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Lesson 9. SUBSIDIARY BOOK - CASH BOOK
Module 2. Accounting procedure
Lesson 9
SUBSIDIARY BOOK - CASH BOOK
9.1 Introduction
Now, we will see how we can use other subsidiary books to reach to the step 3 (trail balance) of accounting procedure.
Use of Journal
When the business is a small one and the number of transactions are very less, then even by a single person. All the transactions can be entered into the journal.
Use of subsidiary books along with the journal:
When the number of transactions are more then there was to be division of work. The division of work can be done by looking into the nature of 'transactions' that take place in a normal business. Therefore, a journal is classified into
1. General journal
2. Special journal/ subsidiary book/ Books of Original entry/ special purpose subsidiary book.
The Special journal or subsidiary books are of 7 types:-
1. Cash book
2. purchase book
3. sales book
4. Purchase return book
5. Sales return book
6. Bills receivable book
7. Bills Payable book
The journal and subsidiary books are used according to the following
Subsidiary Books
1 |
Cash Book |
It is used to record all the cash transactions of the firm |
2 |
Purchase Book |
It is used to record all the credit purchases of the goods dealt-in by the firm. Also called purchase-day-book. |
3 |
Sales Book |
It is used to record all the credit sales of the goods dealt in by the firm. It is also called the sales day book. |
4 |
Purchase Return Book Or Returns outward Book |
To record the returns of all the goods which were previously bought-on-credit by the firm. Goods may be returned on the basis of variety of reasons such as – defective goods, excess quantity etc. |
5 |
Sales – Return book or Returns inward Book |
To record the sales – return (of credit sales) |
6 |
Bills Receivable book |
To record bills receivable |
7 |
Bills payable book |
To record bills payable. |
8 |
General Journal Journal Proper |
To record all the residual type of transaction. (e.g. – opening, closing, transfer, adjustment, rectification or all those entries. Which are not recorded into any of the subsidiary books above). |
All the subsidiary books are discussed in detail in the following:
1. Cash Book:
Many transactions of a given organization are cash-based in nature (i.e. they involve cash-payment or cash-receipt). A cash-book is prepared which records all (every kind) cash transactions which occur in the business.
Feature of Cash Book
a) Only cash transactions are recorded.
b) It also represents the cash account (No need to prepare a separate cash account)
c) The cash book is prepared in the form of "T" account. The left hand side of "T" account is called the "debit side" and all the cash receipts are entered on debit side, therefore, it is also called the Receipt side. The Right-hand side of the cash account is called the "Credit side" and all the payments are entered.
d) It self serves the purpose of cash account.
Different types of cash book maintained by a business firms are:
a) Simple cash book
b) Cash book with Discount and Cash column.
c) Cash book with Discount, cash and Bank columns
d) Petty cash book (for petty expenses)
i. Simple Cash Book
The format / specimen of a simple cash book are as shown below.
Dr. |
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Cash Book |
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Cr. |
Date |
Receipts |
R.No. |
L.F. |
Amount (Rs) |
Date |
Payments |
V.No. |
L.F. |
Amount (Rs) |
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All items are self-explanatory, except;
R.No. = Receipt No. - Every receipt is recorded in a receipt book, and the Receipt No. is used as a reference.
V.No. = Voucher No. - All payments are made by a payment voucher, therefore every payments was a voucher number for its reference.
Illustration:
Date |
Particulars |
Amount |
2005 June 1 |
Opening balance cash in hand |
100 |
1 |
Cash sales |
1500 |
2 |
Cash purchases |
750 |
4 |
Received from Shyam |
1250 |
8 |
Deposited into bank |
500 |
10 |
Purchased goods |
250 |
12 |
Sold goods |
700 |
15 |
Bought stationery |
50 |
20 |
Withdrawn from bank for office |
8000 |
22 |
Purchased goods |
1000 |
24 |
Paid wages |
2000 |
25 |
Paid rent |
400 |
26 |
Paid to Mukesh |
250 |
30 |
Paid to Gagan |
300 |
Example of simple cash book.
Cash Book
Dr. |
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Cr. |
Date |
Receipts |
R.No. |
L.F. |
Amount (Rs) |
Date |
Payments |
V.No. |
L.F. |
Amount (Rs) |
2005 |
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2005 |
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01-Jun |
To Balance B/d |
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100 |
02-Jun |
By Purchase A/c |
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750 |
01-Jun |
To Sales A/c |
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1500 |
08-Jun |
By Bank A/c |
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500 |
04-Jun |
To shyam's A/c |
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1250 |
10-Jun |
By Purchase A/c |
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250 |
12-Jun |
To Sales A/c |
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700 |
15-Jun |
By Stationary A/c |
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50 |
20-Jun |
To Bank A/c |
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8000 |
22-Jun |
By Purchase A/c |
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1000 |
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24-Jun |
By wages A/c |
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2000 |
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25-Jun |
By rent A/c |
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400 |
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26-Jun |
By mukesh's A/c |
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250 |
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30-Jun |
By Gungan's A/c |
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300 |
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30-Jun |
By Balance c/d |
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6050 |
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11550 |
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11550 |
01-Jul |
To Balance b/d |
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6050 |
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ii. Cash Book with Discount and Cash Columns
Here, it is imperative to understand the "discount" which is used in the context of a cash book.
Generally there are two types of discounts:
A. Trade Discount:
It is a discount which is allowed by the manufacturer/ wholesaler to the retailer. It is deducted from the catalogue price. It is not recorded for the purpose of accounting. (Only the net amount after such discount is entered in the books of account).
B. Cash Discount:
In several cases, in which the business firm has to receive money from its credit customers or debtors etc, it is possible that these parties may delay/postpone/extend the payment of money. In such situations, in order to expedite the receipt of money, the business firm may offer a discount, called "cash discount" to customers who pay their dues "before a certain pre specified date". This discount availed by the customer/ debtor in recorded for accounting purpose and entered in the books of accounts. (It is clear that a cash discount is conditional, it may or may not be availed by the customer.)
Consider the following illustration:
Prepare a cash book with Discount and cash columns 2005.
2005 |
|
Amount (Rs.) |
March 1 |
Balance of Cash-in-hand |
12000 |
March 2 |
Received from Mahesh Rs 600 and allowed him a discount 40 |
|
March 3 |
Purchased a printer for Rs. 450 |
|
March 10 |
Purchased goods by cash |
1000 |
March 12 |
paid Gagandeep Rs. 900 who allowed a discount of Rs. 80 |
|
March 16 |
Received from cash Sales |
6000 |
March 18 |
paid for postage |
120 |
March 19 |
Shyam who owed Rs 900 settled his account by paying Rs 875 |
|
March 25 |
Received from Jayesh Rs160 and allowed him discount Rs 8 |
|
March 31 |
paid wages Rs 800 |
|
Cash Book with column of Discount and Cash
Dr. |
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Cr. |
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Date |
Receipts |
R. No. |
L.F. |
Discount (Rs) |
Amount (Rs) |
Date |
Payments |
V.No. |
L.F. |
Discount (Rs) |
Amount (Rs) |
2005 |
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2005 |
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01-Jun |
To Balance B/d |
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12000 |
03-Jun |
By Printer A/c |
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450 |
02-Jun |
To Mahesh's A/c |
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40 |
600 |
10-Jun |
By Purchase A/c |
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1000 |
16-Jun |
To Sales A/c |
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6000 |
12-Jun |
By Gagandeep's A/c |
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80 |
900 |
19-Jun |
To Shyam's A/c |
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25 |
875 |
18-Jun |
By Postage A/c |
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120 |
25-Jun |
To Jayesh's A/c |
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8 |
160 |
Jun-31 |
By Wages A/c |
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800 |
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Jun-31 |
By Balance C/d |
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16365 |
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19635 |
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19635 |
1st july |
To balance b/ |
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16365 |
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19635 |
Note : Discount Account
The discount column in a cash book are not balanced, rather the amounts are simply transferred to the debit and credit side of the discount account.
Cash Book with Discount, Cash and Bank Column
As the name indicates, there are 3 columns, discount, cash and Bank. The usual method of entering discount and cash is adopted and bank column is also added.
A. Here, one transaction, which is very important is = 'Receipt of a cheque" and "Its deposit in Bank Account". In such a case
a. If cheque is received but not deposited in the same day :
When the cheque is received, it is first entered in the cash-column, and on the next day, when the cheque is deposited in the bank, it is entered in the bank column.
b. If the cheque is received and banked on the same day :
Then, it is directly shown as a receipt in the Bank Column.
B. Contra Entry :
a. An entry which involves, cash a/c and Bank a/c only, then it is called a contra entry. There are three types of contra entry.
b. cash deposited into Bank
c. Cash withdrawn from Bank
d. Cheque deposited in Bank as in case (A) above.
"C" – Symbol used for contra entry.
Illustration
Prepare a three column book from the following information:
2008 June |
|
Amount (Rs.) |
1 |
Cash – in – hand |
500 |
1 |
Cash – at- bank |
20000 |
4 |
Received from suresh Discount allowed to him |
29100 100 |
6 |
Purchase of goods by bank |
7500 |
8 |
Deposited into bank |
1400 |
11 |
Credit sales to vikas |
210 |
12 |
Received cheque from Vikas and deposited in bank at same day |
210 |
14 |
Cash sales |
3000 |
15 |
paid to Gagan by cheque for full settlement of his account of |
3000 |
16 |
Cash purchases |
1500 |
17 |
Withdrawn from bank for office expanses |
4000 |
18 |
Paid cash to Jayesh discount allowed from him |
555 45 |
20 |
Received a cheque from sukumar |
10000 |
21 |
Deposited the cheque received from sukumar into bank |
|
22 |
Received a cheque from subhash and sent to bank |
2000 |
30 |
paid rent by cheque |
200 |
30 |
paid salaries |
600 |
Cash book with 3 Columns – Discount, Cash and Bank.
Points to remember
Dr. |
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Cr. |
Date |
Receipts |
R .No. |
L.F. |
Discount (Rs) |
Cash |
Bank |
Date |
Payments |
V .No. |
L.F. |
Discount (Rs) |
Cash |
Bank |
2008 |
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2008 |
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Jun-01 |
To Balance b/d |
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500 |
20000 |
6 |
By purchase a/c |
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7500 |
4 |
To suresh's a/c |
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100 |
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2900 |
8 |
By Bank a/c |
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C |
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1400 |
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8 |
To cash a/c |
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C |
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1400 |
15 |
By Gagan's a/c |
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60 |
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2940 |
12 |
To Vikas' a/c |
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210 |
16 |
By purchase a/c |
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1500 |
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14 |
To sales a/c |
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3000 |
17 |
By cash a/c |
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C |
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4000 |
17 |
To Bank a/c |
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C |
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4000 |
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18 |
BY Jayesh's a/c |
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45 |
555 |
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20 |
To sukumar's a/c |
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10000 |
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21 |
By Bank a/c |
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C |
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10000 |
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21 |
To cash a/c |
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C |
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10000 |
30 |
By Rent a/c |
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200 |
22 |
To Subhash's a/c |
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2000 |
30 |
BY salary a/c |
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600 |
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30 |
By Balance c/d |
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445 |
24870 |
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100 |
14500 |
39510 |
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105 |
14055 |
14640 |
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Jul-01 |
By balance b/d |
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445 |
24870 |
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Petty Cash Book:
Petty means “small” in all business firms generally all the payments are made by cheque and receipt are banked. But still there are same payments for e.g. Payments for expenses such as stationary, postage, tea, refreshment, cartage etc. which are “small” frequent and impractical to be paid through cheques. Moreover, the head cashier may be overburdened of the makes payments of their expenses by cheque .In order to remove this incontinence, a separate book called “petty cash book” is prepared, which is to be maintained by a petty cashier.
A petty cash book is similar to a cash book, but it is a multi- columnar book, and all expenses can be recorded under variables suitable heads of expenditure. The petty cashier received money from the head cashier/main cashier. This sum is retailed into the petty cash book where as all the petty expensed are credited there in.
Imprest system of petty cash:
In this method a fixed amount of money, for a fixed period, is allocated to the petty cashier to meet the petty expenses. At the end of the given period, the petty cashier submits the account to the main cashier who checks and verifies them. After that, the main cashier gives exactly the same amount which is spent for petty expenses to the petty cashier. So, that petty cashier again the new period with the same opening figures.
Illustration:-
ABC machines a multi column petty cash book on the interest systems. The interest amount is Rs. 1000 ended on 26th June 2005.
June |
Particulars |
Amt Rs. |
21. |
Balance in hand |
Rs. 80 |
21. |
Received cash to make up the interest |
|
22. |
Stationery |
Rs. 75 |
23. |
Postage |
RS. 120 |
23. |
Entertainment |
Rs. 35 |
24. |
Travelling expenses |
Rs. 40 |
24. |
Miscellaneous expenses |
Rs. 25 |
24. |
Repairs |
Rs. 30 |
24. |
Entertainment |
Rs. 19 |
25. |
Postage stamps |
Rs. 20 |
25. |
Entertainment |
Rs. 10 |
25. |
Stationary |
Rs. 50 |
26. |
Postage stamps |
Rs. 10 |
Analytical Petty cash book
Dr. |
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Cr. |
Amount Recd. |
Date |
V.No |
Particulars |
Total Payments(Rs) |
Postage (Rs.) |
Printing and |
Travelling |
Entertainment (Rs.) |
Repairs (Rs.) |
Miscellaneous (RS.) |
80 |
Jun-21 |
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To Balance b/d |
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920 |
21 |
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To cash a/c |
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22 |
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By stationery a/c |
75 |
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75 |
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23 |
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By postage a/c |
120 |
120 |
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23 |
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By entertainment a/c |
35 |
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35 |
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24 |
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By travelling expenses a/c |
40 |
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40 |
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24 |
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By Miscellaneous expenses a/c |
25 |
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25 |
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24 |
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By Repairs a/c |
30 |
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30 |
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24 |
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By entertainment a/c |
19 |
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19 |
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25 |
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By postage a/c |
20 |
20 |
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25 |
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By entertainment a/c |
10 |
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10 |
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25 |
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By stationery a/c |
50 |
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50 |
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26 |
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By postage a/c |
10 |
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434 |
140 |
125 |
40 |
64 |
30 |
25 |
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By Balance c/d |
566 |
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1000 |
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1000 |
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566 |
26 |
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To Balance b/d |
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434 |
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To cash a/c |
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Points To Be Considered While Maintaining A Petty Cash Book
In order to exercises control and for proper analysis of petty cash payments, following point should be considered. Amount paid for petty expanses in the form of petty cash should be sufficient only for a short period- eg. one week or a fortnight
1. The reimbursement to the petty cashier should be made
a. Only when the petty cashier prepares a statement showing all petty payment, supported by the “voucher”(i.e. documentary and evidence)
b. Petty cashier should be given the money only for the actual petty payment made by him.
2. All the vouchers should be filed in order
3. No disbursement should be made to the petty cashier without proper authorization.
4. Petty-cashier can receive money for petty-expenses only from the main cashier. Petty cashier is not allowed to receive cash from any other source.