 and Postage 80.
3. Total spent = 100 + 12 + 40 + 80 + 90 + 80 = ₹402.
4. Balance c/d = 500 − 402 = ₹98. Next week the petty cashier brings down ₹98 and is reimbursed ₹402, restoring the imprest of ₹500.

Q6. Prepare a double column cash book for July 2017: cash in hand ₹7,500 and bank overdraft ₹3,500 on July 01; wages paid ₹200; cash sales ₹7,000; cash deposited into bank ₹4,000; goods purchased by cheque ₹2,000; rent paid ₹500; drew from bank for personal use ₹400; salary paid ₹1,000. [5 marks]

1. Receipts side: Balance b/d, cash 7,500; Sales, cash 7,000; Cash (C), bank 4,000.
2. Payments side: Balance b/d (overdraft), bank 3,500; Wages, cash 200; Bank (C), cash 4,000; Purchases, bank 2,000; Rent, cash 500; Drawings, bank 400; Salary, cash 1,000.
3. Cash column: receipts 14,500, payments 5,700, so Balance c/d on the payments side is ₹8,800.
4. Bank column: receipts 4,000 against payments 5,900. The payments side is larger, so Balance c/d of ₹1,900 is written on the receipts side and both bank columns total ₹5,900.
5. On August 01, cash ₹8,800 is brought down on the receipts side and the overdraft of ₹1,900 on the payments side.

Q7. February 2017: sold to Sachin ₹5,000, Manish Traders ₹2,100, Mukesh ₹3,300, Shri Chand ₹6,600 less 5% trade discount, Ramesh Brothers ₹4,000; bought from Kushal Traders ₹2,480, Kunal Traders ₹5,200, Naresh ₹4,060, Kirit & Co. ₹5,700 less 10%; furniture from Tarun ₹3,200; returns to Kushal ₹280, Kunal ₹200, Kirit ₹1,000 less 10%; returns from Sachin ₹600, Mukesh ₹250, Ramesh Brothers ₹500. Prepare the subsidiary books and give their totals. [6 marks]

1. Sales book: Sachin 5,000, Manish Traders 2,100, Mukesh 3,300, Shri Chand 6,270 (6,600 less 330), Ramesh Brothers 4,000. Total ₹20,670.
2. Purchases book: Kushal Traders 2,480, Kunal Traders 5,200, Naresh 4,060, Kirit & Co. 5,130 (5,700 less 570). Total ₹16,870.
3. Purchases return book: Kushal Traders 280, Kunal Traders 200, Kirit & Co. 900 (1,000 less 100). Total ₹1,380.
4. Sales return book: Sachin 600, Mukesh 250, Ramesh Brothers 500. Total ₹1,350.
5. The furniture from Tarun is not goods, so it goes to the journal proper: Furniture A/c Dr. ₹3,200 to Tarun's A/c.

Key takeaways

• The journal is sub-divided into special journals, also called daybooks or subsidiary books, so that repetitive transactions of a similar nature are recorded quickly, efficiently and accurately.
• The cash book records all cash receipts and payments, serves as both journal and cash account, and is called a book of original entry.
• A double column cash book adds a bank column on each side, which replaces the bank account in the ledger and can show an overdraft.
• Contra entries, such as cash deposited into or withdrawn from the bank, appear on both sides of the cash book, are marked C, and are not posted.
• A cheque deposited on a later day is first entered as cash received; a dishonoured cheque is entered on the credit side in the bank column.
• Under the imprest system the petty cashier is reimbursed exactly the amount spent, so the full imprest amount is available at the start of each period.
• The purchases and sales books record only credit transactions in goods at net invoice amounts; their periodic totals go to the purchases and sales accounts.
• Balancing puts the difference between the two sides on the shorter side as Balance c/d, which is brought down as Balance b/d.

Test yourself

Why is a separate cash account not opened in the ledger when a cash book is kept?

The cash book serves the purpose of both the journal and the ledger cash account, so a separate cash account is not needed.

What does the letter C in the L.F. column of a cash book mean?

It stands for contra. It marks an entry whose two aspects both appear in the cash book, so it is not posted to the ledger.

What does a credit balance in the bank column of a cash book show?

It shows a bank overdraft, meaning the cash withdrawn from the bank has exceeded the amount deposited.

In which book is a credit purchase of machinery recorded?

In the journal proper, because the purchases book records only credit purchases of goods.

What is the source document for the sales return book?

The credit note, prepared in duplicate by the seller when goods are received back from a customer.

A petty cashier with an imprest of ₹2,000 spends ₹1,487. How much is reimbursed?

₹1,487, the amount actually spent. This restores the petty cash balance of ₹513 to the full imprest of ₹2,000.

How is the periodic total of the purchases return book posted?

It is credited to the purchases return account, while each supplier's account is debited with the amount of the return.