Fundamentals of Accounting I Unit 4

Unit 4 Secondary Books

Structure:
4.1 Introduction
Objectives
4.2 Secondary Books
Purchase Book
Sales Book
Purchases Returns Book
Sales Returns Books
Bills Receivable
Bills Payable Book
4.3 Cash Book
4.4 Petty Cash Book
4.5 Ledger
4.6 Summary
4.7 Glossary
4.8 Terminal Questions
4.9 Answers

4.1 Introduction
In the previous unit, you learnt about accounting equation, classification of
accounts and double entry system. You have also learnt the technique of
journalising various transactions based upon the rules of debit and credit.
In this unit, you will learn about preparation of various subsidiary books such
as purchases book, sales book, purchases returns book, sales returns book,
cash book, bills receivable book and bills payable book. The unit covers
principles regarding the preparation of ledger accounts.
Objectives:
After studying this unit, you should be able to:
• explain various subsidiary books such as purchase book, sales book,
purchase returns book, sales return book, bills receivable book and bills
payable book.
• know the methods of preparing different types of cash books
• describe the rules of posting and balancing of an account

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4.1 Secondary Books

The Books of Accounts maintained by an organization other than the
cashbook may be classified into Journals and Ledgers. The Journal is used
as the book of first entry for all transactions, which cannot be recorded in the
Cash Book. In other words all non-cash transactions should be recorded in
the journal. For practical convenience the journal is maintained by using a
number of books called the subsidiary books. For example the following
subsidiary books may constitute the journal for an enterprise.
1. Purchase Day Book : It records credit purchase of merchandise
2. Purchase Returns Book: It records goods returned to the supplier(s)
3. Sales Day Book: It records credit sales of goods
4. Sales Returns Book: It records goods returned by customer(s)
5. Bills Receivable Book: It records bills accepted by customers
6. Bills Payable Book: It records bills raised by suppliers
7. Cash book: It records cash(and bank) receipts and payments
8. Journal Proper: It records all residual transactions
Purchase Book
Purchase book records all the credit purchase of raw materials (in case of a
manufacturing concern), or of goods traded (in case of a trading concern).
The format of the purchase book is given in the table 4.1.
Table 4.1: Specimen of Purchase Book
Inward
Amount Net Amount
Date Particulars Invoice Ledger Folio
(Rs.) (Rs.)
No

Trade discount:
• It is reduction granted by a supplier from the list price of goods or
services bought other than for prompt payment.
• It is allowed to promote the sales
• A separate trade discount account is not opened in the ledger because it
is shown by the way of deduction in the invoice itself.
• It may vary with the quantity purchased.

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Illustration 1:
Enter the following transactions in the Purchase Book of Rajesh, a provision
merchant.
2009
Jan. 1 Bought 10 bags of rice at Rs. 100 per bag for cash from Mr. Suhas
Mangalore.
Jan. 2 Bought from Manipal Store Manipal, 10 bags of sugar at Rs. 100
per bag. Less Trade discount 10%.
Jan. 5 Bought from Mr. Reddy Manipal 20 bags of wheat flour at Rs.100
per bag. Cash discount is 5% for payment within 1 month
Jan. 15 Bought from Canara Coffee Works Ltd. Mangalore, 100 kgs of
coffee at Rs.30 per kg. Trade discount is 5% and cash discount is
5% if paid within 15 days.
Solution:
Purchase Book
Inward
Date Name of Supplier LF Amount
Inv
2009 Manipal Store Manipal 1000
Jan2 Less Trade discount 10% 100
_____ 1 900
Net amount 900
(See note 1)
Jan 5 Mr. Reddy Manipal 2 2000
(See note 2)
Jan 15 Canara Coffee Works Ltd. 3000 3
Less Trade discount 5% 150
______ 2850
Net amount 2850
(See note 3)
Total 5750

Note 1: Transaction No.1 is cash purchases and will not be included in

purchase book.
Note 2: Cash discount will be recorded in cash book and not in purchase
book.
Note 3: Trade discount alone should be recorded and not cash discount.

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Sales Book
The Sales Book records only credit sales of goods. Cash sales of goods are
recorded in the Cash Book. Sales of assets should be entered in the Journal
Proper. The format of sales book is given in table 4.2.
Table 4.2: Specimen of Sales Book

Outward Inv. Amount

Date Name of Customer L.F.
No. (Rs.)

Illustration 2:
Enter the following transactions in the Sales Book of Kamath, a provision
merchant.
2008
Jan 1 Sold on credit to Mr. Suhas Mangalore, 10 bags of rice at Rs. 100
per bag. Trade discount allowed is 5%
Jan. 2 Sold for cash to Manipal Store Manipal, 10 bags of sugar at Rs. 100
per bag.
Jan.5 Sold on credit to Mr. Reddy Manipal 20 bags of wheat flour at
Rs. 100 per bag. Trade discount @ 10%, cash discount @10% if
received within 10 days
Jan 15 Sold on credit to Maneesh, 2 used Personal Computers for
Rs.6,000/- each.

Sales Book
Outward
Date Name of the customer LF Amount
Inv.
2008 Mr. Suhas Mangalore 1000 101
Jan 1 Less:Trade discount 5% 50 950
Mr. Reddy Manipal 2000 102
Less:Trade discount 6% 120 1880
(see note 1,2 and 3)
Total 2830

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Note 1: Transaction 2 is cash transaction and hence it does not appear in

sales book
Note 2: Transaction 3 only trade discount should be taken and not cash
discount.
Because the later will appear in cash book.
Note 3: In transaction 5, only sale of goods and services are entered in
sales book.
Sale of an asset is entered in journal proper.
Purchase Returns Book
The Purchase Return Book as shown in table 4.3 (also called as Return
Outwards Book) is used to record the goods purchased on credit and sent
back to suppliers, as they are found not conforming to specifications or for
any other reason.
Table 4.3: Specimen of Purchase Returns Book

Debit Note Amount

Date Name of Supplier L.F
No. (Rs)

A debit note is a document prepared by the purchaser to inform the supplier

that his account has been debited with the amount mentioned and for the
reason stated therein.
Illustration 3:
Enter the following transactions in the Purchase Returns Book 2010
Jan.1 Returned goods worth Rs.1000 to Shri Traders, Udupi
Jan.5 Returned goods worth Rs.5000 to Chandan, Mangalore less trade
discount @10%
Jan.25 Returned one defective computer purchased from
Mr. Shetty, Hubli and received Rs.1500

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Purchase Return Book

Date Name of Supplier L.F. Debit Note Amount
2010 Jan 1 Shri Traders, Udupi 201 1000
Jan 5 Chandan, Mangalore 5000
Less Trade discount 10% 500 202 4500
(see note 1)
Total 5500
Note 1: Return of asset purchased (computer) will appear in journal proper.

Sales Returns Book

The Sales Returns Book as shown in table 4.4 used for recording
transactions relating to goods sold on credit and received back from the
customers as not conforming to the specifications or for any other reason.
Table 4.4: Specimen of Sales Returns Book

Date Name of Customer L.F. Credit Note No. Amount Rs.

A credit note is a document prepared by the seller to inform the buyer that
his account has been credited with the amount mentioned for the reasons
stated therein. Credit notes are issued to the customers while debit notes
are issued by the customers.

Illustration 4:
Enter the following transactions in the Sales Returns Book
2007
Jan 1 Ramesh & Co. returned us goods worth Rs. 2,000 trade discount 5%
Jan 2 Mohan returned us goods worth Rs.5000 sold on cash
Jan 30 Rai. & Co. returned us personal computer worth Rs6000
Sales Returns Book
Credit Note
Date Name of Customer L.F. Amount Rs.
No.
2007 Jan 1 Ramesh & Co 2000
Less trade discount 5% 100 1
(see note 1 and 2) 1900
Note 1: Transaction 2 will appear in cash book
Note 2: Transaction 3 (sale of asset) will appear in journal proper.

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Bills Receivable and Bills Payable Book:

A bill of exchange is documentary evidence in writing containing an
unconditional order signed by the maker, directing a certain person to pay a
certain sum of money only to, or the order of, a certain person or to the
bearer of the instrument.
Bills Receivable Book:
A bill of exchange accepted by a customer is called bills receivable. When
bills are received from debtors they are recorded in a separate book known
as bills receivable book. This book contains date of receipt of bill, voucher
no., party from whom the bill is received, date of bill, place of payment and
amount.
For every bill the due date is calculated after adding three days of grace.
The total of the bill receivable is transferred to bills receivable account in the
ledger. The format is given in table 4.5.
Table 4.5: Format of Bills Receivable book

Date of V. Party from Date Due Place of

Amount LF
Receipt no. whom received of Bill Date Payment

Illustration 5: M/s Shiva & Co draws a bill on 26th March 2008 for
Rs.60,000/- payable after one month.
Date of Place of
Drawer Date of Bill Due Date Amount LF
Acceptance payment
26/03/2008 M/s. Shiva & Co. 26/03/2008 29/04/2008 Bangalore 60,000 xx

Bills Payable Book

The bills payable book consists of all promissory notes or bills of exchange
accepted by the business in respect of amounts owing to its suppliers. The
total of bills payable is transferred to bills payable account in the ledger. The
format is given in table 4.6:
Table 4.6: Format of Bills Payable Book
Date of Date of Due Place of
Drawer Amount LF
Acceptance Bill Date payment

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Illustration 6:
Bill drawn on Mr. Jain Ashok on 3rd March 2006 for Rs.84,000 payable after
one month.

Date of Date of Place of

Drawer Due Date Amount LF
Acceptance Bill payment
03/03/2006 Mr. Jain 03/03/2006 06/04/2006 Mumbai 84,000
Ashok

Self Assessment Questions

1. Choose the right answer from among the following:
A. Purchase book is used to record:
a. Credit purchase of goods
b. Cash purchase of goods
c. Both credit and cash purchase of goods
d. Credit purchase of goods including assets
B. When goods are returned to the supplier:
a. An invoice is raised
b. A debit note is raised and sent to the supplier
c. A credit note is raised and sent to the supplier
d. An information is sent through letter/email
2. State true or false:
Only credit purchases are entered in purchase book and credit sales in
cash book
3. Fill in the blanks:
The bills payable book consists of all promissory notes or bills of
exchange accepted by the business in respect of amounts owing to its
________ .
4. In which book of original entry would the following transactions be
entered?
a. Goods sold for cash were returned by a customer : __________.
b. Goods sold on credit were returned by a customer and cash was
given immediately: _______________.
c. Goods bought from Prakash & Co. the payment for which is due
after a month: _____________________.

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Activity 1:
A client has approached you this day to draft a bill of exchange. The bill
has to be drawn on M/s Ganesh & Co for Rs.75,000/- payable after 45
days. Mention all the necessary details in the draft bill.

4.3 Cash Book

Is cash book, a book of original entry or is it a ledger?
The cash book is a book of original entry since transactions are recorded for
the first time from the source documents. The cash book is a ledger
because it takes the form of a cash account and records cash receipts on
the debit side and cash payment on the credit side. Thus, the cash book is
both a journal and a ledger.
Types of Cash Book
There are four types of cash books:
1) Single column cash book
2) Cash book with discount column (two columnar)
3) Cash book with bank and discount column (three columnar-table 4.7)
4) Petty cash book
Table 4.7: Specimen of Cash Book with bank and discount column
Dr Cr.
Cash L.F Cash
Date Receipts L.F Discount Bank Date Payments Discount Bank
(Rs.) (Rs.)

Illustration 7:
Enter the following transactions in Ganesh’s simple Cash book
2007 April 1 Balance of cash in hand Rs.1500
8 Purchased goods for cash from X for Rs.320
15 Sold goods for Rs. 480 to Y for cash
20 Received commission Rs.65
22 Paid commission Rs.55
28 Paid to Shantaram on account Rs.715
30 Paid salary to the office clerk Rs.100 and office rent Rs.60

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Cash book
Date Particulars LF Amount Date Particulars LF Amount
2007 Apr 8 By purchases 320
Apr 1 To balance b/d 1,500
15 To sales 480 22 By commission 55
20 To commission 65 28 By shantaram 715
30 By salaries 100
30 By office rent 60
30 By balance c/d 795
30 Total 2045 Total 2045
May 1 To balance bld 795

Cash Discount:
• It is the reduction granted by a supplier from the invoice price in
consideration of immediate payment or within a specified period
• It is allowed to encourage prompt payment
• Since it is not shown in the invoice, a separate cash discount account is
opened in the ledger
• It may vary with the period within which the payment is made.

Illustration 8:
On 1st Jan 2009, Ramanathan opened a Bank Account by depositing
Rs.6,000/- in cash. All remittances are to be paid into bank on the same day
on which they are received and all payments are made by cheques. Enter
the following transactions in three columnar cash book.
Jan 2 Goods sold to Mohan for cash Rs.250
Jan 5 Settled Hari’s account of Rs.200 at a discount of 5%
Jan 7 Received from Shyam a cheque for Rs.725. Discount allowed Rs.25
Jan 10 Purchased a calculator for Rs.200.Spent Rs.50 on the cover
Jan 12 Shyam’s cheque was returned dishonoured
Jan 15 Received a money order for Rs.25 from Hari
Jan 20 Shyam settled his account by means of a cheque for Rs.755, Rs.5
being for interest charged
Jan 27 Purchased machinery from Rajiv for Rs.5000 and paid him by means

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of a bank draft purchased from bank for Rs.5,005

THREE COLUMN CASH BOOK
Date Particulars L.F Dis Cash Bank Date Particulars L.F Dis Cash Bank
Jan1 To Capital a/c 6000 Jan 1 By bank a/c c 6000
Jan 1 To cash c 6000 2 By bank c 250
2 To Sales 250 5 By Hari 10 190
2 To Cash c 250 10 By calculator a/c 200
7 To Shyam 25 725 10 By calculator a/c 50
15 To Hari 25 12 By Shyam 25 725
15 To Cash c 25 15 By bank c 25
20 To Shyam 750 27 By Machinery 5000
20 To interest 5 By Draft 5
commission
31 By balance c/d 1585
25 6275 7755 35 6275 7755
Feb1 To Balance b/d - - 1585

Self Assessment Questions

5. ________ records all receipts and payments in cash.
6. Choose the right option: ______ encourages prompt payment.
(a) Cash discount (b) trade discount

4.4 Petty Cash Book

The amount which the main cashier gives to the petty cashier to meet the
petty or small cash expenses for a given period is known as Imprest cash
book. The petty cash book contains columns for each class of expenditure.
The process is as follows:
• The Chief cashier estimates the total petty cash expenses for a
particular period say a month and advances the amount at the beginning
of the period.
• The petty cashier submits the petty cash book along with the supporting
vouchers/bills at the end of the period.
• After examining the vouchers and the petty cash book, the chief cashier
authorizes and reimburses the amount spent by the petty cashier. So at
the beginning of the next period the petty cashier holds the same
amount of petty cash because he gets reimbursement of expenses met.

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Under non-imprest system the chief cashier may hand over cash to the petty
cashier the amount equal to or more than or less than the amount spent by
the petty cashier.
Illustration 9:
Prepare petty cash book on imprest system from the following particulars.
9. Jan 1st – Received for petty cash payment Rs. 500/-
10. Jan 2nd – Paid for postage Rs. 40/-
11. Jan 5th– Paid for stationery Rs. 25/-
12. Jan 8th– Paid for advertisement Rs. 150/-
13. Jan 12th – Paid for wages Rs. 50/-
14. Jan 16th – Paid for carriage Rs. 25/-
15. Jan 20th – Paid for conveyance Rs. 22/-
16. Jan 25th – Paid for travelling expenses Rs. 80/-
17. Jan 27th – Paid for postage Rs. 50/-
18. Jan 28th – Paid wages to cleaner Rs. 10/-
19. Jan 30th – Paid for telegram Rs. 20/-
20. Jan 30th – Sent registered notice Rs. 10/-

Table 4.5
Petty cash book analysis of payments:
Cash Date Postage
Total Printing & Travel
recd. 1996 Particulars LF & Carrge Advt Wages Sundry
payment statry exp.
Rs. Jan telegram
500 1st To cash
nd
2 By postage 40 40
5th By stationery 25 25
8th By advtment 150 150
th
12 By wages 50 50
16th By carriage 25 25
20th By conveyance 22 22
25th By traveling Cr 80 80
27th By postage 50 50
28th By wages 10 10
30th By telegram 20 20
30th By register 10 10
482 120 25 25 150 80 60 22
th
30 By balance b/d 18
500 500

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18 July To balance b/d

1st
482 July To cash
1st

Self Assessment Questions

7. The amount which the main cashier gives to the petty cashier to meet
the petty or small cash expenses for a given period is known as
___________ cash book.
8. Under non-imprest system the chief cashier may hand over cash to
petty cashier the amount ___________ spent by the petty cashier.

4.5 Ledger-Types, Forms, Posting, Rules, Balancing, Meaning

and Definition of Ledger
A ledger account may be defined as a summary statement of all the
transactions relating to a person, asset, expense or income, which have
taken place during a given period and shows their net effect or closing
balance. A ledger contains a number of related accounts.

Figure 4.1: Depicts the types of Ledger books

Secondary Books

Main Ledger Subsidiary Ledger

General Ledger Debtors Ledger Creditors Ledger

Fig. 4.1: Types of Ledger

General ledger is a self-sufficient secondary book in the sense that all

entries in the primary books will be posted, directly or indirectly, in this
ledger.
Debtor’s ledger will have separate accounts for each customer and it will
show the transactions entered into with the customers.

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Creditor’s ledger will have a separate account for each supplier and it will
show the transactions entered into with the suppliers.
But the general ledger is self-sufficient, two control accounts are maintained
in the general ledger – one for debtors and one for suppliers. These control
accounts are called Sundry Debtors Account and Sundry Creditors Account.
These control accounts are summarized versions of individual accounts
maintained in the subsidiary ledgers. Therefore, at any particular point of
time the summation of the balances of the debtors’ ledger must tally with the
balance shown by sundry debtors account in the general ledger. Again the
summation of the balances of creditor’s ledger should tally with the balances
shown by sundry creditors account in the general ledger.
Posting
It is a process of transferring debits and credits from the journal and other
books of original entry to their respective accounts in the ledger. The idea
behind posting is to make classified and summarized record of business
transactions in appropriate accounts.
Form of Ledger Accounts
Usually each ledger account has the shape of the English letter “T”. It is
divided into two sides viz, (1) debit side and (2) credit side. The debit side is
meant for recording the debit aspect of a transaction and the credit side is
meant for recording the credit aspect of a transaction. The ledger account
form is as follows:
Date Particular LF Amount Date Particular LF Amount

J.F * (abbreviation of Journal Folio) means the column for entering the page
number of the journal from where the transaction is posted or transferred.
Rules regarding Posting
Separate accounts should be opened in the ledger for posting the different
transactions recorded in the book of original entry.
All the transactions pertaining to one account should be posted in the same
account.
Two aspects of the business transaction viz. debit aspect and credit aspect
should be posted in the respective sides.

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Balancing of an Account:
Balancing of an account or striking the balance of an account is the process
or act of ascertaining whether a particular account has received more
benefits than it has given or has given more benefits than it has received, on
a particular date.
In other words it implies a process of ascertaining the net balance of an
account after considering and comparing the total of both debit side and
credit side. The balance is put on the side, which is smaller, and two totals –
debit side and credit side are made equal. Against the balance a reference
is put that it has been carried forward (c/f). The balance of an account will
be termed as debit balance, if the total of debit side is greater than the total
of credit side. On the other hand, if total of credit side is greater than total of
debit side, balance will be a credit balance.
The process of balancing account should be balanced by –
1. Totaling both the sides of the account
2. Ascertaining the difference between the totals of two sides
3. If the debit side is more than the credit side, the balance is shown as By
balance c/d on the credit side of its account and it indicates debit
balance
4. If the credit side is more than the debit side, the balance is shown as To
balance c/d in the debit side and it indicates debit balance
5. These balances are transferred to the next period on the reverse or b/d
side.
Illustration 10: Pass journal entries of M/s Rao & Co for the period Jan
2004 and open necessary ledger accounts.

2004 Particular Rs.

January 1 Rao commenced business with 5,000
January 2 Bought goods for cash 2,500
January 3 Bought office furniture for cash 500
January 4 Paid for postage 10
January 5 Purchased goods from Rajkumar 2,000
January 7 Sold goods for cash 150
January 8 Bought goods from Rahim 400
January 9 Sold goods to Suresh 400

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January 10 Sold goods to Nayak 300

January 11 Purchased goods for cash 350
January 13 Received cash from Nayak 250
January 15 Paid cash to Rahim 400
January 17 Returned goods to Rajkumar 200
January 20 Suresh returned goods 50
January 22 Paid salaries 150
January 25 Sold goods for cash 500
January 26 Rao withdrew for personal use 800
January 27 Paid for stationery 100
January 29 Paid rent 225
January 31 Received commission 50

Journal Entries
Dr Cr
Date Particulars L.F.
Amount Amount
2004 Cash A/c ………… Dr. 5,000
Jan.1 To Capital A/c 5,000
(Being business commenced with cash of
Rs.5, 000)
Jan.2 Purchases A/c …………… Dr. 2,500
To Cash A/c 2,500
(Being the amount of cash purchases)
Jan.3 Office Furniture A/c ……… Dr. 500
To Cash A/c 500
(Being the office furniture bought for cash)
Jan 4 Postage A/c……….. Dr. 10
To Cash A/c 10
(Being the payment for postage)
Jan 5 Purchases A/c ………… Dr. 2,000
To Rajkumar’s A/c 2,000
(Being the goods bought from Raj Kumar)
Jan 7 Cash A/c ………. Dr. 150
To Sales A/c 150
(Being the goods sold for cash)
Jan 8 Purchases A/c ………… Dr. 400
To Rahim’s A/c 400
(Being the goods bought from Rahim on
credit)
Jan 9 Suresh’s A/c ………… Dr. 400

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To Sales A/c 400

(Being sale of goods on credit to
Mr. Suresh)
Jan 10 Nayak’s A/c ………… Dr. 300
To Sales A/c 300
(Being sale of goods on credit to Mr.
Nayak)
Jan 11 Purchases A/c ………… Dr. 350
To Cash A/c 350
(Being the amount of cash purchases)
Jan 13 Cash A/c . ………………… Dr. 250
To Nayak’s A/c 250
(Being the cash received from Nayak on
account)
Jan15 Rahim’s A/c ……… Dr. 400
To Cash A/c 400
(Being the cash paid to Rahim)
Jan 17 Rajkumar’s A/c ………… Dr. 200
To Purchase Returns A/c 200
(Being the goods returned to Rajkumar)
Jan20 Sales Return A/c ...……… Dr. 50
To Suresh A/c 50
(Being the goods returned by Suresh)
Jan 22 Salaries A/c ……….. Dr 150
To Cash A/c 150
(Being the payment for Salaries)
Jan 25 Cash A/c ………. Dr. 500
To Sales A/c 500
(Being the goods sold for cash)
Jan 26 Drawings A/c ………. Dr. 800
To Cash A/c 800
(Being the cash withdrawn by Rao for his
personal use)
Jan 27 Stationery A/c …………… Dr. 100
To Cash A/c 100
(Being the cash paid for stationery)
Jan 29 Rent A/c ………. Dr. 225
To Cash A/c 225
(Being the cash paid for rent)
Jan 31 Cash A/c ……………… Dr. 50
To Commission A/c 50

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(Being cash received for commission)

Total 14,335 14,335

Ledger Accounts
Capital Account
2004 Rs 2004 Rs
Jan.31 To balance c/d 5,000 Jan. 1 By cash A/c 5,000
Total 5,000 Total 5,000
Feb.1 By balance b/d 5,000

Drawings Account
2004 Rs 2004 Rs
Jan.31 To cash a/c 800 Jan. 31 By Balance c/d 800
Total 800 Total 800
To balance b/d 800

Cash a/c
Jan1 To Capital 5000 Jan 3 By drawings 800
7 To sales 150 2 By purchases 2500

25 To sales 500 11 By purchases 350

13 To Nayak 250 3 By furniture 500
31 To commission 50 7 By Rahim 400
4 By postage 10
22 By salaries 150
27 By stationery 100
28 By rent 225
31 By balance c/d 915
Total 5950 Total 5950
To balance b/d 915

Purchase Account
2004 Rs 2004 Rs
Jan. 2 To Cash A/c 2,500 Jan.31 By Balance c/d 5,250
Jan. 5 To Rajkumar’s A/c 2,000

Jan. 8 To Rahim’s A/c 400

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Jan. 11 To Cash A/c 350

Total 5250 Total 5,250
Feb 2 To balance b/d 5250

Sales Account
2004 Rs 2004 Rs
Jan.31 To Balance c/d 1,350 Jan. 7 By Cash A/c 150
Jan. 9 By Suresh A/c 400
Jan. 10 By Nayak’s A/c 300
Jan. 25 By cash A/c 500
Total 1,350 Total 1,350
Feb.1 By balance b/d 1,350

Sales Return Account

2004 Rs 2004 Rs
Jan.20 To Suresh A/c 50 Jan. 31 By Balance c/d 50
Total 50 Total 50
Feb.1 To balance b/d 50

Office Furniture Account

2004 Rs 2004 Rs
Jan.3 To Cash A/c 500 Jan.31 By Balance c/d 500
Total 500 Total 500
Feb.1 To balance b/d 500

Rahim’s Account
2004 Rs 2004 Rs
Jan.15 To Cash A/c 400 Jan. 8 By Purchases A/c 400

Total 400 Total 400

Suresh’s Account
2004 Rs 2004 Rs
Jan. 7 To Sales A/c 400 Jan.20 By Sales Return A/c 50
Jan. 31 By Balance c/d 350
Total 400 Total 400
Feb. 1 To balance b/d 350

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Nayak’s Account
2004 Rs 2004 Rs
Jan.10 To Sales A/c 300 Jan.13 By Cash A/c 250
Jan.31 By Balance c/d 50
Total 300 Total 300
Feb. 1 To balance b/d 50

Postage Account
2004 Rs 2004 Rs
Jan.4 To Cash A/c 10 Jan.31 By Balance c/d 10
Total 10 Total 10

Feb.1 To balance b/d 10

Salaries Account
2004 Rs 2004 Rs
Jan.22 To Cash A/c 150 Jan. 31 By Balance c/d 150
Total 150 Total 150
Feb.1 To balance b/d 150

Stationery Account
2004 Rs 2004 Rs
Jan.27 To Cash A/c 100 Jan. 31 By Balance c/d 100
Total 100 Total 100
Feb.1 To balance b/d 100

Rent Account
2004 Rs 2004 Rs
Jan.28 To Cash A/c 225 Jan. 31 By Balance c/d 225
Total 225 Total 225
Feb.1 To balance b/d 225

Commission Account

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2004 Rs 2004 Rs
Jan.31 To balance c/d 50 Jan. 31 By Cash A/c 50
Total 50 Total 50
Feb. 1 By balance b/d 50
Purchase Return Account
2004 Rs 2004 Rs
Jan.31 To balance c/d 200 Jan. 17 By Rajkumar’s A/c 200
Total 200 Total 200
Feb. 1 By balance b/d 200

Rajkumar’s Account
2004 Rs 2004 Rs
Jan.17 To Purchase Return A/c 200 Jan. 5 By Purchase A/c 2,000
Jan.31 To Balance c/d 1,800
Total 2,000 Total 2,000
By Balance b/d 1,800

Self Assessment Questions

9. _________ ledger will have separate accounts for each customer and it
will show the transactions entered into with the customers.
10. __________ ledger will have a separate account for each supplier and
it will show the transactions entered into with the suppliers.
11. State true or false:
a. If the debit side is more than the credit side, the balance is shown
as By balance c/d on the credit side of its account and it indicates
debit balance.
b. If the credit side is more than the debit side, the balance is shown
as To balance c/d in the debit side and it indicates debit balance.

Activity 2:
Refer illustration 7 of this unit. Summarise all the debit balances and
credit balances in a table. Total both the sides and see if it tallies.

4.6 Summary
Let us recapitulate the important concepts discussed in this unit.
• Purchase Day Book- records credit purchase of merchandise

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• Purchase Returns Book- records goods returned to the supplier(s)

• Sales Day Book-records credit sales of goods
• Sales Returns Book-records goods returned by customer(s)
• Bills Receivable Book-records bills accepted by customer(s)
• Bills Payable Book-records bills raised by supplier(s)
• Cash book-records cash(and bank) receipts and payments
• Journal Proper-records all residual transactions
• General ledger is a self-sufficient secondary book in the sense that all
entries in the primary books will be posted, directly or indirectly, in this
ledger.
• Debtors’ ledger will have separate accounts for each customer and it will
show the transactions entered into with the customers.
• Creditors’ ledger will have a separate account for each supplier and it
will show the transactions entered into with the suppliers.
• Petty cash book is an additional cashbook, which is used for recording
petty payments, such as postage and telegrams, printing and stationery
cartage and carriage, advertisement, travelling expenses, sundry
expenses etc.

4.7 Glossary
1) Purchase Book: It records credit purchase of merchandise
2) Purchase Returns Book: It records goods returned to the supplier(s)
3) Sales Book: It records credit sales of goods
4) Sales Returns Book: It records goods returned by customer(s)
5) Bills Receivable Book: It records bills accepted by customer(s)
6) Bills Payable Book: It records bills raised by supplier(s)
7) Cash book: It records cash(and bank) receipts and payments
8) Journal Proper: It records all residual transactions

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Fundamentals of Accounting I Unit 4

9) General Ledger: It is a self-sufficient secondary book in the sense that

all entries in the primary books will be posted, directly or indirectly, in
this ledger.
10) Debtors’ ledger: It will have separate accounts for each customer and
it will show the transactions entered into with the customers.
11) Creditors’ ledger: It will have a separate account for each supplier
and it will show the transactions entered into with the suppliers.
12) Balancing of an account: It is the process or act of ascertaining
whether a particular account has received more benefits than it has
given or has given more benefits than it has received, on a particular
date.

4.8 Terminal Questions

1. Explain all secondary books.
2. Explain the difference between cash discount and trade discount.
3. Explain the features of Bills receivable book and Bills payable book.
4. Explain different types of ledger.
5. The following are the transactions for Crimston Software Ltd (CSL).
Pass journal entries and check the solution suing ledger accounts.

March 1st Rajesh invested Rs. 50,000 in cash

2nd Took loan of Rs.20,000 from Mr. Deeraj for RSL. No interest is
paid to him.
3rd CSL purchased for cash two computer each costing Rs.29,000
4TH CSL purchased supplies for Rs.6000 on credit
15th CSL completes its maiden sale of software and receives a price of
Rs.12,000
20th CSL pays Rs.2000 to its creditors for supplies
29th CSL pays salaries to its employees amounting to Rs.4,000 and as
office rent Rs.1,200
30th CSL delivers a software package to a shop and the shopkeeper
has agreed to pay Rs.8,000 a month later
31st Rajesh withdraws Rs.3,500 for his personal use as profit share

4.9 Answers
Self Assessment Questions
1. A(a) B(b)
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Fundamentals of Accounting I Unit 4

2. False
3. customer
4. (a) cash book (b) sales return book and cash book (c) Purchase book
5. Cash book
6. (a)
7. Imprest
8. equal to or more than or less than the amount
9. debtor’s
10. creditor’s
11. (a) True (b) True

Terminal Questions
1. Purchase book, Sales book, Purchases return book, Sales return book,
bills receivable book, bills payable book and cash book are subsidiary
books. Refer section 4.2 for further details.
2.
Trade discount Cash discount
1) It is reduction granted by a 1) It is the reduction granted by
supplier from the list price of a supplier from the invoice
goods or services bought price in consideration of
other than for prompt immediate payment or
payment. within a specified period
2) It is allowed to promote the 2) It is allowed to encourage
sales prompt payment
3) A separate trade discount 3) Since it is not shown in the
account is not opened in the invoice, a separate cash
ledger because it is shown discount account is opened
by the way of deduction in in the ledger
the invoice itself. 4) It may vary with the period
4) It may vary with the quantity within which the payment is
purchased. made.

3. A bill of exchange accepted by a customer is called bills receivable.

When bills are received from debtors they are recorded in a separate
book known as bills receivable book. The bills payable book consists of

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Fundamentals of Accounting I Unit 4

all promissory notes or bills of exchange accepted by the business in

respect of amounts owing to its suppliers. The total of bills payable is
transferred to bills payable account in the ledger.
4. The different types of ledger are main ledger and subsidiary ledger. The
subsidiary ledger is again subdivided into three type’s namely general
ledger, debtor’s ledger and creditor’s ledger. For detail refer sub section
4.6.
5. Pass journal entries and check the solution using ledger accounts.

Cash Account
Mar 1st Capital 50,000 3rd Computers 58,000
15th Sale of software 12,000 21st Sundry 2,000
creditors
29th Salaries 4,000
29th Rent 1,200
30th Dividend 3,500
Balance 13,300
Total 82,000 Total 82,000

Capital Account
Mar.31 To balance a/c 50,000 Jan. 31 By cash 50,000

Total 50,000 Total 50,000

Loan Account
31st To balance c/d 50,000 2nd By cash 50,000

Total 50,000 Total 50,000

Computer Account
Jan.31 To cash 58,000 3rd By balance 58,000

Total 58,000 Total 58,000

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Supplies Account
4th March To cash A/c 6,000 31st By Balance c/d 6,000

Total 6,000 Total 6,000

Sundry CreditorsAccount
Jan.3 To Cash A/c 2,000 Jan.31 By supplies 6,000
To balance c/d 4,000
Feb.1 Total 6,000 Total 6,000

Sales of Software Account

2004 To balance c/d 20,000 15th By cash 12,000
31st By Accounts receivable 8,000

Total 20,000 Total 20,000

Salaries Account
29th To cash 4000 31st By balance 4000

Total 4000 Total 4000

Rent Account
29th To cash A/c 1200 31st By balance 1200

1200 Total 1200

To balance b/d 50

Accounts Receivable Account

30th To sale of software 8000 Jan.31 By Balance c/d 8000

Total 8000 Total 8000

Dividend Account
31st To Cash A/c 3500 Jan. 31 By Balance c/d 3500

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Total 3500 Total 3500

References:
• N. Ramachandra, Ramkumar Kakani, (2008) Financial Accounting for
Management, Second Edition, Tata Mcgrawhill.
• R. Narayanaswamy (2008) Financial Accounting, A Managerial
perspective Third Edition, Prentice Hall of India, New Delhi.
• P. C. Tulsian (2009), Financial Accounting, Fifth Impression, Pearson
Education.
• R. L. Gupta, Radhaswamy (2010), Financial Accounting. S. Chand and
Company.
• Maheshwari S. N and S. K. Maheshwari, (2009), Advanced
Accountancy, Vikas Publishing House.
• Jain and Narang (2009), Financial Accounting, S.Chand and Company.
• M. C. Shukla (2010), Advanced Accountancy, S.Chand and Company.

E- References:
• http://www.answers.com/topic/cash-discount#ixzz1EZ60tk00

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