MODULE 2

Subsidiay Books, Cash Bookdefinition, advantages, obijectives.

Name of of different types of cash books, Bank
CashBook, preparation
types of
Statement, Regions of disagreement between Cash Book with
Reconciliation Statement
Book balance, preparation of Bank Reconciliation
Pass
Subsidiary books recording the
are the sub divisionsof a Journal.These booksare meant for the
Subsidiary Books book. When there are many transactions,
nature in a separate
transactions of a similar transactions and
sub-divided into subsidiary books to record such voluminous Special
Journal is ternmed as 'Special Purpose Books or
one single book. These books are also
events in
Journals or Book of Original/Primary/Prime entry'.
Types:
Purchascs
Cash Purchases Sales Return
Book Book Book Book

Types of Subsidiary Books

Salcs Bills Bils
Retn Receivable Payable
Book Book Book

Cash book

Cash book is a book in which all transactions relating to cash receipts and cash payments
are recorded.

>t serves the purpose of both journal as well as the ledger (cash) account. >It is also called
the book of original entry.
>Whenacashbook is imaintained, transactions of cash are not recorded in the journal, and no
separate account for cash or bank is required in the ledger.
Cash Book is a Journalised Ledger

Is il ajourna! or ledger?
>It is a journal since the transactions are recorded in it for the first time from the source
documents and from there these are posted to therespective accountsin the ledger.
>The cash book is also a ledger in the sense that it serves the purposed of a cash account
also. º-When a cash book is prepared, no separate cash account is opened in the ledger:.
 >AS Such, the Cash Book is a journal as well as a ledger and hence it may be called as
Jornalised Ledger".
Types of cash book
1. Single Column Cash Book or One Column Cash Book
2. Double Column Cash Book having i. Cash and discount columns ii. Bank and discount
columns iii. Cash and bank columns.

3. Triple Column Cash Book.

transactions that
4. Petty Cash Book:Petty cash book, as the name suggests, is for very snmall
take place in an organization. Such transactions can occur in a day and are repetitive in
nature, vwhich can put undue load on the general cash book. For this reason, it is maintained
separately.
Examples of such transactions are: stationery, postage, food bills, ete.
2. Purchases Book: The purchases book can be utilized to record the purchases of goods on
credit only. If any property other than goods in purchased on credit, it shouldn't be noted in
this book. Similarly, the cash purchases are also not recorded in this book. Thus a business
transaction needs to be satisfy the following pair of conditions before it is entered in the
purchase book:
a) The credit purchases involving no payment of cash on the spot.
b) The articles,goods or merchandise purchased, are those that are intended for sale and not
as a property or asset of the business.

3. Sales Book: The sales book or sales day book is written up just like the purchases book. It
is employedto record only the sale of goods on credit. Thus, the following pair of factors
must be taken into account before sale is entered in this book:
a) The transaction involves sale on credit only with no immediate cash payment.
b)The sale is of goods in which the business enterprise deals.
4. Purchases Return Book: The purchases returns book (also referred to as Bought Returns
Book or Returns Outwards Book) records the details of the goods returned by the business to
the suppliers. The columns of the purchase returns book match the purchases book namely:
date, particulars, debit note number (as against Invoice number in the purchases book), ledger
folio andamount.
a) Debit note: This is a statement sent to the person to whomn products are returned. This
report informs him th¡t his account has been debited to the extent of the amount of the items
returned. It has details in respect of the name of the party to whom goods are returned, the
debited of the goods returned and the reasons for return of the goods. It is based on the debit
note that the entry is made in thepurchases returns book or returnsoutward book.
b) Credit note: When the products are sent back by the customers combined with the debit
note, the seller acknowledges the same with a document called the credit note.
5. Sales Return Book: The sales returns book (or Returns Inward Book) can be employed to
record the products returned to the business by the customers, as the goods might not be as
per the order, or because they were faulty, damaged or otherwise unacceptable.
The cuiumns utilized in this book resemble Sales Day Book except that in place of Invoice
No., the Credit Note Number is recorded. A credit note is made by the trader in duplicate to
indicate that the customer's account is credited with the
amounts noted therein. The entries in
sales returns book are created according to these credit notes.
6. Bills Receivable Book: This book can be used to
on which the business will get the amounts from other document the details of bills recejvable
parties in future. The entries to be
made in this book are the name if the acceptor (debtor), the terms, due date, the amount and
other details.
7. Bills Payable Book: This is also abook of original entry and is utilized to record the
particulars of all the bills payable' accepted by the business for the intention of paying at a
future date the amounts due by it (the organization or the trader) to its creditors. The entries
to be made in this book relate with the name of the drawer, the name of the payee, the period,
the due date and other particulars. Then the acceptance is duly returned to the drawer.

Cash Book practicals:

1. Single Column Cash Book
Things to remember while preparing a cash book
I. Cash book is a cash account. As such, it is a real account and follows the rules of
debit and credit as that of real account.

2. lf positive opening balance is given, it will be written on the debit side of the cash
book as "ToBalance b/d"
3. Single column cash book makes no record of
a) Cheques received and given and
b) Cash discount allowed and received.
4. When a cash book ismaintained, cash account is not opened in the ledger
Illutration1 Enter the following transactions in a single column cash book.

2020
March
Commencedbusinesswithcash 82,000
Goods purchased 20,000
10 GoodsPurchasedfrom Ganesh 40,000
15 GoodspurchasedfromMaheshinCash 50,000
i8 Goods Sold 25,000
20 GoodssoldtoSaraswati 36,000
25 Goodssold toDevin Cash 15,000
Receivedfrom SaraswatiinCash 30,000
31 Withdrewforpersonalexpenses 10,000
31 Paid Salary 5,000
 Solution

Inthebooksof .......

CashBook Cr.
Dr.

Particulars Amount Date Particulars L. Amount

Date V. L.F
(2020) No. E.
(2020) No.

March 82,000 SMarch ByPurchasesA/e 20,000

ToCapitalac

SMarch 1SMarch By Purchases 50,000

ToSalesA/c 25,000
A.Jc

31March ByDrawingsA/e 10,000

SMarch ToSalesA/c 15,000

ToSaraswati 30,000 31March BySalaryA/e 5,000

8March

3IMarch ByBalancecld 67,000

1,52,000 1,52,000

April ToBalanceb/d 67,000

Doublecolumncashbookortwocolumncashbook

Rulesforpreparing aDoubleColumnCash Book

ABankaccount isapersonalaccount.
Opening Baiance: usually, the cash column would always show a debit balance and will be
written as To Balance cld'on the debit side. But on the contrary if credit balance is given, it
willbe written as 'By Balance b/d'. If overdraft balance is given, it willbe treated as credit
balance of bank.
Contra Entries: When cash is deposited into the bank or when is withdrawn from the bank
for use in the office, such transactions affects both Cash Column'as well as Bank
Column'and the transaction is therefore, recorded on both sides of the cash book. Such
entries, the double entry of which is complete in the cash Book itself, are called Contra
Entries"
CashDepositedinto Bank
On the Dr. Side To Cash A/c' is written and the amount is recorded in the bank column. On
the Cr. Side »By BankA/¢'is written and the amount is recorded in the cash column.
DebitBankA/c(Asbankisreceivingthe cash)
CreditCashA/c(As cashisgoing out)
Eg., Deposited 2000intothebankon1 SMarch,2021
Illustration
Enterthe followingtransactionsintwo-columncashbookandbankcolumnofM/s
Karun stores:

Date 2020

Cash in Hand 70,000

Janl
Bankoverdraft 50,000

Jan4 Soldgoodsforcash 50,000

Jans Cashdepositedinto Bank 80,000

Jan6 PurchasedgoodsfromMeena 30,000

Jan7 ChequeissuedtoMeenainfullsettlement 28,800

Jan8 WithdrawnfromBankforpersonaluse 5,000

Jan12 SoldgoodstoAjayandreceivedchequefromhim 25,000

Janl7 ChequereceivedfromAjaydepositedintobank

Jan20 BankCharges 500

Jan22 Interestchargedbybank 2,500

Jan23 ReceivedcashfromRamesh 28,000

Jan28 Withdrewfrombankbychequeforpersonaluse 15,000

Jan30 Deposited
intobanktheentirebalanceafterretaining5000cashinbusiness
 Solution: InthebooksofM/sKarun

Particulars (Receipts) V. LF Cash Bank Date 2020 Particulars V.No. L. Cash Bank
No. . (Payments) F.

TOBalanceb/d 70,000 ByBalanceb/d 50,000

ToSalesA/c 50,000 Jan5 ByBankA/c C 80,000

ToCashA/c 80,000 Jan7 ByMeena 28,800

ToChequesinHand A/c 25,000 Jan8 By DrawingsA/c 5,000

TORamesh 28,000 500

Jan20 ByBankCharges

tal1)-(2)=TotalBalance(68,000) 1,48,000 Jan22 ByinterestCharges 2,500

ToCashA/c C 63,000 Jan28 By DrawingsA/c 15,000

(2)Total 80,000

Jan30 By BankA/C 63,000

Jan31 ByBalancec/d 5,000 66,200

1,48,000
HO1,68,00 1,48,000 16,8,000

TOBalanceb/d 5,000 66,200

 ThreecolumnorTrippleColumncashbook

|2020

Janl Cash inhand 20,000 Jan17| Paid toMr. R.Devbycheque 3,850

Discountallowedtohim 150

BankBalance 50,000 Jan19| PaidWages 650

Jan2 DepositedintoBank 10,000 Jan21 Withdrewfrombankfor personal use 3,000

Jan4 ReceivedCashfromMr.A.Sharma 5,000 Jan23| Paid Salariesby cheque 6,250

DiscountAllowedtohim 150

Jan5 Receivedforcashsales 1,375 Jan25 Paidrent 2,000

Jan6 Paid chequeforcash purchase 3,225 Jan27 Purchased furniture by cheque 1,875

Jan9 Receivedchequeforcashsales 1,125 Jan30] Received cheque from Mr. Rahulinful| 2,900
settlementoftheir account of D3,100

|Janl PaidtoMr.H.Jainbychequein full 1,600

1 settlement of D 1,750

Jan1 PaidAdvertisement expenses 225

3
Jan1 Withdrewfrombankforofficial 4,500
5 expenses
 Soln Inthebooksof...
nate Particulars L. Discount Cash Bank Date Particulars L.F. Discount Cash Bank
(Receipts)
TOBalance b/d 20,00050,000 Jan2
(Payments)
ByBankA/c C
1. $. 10,000

an2 ToCashA/c 10,000 Jan6 ByPurchaseA/c 3,225

n4 TOMr.A.Sharma 150 5,000 Jan11 ByH.Jain 150 1.600

ens ToSalesA/c 1,375 Jan13 ByAdvertisement 225

A/c
Jan9 ToSalesA/c 1,125 Jan15 ByCashA/c C 4,500

an'5 ToBankA/c C 4,500 Jan17 ByR.Dev 150 3,850

an30 ToRahul 200 2,900 Jan19 ByWagesA/c 650

Jan21 By DrawingsA/c 3,000

Jan23 BySalariesA/c 6,250

Jan25 By RentA/c 2,000

Jan27 ByFurnitureA/c 1,875

Jan31 ByBalancec/d 18,000 39,725

350 30,875 64,025 300 30,875 64,025

eb1 ToBalance b/d 18,000 39,725

 Bank Reconciliation Statement:
Rank reconciliation statement is a
hank transactions recorded in the rerport or statement prepared by the business to match the
books of accounts
reconciliation statement helps to chege the correctness with the bank statement. The
of the cntries recorded in the bank
of accounts and thereby, books
ensures the accuracy of bank balances.
Reason for preparing BRS

Cheques Issued but not cleared in the bank

Difference in cheque deposited and cheque credited date
Date of cheque issued towards payment and date
Cheque issued or received is not presented to the on which it is debited is different
" Bank interests, charges etc. are not
bank for clearing
you reconcile. accounted for. Reason being it is not known till
Banks can also do mistake in debiting or
crediting the transactions
Causes of Disagreement between Cash Book and
Pass Book:
Cheques Issued but not cleared in the bank
When a cheque is issued to a creditor, it is
bank column. The bank will record it on therecorded on the credit side of the cash book in
date when it is paid. In most of the cases a
cheque cannot be presented for the payment by the creditor on the date on which it drawn.
So long the cheque is not presented to the bank, the
balance will differ. cash book balance and the pass book

Cheques Deposited for Collection But Not Yet Collected and Credited by the
Bank:
When a cheque is received from a debtor, it is recorded in the cash
is deposited with the bank for collection. But the bank book on the date when it
will record it in depositor's account on
the date when it is actually collected by the bank from the
concerned bank. So long the bank
cannot collect the amount, the cash book balance and pass book balance will disagree.
Amount Deposited Directly into the Bank by Debtors:

Sometimes the debtors deposit the amount directly to our bank a/c instead of
us. In such a case the bank will transfer the amount to our account and sends uspaying cash to
an intimation
of this transaction. But usually, there is some delay in receiving this information from the
bank. So long the intimation is not received by us, the cash book balance and the pass book
balance will disagree. For this, the cash book will show less balance and the pass book will
show more balance.

Income Collected by the Bank:

Sometimes the bank collects and credits our account with dividend on shares, interest on
govt. securíties etc. as per our instructions and sends an intimation to us, But it takes a few
days to receive this intimation from the bank and we record it in cash book on the date of
receipt of this intimation. For this, the cash book wllshow less balance and the pass book
willshoW more balance.

Interest on Deposits:

The bank allows us interest on our denosits and credits the amount of interest to our account
So
and sends intimation to us. On receipt of the intimation. we record it in the cash book.
long the information is not received by us, the cash book balance and the pass book balance
show more
will not agree. For this, the cash book will show less balance and pass book will
balance.

Expenses Paid by the Bank Directly:

debentures, trade
Sometimes the bank pays insurance premium, factorv rent, interest on
Sends
subscription etc. on our behalf as per standing order. The bank debits our accounts and
intimation to us. On receipt of intimation for the bank. we record it in our cash book. For this,
there will be adisagreement between cash book and pass book.
The Bank Charges:
intimation is sent to us
Our account is debited with bank charges and interest on overdraft and
the cash book. For
by the bank. On receiving the intimation from the bank, we record them in
this the cash book will show more balance and the pass book will show less balance.

Errors andOmissions:
may forget to record something
In business, errors and omissions are very common. Someone
or record it but in a wrong way. The cash book
balance and the pass book balance can also
pass book.
disagree if there is an error or mistake in the cash book or in the

Q.1 Prepare a BRS statement from the following

15,000
Debit balance as per cash book
1000
Cheque deposited but not cleared
Cheque issued but not presented 1500
Bank interest 200
Balance as per pass book-Rs. 15,700
Solution BRS as on
Amount details Amount
Particulars
15,000
Balance as per cash book(dr)
Add
Cheque issued but not presented 1500
200 1700
Bank interest
16,700
1000 1000
Less
Cheque deposited but not cleared
Balance as per pass book( cr) 15,700
 0. On 3lst march,2019, bank column of cash book showed a debit balance of Rs. 49,000.
Statement of passbook showed credit balance of Rs. 37.400, Entries in the cashbook and
passbook were compared and following differences were identified.
i) Cheques of Shyam Rs.9000 and of Mohan Rs. IS.000 were deposited in the bank but were
not collected up to 3Ist
march,2019,-.-CB+ PB-
i) Ramesh , a debtor, deposited a cheque of Rs. 8000 directlv into the bank.-CB-- PB++
ii) bank had credited Rs. 500 as interest which was not recorded in cash book. PB+t+ CB-
iv) cheque for Rs. 10,000issued to Shyam was not presented for payment. CB-PB+
v) bank debited the account by 6,000 being insurance premium paid as per standing
instructions. PBCB++
vi) bank debited the account by Rs. 100 being bank charges. PBCB++
Youare required to prepare BRS as on 31 march,2019.
Solution: BRS as on 31 March,2019
Rule: Do what bank has done
Particulars Amount Details Amount
Balance as per cash book(Dr.) 49,000
Add: Cheque deposited by Ramesh 8,000
Interest allowed (credited) by bank 500
Cheque issued but not presented for payment 10,000 18,500
67,500
Less :Cheque deposited but not yet
cleared/collected
Shyam 24,000
9000 6000
Mohan 100 30,100
15,000
Insurance premium paid by bank 37,400
Bank charges debited

Balances as per Pass Book(Cr)

IlHustration 1

balanceof n 8.250. on
On 30June, 2020, the bank Column of Anil's Cash Book showed a
exannination of the Cash Book and bank statement you find that:
to 5,800 have been
Out of Total cheques amounting to 8,000 issued, cheques amounting
presented for payment upto 30 June,2020.
 Module 4
debt.
expenditure, bad debts, provision for bad
and revenue outstanding
Concept of capitalexpenditure debts,
doubtful provision for discount on debtors,
prepaid expenses, debts and
expenses, accrued income

revenue expenditure
Concept of capital expenditure and
Capital Expenditures
or increasing the value of a fixed asset is termed
Any expenditure which is incurred in acquiring
as capital expenditure
Machinery,
the purchase of Land and Building, Plant and
on
>As such, the amount spent
furniture. etc. is capital expenditure.
overa long period and hence is written in ASsets.
>Such expenditure yields benefit

Examples of Capital expenditure

which results in the acquisition of a fixed asset such as land, building , plant,
1. Expenditure
motor vehicles, etc.
workers.
purchase of a fixed asset such as wages paid to
2. Expenditure in connection with the
which
extension or improvement of fixed assets and
3. Expenditure which results in the
assets.
increases the earning capacity of such

4. Expenditure incurred for

establishing the busines.
second-hand asset and on putting such asset into
5. Expenditure incurred on the purchase of
working condition.

Revenue Expenditure
during the current year itself is termed as
>Any expenditure, the benefit of which is received
revenue expenditure.

debited to Trading and Profit & Loss account.

>As such,all the revenue expenditures are
the carning capacity of the business but
> Such expenditure does not result in an increase in
only helps in maintaining the existing earning capacity.
Examples of Revenue Expenditure
1. Expenses incurred for the purpose of day to day running of business such as manufacturing
expenses, office expenses, selling expenses.
2. Expenses incurred on the ordinary repairs and maintenance of fixed assets.
3.Payment for goods purchase for resale. 4. Depreciation on fixed assets.
5.Replacement of worn-out part of an existing machine. 6. Loss from sale of fixed assets
Illustration 1 Classify the following into Capital and Revenue Expenditure, stating reasons
in each case.

1. 050,000 paid for the installation of a new machine.

2. Payment of annual taxessi20,000 and annual insurance of B10,000.

3.Wages paid to workers for converting raw material into finished goods.
4. A sum of RA0,000 was spent in overhauling its entire plant which resulted in adding five
years to its useful life.

5. D10 Lac spent on the construction of railway sidings

Solution

1. Cost of installingthe machine is acapital expenditure.

2. Annual taxes and insurance premium are Revenue Expenditure because their benefit will be
exhausted within the year.
3. It is revenue expenditure since it is incurred in theordinary course of business.

asset.
4. It is capital expenditure since it has resulted in increase of the working life of the
of years.
5. It is capital expenditure as asset is created which will be used for a number
Important adjustments
Income 4. Bad debts 5. Provision for
1. Outstanding expenses 2. Prepaid expenses 3. Accrued
bad and doubtful debts 6. Provision for discount on debtors

Debts: Debts can be classified into three categories which are as under:
irrecoverable debts. Bad debt is a type of
Bad Debts: It means which are uncollectable or
is no longer considered to be collectable. n
expense that occurs after repayment by a customer,
receivable. Any businesses that extend credit to their
other words, bad debt is an irrecoverable
 debt, as there's always a chance that your
must account for the possibility of bad
customers to complete
circumstances will change and they won't be able
customer's date of
will be receivable or cannot be ascertainable at the
Doubtful debts: It means which debts which are doubtful to
realize.
in simple words those
preparing the financial statements, debts nor any
not bad, i.e., neither there is the possibility of bad
are
Good debts: It means which
good debts.
doubt about its realization is known as
Prepaid expenses prepaid
are paid in advance. On the balance sheet,
Prepaid expenses are future expenses that realized Over time, the
assets are
an asset. After the benefits of the
expenses are first recorded as
amount is then recorded as an expense.

For example
prepaid expense, as it is customarily paid for in advance.
a
Insurance is an excellent example of policy that covers the next 12 months,
then it would
$12,000 for an insurance each
Ifa company pays time of payment to represent this prepaid amount. In
at the
record a current asset of $12,000 would recognize an expense of $1,000 and
draw
the company
month of the 12-month policy,
amount.
down the prepaid asset by this same
Outstanding expenses
expense becomes
Expense is an expense which is due but has not been paid. An
AnOutstanding
taken the benefit, but the related payment has not been made,
outstanding when the company has

Examples of Outstanding Expenses

not yet
past due but not yet paid, Subscriptions past due but
Rent past due but not yet paid, Bills
paid

Accrued income
when it
income that a company willrecognize and record in its journal entries
Accrued income is times when a company
earned - but before cash payment has been received. There are
has been customner for the
they have not received cash from the
will record sales revenue even though
service performed or goods sold.
account. The
is when customers purchase goods on account or pay for a service on
Anexample such situations.
customers make the purchase on credit. In
term "on account" means that service even when they haven't
performing a
companies recognize that they are selling goods or revenue (income).
accrued
received any cash. This deferred income is