FINANCIAL ACCOUNTING
Chapter-10 Special Purpose Books I-Cash Book
Cash Book:- To record receipts and payments of cash, including receipts into and payments from the bank.
Purchases Book:- To record credit purchases of goods.
Sales Book:- To record credit sales of goods.
Purchases Return Book:- To record the return of goods preciously purchased on credit.
Sales Return Book:- To record the return of credit of credit sales made by customers.
Journal Proper:- To record the transactions which cannot be recorded in any of the above books.
Advantages of Subsidiary Books:-
The use of subsidiary books has following advantages:
- Division of Work: Since in place of one Journal, Subsidiary Books are maintained accounting work can be divided among a number of persons.
- Specialization and Efficiency: When the same work is handled by a particular person for a considerable time, he acquires expertise in it. He becomes more efficient in handling it. Thus, accounting activity becomes more efficient.
- Saving of Time: Various accounting processes can be undertaken simultaneously because of the use of number of books, leading to completing the work timely.
- Availability of Information: Since separate book is maintained for each type of transactions, information relation to each type is available at one place.
- Facility in Checking: In case, the Trial Balance does not match, locating the error or errors is facilitated by the existence of separate books. Since the number of transactions is less in each Subsidiary Book as compared to only one Journal, it is easy to locate the errors.
- Responsibility: It is the division of work results in assigning a particular job to a particular person. If an error is committed in responsibility, recording can be easily fixed.
Cash Book is a book of primary entry in which cash and bank transactions are recorded in a chronological order, i.e., in the order they are entered. Receipts are recorded on the debit side of Cash Book while payments are recorded on the credit side.Cash transactions are recorded in the cash column and bank transactions are recorded in the bank column. It is balanced by deducting total payments from total receipts to know cash in hand and balance at bank.
Features of Cash Book:-
- Only cash and bank transactions are recorded in the Cash Book.
- Cash receipts and cheques deposited are recorded on the debit side while cash and cheque payments are recorded on the credit side.
- It records only one aspect of then transaction, i.e., cash.
- Cash and bank transactions are recorded in the Cash Book in a chronological order, i.e., in order they are entered.
- It performs the function of both Journal and the Ledger at the same time.
Cash Book-Is it a Subsidiary Book and a Principal Book
Cash and Bank transactions are recorded in the Cash Book and on the basis of such record, Ledger accounts are prepared. Therefore, Cash Book is a Subsidiary Book. Also, Cash Book by it self is Cash account and Bank account. The balances are entered in the trial Balance Directly. Cash Book, Therefore, is a part of the ledger also. Hence, It is also Principal Book.
Cash Book is thus, both a Subsidiary Book and a Principal Book.
Types of Cash Books
There are two types of Cash Books:
- Simple Cash Book or Single Column Cash Book: For recording cash transactions only.
- Two-column or Double Column Cash Book (Cash Book with cash and bank columns): For recording cash and bank transactions.
In addition to the main Cash Book, firms sometimes also maintain a Petty Cash Book.
(1) Simple Cash Book looks like an account, with one column on each side. On the left-hand side receipts of cash are recorded and on the right-hand side payments are recorded.
SIMPLE CASH BOOK
Dr. Cr.
In the column for:
- Date: Date of transaction is written.
- Particulars: Name of the account under which cash has has been received or paid is written. In an existing business, Cash Book starts with the Opening Balance of cash written on the receipts side as 'To Balance b/d'. Anew business will not have an opening balance.
- Voucher No. (V.No.): The document supporting a transaction is called a Voucher. There are two types of cash vouchers:(1) Receipt Voucher and (2) Payment Voucher. Generally, a Voucher has a serial number which is written in this column.
- Ledger Folio (L.F.): In the column for 'L.f.',page number of the Ledger, where the amount is posted, is written.
- Amount: The amounts received are written on the Debit side and amounts paid are written on the Credit side.
Balancing of Single Column Cash Book
Cash Book is balanced like an account. The total of receipts column is bigger than or equal to payments column. The difference is written on the credit side as 'By Balance c/d'. The totals are then entered in the two columns opposite to one another and then on the debit side, the balance is written as 'To Balance b/d' to show the cash balance in hand in the beginning of the next period.
Simple Cash Book or Single or Single Column Cash Book- Some Observations
- When Cash Book is maintained, Cash Account is not opened in the Ledger.
- Cash Book is balanced like any other account.
- It does not record (a) non-cash transactions, (b) cheque received or given and (c) cash discount allowed and received.
- When an entry is recorded in Simple Cash Book, corresponding entry is recorded in the Ledger. For example, if Ram pays Rs.5,000, the receipt (or debit) entry is passed in the Cash Book and Ram's Account is credited in the Ledger.
- Cash Book will not have a credit balance, i.e., Cash in Hand, because cash paid cannot exceed Cash in Hand.
Posting of the Receipts or Debit Side: Transactions written in the receipts or debit side of the Cash Book are posted to the credit side in the Ledger Accounts. In the 'Particulars Column' of the Ledger, 'By Cash A/c' is written for cash transactions and 'By Bank A/c' for bank transactions. Amount of the transaction is written in the' Amounts Column'.
Posting of the Payments or Credit Side: Transactions written in the payments or credit side of the Cash Book are posted to the debit side in the Ledger Accounts,. In the 'Particulars Column' of the Ledger, 'To Cash A/c' is written fir cash transactions and 'To Bank A/c' for bank transactions. Amount of the transaction is written in the 'Amounts Column'.
PETTY CASH BOOK
Petty Cash Book is the book which is used for the purchase of recording expenses involving small amounts. Besides petty expenses, receipts from main cashier are recorded. Petty Cash Book is like Petty Cash Account and is maintained by Petty Cashier.
Recording of Petty Cash
Petty cash given to the Petty Cashier for small payments is recorded on the credit side of the Cash Book as 'By Petty Cash Account' and is posted to the debit side of the Petty Cash Account in the Ledger.
SYSTEMS OF PETTY CASH
Petty Cash Book may be maintained by Simple (Ordinary) System or by Imprest System.
Simple System of Petty Cash
In case of Simple System of Petty Cash, Petty Cashier is given appropriate amount of cash and after spending the amount, he submits the Petty Cash Account to the Head Cashier.
Imprest System of Petty Cash
Under this system, an estimate is made of amount required for petty expenses for a period (say for a week, a fortnight or a month). The amount so estimated is given to the Petty Cashier in the beginning of a period. The amount of petty expenses paid by the Petty Cashier is reimburse to him periodically. Thus, he will again have the fixed amount in the beginning of the new period. This amount is called imprest money. This system of paying advance in the beginning and reimbursing the amount spent from time to time is called imprest system.
Advantages of Imprest System of Petty Cash
- Control Over Mistakes: The Petty Cash Book is checked by the head cashier at regular intervals so that a mistake, if committed, is soon rectified.
- Control Over Petty Expenses: Petty expenses are kept withen the limits of imprest since the petty cashier cannot spend more than available petty cash.
- Control Over Frauds: Under this system misuse of cash can be minimized since the Petty Cashier is not allowed to draw cash as and when he desires.
Types of Petty Cash Books
Following are the two types of Petty Cash Book:
- Simple Petty Cash Book
- Analytical Petty Cash Book.
2. Analytical Petty Cash Book: An Analytical Petty Cash Book has two sides, left hand side is used for recording receipts of cash and right hand side, is used for recording payments, In this Cash Book, a separate column is provided for recording a particular item of expenditure, i.e., postage, stationery, advertisement, etc. A column is usually provided for 'sundries' to record infrequent payments. When petty expense is recorded on the right hand side total payments column, same amount is also recorded in the appropriate expense column. At the end of a particular period, analysis (expenses) column are added and posted to the debit side of the respective accounts.
Balancing the Petty Cash Book
Petty Cash Book is balanced at the end of the month or a specified period. The columns for payments and expenses are totaled and the total equals the total in the 'Total Payments Column'. Thereafter, the Petty Cash Book is balanced. The method of balancing the Petty Cash Book is the same as that of a Simple Cash Book.
Advantages of Petty Cash Book
The advantages of maintaining Petty Cash Book are:
- Time Saving: Saves the Chief Cashier's time.
- Labour Saving: Saving of labour in writing up the Cash Book and posting in the Ledger.
- Control: It provides better control over small payments.
- Convenience in Preparing Ledger Accounts: The totals of expenses are only taken to post them in the Ledger. No unnecessary details are to be given. Hence, it is convenient to post these balances directly in the Ledger.
More than one Bank Account: If a firm has more than one bank account, the bank column is suitably amended to record bank transactions through different banks separately. For example, if a business enterprise has two bank accounts, one with the State Bank of India (SBI) and another with the Punjab National Bank (PNB).
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