Financial Management & Cost Accounting

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.				Cash Book					Cr.
Date	Receipts	R.No.	L.F.	Amount (Rs)	Date	Payments	V.No.	L.F.	Amount (Rs)

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.									Cr.
Date	Receipts	R.No.	L.F.	Amount (Rs)	Date	Payments	V.No.	L.F.	Amount (Rs)
2005					2005
01-Jun	To Balance B/d			100	02-Jun	By Purchase A/c			750
01-Jun	To Sales A/c			1500	08-Jun	By Bank A/c			500
04-Jun	To shyam's A/c			1250	10-Jun	By Purchase A/c			250
12-Jun	To Sales A/c			700	15-Jun	By Stationary A/c			50
20-Jun	To Bank A/c			8000	22-Jun	By Purchase A/c			1000
					24-Jun	By wages A/c			2000
					25-Jun	By rent A/c			400
					26-Jun	By mukesh's A/c			250
					30-Jun	By Gungan's A/c			300
					30-Jun	By Balance c/d			6050
				11550					11550
01-Jul	To Balance b/d			6050

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.									Cr.
Date	Receipts	R. No.	L.F.	Discount (Rs)	Amount (Rs)	Date	Payments	V.No.	L.F.	Discount (Rs)	Amount (Rs)
2005						2005
01-Jun	To Balance B/d				12000	03-Jun	By Printer A/c				450
02-Jun	To Mahesh's A/c			40	600	10-Jun	By Purchase A/c				1000
16-Jun	To Sales A/c				6000	12-Jun	By Gagandeep's A/c			80	900
19-Jun	To Shyam's A/c			25	875	18-Jun	By Postage A/c				120
25-Jun	To Jayesh's A/c			8	160	Jun-31	By Wages A/c				800
						Jun-31	By Balance C/d				16365
					19635						19635
1st july	To balance b/				16365						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

1. All credit transactions are to be ignored.

2. 'C' denotes contra entries.

Dr.													Cr.
Date	Receipts	R .No.	L.F.	Discount (Rs)	Cash Rs	Bank Rs	Date	Payments	V .No.	L.F.	Discount (Rs)	Cash Rs	Bank Rs
2008							2008
Jun-01	To Balance b/d				500	20000	6	By purchase a/c					7500
4	To suresh's a/c			100		2900	8	By Bank a/c		C		1400
8	To cash a/c		C			1400	15	By Gagan's a/c			60		2940
12	To Vikas' a/c					210	16	By purchase a/c				1500
14	To sales a/c					3000	17	By cash a/c		C			4000
17	To Bank a/c		C		4000		18	BY Jayesh's a/c			45	555
20	To sukumar's a/c				10000		21	By Bank a/c		C		10000
21	To cash a/c		C			10000	30	By Rent a/c					200
22	To Subhash's a/c					2000	30	BY salary a/c				600
							30	By Balance c/d				445	24870
				100	14500	39510					105	14055	14640
Jul-01	By balance b/d				445	24870

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 26^th 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.										Cr.
Amount Recd. (Rs.)	Date	V.No	Particulars	Total Payments(Rs)	Postage (Rs.)	Printing and Stationery (Rs.)	Travelling and Conveyance(Rs.)	Entertainment (Rs.)	Repairs (Rs.)	Miscellaneous (RS.)
80	Jun-21		To Balance b/d
920	21		To cash a/c
	22		By stationery a/c	75		75
	23		By postage a/c	120	120
	23		By entertainment a/c	35				35
	24		By travelling expenses a/c	40			40
	24		By Miscellaneous expenses a/c	25						25
	24		By Repairs a/c	30					30
	24		By entertainment a/c	19				19
	25		By postage a/c	20	20
	25		By entertainment a/c	10				10
	25		By stationery a/c	50		50
	26		By postage a/c	10
				434	140	125	40	64	30	25
			By Balance c/d	566
1000				1000
566	26		To Balance b/d
434			To cash a/c

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.