ACCOUNTING BOOK

CHAPTER V:T HE CASH BOOK

Another duty which falls frequently to the junior in a country branch is the writing of
the cash-book, or day-book, as it is sometimes called. This book contains a record of all
the vouchers and entries representing the transactions of each day. Theoretically, the
particulars of every item, debit and credit, should be entered, but in practice this would
be inconvenient. At many offices it would make the book too bulky an affair.
Therefore, supplementary books are used. They may cover any class of entry, the items
of which are too numerous to be entered in the main or parent book. For example, a
supplementary book might be used for the cheques and deposits in either the current
accounts or the savings bank ledgers, for the entries between branches or with the head
office. It is possible to avoid repetition and to economize labor by using the original
records in other main or primary books, such as the discount diary and the discount
register, as supplementary to the cash book. Whenever the cash-book is supplemented
in this way the totals only of the credits and the debits are incorporated in the main
book, along with a record of where the individual items composing the totals are to be
found.

Declaration Of Cash Balance

Besides being the book of record for the transactions of the day, the cash book is the medium
through which is made every evening the official declaration of the cash balance of the
branch, and in consequence the teller, as custodian of the bank's fluctuating cash, is directly
concerned in its correctness.
There is no set order of entry for the items. Generally, the headings are arranged so as
to permit the entering, as far as possible, of the day's work during the course of the day. The
totals cannot be extended until the final entries come from the teller's box after the end of
banking hours. All the entries in the book are made from slips or vouchers, except those
referred to as being taken by totals from other books. It is endeavored to arrange the headings
in the cash-book so that they will come in order down the page, as the accounts to which they
belong come in the general ledger. This facilitates the posting of the latter book, which is
usually done by a senior officer.
It has been implied that a portion of the items are put through the cash-book during the
course of each day. The method of writing up will be easier understood if we imagine that
nothing has been done till after the closing hour, when all the entries are gathered and are
available for writing in.
How The Vouchers Are Entered
The junior has his book ready, headed up: "Dr., Cash-Monday, 10th June, 1913- Contra-Cr.,"
the left page being for credit entries, the right for debit entries. He has raised headings for
some of the accounts part way down both sides, as far as he can go with an accurate
calculation of space requirements for each heading. From the file or box provided for the
purpose, he takes the vouchers that are to be entered. Before a commencement can be made
they must be sorted properly.

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First, the credits are separated from the debits To emphasize the distinction between the two
classes of entries, lessening the probability of mistakes and facilitating sorting, the printing
on the credit slips is of a different color from that on the debits. When both kinds of vouchers
are sorted so that all items for every account are together, arranged in alphabetical order or in
order of the folio numbers written upon them, they can be written in.
Most numerous among the items will be the deposit slips and cheques that have passed
through the current account or deposit ledger. Nearly everybody who has done business with
a bank is familiar with the form of the deposit slips. The name of the bank at the top, with a
line for the date; then the word "Credit," with a blank space for the name of depositor, and
underneath the specification of the bills and cheques deposited. Before they come to the
junior, these slips must pass through the hands of the teller and the deposit ledger keeper. The
teller, on checking and finding the slip to be a true representation of the deposit made by the
customer, places his initial immediately alongside the total sum at the foot of the slip.
Subsidiary book may be defined as a book of prime entry in which transactions of a
particular category are recorded. In other words, in order to save time and energy, the
transactions which are of similar character are recorded in separate books, these are called
subsidiary books or subdivision of journal. A number of subsidiary books are opened to
record all business transactions. In practical system of book-keeping, subsidiary books are:

Cash Book: Transactions held in cash or by cheque are recorded in this book. There are two
sides in a cash book. In the left hand side all cash receipts are recorded and in the right hand
side all cash payments are recorded. Cash Book is of five types: single column cash book,
double column cash book, triple column cash book, bank cash book and petty cash book. In
the single column cash book only receipt of cash and payment of cash are recorded.
In the double column cash book, receipt of cash, receipt of cash discount, payment of
cash and cash discount allowed are recorded. In the triple column cash book along with the
transactions which are recorded in double column cash book, cheque received and cheque
paid are recorded. In the bank cash book the receipt of cheque, payment of cheque, cash
discount allowed and cash discount received are recorded. In the petty cash book only small
payments of cash are recorded by the petty cashier.

Purchase Book: All credit purchase of goods are written in this book. Cash purchase of
goods and credit purchase of assets are not recorded in this book. Other names of purchase
book are purchase day book, purchase journal, bought journal, inward invoice book etc.

Sales Book: All sales of goods are written in this book. Cash sale of goods and credit sale
of assets are not recorded in this book. Other names of Sales Book are Sales Day Book, Sales
Journal, Sold book, Outward Invoice Book etc.

Purchase Return Book: It may be necessary to return some goods that the firm has bought
on credit for a variety of reasons. All returns of such goods are recorded primarily in Return
Outward Book. This book is also known as Purchase Return Book.

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Sales Return Book: Goods may be returned by the customers for a variety of reasons. All
goods returned from customers are recorded in Sales Return Book. This book is also known
as Return Inward Book.

Bills Receivable Book: When credit sales of goods are made the purchaser gives his
guarantee to make payment in future in the form of bill. When the seller receives such bill, it
is Bill Receivable for him as he will receive payment in future against such bill. In case a
business house receives a number of bills, a Bills Receivable Book is maintained to record all
such bills.

Bills Payable Book: When credit purchases are made by a firm it gives a guarantee to the
seller to make payment in future in the form of a bill. This bill is said to be Bills Payable for
the firm as he will pay for the bill in future. A Bills Payable Book is opened to record all such
bills.

Journal Proper: It is a subsidiary book maintained to record the transaction which cannot
be recorded in other special subsidiary books. Usually the transactions of infrequent character
are recorded in the journal proper. The entries like adjustment entries, opening entries,
closing entries, transfer entries, purchase and sale of assets on credit, interest on capital,
interest of drawing etc. are recorded in journal proper.
Though the principle of journalising all transactions, known as continental system of
bookkeeping is quite perfect in actual business but in a large business it is found inconvenient
to Journalise every transaction and sometime it becomes rather impossible for one man to
Journalise numerous transactions on a business in one journal. Therefore, the journal is sub-
divided into different journals known as the subsidiary books or books of prime entry or
books of original entry. These are the books in which are recorded the details of transactions
as they take place from day to day, in a classified manner.
In every trading concern, the transactions, however numerous they may be, can be
grouped into small number of classes. They consist chiefly of receipts and payments of cash,
purchases and sales of goods, returns of goods purchased and sold, bills receivable and bills
payable. The journal is divided in such a way that a separate book is used for each class of
transactions.

The important subsidiary books used in modern business world are the following:-

1. Cash Book: It is used to record all cash receipts and payments.

2. Purchases Book: It is used to record all credit purchases.
3. Sales Book: It is used to record all credit sales
4. Purchases returns book: It is used to record all goods returned by us to our
suppliers.
5. Sales Returns Book: It is used to record all goods returned to us by our customers.
6. Bills Receivable Book: It is used to record all accepted bills received by us.
7. Bills payable Book: It is used to record all bill accepted by us to our creditors.

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8. Journal Proper: It is used for recording those transactions for which there is no separate
book.

All these subsidiary books are called books of original entry, as transactions in their original
form are entered therein.

Advantages of Different Journals: The advantages of having several books of original

entry in place of one journal may be stated to as follows:

1. It may be impossible to record each transaction into the ledger as it occurs. Subsidiary
books record the details of the transactions and therefore, helps the ledger to become
brief.
2. As similar transactions are recorded together in the same book, future reference to any of
them becomes easy.
3. The chance of fraudulent alteration in an account is reduced as the book of original entry
keeps records of the transactions in a chronological order.
4. The work of posting can be entrusted to several clerks at the same time and thus the
ledger of a large business can be written up much more quickly.
5. As each journal contains separately transactions of similar nature any desired analysis
can be made conveniently.

Definition and Explanation of Cash Book:

Cash book is a book of original entry in which transactions relating only to cash receipts and
payments are recorded in detail. When cash is received it is entered on the debit or left hand
side. Similarly, when cash is paid out the same is recorded on the credit or right hand side of
the cash book.

Single Column Cash Book:

Single column cash book records only cash receipts and payments. It has only one money
column on each of the debit and credit sides of the cash book. All the cash receipts are
entered on the debit side and the cash payments on the credit side.

Two Column Cash Book/Double Column Cash Book:

A double column cash book or two column cash book is one which consists of two separate
columns on the debit side as well as credit side for recording cash and discount. In many
concerns it is customary for the trader to allow or to receive small allowance off or against
the dues.

Three Column Cash Book:

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A three column cash book or treble column cash book is one in which there are three
columns on each side - debit and credit side. One is used to record cash transactions, the
second is used to record bank transactions and third is used to record discount received and
paid.

Bank Reconciliation Statement:

From time to time the balance shown by the bank and cash column of the cash book required
to be checked. The balance shown by the cash column of the cash book must agree with
amount of cash in hand on that date. Thus reconciliation of the cash column is simple matter.
If it does not agree it means that either some cash transactions have been omitted from the
cash book or an amount of cash has been stolen or lost. The reason for the difference is
ascertained and cash book can be corrected. So for as bank balance is concerned, its
reconciliation is not so simple. The balance shown by the bank column of the cash book
should always agree with the balance shown by the bank statement, because the bank
statement is a copy of the customer's account in the banks ledger. But the bank balance as
shown by the cash book and bank balance as shown by the bank statement seldom agree.
Periodically, therefore, a statement is prepared called bank reconciliation statement to find
out the reasons for disagreement between the bank statement balance and the cash book
balance of the bank, and to test whether the apparently conflicting balance do really agree.

Petty Cash Book:

In almost all businesses, it is found necessary to keep small sums of ready money with the
cashier or petty cashier for the purpose of meeting small expenses such as postage, telegrams,
stationary and office sundries etc. The sum of money so kept in hand generally termed as
petty cash and book in which the petty cash expenditures are recorded is termed as petty cash
book.

Purchases Day Book:

Purchases book or purchases day book is a book of original entry maintained to record
credit purchases. You must note that cash purchases will not be entered in purchases day
book because entries in respect of cash purchases must have been entered in the cash book.

Purchases Returns Book:

Purchases returns book is a book in which the goods returned to suppliers are recorded. It is
also called returns outward book or purchases returns day book. Goods may be returned
because they are of the wrong kind or not up to sample or because they are damaged etc.

Sales Day Book:

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Sales returns book is also called returns inwards book. It is used for recording goods
returned to us by our customers. The ruling of this books is exactly as for sales day book..

Sales Returns Book:

Sales returns book is also called returns inwards book. It is used for recording goods
returned to us by our customers. The ruling of this books is exactly as for sales day book.

Bills Receivable Book:

Bills receivable book is used to record the bills received from debtors. When a bill is
received, details of it are recorded in the bills receivable book.

Bills Payable Book:

Bills payable book is used to record bill accepted by us. When a bill drawn by our creditor is
accepted particulars of the same are recorded in this book.

Journal Proper:

Journal proper is book of original entry (simple journal) in which miscellaneous credit
transactions which do not fit in any other books are recorded. It is also called miscellaneous
journal. The form and procedure for maintaining this journal is the same that of simple
journal.

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