Chapter 4: Recording of Transactions – 2

Special-purpose books are beneficial in

• Accuracy: As each journal is managed by a different accountant having specific expertise, it improves accuracy and reduces defects.
• Efficiency: Increases efficiency by dividing the workload.
• Concise Descriptions: The journal describes the purpose of recording. For example, a record in the purchase journal will be understood by default that it is a purchase-related transaction.
• Minimal Posting: Reduces the volume of posting as totals can be done periodically.
• Fraud Prevention: As recordings of different journals are assigned to a different individual, fraud prevention is prevented.
• Faster process: As multiple books are handled by multiple accountants, the recording work moves faster.

A cash book is also known as a book of original entries in which all transactions related to cash receipts and cash payments are recorded. All cash deposits and withdrawals are recorded in sequential order. Cash receipts are recorded in the cash column, bank deposits are recorded in the bank column, and all cash deposits are added in the cash column; cheque payment gets recorded on the credit side under the bank column. It serves as a principal book.

Types of cash book are:

1. Single Column Cash Book: In this type of cash book, all recordings related to cash takes place; it is useful for organisations that maintain only cash transactions. It contains records of cash receipts and cash payments.

2. Double Column Cash Book: The two-column cash book is also referred to as the double-column cash book. It contains two money columns on both sides (i.e. debit and credit); one side is for recording cash transactions, while the other is for recording bank transactions.

Cash transactions are recorded in the cash column and thus function as a cash account, whereas the bank column records all bank-related transactions, such as payments made by cheques and functions as a bank account. Some organisations prefer the double-column cash book, as it contains both cash and bank columns, and thus, it is easy to maintain instead of maintaining two separate ledgers.

3. Triple Column Cash Book: Triple column cashbook is a type of cash book that has provisions for three columns which are cash, bank and discount. It is used by large firms that frequently deal with cash and bank transactions as well as which allow cash discounts. The procedure of recording data is similar to a double-column cash book. The cash and bank columns are periodically totalled and balanced, while the discount column is only totalled. Discount allowed is recorded on the debit while discount received from suppliers is recorded on the credit side.

4. Petty Cash Book: A cash book that records all those expenses that are small and hold little value is called a petty cash book. The transactions related to stamps, stationery, postage, daily wages, etc., are recorded in the petty cash book.

An entry that is recorded to reverse an entry on the opposite side of an account is called contra entry. For example, when a debit entry gets recorded in an account, a contra entry will be posted on the credit side. Similarly, a contra entry will be posted on the debit side if an entry gets recorded on the credit side.

Some transactions that can lead to contra entry are provided below.

1. Opening of a bank account
2. Depositing cash into the bank
3. Withdrawal from bank

These transactions are recorded in a double-column Cash Book as shown below.

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 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.

The Performa of Petty Cash Book is given below.

Advantages of Petty Cash Book:

1. Division of labour: By delegating the work to a petty cashier, the cashier is able to look into other aspects of a firm.

2. Avoid bulky cash books: Recording repetitive transactions in a cash book make it bulky; petty cash makes it easy and avoids making a cash book bulky.

3. Less error-prone: Head cashier will be making periodic audits of the petty cash book so that it will be error-free.

4. Ease of posting: Only the petty expenses are recorded periodically, which makes posting easier.

Sub-dividing of Journal has the following advantages:

Accountability: As each account is handled by individual accountants, it makes them more accountable and ensures that accounts are properly maintained.

Accuracy: Each accountant will be specialised in the work assigned to them and hence fewer chances of errors.

Division of Labour: As accounts are maintained by separate accountants, it ensures faster recording and parallel recording of transactions.

Economical: As the division of labour brings in specialisation, the process becomes efficient and, thereby, becomes economical.

Ease of Audit and Analysis: The analysis of transactions which are similar in nature becomes easier.

Productivity: As the accountants gain expertise in handling the specific account, it increases their productivity.

The accounts in the ledger are balanced at periodic intervals of daily, weekly, fortnightly, monthly, quarterly or any other pre-defined periodic intervals. The goal of balancing is to determine the net position of each amount. The following steps are involved in the balance of the accounts:

The debit and credit sides are totalled.

The total on the side which is higher is written on the corresponding side.

The difference between both sides is recorded on the shorter side. This makes the total on both sides equal.

In case the debit side exceeds the credit side, the difference is written on the credit side. This is called Debit Balance.

If the credit side exceeds the debit side, the difference is written on the debit side. This is called Credit Balance.

The words balance c/d are written against the amount of the difference between the two sides. Balance c/d stands for balance carried down.

The amount of balance is brought down (b/d) in the next accounting period. It is denoted with Balance b/d. This indicates that it is a continuing account till finally settled or closed. Here, Balance b/d stands for Balance Brought Down.

The accounts of expenses, losses, and gains/revenues are not balanced. Instead, these are transferred to trading and profit and loss account.