Catering Management 3(1+2)

Lesson 14 : Book Keeping And Accounting

Book Of Account

The transactions of a food service establishment fall into three main categories:

1. Receipts and payments of cash, including payments and withdrawals from a bank account.
2. Purchases of goods, materials and stores.
3. Sale of goods and services.

There will be one book to record cash and bank transactions (including cash sales and cash purchases), another to record credit purchases of goods, and a third to record the credit sales of goods. If there is any other category of recurring transactions, a separate book can be maintained for that also e.g. return of goods from the caterer to suppliers, recorded in purchases return book. Thus, the following books are initially kept to record the transactions of different categories

Different Books maintained in Catering Institutes:

1. Cash book for recording cash receipts and payments, including those for cash purchases, expenses incurred, cash sales, discounts allowed and discounts received. The cash book has both debit and credit columns.
2. Purchase book for recording all goods purchased on credit.
3. Sales book for recording all goods sold on credit.
4. Purchases returns book for recording all purchases returned to suppliers, that is, creditors.
5. Sales returns book for recording all sales returned by the customers. This book of account is generally not required in catering establishments, because food sold or taken away from the establishment is never returned.
6. Journal for recording all those transactions for which there is no specific book maintained.

Of all the books of account, the cash book forms part of the double entry system of book-keeping and is maintained on the basis of the principles already discussed. All other books are the auxiliary books of original entry and are simply an aid to recording these transactions further into the principle book of account, the ledger. All the entries in the ledger are made according to the double entry sytem, recording them both as debit and credit entries.

1. The Cash Book This book is kept in order to maintain the daily record of transactions relating to receipts and payments of cash. As the number of transactions relating to cash is usually large and there is risk of cash being unaccounted, it is necessary to maintain up-to-date cash records which are properly supervised. The Cash Book is maintained on the basis of the principles of the double entry system, and it involves the record of transactions relating to a property (cash). All receipts will be recorded on the debit side (what comes in), and all payments will be recorded on the credit side (what goes out).

   Single Column Cash Book : This is a simple cash book which is ruled with a single 'amount' column on each side as shown in the figure

   Double Column Cash Book : This is known as the Discount Column Cash Book. In addition to the two amount columns on each side a discount column is also added to each amount column. Usually a cash discount is allowed to customers who pay promptly. Similarly, the suppliers also allow discount when prompt payment is made to them. Cash discounts accompany cash receipts from customers and payments to suppliers. It is therefore convenient to record discount allowed or received along with cash payment. The discount allowed (loss) on receipt of cash from a customer will, according to the principles of double entry, be recorded in the discount column on the debt side, and the discount received (gain) on payment to be supplier will be recorded on the credit side in the discount column

   Triple Column Cash Book or Bank Column Cash Book : Transactions are made through the banks rather than in cash. Organisations prefer to keep cash in the bank rather than on the premises due to various reasons. Moreover, money in the bank is as good as cash.
   These columns will record all payments made into the bank and all amounts withdrawn from it. The cash receipts and payments are recorded. With the addition of a bank column on each side, there will be three columns on each side of the cash book and therefore it is known as the Triple Column Cash Book

2. Purchases book : This book is maintained in order to make a preliminary record of the goods purchased on credit from the suppliers. There is no record in the form of debits or credits. It is merely a memorandum book. After a Purchases Book is prepared and totaled, it is posted according to the principles of the double entry system. The suppliers being the 'givers', their accounts will be credited with the amounts. The total of the Purchases Book will be posted to the debit side of the Purchases Account at the end of a particular period, as it represents the expenses incurred on purchases, and expenses are always debited according to the double entry system.
3. Sales book : This is maintained in order to record and credit sale of goods to customers during a particular period. This is also a memorandum book and there are no debit and credit columns in it. The total of this book represents total credit sales made to customers. The total, therefore, will be credited (being a gain) to the Sales Account at the end of the period, and the individual customer's accounts (being the receivers of benefit) will be debited in the ledger. In this way, with the help of the basic records in separate books, the double entry records will be complete.
4. Purchases returns book : This is also a memorandum book and records the return of goods to the suppliers. The format of this book is similar to that of the Purchases Book.
5. Sales return book The returns from customers are recorded in this book on a memorandum basis. It has already been mentioned that in catering establishments there is practically no occasion for customers to return the product since it is consumable generally on the premises. In establishments which offer a takeaway service, there may be a single instance when the food is brought back with a complaint. In such cases even, it is general practice to replace the item with a fresh one for the customer, therefore such stray occasions do not warrant the necessity to maintain a separate Sales Returns Book. It is, however, useful to know that this account book too is not part of the double entry system, but helps to complete a double entry record if returns do take place frequently. Perhaps in establishments which sell packaged goods or provisions in addition to running a coffee shop, this book would also help to determine the quality of goods to stock. Those items which are being returned too frequently can thus be deleted from the purchases list.

   The total of the Sales Returns Book is recorded on the debit side of the Sales Return or Return Inwards Account and the individual customers' accounts are credited with the amounts of the goods returns. The ruling of this book is the same as that of the Sales Book.

6. Journal : There are certain transactions which cannot be recorded either in the Cash Book, Sales Book, Purchases Book, or the Purchases Returns book or the Sales Returns Book, neither can these be recorded in any subsidiary book. Such transactions are credit purchase and sales of assets, bad debit, depreciation on assets, outstanding expenses and income earned but not yet received, etc. In order to make an initial record of such transactions a book known as the Journal is maintained. This book records an analysis of every transaction that takes place in an establishment. It states the two accounts which are involved in the transaction and which one has to be debited and which to be credited. At the end of a given period, the various accounts involved in the transactions are posted with the help of the journal entries. Entries in the journal are recorded on the basis of the double entry system. Figure 23.8 i1Iustrates the manner in which the pages of the journal are set out