Chapter 5 Special Books Updated PDF
Chapter 5 Special Books Updated PDF
Chapter 5 Special Books Updated PDF
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Books of Original Entry
Subsidiary Books
Sub-division of the journal into various books recording transactions of similar
nature is called subsidiarybooks or a special journal. The books maintained are
Simple Cash Book
Double Column Cash Book
Petty Cash Book
Sales Book
Purchases Book
Purchase Returns Book
Sales Returns Book
Each book is classified as per the nature of transaction. The following table
will precise the kinds of transactions entered into the different subsidiary
books.
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Nature of transaction Classified Subsidiary Book
Cash and bank related transactions Cash transactions only Simple Cash Book
Both cash and bank transactions Double Column Cash Book
Cash payment of small amount Petty Cash Book
Other transactions Credit sale Sales Book
Credit purchase Purchases Book
Purchase returns Purchase Returns Book
Sales returns Sales Returns Book
Sometimes transactions which cannot be recorded in any of the subsidiary
books are recorded in Journal proper.
Main Advantages of Subsidiary Books
Maintaining the subsidiary books enables us to divide the accounting work
among a number of accountants/persons. This enables a person to specialize
in one particular type of accounting work for considerable period of time.
Thus, accounting becomes more efficient.
If the trail balance does not agree or tally because of error, locating an
error is easy subsidiarybooks because the number of transactions is less as
compared to a journal book.
As separate books are maintained based on the nature of the transactions,
any information relatedto a particular transaction is easily made available at
one place.
Cash Book
Cash Book is a book of prime entry in which all transactions related to cash
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and bank are recorded. The cash and bank columns are created to enter their
respective transactions. In a cash book, all the receipts are recorded on the
debit side and all the payments are recorded on the credit side. Finally, the
total payments are deducted from the total receipts to determine the cash
in hand and bank balance. Generally, this is prepared only on a monthly basis.
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Simple Cash book
In a simple cash book, all the receipts of cash are recorded on the left-hand
side and all the payments are recorded on right hand side.
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written in this column.
Page number of the ledger is written where the amount is posted.
On the debit side, the amounts received are written and on the credit side
the amounts paid are written.
Amount
2016
₹
Mar 1 Deepak commenced business with cash 2,00,000
Mar 3 Amount deposited in to bank 70,000
Mar 8 Goods purchased for cash 25,000
Mar 12 Furniture purchased for office purpose 8,000
Mar 18 Cash withdrawn from bank 5,000
Mar 24 Rent paid 3,000
Mar 30 Sold goods 6,000
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V. L. Cash V. L. Cash
Date Receipts Date Payments
No. F. ₹ No F. ₹
2016 2016
Mar 1 To Capital A/c 2,00,000 Mar 3 By Bank A/c 70,000
Mar 18 To Bank A/c 5,000 Mar 8 By Purchases A/c 25,000
Mar 30 To Sales A/c 6,000 Mar 12 By Furniture A/c 8,000
Mar 24 By Rent A/c 3,000
Mar 31 By Balance c/d 1,08,000
2,11,000 2,11,000
Apr 1 To Balance b/d 1,08,000
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Bank account is a personal account which debits the receiver and credits the
giver. For example, when cash is deposited in the bank, here the bank is the
receiver, and hence it is debited in the bank column of the cash book. While
cash is going out, it is credited in the cash column of the cash book.
Similarly, when cash is withdrawn from the bank or if a cheque is issued, then
the bank is the giver, and hence it is credited in the bank column of the cash
book. While cash is coming in, it is debited in the cash column of the cash
book.
Cash columns are balanced in the same way as in the case of a simple cash
book. Similar process is followed for balancing the bank column. Sometimes,
the bank may allow the firm to withdraw more than the deposited amount,
it is called an overdraft. Hence, the total of the bank column on the credit
side will be higher than the total of the bank column on the debit side. This
difference is written on the debit side as ‘To Balance c/d’ and the totals are
written on the debit and credit side opposite to one another. Finally, this
balance is written on the credit side as ‘By Balance b/d’.
Discount
Discount Allowed
To X’s A/c
Discount Received
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Y’s A/c Dr.
To Y’s A/c
All receipts are written on the debit side of the cash in the cash
column and cheque in the bank column. The name of the account
under which the payment has been received is written in the
particular column.
All payments are written on the credit side of the cash in the cash
column and cheque in the bank column.
Contra entry
Cheque received but not deposited in the bank on the same day
Alternative treatment
Cheque received but not deposited in the bank on the same day. The
cheque is entered in the cash column on the debit side of the cash
book.
When the cheque is deposited into bank, bank account is debited by
writing on the debit side of the bank column and cash account is
credited by writing on the credit side of the cash column. (First
treatment is preferred than the alternative treatment.)
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Cheque issued by the firm is not paid on presentation
The cheque is entered in the bank column on the debit side with the
name of the party to whom the cheque was issued.
Bank overdraft
Bank facilitates a firm to withdraw more money than the cash deposited
in their account. If the amount withdrawn is in excess of its own money
in the bank, it is called bank overdraft. It is shown as a credit balance
because the firm has to pay that amount to the bank after a certain
period. It is recorded on the credit side of the cash book as ‘By Balance
b/d’.
If a firm has more than one bank account, the bank column is divided
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into different banks to record their individual transactions.
Following with the entry of double column cash book, transactions are
posted into their respective ledger accounts.
Transactions written on the debit side of the cash book are posted to
the credit side in the ledger accounts. Cash transactions are written
as ‘By Cash A/c’ and the bank transactions are written as ‘By Bank
A/c’ in the particular’s column of the ledger.
Transactions written on the credit of the cash book are posted to the
debit side in the ledger accounts. Cash transactions are written as ‘To
Cash A/c’ and the bank transactions are written as ‘To Bank A/c’ in
the particular’s column of the ledger.
Contra entries are not posted to a ledger
Recording of petty cash book- A petty cash is given to the petty cashier to
make small payments. This is recorded on the credit side of the cash book
as ‘By Petty Cash Account’ and posted to the petty cash ledger accounts on
the debit side.
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Advantages of Petty Cash Book
Save time and efforts: It saves the time of the chief cashier to execute
his/her duties more effectively. It is possible to focus on cash
transactions which involves large amount of cash.
Division of work: It enables control over incidents of fraud. The head
cashier can effectively handle huge payments directly and small
payments by keeping an accurate check on the petty cashier.
Convenient: As per the materiality principle, the cash book provides only
material and useful information. Hence, the insignificant information is
not maintained in the cash book. Recording of small payments becomes
easy as different expenses are posted to their respective ledger
accounts.
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Ordinary System of Petty Cash: In this system, a petty cashier receives
appropriate amount of cash to make small payments and submits the
accounts to the chief cashier regarding all those expenses.
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Control over petty expenses: The petty cashier cannot spend more than
the allocated petty cash, and hence the small expenses are maintained
within the limits of imprest.
Control over fraud: Petty cashier cannot withdraw cash as and when
required under this system. Hence, frauds are controlled and
maintained within the limits of imprest.
A simple petty cash book is in which any cash, the petty cashier receives, is
recorded on the left hand side of the cash column and any cash, the petty
cashier pays out, is entered on the right hand side cash column. Every
transaction’s date and particulars are entered in the same date and
particulars column.
Prepare a Simple Petty Cash Book from the following information for the
month of February, 2016.
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Date Particulars ₹
2016
Feb 1 Received ₹9,000 from Chief cashier for petty cash
If the imprest amount is ₹9000, then how much amount is the petty
cashier entitled to get by the beginning of next month?
In the Books
of Petty Cash Book
Amount Cash Book Date Particulars V.No. Amount
Received Folio Paid
₹ ₹
2016
9,000 Feb 1 To Cash A/c
Feb 2 By Postage A/c 325
Feb 7 By Miscellaneous Expenses A/c 250
9,000 9,000
Mar 1 To Balance b/d 5400
Mar 1 To Cash A/c 3600
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Analytical Petty Cash Book
An analytical petty cash book is used for entering receipts of cash on the
left-hand side and for recording payments on the right-hand side. A
separate column is created for entering particular item of expenditures
such as conveyance, telephone and postage. Infrequent expenses are
entered in sundries column. These expenses are entered on the right side
of the total payment column and are also entered in the appropriate
expense column. Finally, these expenses are added and posted to the debit
side of their respective accounts.
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5
28 Auto fare paid 18
5
18
Nov By Balance 7600
30 c/d
12,000 12,000
7600 Dec To Balance
1 b/d
4400 Dec To Cash A/c
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Purchases Book
Purchases book is a subsidiary book which records credit purchases of goods i.e.
the goods which the firm trade in. Cash purchases of goods and purchases of any
assets are not recorded in the purchase book. Purchases book is also known as
invoice book/bought book. Bills or invoices received from a supplier are the
source document for recording entries in the books. Therefore, goods purchased
on credit are recorded in purchases book.
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There are 6 columns in purchases book
Date is written in the first column
The name of the supplier, name of the articles and the quantities
purchased are written in the particular’s column
Invoice of the goods purchased is written in the invoice number
column
When the purchases book is posted to the ledger, the page number
of the ledger is written in the ledger folio
Cost of each article is given in the detail’s column. Trade discount
allowed by the seller is deducted from the cost. For example,
Quantity x Price per article… Less: Trade Discount ….
________
Add: Expenses ….
________
The net amount of the invoice is recorded in the extreme right-hand column.
It shows the total credit purchase made in a particular period.
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It does not have debit and credit It has a debit and credit column
column
The names of the parties from whom the goods were purchased on credit are
shown in this
book. These parties are denoted in accounting terms as creditors of the firm.
Individual
amounts are posted to the credit of supplier’s account as ‘By Purchases A/c’ in
the particulars
column. Total amount of the total credit purchases is debited to the purchase
account as ‘To
Sundries as per Purchases Book’ in the particular’s column.
Sales Book
Sales book is a subsidiary book which records credit sales of goods i.e. goods
which the firm trade in. Cash sales of goods and sale of any assets are not
recorded in sales book. Sales book is also known as day book. Sales invoices or
bills issued to customers are the source document for recording entries in the
book. Therefore, goods sold on credit are recorded in sales book.
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Entries in the sales book are entered in the same way as in the purchases
book.
Sales Book Sales Account
It is a part of journal It is a part of ledger
It does not have debit and credit column It has a debit and credit column
Only credit sales are recorded Cash sales as well as credit sales
arerecorded
The names of those parties who have purchased goods on credit are shown in
this book. These parties’ accounts are debited with their respective accounts.
Individual amounts are posted to the debit of customer’s account as ‘To Sales
A/c’ in the particulars column. Total amount of the total credit sales is
credited to the sales account as ‘By Sundries as per Sales Book’ in the
particulars column.
This tax is levied on the sales made between multiple state i.e. interstate
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sales. This is charged by the seller from the purchaser on net sale value of
the product. Sale price less trade discount gives the net sale value of the
product. The seller deposits the tax amount in the government account.
This is also entered in an individual column of the sales book and the
seller is liable to deposit the tax in the government account. At regular
period, the total of this sales tax is credited to the sales tax account. The
balance is shown as a liability in the balance sheet at the end of the
year.
This tax is charged by the seller of goods on all local sales i.e. within the
state. VAT paid on purchases is set-off against VAT collected on sales and
the balance in the VAT collected account is transferred to the government
account.
This is also entered in an individual column of the sales book and the
seller is liable to deposit VAT in the government account. At regular
period, the total of VAT is credited to the VAT account. The balance is
shown as a liability in the balance sheet at the end of the year.
Freight/Forwarding Charges
The supplier includes the freight, cartage, packing and forwarding charges
in the invoice at the time of delivering the goods.
Purchases return book is similar to the purchases book except that instead of
Invoice No. column, it has Debit Note No. column.
Casting/Totalling of Purchases Return Book
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Purchases return book is totaled at the end of month and the purchases
return account is credited in the particulars column and the book is closed
for the month
The goods returned are debited to the account of the supplier and credited
to the purchases return account. The supplier’s account is debited as ‘To
Purchases Return Account’ in the particular column and the total of
purchases return is posted to the purchases return account as ‘By Sundries
as per Purchases Return Book’
Credit note is issued by a firm to its customers for crediting his/her account
For example, goods returned by the customer.
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Sales return book is similar to the sales book except that instead of Invoice
No. column, it has Credit Note No. column.
Sales return book is totaled at the end of month and the sales return
account is debited in the particulars column and the book is closed for the
month.
The goods received are credited to the debtor’s account and debited to the
sales return account. The debtor’s account is credited as ‘To Sales Return
Account’ in the particular column and the total of sales return is posted to
the sales return account as ‘To Sundries as per Sales Return Book’
Debit Note Credit Note
It is prepared by the purchaser It is prepared by the
supplier
It is the basis of recording entry in It is the basis of recording entry in
purchases return book sales return book
It is an intimation for debit made in the It is an intimation of credit made in
account of supplier the account of the customer
Journal Proper
Closing entries: The closing entry is passed in the journal for incomes
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and expenses transferred to the trading and profit and loss account.
Other entries
Goods which are withdrawn for personal use by the owner of the
firm.
Purchase book is used for entering only credit purchases and sales
book is used for entering only credit sales of goods.
Cash purchases are not entered in the purchases book while cash
sales are not entered in the sales book. These are recorded in the
cash book.
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Adjustment entries always have a dual effect. They affect either
trading account or the profit.
Important Questions
Multiple Choice Questions-
Q1. Which account will be debited in case Life insurance premium is paid
by proprietor from business cash?
(a) Drawings A/c
(b) Capital A/c
(c) Insurance A/c
(d) Cash A/c
Q2. While passing an opening entry, all the assets are ………….. while all
the liabilities are …………..
(a) Debited, credited
(b) Credited, Credited
(c) None of the options
(d) Credited, Debited
Q3. Which account will be debited in case wages are paid for installation
of machinery?
(a) Machinery A/c
(b) Installation A/c
(c) Wages A/c
(d) Cash A/c
Q4. What are total number of subsidiary books available to record
financial transactions?
(a) 8
(b) 7
(c) 6
(d) 12
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Q5. Name the transaction that is recorded in both sides of Cash book
simultaneously.
(a) Contra Entry
(b) Dual entry
(c) Double entry
(d) Single entry
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(c) Personal Expense
(d) Indirect Expense.
Very Short-
1. Define day book in the process of recording transaction.
2 Which special purpose book records all type of cash receipt and cash
payment.
3. What type of transactions does double column cash book records?
Short Questions-
1. Discuss all types of special purpose book or day book.
2. Differentiate between single and double column cash book.
3. Give names of four types of crossed cheques.
4. What is a purchase book.
5. What is the need of contra entry?
Long Questions-
1. What are the advantages of maintaining a petty cash book?
2. What do understand by petty cash book?
3. What do you mean by balancing of cash book?
4. Define the types of cash book. Explain
Case Study Based Question-
1. Read the following hypothetical text and answer the given questions:
-
INCA Ltd. a manufacturing company has now expanded its operations.
Its sales are increasing rapidly and the demand for its products is also
rising. It is expanding geographically to different states. Initially when
the operations were small, its accountant Mr.Dheeraj maintained only
a journal. But as the business expands and the number of transactions
becomes large, it become cumbersome to journalise each transaction.
So now a need is felt to prepare special journals or subsidiary books.
So accordingly, Mr. Dheeraj instructs his subordinates to prepare
various subsidiary books.
Question:
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1. If INCA Ltd. purchased furniture of ₹ 40,000 on credit, Mr. Dheeraj
will record this transaction in:
(a) purchase book
(b) cash book
(c) journal proper
(d) None of the above
2. What reason will be a cash book prepared for?
(a) To record all cash receipts and cash payments
(b) To record cash purchases of merchandise
(c) To record cash sales
(d) None of the above
3. Which of the following about the purchase book is correct?
(a) It records purchases of all types
(b) It records all credit purchases of the goods, the enterprise
deals in
(c) It records all cash purchases of the goods, the enterprise deals
in
(d) None of the above
4. What will be the advantage of preparing these subsidiary books?
(a) Quick, efficient and accurate recording of business transactions
(b) Time consuming
(c) They prove economical and make division of labour possible in
accounting work
(d) Both (a) and (c)
5. Sales book does not record cash sales of merchandise.
(a) True
(b) False
(c) Can’t say
(d) Partially true
2. Read the following hypothetical text and answer the given questions:
-
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Karim & Co., a saree dealer has the following transactions for the
month of January.
Returned to Mohan Mills, Kerala,10 polyester sarees @
Jan
₹ 1,600 each. (−) Trade discount @ 10% (Debit note no.
4:
101).
Srimala Mills, Kota accepted the returns of goods
Jan
(which were purchased for cash) from us, 8 Kota sarees
8:
@ ₹ 640 each (Debit note no. 102).
Returned to Sonica Mills, Bombay, 12 silk sarees @ ₹
Jan
1,040 each. (−) Trade discount @ 10% (Debit note no.
12:
103).
Jan Returned one typewriter (being defective) @ ₹ 7,200
30: to Vishaka & Co.
Question:
1. Which of the following statements regarding a debit note is correct?
(a) A debit note is a source document that is prepared when goods
are returned to a supplier.
(b) On finding that goods supplied are not as per the terms of the
order placed, the defective goods are returned to the supplier of the
goods and a note is prepared to debit the supplier.
(c) When an additional sum is recoverable from a customer, such a
note is prepared to debit the customer with the additional dues.
(d) All of the above
2. In which of the following books, will the return of Kota Sarees on 8th
January be recorded?
(a) Purchase returns book
(b) Journal
(c) Cash book
(d) None of the above
3. In which of the following books, will the return of typewriter on 30th
January be recorded?
(a) Purchase returns book
(b) Journal proper
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(c) Cash book
(d) None of the above
4. What will the total amount recorded in the purchase returns book
relating to the returns to Mohan Mills on 4th January?
(a) ₹ 16,000
(b) ₹ 14,400
(c) ₹ 17,600
(d) None of these
5. What will be the total amount reflected in purchase returns book as
on 31st January?
(a) ₹ 25,632
(b) ₹ 14,400
(c) ₹ 11,232
(d) ₹ 28,480
MCQ Answers-
1. Answer: Drawings A/c
2. Answer: (a) Debited , credited
3. Answer: (a) Machinery A/c
4. Answer: (a) 8
5. Answer: (a) Contra Entry
6. Answer: (a) Profit and loss A/c
7. Answer: (a) Debit
8. Answer: (a) Sale of asset on credit
9. Answer: (a) Journal proper
10. Answer: (d) Indirect Expense.
Very Short Answers-
1. Ans. The day book contains all of the many types of transactions that
are recorded in different books that are kept by the accountant.
2. Ans: The cash book is a special purpose book that keeps track of all
types of cash receipts and payments.
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3. Ans. Only cash and bank transactions are recorded in the double
column cash book.
Short Answers-
1. Ans. The following are the special purpose books or special diaries
that accountants keep
Purchase book
Sales return book (Return inwards)
Journal paper
Purchase return book (Return outwards)
Sales book
Cash book
2. Ans. The difference between single column cash book and double
column cash book are as follow:
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and payables between 2 non identical legal entities/subsidiary of a firm
so that one final amount remains used in intercompany netting.
Long Answers-
1. The following are some of the benefits of keeping a petty cash book:
i. The time of the chief cashier is spared because these small
transactions are too enormous for a single cashier to handle, thus a
petty cashier is hired.
ii. Because the task is split between the chief cashier and the petty
cashier, both of them are responsible for the proper distribution of petty
cash and big sums.
iii. It is easier to handle such tiny transactions separately if you keep a
separate cash book for them. Bulkiness is avoided, and the situation is
more managed.
iv. It simplifies the production of the main cash book by reducing the
number of small cash transactions.
v. It accurately and systematically tracks all of the business's minor costs
and gives information immediately when needed.
2. Answer: Small transactions, such as postage, conveyance, cartage
expenditures, and other expenses, are common in large corporations.
Because all of these transactions are typically repetitious, the cashier is
unable to record them in the main cash book. As a result, these
transactions are kept in a separate book called the petty cash book.
As a result, the cashier keeps a petty cash book to keep track of these
recurrent transactions in one area. Because the volume of small
transactions is too much for a single cashier to handle, a petty cashier is
hired.
3. Answer: All cash transactions relating to cash receipts and cash
payments are recorded date-wise when they are recorded in cash
books. When a cash book is kept, there is no need to open a separate
cash book in the ledger. Because cash revenues cannot be less than cash
payments, there is always a debit balance in the cash book.
The principal document for cash receipts is essentially a duplicate copy
of the receipt that the cashier issues. Any invoice, bill, or other
document used to make payments will be regarded as the source or
principal document for documenting transactions.
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4. Answer : There are four different kinds of cash books, They are
explained below:
i. Single-column cash book: Each debit and credit side contains a single
amount column.
ii. Double column cash book: On both the debit and credit sides, it has
two columns of amounts.
iii. Three-column cash book: On both the debit and credit sides, it has
three columns of amounts. One column is for cash, another is for
discounts, and a third is for bank transactions.
iv. A nice cash book: large corporations have a lot of little transactions.
As a result, all little transactions are grouped together to produce a nice
cash book.
Case Study Answer-
1. Answer:
1. (c) journal proper
2. (a) To record all cash receipts and cash payments
3. (b) It records all credit purchases of the goods, the enterprise
deals in
4. (d) Both (a) and (c)
5. (a) True
2. Answer:
1. (d) All of the above
2. (c) Cash book
3. (b) Journal proper
4. (b) ₹ 14,400
5. (a) ₹ 25,632
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