CASH JOURNAL

By: Dilshad Jalnawalla

Cash Book
• 2. Cash Journal or Cash book is meant for recording all cash transactions. It is a very important Journal of business on account of the following reasons: The number of cash transactions is quite large in every business. The business has to pay for salaries, rent, lighting, insurance, purchase of goods and it has to receive cash for sales of goods and capital assets. The chances of fraud being committed regarding cash are higher as compared to other assets. A strict control is therefore, required. Cash is the nerve center of the business. Timely payments to its creditors increases the reputation of the business. Similarly, timely payments from its debtors improves the financial position of the business.

3. 4.

Types of Cash Book
1. 2. 3. 4. 5. 6. Simple Cash Book Two Columnar Cash Book Three Columnar Cash Book Multi Columnar Cash Book Cash Receipts Book Cash Payments Book

Simple (Single Column) Cash Book
Dr. Cr. Date Simple Cash Book
Particulars L F Amount Date Particulars L F Amount

Two (Double) Columnar Cash Book
Dr.
Date Particulars L Discou F nt Rs.

Cash Book
Cash Rs. Date Particulars L F Discou nt Rs.

Cr.
Cash Rs.

Three Columnar Cash Book
Dr.
Dt Particulars L F Disco unt Rs. C ash

Cash Book
B ank Rs. Dt Particulars L F Disco C unt ash Rs. Rs.

Cr.
B ank Rs.

Rs.

Prepare a triple Column Cash Book from the following transactions for the month of November,2002 and bring down the balance for the start of next
1. 2. 3. 4. 5. 6. 7. Cash in hand 2,500 Cash at Bank 10,000 Paid into Bank 1,000 Bought furniture and issued cheque 2,000 Purchased goods for cash 500 Received cash from Mahinder 980 And Discount allowed to him 20 Cash Sales 4,000 8. Paid to Amarnath by cheque 1,450 9. Discount Received 50 10. Paid into Bank 400 11. Withdrawn from Bank for Private use 600 12. Received cheque from Patel 1,430 13. Allowed him discount 20 14. Deposited Patels cheque into Bank 15. Withdrew cash from Bank for Office use 2,000 16. Paid rent by cheque 800

TRIAL BALANCE

By - Dilshad D. Jalnawalla

TRIAL BALANCE
• Before using the account balances to prepare Final Accounts, an attempt is made to prove that the total of accounts with debit balances is in fact equal to the total of accounts with credit balances. This proof of the equality of debit and credit is called a Trial Balance. • Trial Balance is a list of account balances taken from the ledger to test the mathematical accuracy of the ledger as indicated by an equality of debits and credits.

Objects of preparing Trial Balance
1. Checking of the arithmetical accuracy of the accounting entries. 2. Basis for financial statements. 3. Summarized Ledger.

Dr.
Date 2003 Jun 9 Jun 30 Particulars To Capital A/c J F

Ledger Cash Account
Rs. Date Jun 30

(Page 9)
Particulars By Balance c/d J F

Cr.
Rs. 10,000 10,000

5 10,000 10,000 10,000

To Balance b/d

Dr.
Date Jun 30 Particulars To Balance c/d J F

Capital Account
Rs. 10,000 10,000 Date 2003 Jun 9

(Page 20)
Particulars By Cash A/c J F

Cr.
Rs.

5 10,000 10,000 10,000

Jun 30 By Balance b/d

TRIAL BALANCE (as on 30th June 2003)
Sr. No. 1 2 Cash Account Capital Account Particulars L. F. Debit Rs 10000 10,000 Credit Rs

Rules to be followed while preparing Trial Balance.
1. The balances of all accounts relating to:
a) Assets; b) Expenses; c) Losses b) Drawings; and e) Debtors, Should be placed in the debit column of the Trial Balance.

2. The balances of all accounts relating to:
a) Liabilities; b) Income and Revenues; b) Gain; and d) Creditors, Should be placed in the credit column of the Trial Balance.

ILLUSTRATION 1: Prepare a trial balance from the following balances of the year ending 2002.
• • • • • • • • • • • • Capital Stock of Goods Motor Car Discount Received Bad-debts Sales Cash-at-bank Return Inwards Cash in Hand Rent Discount allowed Carriage 28,000 4,000 8,000 400 400 40,000 4,000 2,000 600 3,500 300 1,500 • • • • • • • • • • • • Purchases Plant Furniture Wages Creditors Salaries Commission (Cr) Return Outwards Debtors General Expenses Interest Received Advertisement 15,000 15,000 5,000 8,200 6,500 2,800 600 1,000 5,600 300 200 500

Illustration 2
Liabilities Capital General Reserve Sundry Creditors

• The Balance Sheet of Rohit as on 31st March 2003 is given below

Rs.

Assets

Rs. 42,000 90,000 10,000 2,000 1,44,000
88,000 24,000 80,000

1,00,000 Cash 19,000 Sundry Debtors 25,000 Inventory Prepaid Rent 1,44,000

Transactions that occurred during April,2003: (b)Collections from debtors (c) Payment to creditors (d)Acquisition of inventory on credit (e) Inventory costing Rs.70,000 was sold on credit for 85,000 (f) Recognition of Rent Expense in April (g)Wages paid in cash in April 1,000 8,000

Prepare Ledger including opening balances and prepare Trial

HOME WORK: Enter the following transactions in the journal, ledger and then prepare Trial Balance for Mr. Alpha.
• 2003 Jan 1. Started business with cash 4. Bought goods for resale 7. Bought Stationary 10.Bought goods for resale 12.Paid Wages 15.Sold goods for cash 16.Sold goods for cash 17.Paid Electricity Bill 19.Sold Goods for cash 20.Bought Stationery 21.Paid Wages 23.Bought goods for resale 24.Sold goods for cash 25.Paid Postage 26.Paid for Advertisement 31.Sold goods for cash 18.Paid Wages • Trial Balance tally at 8,300/6,000 500 50 750 100 350 300 70 350 80 100 200 600 80 30 700 150

Errors Disclosed by Trial Balance
1. 2. 3. 4. 5. 6. 7. 8. 9. Omission to post an amount in the Ledger. Debit or Credit entries are not posted at all or posted twice. Debits are wrongly posted as credits and vice versa Wrong totaling of Subsidiary Books Difference in amount between the entries Error in computation of an account balance Omission of account balance Balance of an account wrongly recorded in the trial balance Errors in extraction of the trial balance

Errors Not Disclosed by a Trial Balance
1. 2. 3. 4. Errors of Omission Errors of Principle Compensating Errors Recording Wrong Amount in the books of original entry 5. Recording both aspects of a transaction more than once in the books of account 6. Errors in recording a transaction on the correct side of a wrong Account

Suspense Account
1. If it is not possible to locate the error in spite of checking, the difference in the Trial Balance is transferred temporarily to an account called Suspense Account. 2. Afterwards when the error have been located, they can be rectified through the Suspense Account.

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