(ii) Specialisation and efficiency : When the same work is allotted to a particular person over a
period of time, he acquires full knowledge of it and becomes efficient in handling it. Thus
the accounting work will be done efficiently.
(iii) Saving of the time : Various acconting processes can be undertaken simultaneously because
of the use of a number of books. This will lead to the work being completed quickly.
(iv) Availability of informations : Since a separate register or book is kept for each class of
transactions, the information relating to each transactions will be available at one place.
(v) Facility in checking: When the trial balance does not agree, the location of the error or
errors is facilitated by the existence of separate books. Even the commission of errors and
frauds will be checked by the use of various subsidiary books.
2. DISTINCTION BETWEEN SUBSIDIARY BOOKS AND PRIMARY BOOKS
The books in which transactions are first recorded to enable processing are called subsidiary
books. The ledger and the cash book are the principle books since they furnish information for
preparation of the trial balance and financial statements. The following chart will help you in
understanding the difference between Subsidiary Books and Primary Books.
Principal Ledger
Books
Simple Cash Book
Cash Book with
Discount Column
Cash Book with
Bank & Dis. Column
Petty Cash Book
Financial Cash
For Credit
Books Book Purchase Book
Purchase
Sales Book
For Credit Sales
For Credit Purchases Purchase Return
Returns Book
For Credit Sales Sales Return Book
Returns
For Bills receivable Bills Receivable
Subsidiary received Book
Books
For Bills Bills Payable
accepted Book
For record of
Journal Proper
transactions
not recorded
elsewhere
FUNDAMENTALS OF ACCOUNTING 2.51
Copyright -The Institute of Chartered Accountants of India
SUBSIDIARY BOOKS
3. PURCHASES BOOK
To record the credit purchases of goods dealt in or materials and stores used in the factory, a
separate register called the Purchases Book or the Purchases Journal, is usually maintained by
firms. The ruling is given below:
Date Particulars L.F. Details Amount
Rs. Rs.
It should be remembered that :
(i) Cash purchases are not entered in this book since these will be entered in the cash book;
and
(ii) Credit purchases of things other than goods or materials, such as office furniture or
typewriters are journalised -they also are not entered in the Purchases Book.
The particulars column is meant to record the name of the supplier and name of the articles
purchased and the respective quantities. The amount in respect of each article is entered in
the details column. After totaling the various amounts included in a single purchase, the
amount for packing, or other charges is added and the amount for trade discount is deducted.
The net amount is entered in the extreme right-hand column. The total in this column shows
the total purchase made in a period.
Illustration 1
The Rough Book of M/s. Narain & Co. contains the following :
2010
Feb. 1. Purchased from Brown & Co. on credit :
5 gross pencils @ Rs. 10 per gross,
1 gross registers @ Rs. 24 per doz.
Less : Trade Discount @ 10%
2. Purchased for cash from the Stationery Mart;
10 gross exercise books@ Rs. 3 per doz.
3. Purchased typewriter for office use from M/s. office
Goods Co. on credit for Rs. 800.
4. Purchased on credit from The Paper Co.
5 reams of white paper @ Rs. 10 per ream.
10 reams of ruled paper @ Rs. 15 per ream.
Less : Trade Discount @ 10%
5. Purchased one dozen ink-pots @ Rs. 1.50 each from
M/s. Verma Bros. on credit.
Make out the Purchase Book of M/s. Narain & Co.
2.52 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
Solution
PURCHASES BOOK
Date Particulars L.F. Amount
2010 Rs. Rs.
Feb. 1 M/s. Brown & Co.
5 gross pencils @ Rs. 10 per gross 50.00
1 gross registers @ Rs. 24 per doz. 288.00
338.00
Less : 10% trade discount 33.88 304.12
"4 The Paper Co.
5 reams white paper @ Rs. 10 per ream 50.00
10 reams ruled paper @ Rs. 15 per ream 150.00
200.00
Less : 10% trade discount 20.00 180.00
5 M/s. Verma Bros.
1 doz. ink-pots @ Rs. 1.50 each 18.00 18.00
Total 502.12
Note : Purchases of cash and purchase for typewriter cannot be entered in the Purchase Book.
Illustration 2
Enter the following transactions in Purchase Book and post them into ledger.
2009
April 4 Purchased from Ajay Enterprises, Delhi
100 Doz Rexona Hawai Chappal
@ Rs. 120 per Doz.
200 Doz Palki Leather Chappal
@ Rs. 300 per Doz
Less : trade discount @ 10%
Freight charged Rs. 150.
April 15 Purchased from Balaji Traders, Delhi
50 Doz Max Shoes
@ Rs. 400 per Doz
100 pair Sports Shoes.
@ Rs. 140 per paid.
Less : trade discount @ 10%.
Freight charged Rs. 200.
April 28 Purchased from Tripti Industries, Bahadurgarh
FUNDAMENTALS OF ACCOUNTING 2.53
Copyright -The Institute of Chartered Accountants of India
SUBSIDIARY BOOKS
40 pair leather shoes
@ Rs. 400 per pair
100 Doz Rosy Hawai Chappal
@ Rs. 180 per Doz
Less : trade discount @ 10%.
Freight charged Rs. 100.
Purchases are subject to Sales Tax @ 10%.
Solution
Purchase Book
Date Particulars Gross Trade Net Sales Freight Total
2009 Amount Discount Price Tax Amount
April 4 Ajay Enterprises
100 Doz chappal
@ Rs. 120 per Doz - Rs. 12,000
200 Doz Palki Leather Chappal
@ Rs. 300 per Doz - Rs. 60,000
Less trade discount @ 10% 72,000 7,200 64,800 6,480 150 71,430
April 15 Balaji Traders, Delhi
50 Doz Max Shoes
@ Rs. 400 per Doz - Rs. 20,000
100 pair Sports shoes
@ Rs. 140 per pair - Rs. 14,000
Less trade discount @ 10% 34,000 3,400 30,600 3,060 200 33,860
April 28 Tripti Industries, Bahadurgarh
40 pair Leather shoes
@ Rs. 400 per pair - Rs. 16,000
100 DOZ Rosy Hawai Chappal
@ Rs. 180 per DOZ - Rs. 18,000
Less trade discount @ 10% 34,000 3,400 30,600 3,060 100 33,760
1,40,000 14,000 1,26,000 12,600 450 1,39,050
Ledgers
Purchases A/c
Dr. Rs. Cr.
2006
April 30 To amount as per purchase book 1,38,000
Freight A/c
2006 Rs.
April 30 To amount as per purchase book 450
2.54 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
Ajay Enterprises
2006 Rs.
April 4 By purchase A/c 71,280
By Freight A/c 150
Balaji Traders
2006 Rs.
April 15 By purchase A/c 33,660
By Freight A/c 200
Tripati Industries
2006 Rs.
April 28 By purchase A/c 33,660
By Freight A/c 100
Purchase Account will be debited by net price and sales tax because sales tax is a part of cost
of goods purchased.
3.1 POSTING THE PURCHASES BOOK
The Purchases Book shows the names of the parties from whom goods have been purchased
on credit. These parties are now creditors. Their accounts have to be credited for the respective
amounts shown in the purchase book. The total of the amounts column shows the total
purchases made in a period. The amount is debited to the Purchase Account to indicate receipt
of goods. In illustration 11, the Purchases Account is debited by Rs. 502.12, M/s. Brown & Co.
is credited by Rs. 304.12, the Paper Company by Rs. 180 and M/s. Verma Bros. by Rs. 18. The
total of the amounts put on the credit side equals the debit. Thus the double entry is completed.
4. SALES BOOK
The Sales Book is a register specially kept to record credit sales of goods dealt in by the firm,cash
sales are entered in the Cash Book and not in the Sales Book. Credit sales of things, other than
the goods dealt in by the firm are not entered in the Sales Book ; they are journalised. The
ruling is the same as for the Purchases Book.
Entries in the sales book are also made in the same manner as in the Purchase Book. The
particulars column will record the name of the customers concerned together with particulars
and quantities of the goods sold. For each item, the amount is entered in the details column ;
after totalling the amounts for one sale, charges for packing etc; are added and the trade
discount, if any is deducted: the net amount is put in the outer column. The total of this
column will show the total credit sales for a period.
Illustration 3
The following are some of the transaction of M/s Kishore & Sons of the year 2009 as per their
Waste Book. Make out their Sales Book.
FUNDAMENTALS OF ACCOUNTING 2.55
Copyright -The Institute of Chartered Accountants of India
SUBSIDIARY BOOKS
Sold to M/s. Gupta & Verma on credit:
30 shirts @ Rs. 8 per shirt.
20 trousers @ Rs. 10 per trouser.
Less : Trade Discount @ 10%
Sold furniture to M/s. Sehgal & Co. on credit Rs. 80.
Sold 50 shirts of M/s. Jain & Sons @ Rs. 8 per shirt.
Sold 13 shirts to Cheap Stores @ Rs. 7.50 each for cash.
Sold on credit to M/s. Mathur & Jain.
100 shirts @ Rs. 7.50 per shirt
10 overcoats @ Rs. 50 per overcoat.
Less: Trade Discount @ 10%
Solution
SALES BOOK
Date Particulars Details L.F. Amount
2009 Rs. Rs.
M/s. Gupta & Verma
30 shirts @ Rs. 8 240.00
20 Trousers @ Rs. 10 .... 200.00
440.00
Less : 10% 40.00
Sales as per invoice no. dated ..... 396.00
M/s. Jain & Sons
50 shirts @ Rs. 8.
Sale as per invoice no. dated ...... 400.00
M/s Mathur & Jain
100 shirts @ Rs. 7.50 750.00
100 overcoats @ Rs. 50 500.00
1,250.00
Less : 10% 125.00
Sales as per invoice no. dated...... 1,125.00
Total 1,921.00
Note : Cash sale and sale of furniture are not entered in Sales Book.
2.56 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
4.1 POSTING THE SALES BOOK
The names appearing in the Sales Book are of those parties which have received the goods.
The accounts of the parties have to be debited with the respective amounts. The total of the
Sales Book shows the credit sales made during the period concerned; the amount is credited to
the Sales Account. In the illustration 12, Rs. 1,921 is credited to the Sales Account; Rs. 396 is
debited to M/s. Gupta and Verma Rs. 400 to M/s Jain and Sons and Rs. 1,125 to M/s Mathur
& Jain. The amount put on the credit side is equal to the total of the amount put on the debit
side. Thus, the double entry principle is followed correctly.
4.2. SALES BOOK WITH SALES TAX COLUMN
Sales Tax is one levied at the point of sales. Sales tax is collected by the seller from the customers
on sales of goods and deposited the same with the state government. Sales tax is charged at a
fixed percentage on the net price of the goods. It is calculated after giving trade discount, if
any. Generally a separate column is provided in the Sales Book for sales tax so that a proper
record is maintained regarding sales tax collected. Rates of sales tax vary from item to item
and also on local sales and interstate sales (or say central sales). A separate column in sales
book for each rate of sales tax helps the dealer in calculating sales tax liability accurately.
At the end of a certain period, generally quarterly or monthly, the total of sales tax column is
credited to the Sales Tax Account. When sales tax is deposited with the sales tax department,
the Sales Tax Account is debited and Cash/Bank Account is credited. When there is any credit
balance in Sales Tax Account, it shows the amount payable as sales tax and hence be shown
in the Balance Sheet as a liability.
Illustration 4
Record the following transactions in Sales Book.
February 2, 2010 : Sold to South Indian Toys 500 toys @ Rs. 60 each; Less:
Trade Discount @ 5%; Sales tax to be charged @ 10%.
February 10, 2010 : Sold to Ria Sisters. 100 kg. of wheat @ Rs. 40 per kg.;
Less: 5% Trade Discount; Sales tax charged @ 5% .
February 15, 2010 : Sold to Raj Bros. 20 bags of White Cement Powder; @
Rs. 2,000 per bag; Less: 2% Trade Discount; Sales tax @
8%.
February 27, 2010 : Sold to Sen & Co. 10 chests of tea @ Rs. 500 per chest
less 10% Trade Discount; Sales tax is charged @ 5%.
Solution Sales Book
Date Particulars Details Amount
February 2, 2010 South Indian Toys
500 toys @ Rs. 60 each 30,000
Less: Trade discount @ 5% 1,500
28,500
FUNDAMENTALS OF ACCOUNTING 2.57
Copyright -The Institute of Chartered Accountants of India
SUBSIDIARY BOOKS
Add: Sales tax @ 10%. 2,850 31,350
February 10, 2010 Ria Sisters
100 kg. wheat @ Rs. 40 per kg. 4,000
Less: Trade discount @ 5%. 200
3,800
Add: Sales tax @ 5%. 190 3,990
February 15, 2010 Raj Bros.
20 bags of cement @ Rs. 2,000 per
bag 40,000
Less: Trade discount @ 2% 800
39,200
Add: Sales tax @ 8%. 3,136 42,336
February 27, 2010 Sen & Co.
10 chests of tea @ Rs. 500 per chest. 5,000
Less: Trade discount @ 10%. 500
4,500
Add: Sales tax @ 5% 225 4,725
Total 82,401
Illustration 5
Enter the following transactions in Sales Book of M/s. Pranat Engineers Ltd., Delhi -
2010
Jan. 2. Sold to M/s. Ajanta Electricals, Delhi 5 pieces of colour T.V. @ Rs. 6,000/- each
less trade Discount @10%
8 Sold to M/s. Ajanta Electricals Plaza, 10 pieces of Washing Machines @ Rs.
8,000/- each less trade discount 5%.
15 Sold to M/s. Haryana Traders, 5 pieces of Black & White T.V. @ Rs. 3,500/- each
less trade discount @ 10%.
All sales are subject to 10% Sales Tax and 10% surcharge on sales tax.
2.58 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
Solution
Sales Book
Date Particulars Gross Trade Net Sales Total
Amount Discount Price Tax Amount
2010
Jan. 2 Ajanta Electricals 5 pieces of
Colour T.V. @ Rs.6,000/- each
Less 10% discount 30,000 3,000 27,000 2,970 29,970
8 Electronics Plaza 10 pieces of
Washing Machines @ Rs. 8,000/-
each, less 5% trade discount 80,000 4,000 76,000 8,360 84,360
15 Haryana Traders 5 pieces of
Black & White T.V. @ Rs. 3,500/-
each, less 10% trade discount 17,500 1,750 15,750 1,732.50 17,482.50
1,27,500 8,750 1,18,750 13,062.50 1,31,812.50
Posting
If separate column of sales tax is provided then, each individual debtors account will be debited
by the total amount of respective sales bill, Sales Account and Sales Tax Payable Account shall
be credited with the total of column of net sales and sales tax respectively.
Illustration 6
Post into the ledger the entries of Sales Book prepared in illustration 5.
Ledger
Dr. Cr.
Ajanta Electricals
Date Particulars L.F. Amount Date Particulars L.F. Amount
2010 (Rs.) 2010 (Rs.)
Jan. 2 To Sales A/c 27,000
To Sales Tax Payable A/c 2,970
Electronics Plaza
Date Particulars L.F. Amount Date Particulars L.F. Amount
2010 (Rs.) 2010 (Rs.)
Jan. 8 To Sales A/c 76,000
To Sales Tax Payable A/c 8,360
FUNDAMENTALS OF ACCOUNTING 2.59
Copyright -The Institute of Chartered Accountants of India
SUBSIDIARY BOOKS
Haryana Traders
Date Particulars L.F. Amount Date Particulars L.F. Amount
2010 (Rs.) 2010 (Rs.)
Jan. 15 To Sales A/c 15,750
To Sales Tax Payable A/c 1,732.50
Sales Account
Date Particulars L.F. Amount Date Particulars L.F. Amount
2010 (Rs.) 2010 (Rs.)
Jan 31 By Sundries 1,18,750
(As per Sales Book)
Sales Tax Payable A/c
Date Particulars L.F. Amount Date Particulars L.F. Amount
2010 (Rs.) 2010 (Rs.)
Jan. 31 By Sundries 13,062.5
(As per Sales Book)
5. SALES RETURNS BOOK OR RETURNS INWARD BOOK
If customers frequently return the goods sold to them, it would be convenient to record the
returns in a separate book, which is named as the Sales Returns Book or the returns Inward
Book. The ruling of the book is similar to the Purchases or the Sales Book and entries are also
made in the same manner. The following, assumed figures, will illustrate this:
RETURNS INWARD BOOK
Date Particulars Details L.F. Amount
2009 Rs.
June 7 Sunil Bank & Co.
6 Copies-Double Entry
Book keeping by T.S. Grewal @ Rs. 7 42.00
Less : Trade Discount 10% 4.20 37.80
(returns as per debit note no.......)
Kailash & Co.
1 Copy-Business Methods
by R.K. Gupta 3.50
(returns as per debit note no.......) Total 41.30
2.60 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
6. PURCHASE RETURNS OR RETURNS OUTWARD BOOK
Such a book conveniently records return of goods or material purchased to the suppliers-if
however, the returns are not frequent, it may be sufficient to record the transaction in the
journal. The ruling of the Purchase Returns or Returns Outward Book is similar to that of the
Purchase Book; entries are also similarly made, as the illustration given below shows:
RETURNS OUTWARD BOOK
Date Particulars Amount
2009 Rs. Rs.
June 2 Premier Electric Co. 175.00
One 36" Usha Ceiling Fan
" 28 Mohan Electric Co.
Ten Iron Heaters 150.00
Less : Discount 15.00 135.00
Total 310.00
6.1 POSTING OF THE RETURN BOOKS
The Sales Return Book will show the total of the returns made by customers. Really, the total
of the returns is in reduction of the sales. Properly, therefore, the amount may be debited to
the Sales Account but, usually, a separate account called Returns Inward Account is opened
and the total of the sales returns is debited to this accounts. The customers who have returned
the goods are credited with the respective amounts.
It should be noted that on goods being received and accepted back from the customers, a
credit note is issued to the customers concerned. This shows the amount to be credited to the
customer's account.
Similarly, when goods are returned to suppliers they will issue the necessary credit note; also
the firm returning the goods will issue a debit note to the supplier, indicating the amount for
which the supplier is liable on account of the return.
The total of Returns Outwards Book shows the total returns made. The amount can be credited to
the purchase Account, but in practice, is credited to a separate account called Purchase Returns or
Returns Outward Account. The suppliers whose names appear in the Book have received the
goods, so their accounts have to be debited. This is shown in the illustration given below :
Illustration 7
Post the following into the ledger
RETURNS OUTWARD BOOK
Date Particulars L.F. Details Amount
2009 Rs. Rs.
Nov. 20 Rajindra Prakash & Sons
One 36" Usha Ceiling Fan 200.00
Less : Trade Discount @ 10% 20.00 180.00
" 30 Modern Electric Company 100.00
Total 280.00
FUNDAMENTALS OF ACCOUNTING 2.61
Copyright -The Institute of Chartered Accountants of India
SUBSIDIARY BOOKS
Solution
LEDGER
RAJINDRA PARKASH & SONS.
Dr. Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
2009
Nov. 20 To Returns Outward A/c 180.00
MODERN ELECTRIC CO.
Dr. Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
2009
Nov. 30 To Returns Outward A/c 100.00
RETURNS OUTWARD ACCOUNT
Dr. Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
2009
Nov. 30 By Sundries as
per Returns Outward
A/c 280.00
6.2 BILLS RECEIVABLE BOOKS AND BILLS PAYABLE BOOKS
If the firm usually receives a number of promissory notes or hundies, it would be convenient
to record the transaction in a separate book called the Bills Receivable Book. Similarly, if
promissory notes or hundies are frequently issued, the Bills Payable Book will be convenient.
This will be discussed later.
7. IMPORTANCE OF JOURNAL
Students are now familiar with the journal. They also know that :
(i) Cash transactions are recorded in the cash book;
(ii) Credit purchases of goods or materials are recorded in the purchases book;
(iii) Credit sales of goods are recorded in the sales book ;
(iv) Returns from customers are recorded in the sale returns book; and
(v) Returns to suppliers are entered in the purchase returns book.
Bill transactions are entered in the bills receivable books or the bills payable books, if these are
maintained. Apart from the transactions mentioned above, there are some entries also which
have to be recorded. For them the proper place is the journal. In fact, if there is no special book
meant to record a transaction, it is recorded in the journal (proper). The role of the journal is
thus restricted to the following types of entries :
2.62 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
(i) Opening entries : When books are started for the new year, the opening balance of assets
and liabilities are journalised.
(ii) Closing entries : At the end of the year the profit and loss account has to be prepared.
For this purpose, the nominal accounts are transferred to this account. This is done through
journal entries called closing entries.
(iii) Rectification entries : If an error has been committed, it is rectified through a journal
entry.
(iv) Transfer entries : If some amount is to be transferred from one account to another, the
transfer will be made through a journal entry.
(v) Adjusting entries : At the end of the year the amount of expenses or income may have to
be adjusted for amounts received in advance or for amounts not yet settled in cash. Such
an adjustment is also made through journal entries. Usually, the entries pertain to the
following:
(a) Outstanding expenses, i.e., expenses incurred but not yet paid;
(b) Prepared expenses, i.e., expenses paid in advance for some period in the future;
(c) Interest on capital, i.e., the interest which the proprietor thinks proper to allow on his
investment; and
(d) Depreciation, i.e., fall in the value of the assets used on account of wear and tear.
For all these, journal entries are necessary.
(vi) Entries on dishonour of Bills : If someone who accepted a promissory note (or bill) and
is not able to pay in on the due date,a journal entry will be necessary to record the non-
payment or dishonour.
(vii)Miscellaneous entries : The following entries will also require journalising:
(a) Credit purchase of things other than goods dealt in or materials required for
production of goods e.g. credit purchase of furniture or machinery will be journalised.
(b) An allowance to be given to the customers or a charge to be made to them after the
issue of the invoice.
(c) Receipt of promissory notes or issue to them if separate bill books have not been
maintained.
(d) On an amount becoming irrecoverable, say, because, of the customer becoming insolvent.
(e) Effects of accidents such as loss of property by fire.
(f) Transfer of net profit to capital account.
Illustration 8
From the following transactions, prepare the Purchases Returns Book of Alpha & Co., a Saree
dealer and post them to ledger :
FUNDAMENTALS OF ACCOUNTING 2.63
Copyright -The Institute of Chartered Accountants of India
SUBSIDIARY BOOKS
Date Debit Note No. Particulars
04.01.2009 101 Returned to Goyal Mills, Surat - 5 polyester sarees @
Rs. 100.
09.01.2009 Garg Mills, Kota - accepted the return of goods (which
were purchased for cash) from us - 5 Kota sarees @
Rs. 40.
16.01.2009 102 Returned to Mittal Mills, Bangalore -5 silk sarees @
Rs. 260.
30.01.2009 Returned one typewriter (being defective) @ Rs. 3,500
to B & Co.
Solution
Purchase Returns Book
Date Debit Note No. Name of supplier L.F. Amount
2009
Jan. 4 101 Goyal Mills, Surat 500
Jan. 16 102 Mittal Mills, Bangalore 1,300
Jan. 31 Purchases Returns Account (Cr.) 1,800
SELF EXAMINATION QUESTIONS
I. In which book of original entry, will you record the following transactions?
(i) The debit note issued are used to prepare
(a) Sales return book. (b) Purchase return book.
(c) Sales book. (d) Purchases book.
(ii) An allowance of Rs. 50 was offered for an early payment of cash of Rs. 1,050.
(a) Sales Book (b) Cash Book
(c) Journal Proper (General Journal) (d) Purchase Book
(iii) A second hand motor car was purchased on credit from B Brothers for Rs. 10,000.
(a) Journal Proper (General Journal) (b) Sales Book
(c) Cash Book (d) Purchase Book
(iv) Goods were sold on credit basis to A Brothers for Rs. 1,000.
(a) Cash Book (b) Journal Proper (General Journal)
(c) Sales Book (d) Bills Receivable Book
2.64 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
(v) Accounting for partial recovery from Mr. C of an amount of Rs. 2,000 earlier written
off as bad debt.
(a) Journal Proper (General Journal) (b) Sales Book
(c) Purchase Book (d) Cash Book
(vi) Credit purchase of stationery worth Rs. 5,000 by a stationery dealer.
(a) Purchase Book (b) Sales Book
(c) Cash Book (d) Journal Proper (General Journal)
(vii) A bills receivable of Rs. 1,000, which was received from a debtor in full settlement for
a claim of Rs. 1,100, is dishonoured.
(a) Purchases Return Book (b) Bills Receivable Book
(c) Purchases Book (d) Journal Proper (General Journal)
(viii)Purchased goods from E worth Rs. 5,000 on credit basis.
(a) Bills Receivable Book (b) Purchases Book
(c) Journal Proper (General Journal) (d) Purchases Return
(ix) Unpaid salary for Rs. 340 is to be provided for in the accounts.
(a) Bills Receivable Book (b) Purchases Book
(c) Journal Proper (General Journal) (d) Purchases Return
(x) A debit note for Rs. 2,000 issued to Mr. F for goods returned by us is to be accounted
for
(a) Bills Receivable Book (b) Purchases Book
(c) Journal Proper (General Journal) (d) Purchases Return
(xi) Goods Outward Journal is meant for recording all returns of goods
(a) Sold on credit (b) Purchased on credit
(c) Purchased on cash (d) None of the above
(xii) The total of the purchases day book is posted periodically to the debit of:
(a) Purchases account. (b) Cash book.
(c) Journal proper. (d) None of these.
(xiii)Purchases day book records:
(a) All cash purchases. (b) All credit purchases
(c) Credit purchases of goods in trade. (d) None of the above
[Ans 1: (i)-(b), (ii)-(b), (iii)-(a), (iv)-(c), (v)-(d), (vi)-(a), (vii)-(d), (viii)-(b), (ix)-(c), (x)-(d),
(xi)-(b), (xii)-(a), (xiii)-(b)]
FUNDAMENTALS OF ACCOUNTING 2.65
Copyright -The Institute of Chartered Accountants of India
SUBSIDIARY BOOKS
2. Choose the most appropriate answer from the given options :
(i) In Purchases Book the record is in respect of
(a) cash purchase of goods, (b) credit purchase of goods dealt in,
(c) all purchases of goods.
(ii) The Sales Returns Book records
(a) the return of goods purchased, (b) return of anything purchased,
(c) return of goods sold.
(iii) The Sales Book
(a) is a part of journal, (b) is a part of the ledger,
(c) is a part of the balance sheet.
(iv) The weekly or monthly total of the purchase Book is
(a) posted to the debit of the Purchases Account,
(b) posted to the debit of the Sales Account,
(c) posted to the credit of the Purchases Account.
(v) The total of the Sales Book is posted to
(a) the credit of the Sales Account,
(b) credit of the Purchases Account,
(c) credit of the Capital Account
[Ans: 2: (i), (b); (ii), (c); (iii), (a); (iv), (a); (v), (a)]
2.66 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
CHAPTER - 2
ACCOUNTING
PROCESS
Unit 5
Cash Book
Copyright -The Institute of Chartered Accountants of India
CASH BOOK
Learning Objectives
After studying this unit you will be able to :
(cid:2) Understand that a Cash Book is a type of subsidiary book but treated as a principal book.
(cid:2) Be familiar with various kinds of Cash Books, viz., Simple Cash Book, Two-column Cash
Book and Three-column Cash Book.
(cid:2) Learn the technique of preparation of Simple Cash Book and how to balance it.
(cid:2) See how Double-Column Cash Book is a prepared adding discount column alongwith
cash column.
(cid:2) Understand the techniques of preparing Three-column Cash Book.
(cid:2) Understand what is a Petty Cash Book and the Imprest System of Petty Cash.
(cid:2) Note the advantages of the Petty Cash Book.
(cid:2) Learn how to maintain a Petty Cash Book and how to post the entries of the Petty Cash
Book in the ledger.
(cid:2) Understand the accounting of credit/debit sales transactions.
1. CASH BOOK - A SUBSIDIARY BOOK AND A PRINCIPAL BOOK
Cash transactions are straightaway recorded in the Cash Book and on the basis of such a
record, ledger accounts are prepared. Therefore, the Cash Book is a subsidiary book. But the
Cash Book itself serves as the cash account and the bank account; the balances are entered in
the trial balance directly. The Cash Book, therefore, is part of the ledger also. Hence, it has also
to be treated as the principal book. The Cash Book is thus both a subsidiary book and a principal
book.
2. KINDS OF CASH BOOK
The main Cash Book may be of the three types:
(i) Simple Cash Book;
(ii) Two-column Cash Book;
(iii) Three-column Cash Book.
In addition to the main Cash Book, firms also generally maintain a petty cash book but that is
purely a subsidiary book.
2.1 SIMPLE CASH BOOK
Such a cash book appears like an ordinary account, with one amount column on each side.
The left-hand side records receipts of cash and the right hand side the payments.
Balancing of the Cash Book: The cash book is balanced like other accounts. The receipts column
is always bigger than payments column. The difference is written on the credit side as 'By
2.68 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
balance c/d'. The totals are then entered in the two columns opposite one another and then on
the debit side the balance is written as "To Balance b/d", to show cash balance in hand in the
beginning of next period.
Illustration 1
Enter the following transactions in a Simple Cash Book:
2009 Rs.
Jan.1 Cash in hand 1,200
"5 Received from Ram 300
"7 Paid Rent 30
"8 Sold goods for cash 300
"10 Paid to Shyam 700
"27 Purchased Furniture 200
"31 Paid Salaries 100
"31 Rent due, not yet paid, for January 30
Solution
CASH BOOK
Dr. Cr.
Date Receipts L.F. Amount Date Payments L.F. Amount
2009 Rs. 2009 Rs.
Jan. 1 To Balance b/d 1,200 Jan. 07 By Rent A/c 30
" 5 To Ram A/c 300 " 10 By Shyam A/c 700
" 8 To Sales A/c 300 " 27 By Furniture A/c 200
" 31 By Salaries A/c 100
" 31 By Balance c/d 770
1,800 1,800
2009
Feb. 1 To Balance b/d 770
Note: One can see the following:
(i) In the simple cash book only the cash receipts and cash payment are recorded.
(ii) The debit side is always bigger than the credit side since the payment cannot exceed the
available cash.
(iii) The simple cash book is like an ordinary account.
FUNDAMENTALS OF ACCOUNTING 2.69
Copyright -The Institute of Chartered Accountants of India
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