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Practice each question, then open the answer or worked solution.
Briefly state how the cash book is both journal and a ledger.
A cash book functions as a journal because it is the original book of entries where all transactions are first recorded, just like a journal, and it functions as a ledger, as it records the credit and debit cash transactions of a company without the need for a separate cash account.
What is the purpose of contra entry?
Contra entry are those entries that impact both the debit and credit sides in accounting based on the situation. For example, if a debit entry is recorded in an account, a similar credit entry must be recorded. Its purpose is to indicate transactions that affect both cash and bank balances. These transactions have no impact on the financial position of the business and are denoted by the letter C in the L.F. column.
What are special purpose books?
Subsidiary books recording business transactions are known as special purpose books. Business transactions can be large in number, making it difficult to record them all in a single journal. Hence, sub-dividing journals make the recording of transactions quick, accurate and efficient. Some examples are cash books, purchases books, and sales books.
What is a petty cash book? How it is prepared?
Recording repetitive expenses in a cash book will burden the cashier. Hence, a separate book is created where petty expenses are recorded. Examples of such types of expenses are Stationery, Refreshments, Postage, and Conveyance. The petty cash book is maintained by the Petty cashier.
Preparation is mostly done by Imprest System as it is more convenient. In this system, the petty cashier is given a pre-defined sum of money for a period. At the end of the period, the amount spent by them is reimbursed by the cashier so that the cashier has the same amount again at the start of the period.
Explain the meaning of posting of journal entries?
It refers to the process of transferring journal entries to their respective ledgers. Each transaction gets recorded in a journal and is subsequently transferred to respective ledgers
Define the purpose of maintaining a subsidiary journal.
Many business transactions are repetitive in nature. Due to this reason, transactions which are similar in nature are recorded in special journals, also known as daybooks or subsidiary journals.
Maintaining a subsidiary journal helps has the following benefits:
1. Recording is faster and time-saving
2. Records are easily accessible
3. Proper division of labour
Write the difference between return inwards and return outwards.
| Basis of Comparison | Return Inwards | Return Outwards |
| Meaning | Goods returned to business by their customers | Goods purchased by businesses are returned to the suppliers. |
| Balance | It has a debit balance. | It has a credit balance. |
| Treatment | Deducted from Sales in the Trading Account. | Deducted from Purchases in the Trading Account. |
| Issued | A credit note is prepared by the seller. | A debit note is prepared by the buyer. |
| Reduction | Reduces the payment from the Debtors. | Reduces the payment made to the Creditors. |
| Term | It is also known as Sales Returns. | It is also known as Purchases Returns. |
What do you understand by ledger folio?
It refers to a column in the journal where the page number of the ledger book on which the relevant account appears is recorded; it is also abbreviated as L.F.
What is the difference between a trade discount and a cash discount?
| Basis of Comparison | Trade Discount | Cash Discount |
| Meaning | Discount offered on purchase of goods. | Discount for making payment. |
| Recording in books | Not recorded in accounting books | Recorded in cash book either on debit or credit side depending on discount provided or received. |
| Purpose | Encourage an increase in sales. | Encourage on-time payment. |
Write the process of preparing a ledger from a journal.
The following process describes the preparation of the ledger from a journal:
Locate the account to be debited in the ledger as entered in the journal
Enter the date of the transaction into the date column of the debit side.
Mention the account from which it is debited in the journal written in the particulars column.
Enter the page number of the journal in the J.F. column. The corresponding page number of the ledger account is written in the L.F. column of the journal.
Enter the amount in the amount column on the debit side.
For the credit side, follow the same procedure for crediting the entry.