Unit-2 Preparing Journals and Cash Book- BA | BBA First Year
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Preparing Journals and Cash Books Including Banking Transactions.
Cash book
- Cash book records all receipts and cash payments. Deposits are usually bank accounts maintained by a business firm, withdrawals and check payments from such accounts are also recorded in the cash book. Sometimes a separate book for recording receipts and payments like cheques/DDs etc. is maintained, known as bank book. A cash book that is used to record both cash and bank transactions is referred to as a two-column cash book.
The format of this cash book is given below:
Cash Discount:
- Sometimes, to encourage prompt payment from customers, a company may offer a certain percentage of the amount as a discount. For example, if a company owes a customer Rs. The company can offer a discount of 2% if payment up to Rs 1,000 is made before a certain date. In such case, the customer will make actual cash payment of Rs. Only Rs.980 (2% of Rs.1,000-1,000) and Rs. 20 will be treated as discount expense by the company.
- Similarly, a company may be given some relaxation by its creditors for prompt payment of the amount due by it. Cash discounts can be distinguished from trade discounts which are given on the invoice price, especially when large quantities are ordered.
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Therefore trade discount is reflected only in the form of reduction in selling price.
- Cash book can also be used to record cash discounts given to customers for prompt payment and cash discounts received on payments made to suppliers within a stipulated time period.
- Since discounts will be given at the time of receipt of money from customers and at the time of payment of dues from suppliers, it is convenient to maintain a column for discount allowed and a column for discount received on the receipt side of the cash book. On the payment side. A cash book in which details of cash and bank transactions and cash discounts are recorded is called a three-column cash book.
An illustrative format of this type of cash book is given below:
- Cash book also generally contains columns for cash memo number, ledger folio, voucher number, etc.
- The unique feature of cash book is that it serves the functions of a journal and general ledger in respect of cash and bank transactions. In other words, cash book is the book of first entry for all such transactions and the ledger for cash in hand and cash at bank will not be maintained in the general ledger.
Petty Cash Book:
- When the petty cash fund is operated as an advance fund, the recording of petty expenses paid will be done in the petty cash book. This will also avoid recording too many small value transactions in the main cash book. The petty cash book will have several analytical columns to group various expenses under certain classifications which will facilitate subsequent posting to the general ledger;
A sample petty cash book is given below:
Imprest System:
- When an analytical petty cash book is prepared to record petty expenses, it is convenient to treat petty cash as a separate account and treat checks issued for petty cash advances as petty cash. -It would be practically more convenient to take the petty cash account as debit and pay all the petty expenses. In the form of credit to petty cash account.
- The journal entries in the books of Ramesh Company for the months of April and May 2012 will be as follows:
- If all the expenses have been credited to the cash account (or bank account) also, the cash account will be shown lower (due to two credits – one in respect of issue of imprest and the other in respect of actual expenses), and less To balance the details, the balance in the petty cash account should be added to the cash account.
Journal:
- A part from cash book, accounting books maintained by an organization can be classified into journals and ledgers. Journal is used as a book of first entry for all those transactions which cannot be recorded in the cash book. In other words, all non-cash transactions must be recorded in the journal. For practical convenience the journal is maintained using a number of books called subsidiary books.
For example, the following supporting books can become a magazine for an enterprise:
- Buy boo
- Buy return book
- Sales book
- Sales Return Book
- Bills Receivable Book
- Bills Payable Book
- Journal Proper.
Sample formats of these books and brief details regarding their usage are given in the following sections:
Purchase Book:
- Also known as Purchase Journal, this book is used only to record credit purchases of goods. The term ‘goods’ includes only those items purchased by the business for resale.
Purchase Return Book:
- This subsidiary book is used to record goods purchased on credit and sent back to suppliers because they are not found to conform to the specifications or for any other reason.
Sales Book:
- Also known as Sales Journal, this subsidiary book is used to record all sales of goods on credit.
Sales Return Book:
- This book is used to record transactions relating to goods sold on credit and goods recovered from customers for not conforming to specifications or for any other reason.
Bills Receivable Book:
- The bills receivable of an enterprise include all promissory notes given by customers or bills of exchange accepted in respect of amounts due from them. Bills Receivable Book is used to record all such promissory notes or such bills of exchange given by customers.
Bills Payable Book:
- Bills payable include all promissory notes or bills of exchange given by the business in respect of amounts due to its suppliers. Bills Payable Book is used to record all such promissory notes given or bills of exchange accepted by the business
Journal Proper:
- This book is used to record all transactions which cannot be included in the cash book Any of the other six supporting books Discussed above. The transaction that will take place It is appropriate to enter in the journal: Purchase or sale and investment of fixed assets Credit, Adjusting Entries, Correction of Entries etc.
Ledger Posting and Trial Balance
Ledger Posting
- Ledger posting is a very important part of the accounting system. As we know how many processes we have to go through to reach any financial result. For example, first of all, we should know how to maintain proper account records. To maintain proper account records, one must know the proper accounting system. And proper accounting system includes the following important steps that should be followed:-
- Voucher preparation.
- Entering vouchers in various types of daily books.
- Posting entries from day books to ledgers.
- Totaling and balancing of ledgers.
- Preparing trial balance
- Preparation of Trading Account, Profit and Loss Account and Balance Sheet.
What is Ledger?:- In short, Ledger is a summary of all the accounting heads maintained by the business firm.
How to post entries from day book to ledger:- Following are the procedures to post entries from day book to ledger:-
- First of all we have to open the account head in the ledger. Ledger books contain the same type of pages with serial numbers. It also includes an index at the beginning of the ledgers. The name of the account head is written in the index of the ledger and the same account head is written on any page of the ledger. Then, the page number of that particular account head is written against that account head in the index.
- For example:- Suppose, we want to open a Transport Expense Account in the top ledger. In this case, first of all, we will write the Transportation Expenses account under the alphabet ‘C’ in the index of Ledger and then we will do Ledger and select any page on that page. Additionally, we will also write the Vehicle Expenses account. The page number on which this Conveyance Expenses Account is written should be written in the index of the ledger as Transport Expenses Account. so whenever We want to see the details of the First, keep an account of vehicle expenses in the ledger. We will open the index under the alphabet ‘C’. Then we will find the page number of vehicle expense account and access particular page very easily. Similarly, any number of account heads can be opened.
- As we know that ledger has columns like Date, Description, Ledger, Amount Dr, Amount Cr. And balance Dr or Cr. It is a simple process to post entries from day book to ledger. All entries relating to account heads which have been debited should be posted to the debit side of the ledger. Similarly, credit entries of any account head should be posted on the credit side of that particular ledger. We can easily understand this system from the following example:-
Example:- Suppose, we prepared a cash payment voucher as follows:-
 Date: 15.07.2019
Debit: Transport Expenses Account Rs.800/=
Credit:- Cash Account Rs 800/= (Cash paid to Mr. Vinod for the vehicle for June, 2019)
- First of all the above voucher will be written in the cash day book on the payment side.
- From the above entry, we find that Vehicle Expenses Account is being debited. Therefore, in the ledger, under the Vehicle Expenses Account head, we will write this amount on the debit side. In other words, the amount of the above entries will be shown in the debit side of the Transport Expenditure Account.
Trial Balance
- The trial balance is a bookkeeping worksheet in which the balances of all ledgers are compiled into totals of debit and credit account columns that are equal. A company prepares a trial balance periodically, usually at the end of each reporting period. The general purpose of preparing a trial balance is to ensure that the entries in the company’s bookkeeping system are mathematically correct.
- Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double entry accounting system. If the total debits equal the total credits, the trial balance is considered balanced, and there should also be no mathematical errors in the books of account. However, this does not mean that there are not errors in a company’s accounting system.Â
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