Chapter recording-of-transactions-ii: Recording of Transactions - II | Summary

The single column cash book records all cash transactions in chronological order with only one amount column on each side. The debit (left) side records all cash receipts and the credit (right) side records all cash payments. The cash book always shows a debit balance since cash payments can never exceed total cash available.

The source document for cash receipts is generally the duplicate copy of the receipt issued by the cashier, while for payments any invoice, bill, or receipt serves as a voucher. Posting is done by crediting individual accounts for entries on the debit side of the cash book, and debiting individual accounts for entries on the credit side.

The double column cash book has two amount columns on each side — one for cash and one for bank transactions. A businessman opens a current account with a bank. Deposits into the bank are recorded via a pay-in-slip, and withdrawals are made via cheques. The bank does not pay interest on current account balances but charges incidental charges for services.

When cash is deposited into the bank or withdrawn, both sides of the transaction appear in the cash book itself, and the letter 'C' (contra) is written in the L.F. column to indicate that no separate ledger posting is required. If the bank column shows a credit balance, it indicates an overdraft. Dishonoured cheques, bank charges, and interest collected by the bank are also recorded in the bank column.

Cheques issued by a bank to account holders can be bearer cheques (payable to the bearer), order cheques (payment made after identification), or crossed cheques (payment made only through a bank). When two parallel lines are drawn across a cheque, it is said to be crossed, preventing direct counter payment.

An 'A/c Payee Only' crossing restricts the amount to be deposited only in the account of the named person. A special crossing occurs when the name of a specific bank is written between two parallel lines, allowing payment only to that bank. A bearer cheque is transferred by delivery, while an order cheque is transferred by endorsement and delivery.

Large organisations appoint a petty cashier to handle numerous small payments such as conveyance, cartage, postage, and telegrams. The petty cash book is maintained by the petty cashier to record these small, repetitive transactions. It has multiple analysis columns on the payment side for common expense categories and a miscellaneous column for others.

The petty cashier works on the Imprest System, whereby a fixed sum (imprest amount) is given to the petty cashier at the start of a period. After the petty cashier spends most of it, the head cashier reimburses the exact amount spent, restoring the full imprest balance. The petty cash book is balanced periodically and a petty cash account is maintained in the ledger.

Only credit purchases of goods (merchandise meant for resale) are recorded in the purchases book. Cash purchases are recorded in the cash book, and credit purchases of assets like furniture are recorded in the journal proper. The source document is the invoice or bill received from the supplier. Trade discount is deducted and only the net amount is recorded.

Individual supplier accounts are posted to the credit side of the ledger generally on a daily basis. The monthly total of the purchases book is posted to the debit of the Purchases Account in the ledger. The introduction of GST has added analytical columns for CGST, SGST, and IGST in the purchases book.

When goods purchased on credit are returned to the supplier due to defects or quality issues, the transaction is recorded in the purchases return book. The source document is a debit note prepared by the buyer and sent to the supplier. It contains the name of the supplier, details of goods returned, and reasons for return.

On posting, individual supplier accounts are debited with the amount of returns, and the Purchases Return Account is credited with the periodic total. The supplier may also issue a credit note to the buyer acknowledging the return. Under GST, the purchases return book also has separate columns for CGST, SGST, and IGST.

All credit sales of merchandise are recorded in the sales book. Cash sales are recorded in the cash book. The source documents are the sales invoices or bills issued by the firm to its customers. Date, invoice number, name of customer, and net amount are recorded. Two or more copies of a sales invoice are prepared; the bookkeeper uses one copy to record entries in the sales journal.

Individual customer accounts are debited (posted to ledger) generally on a daily basis. The monthly total of the sales book is posted to the credit of the Sales Account in the ledger. An additional column for sales tax or GST (CGST, SGST, IGST) can be added as required.

When customers return goods, the transaction is recorded in the sales return book. A credit note is prepared by the seller and sent to the customer. It is similar to the debit note but is prepared by the seller (not the buyer), and by convention is often written in red ink.

On posting, the customer's account is credited with the amount of returns and the Sales Return Account is debited with the periodic total. The credit note is the source document for entries in the sales return book, just as the debit note is the source document for the purchases return book.

With the introduction of the Goods and Services Tax (GST), special purpose books have been modified to include analytical columns. Intra-state transactions attract CGST (Central GST) and SGST (State GST) equally, while inter-state transactions attract IGST (Integrated GST). These are recorded separately in both the purchases and sales books as well as their return books.

For example, a purchase from a supplier within the same state would attract both CGST and SGST at equal rates, whereas a purchase from a supplier in another state would attract only IGST. Trade discount is always deducted before computing the GST liability.

Chapter 4 introduces the concept of special purpose books as an efficient extension of the basic journal system. The cash book (single column, double column, and petty cash book) handles all cash and bank transactions, while the purchases book, sales book, and their return counterparts handle the bulk of repetitive credit transactions. The imprest system ensures controlled disbursement of petty cash, and the use of debit notes and credit notes formalises the documentation of purchase and sales returns respectively.

From a board examination perspective, this chapter carries significant weight. Students must be proficient in preparing all types of cash books including handling contra entries and dishonoured cheques, recording trade discounts in purchases and sales books, posting entries from subsidiary books to the ledger, and preparing analytical books incorporating GST columns. Mastery of the formats, posting rules, and source documents for each subsidiary book is essential for scoring well in practical and theory-based questions.