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Accountancy NCERT Notes, Solutions and Extra Q & A (Class 11th & 12th)
11th 12th

Class 11th Chapters
1. Introduction To Accounting 2. Theory Base Of Accounting 3. Recording Of Transactions - I
4. Recording Of Transactions - II 5. Bank Reconciliation Statement 6. Trial Balance And Rectification Of Errors
7. Depreciation, Provisions And Reserves 8. Bill Of Exchange 9. Financial Statements - I
10. Financial Statements - II

Content On This Page
Notes
Need for Special Purpose Books The Cash Book Single Column Cash Book
Double Column Cash Book Petty Cash Book Purchases (Journal) Book
Purchases Return (Return Outwards) Book Sales (Journal) Book Sales Return (Return Inwards) Book
Journal Proper Balancing The Accounts
NCERT Questions Solution
Test Your Understanding - I Test Your Understanding - II Short Answers
Long Answers Numerical Questions

Chapter 4 Recording Of Transactions-II Concepts, Solutions and Extra Q & A

This chapter introduces Special Purpose Books, also known as Subsidiary Books, as a practical solution to the limitations of a single journal in a growing business. As the volume of transactions increases, recording every entry in one journal becomes inefficient. To streamline this process, repetitive transactions are classified and recorded in dedicated day books.

The primary subsidiary books include the Purchases Book for credit purchases of goods, the Sales Book for credit sales of goods, and their respective return books. The most significant among these is the Cash Book, which uniquely functions as both a journal and a ledger for all cash and bank transactions. It can be a single, double, or triple column book, and includes a specialized version called the Petty Cash Book for managing small, routine expenses under an imprest system.

Any transaction that does not fit into these specialized books, such as the credit purchase of an asset or rectification entries, is recorded in the Journal Proper. This systematic division makes accounting faster, more accurate, and allows for an efficient division of labor.

Need for Special Purpose Books

In a small business with a limited number of transactions, it might be feasible to record all business activities chronologically in a single book of original entry—the Journal. However, as a business expands, the volume and frequency of transactions increase dramatically, making the use of a single journal highly impractical and inefficient. This leads to several significant problems.

Limitations of Using a Single Journal

Relying solely on one general journal for all transactions in a large business creates several operational bottlenecks:

To overcome these limitations, the journal is sub-divided into several specialized journals. Each special journal is designed to record a specific type of frequent and repetitive transaction. These books are collectively known as Special Journals, Day Books, or Subsidiary Books.

Types of Special Purpose Books and Their Functions

The sub-division of the journal results in the following primary subsidiary books, each with a distinct purpose:

  1. Cash Book: This is arguably the most important subsidiary book. It is used to record all transactions involving cash and bank, including all receipts and payments. It functions as both a journal and a ledger.

  2. Purchases Book (or Purchases Journal): This book is used to record only the credit purchases of goods. 'Goods' refers to the items in which the business deals (i.e., items bought for the purpose of resale).
    Note: Cash purchases are recorded in the Cash Book, and credit purchases of assets (like furniture or machinery) are recorded in the Journal Proper.

  3. Sales Book (or Sales Journal): This book is used to record only the credit sales of goods.
    Note: Cash sales are recorded in the Cash Book, and credit sales of assets are recorded in the Journal Proper.

  4. Purchases Return Book (or Return Outwards Journal): This book is used to record goods that are returned to suppliers, which were originally purchased on credit.

  5. Sales Return Book (or Return Inwards Journal): This book is used to record goods returned by customers, which were originally sold to them on credit.

  6. Journal Proper (or General Journal): This is the residual journal. It is used to record transactions that cannot be entered in any of the other specialized subsidiary books. This includes entries such as opening entries, closing entries, adjustment entries (e.g., depreciation), rectification entries, and the credit purchase or sale of assets.

Using special journals is economical, saves time, and facilitates the division of accounting work, leading to greater efficiency, accuracy, and better internal control.


The Cash Book

The Cash Book is a special journal designed exclusively to record all transactions involving cash and bank. Given that cash is the most liquid asset and the most frequent type of transaction for any business, it requires meticulous tracking. The Cash Book is one of the most vital and universally maintained subsidiary books in any organization, from a small local shop to a large multinational corporation.

The Dual Nature of the Cash Book

The Cash Book holds a unique and powerful position in the accounting system because it serves a dual purpose, functioning simultaneously as a journal and a ledger. This characteristic makes it exceptionally efficient.

Book of Original Entry (A Special Journal)

Like other subsidiary books, the Cash Book is a book of primary entry. All cash and bank transactions are recorded here for the first time, directly from source documents like cash memos, receipts, vouchers, pay-in-slips, and cheque counterfoils. The entries are made in chronological order (date-wise), which is the fundamental characteristic of a journal. By recording all cash transactions here, they are kept out of the general journal, which prevents the journal from becoming excessively bulky and saves significant time and effort.

Book of Final Entry (A Principal Book/Ledger)

The format of the Cash Book is identical to that of a ledger account. It has a 'T' shape with a distinct debit side (for receipts) and a credit side (for payments). It effectively acts as a complete, self-contained ledger account for cash. In the case of a double or triple column cash book, it also serves as the ledger account for the bank and discounts.

Because the Cash Book itself functions as the ledger account for cash (and bank), a crucial rule emerges: when a Cash Book is maintained, no separate 'Cash Account' or 'Bank Account' is opened in the general ledger. The Cash Book itself provides the final balances for these items. The closing balance of the Cash Book is directly taken to the Trial Balance and subsequently to the Balance Sheet. This integration of recording and summarizing is what makes the Cash Book a principal book of accounts.

Because of this unique dual role, it is correctly said that the Cash Book is both a journal and a ledger. It is a book where transactions are first recorded (journalizing) and are also simultaneously posted (to the cash/bank account), making it a "journalized ledger."


Single Column Cash Book

The Single Column Cash Book is the simplest form of cash book. It is used when a business carries out all its transactions exclusively in cash. It has one amount column on each side—the debit side for recording cash receipts and the credit side for recording cash payments.

Format of a Single Column Cash Book

The format resembles a standard T-account, with columns for date, particulars, and amount on both sides.

Cash Book

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Amount (₹) Date Particulars L.F. Amount (₹)
               

Example. Prepare a Single Column Cash Book for M/s Roopa Traders from the following transactions for November 2017.

  • Nov. 01: Cash in hand ₹ 30,000
  • Nov. 04: Cash received from Gurmeet ₹ 12,000
  • Nov. 08: Insurance paid ₹ 6,000
  • Nov. 13: Purchased furniture ₹ 13,800
  • Nov. 16: Sold goods for cash ₹ 28,000
  • Nov. 17: Purchased goods in cash ₹ 17,400
  • Nov. 20: Purchased stationery ₹ 1,100
  • Nov. 24: Cash paid to Rukmani ₹ 12,500
  • Nov. 27: Sold goods for cash ₹ 18,200
  • Nov. 30: Paid monthly rent ₹ 2,500
  • Nov. 30: Paid salary ₹ 3,500
  • Nov. 30: Deposited in bank ₹ 8,000

Answer:

M/s Roopa Traders

Cash Book

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Amount (₹) Date Particulars L.F. Amount (₹)
2017 2017
Nov. 01 To Balance b/d 30,000 Nov. 08 By Insurance A/c 6,000
Nov. 04 To Gurmeet's A/c 12,000 Nov. 13 By Furniture A/c 13,800
Nov. 16 To Sales A/c 28,000 Nov. 17 By Purchases A/c 17,400
Nov. 27 To Sales A/c 18,200 Nov. 20 By Stationery A/c 1,100
        Nov. 24 By Rukmani's A/c 12,500
        Nov. 30 By Rent A/c 2,500
        Nov. 30 By Salary A/c 3,500
        Nov. 30 By Bank A/c 8,000
        Nov. 30 By Balance c/d 23,400
88,200 88,200
Dec. 01 To Balance b/d 23,400        

Posting from Single Column Cash Book

Since the cash book itself serves as the Cash Account, only the other accounts involved in the transactions need to be posted to the ledger. All accounts on the debit (receipts) side of the cash book are credited in the ledger, and all accounts on the credit (payments) side are debited in the ledger.

Here is the posting for the above example:

Gurmeet's Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Nov. 04 By Cash A/c 12,000

Sales Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Nov. 16 By Cash A/c 28,000
        Nov. 27 By Cash A/c 18,200

Insurance Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Nov. 08 To Cash A/c 6,000        

Furniture Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Nov. 13 To Cash A/c 13,800        

Purchases Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Nov. 17 To Cash A/c 17,400        

Stationery Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Nov. 20 To Cash A/c 1,100        

Rukmani's Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Nov. 24 To Cash A/c 12,500        

Rent Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Nov. 30 To Cash A/c 2,500        

Salary Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Nov. 30 To Cash A/c 3,500        

Bank Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Nov. 30 To Cash A/c 8,000        

Double Column Cash Book

As a business grows, transactions involving a bank account—such as payments by cheque, deposits, and direct bank transfers—become increasingly common. A Single Column Cash Book is insufficient for tracking these activities. To manage both cash and bank transactions efficiently within a single book, a Double Column Cash Book is maintained. This cash book has two amount columns on each side: one for 'Cash' and one for 'Bank'.

This format provides a comprehensive view of the liquidity position of the business at a glance, showing both the cash in hand and the balance at the bank.

Banking Transactions and Instruments

Understanding common banking instruments is essential for maintaining a Double Column Cash Book.

Pay-in-Slip

A Pay-in-Slip is a form provided by the bank, used to deposit cash or cheques into a bank account. It has two parts: the main slip which the bank keeps, and a counterfoil which is stamped and returned to the depositor as a receipt and source document.

A sample Pay-in-Slip form

Cheque

A Cheque is a written order directing a bank to pay a specified sum of money to the person named on it (the payee). Cheques can be 'bearer' (payable to whoever presents it) or 'order' (payable only to the specified person or their order).

A sample bank cheque

Crossed Cheque

Drawing two parallel transverse lines on the top-left corner of a cheque is called crossing. A crossed cheque cannot be encashed over the counter; it must be deposited into a bank account. This provides security. Special crossings like 'A/c Payee' ensure the amount is only credited to the account of the named payee.

Types of cheque crossings, including general and special crossing

Contra Entries

A Contra Entry is a special type of transaction that involves both the cash and bank accounts, which are part of the same cash book. Since both aspects of the transaction (debit and credit) are recorded within the cash book itself, it does not require posting to any external ledger account.

To identify a contra entry, the letter 'C' is written in the L.F. (Ledger Folio) column on both sides of the cash book.

The two primary contra entries are:

  1. Cash deposited into the bank:

    • Bank balance increases, so the Bank column is debited.
    • Cash balance decreases, so the Cash column is credited.

  2. Cash withdrawn from the bank for office use:

    • Cash balance increases, so the Cash column is debited.
    • Bank balance decreases, so the Bank column is credited.

Special Cases in Double Column Cash Book

Handling of Cheques Received

Dishonour of a Cheque

When a cheque deposited into the bank is returned unpaid by the customer's bank (e.g., due to insufficient funds), it is said to be dishonoured. To record this, the entry is reversed: the Bank column on the credit side is credited, and the customer's personal account is debited in the Journal Proper.

Bank Charges and Interest

Example. Prepare a Double Column Cash Book for M/s Tools India from the following transactions for September 2017.

  • Sept. 01: Bank balance ₹ 42,000, Cash balance ₹ 15,000
  • Sept. 04: Purchased goods by cheque ₹ 12,000
  • Sept. 08: Sales of goods for cash ₹ 6,000
  • Sept. 16: Sold goods and received cheque (deposited same day) ₹ 4,500
  • Sept. 17: Purchased goods from Mridula in cash ₹ 17,400
  • Sept. 24: Cheque given to Rohit ₹ 1,500
  • Sept. 27: Cash withdrawn from bank for office use ₹ 10,000
  • Sept. 30: Rent paid by cheque ₹ 2,500
  • Sept. 30: Paid salary ₹ 3,500

Answer:

M/s Tools India

Cash Book

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Cash (₹) Bank (₹) Date Particulars L.F. Cash (₹) Bank (₹)
2017 2017
Sep. 01 To Balance b/d 15,000 42,000 Sep. 04 By Purchases A/c   12,000
Sep. 08 To Sales A/c 6,000   Sep. 17 By Purchases A/c 17,400  
Sep. 16 To Sales A/c   4,500 Sep. 24 By Rohit's A/c   1,500
Sep. 27 To Bank A/c C 10,000   Sep. 27 By Cash A/c C   10,000
          Sep. 30 By Rent A/c   2,500
          Sep. 30 By Salary A/c 3,500  
          Sep. 30 By Balance c/d 10,100 16,500
31,000 46,500 31,000 46,500
Oct. 01 To Balance b/d 10,100 16,500          

Ledger Posting

The contra entries (marked 'C') are internal transfers between cash and bank, so they are not posted to any external ledger account. All other entries are posted to their respective ledger accounts.

Purchases Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 04 To Bank A/c 12,000        
Sep. 17 To Cash A/c 17,400        

Sales Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Sep. 08 By Cash A/c 6,000
        Sep. 16 By Bank A/c 4,500

Rohit's Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 24 To Bank A/c 1,500        

Rent Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 30 To Bank A/c 2,500        

Salary Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 30 To Cash A/c 3,500        

Petty Cash Book

In any large organization, the main cashier is often burdened with a high volume of small, frequent, and repetitive payments. These can include expenses like taxi fares, bus fares, postage, courier charges, stationery, and refreshments. These are collectively known as "petty expenses". Recording each of these minor transactions in the main cash book is not only cumbersome and time-consuming but also makes the main cash book unnecessarily bulky and difficult to audit.

To solve this problem, businesses maintain a separate cash book to record these petty expenses, known as the Petty Cash Book. This book is managed by a junior cashier, designated as the Petty Cashier.

The Imprest System of Petty Cash

The Petty Cash Book is most effectively managed using the Imprest System. "Imprest" refers to a fixed sum of money advanced to the petty cashier to meet petty expenses for a specific period. This system operates in a cyclical manner, ensuring both control and convenience.

Steps in the Imprest System

  1. Establishment of the Fund: At the beginning of a period (e.g., a week or a month), the head cashier estimates the total petty expenses and gives a fixed round sum of money to the petty cashier. This amount is known as the imprest amount or float. The journal entry in the main books is:
    Petty Cash A/c     Dr.
    To Cash/Bank A/c

  2. Making Payments: The petty cashier makes all small payments out of this imprest amount. For every payment made, a supporting voucher (e.g., a bill, receipt) is obtained. These payments are recorded chronologically in the Petty Cash Book, which has multiple analytical columns for different types of expenses.

  3. Reimbursement: At the end of the period, or when the imprest amount is nearly exhausted, the petty cashier balances the book and prepares a summary of all expenses. This summary, along with the supporting vouchers, is submitted to the head cashier for verification.

  4. Restoring the Imprest: The head cashier checks the records and reimburses the exact amount that was spent by the petty cashier. This reimbursement restores the petty cashier's cash balance to the original imprest amount, ready for the next period. The journal entry for reimbursement debits the various expense heads and credits the main cash/bank account.

Advantages of a Petty Cash Book

Example. Mr. Mohit, the petty cashier of M/s Samaira Traders, received ₹2,000 on May 01, 2017, from the Head Cashier. Prepare the Petty Cash Book for the month from the following details.

  • May 02: Auto fare ₹ 55
  • May 03: Courier services ₹ 40
  • May 04: Postal stamps ₹ 105
  • May 05: Stationery (Erasers, Pencils) ₹ 225
  • May 08: Taxi fare ₹ 195
  • May 10: Auto fare ₹ 60
  • May 16: Computer stationery ₹ 165
  • May 20: Office sanitation ₹ 60
  • May 29: Unloading charges (Cartage) ₹ 40

Answer:

Petty Cash Book of M/s Samaira Traders

Amount Received (₹) Date Voucher No. Particulars Total Paid (₹) Analysis of Payments
Postage & Courier (₹) Conveyance (₹) Stationery (₹) Miscellaneous (₹)
2017
2,000 May 01 To Cash A/c (Received)
May 02 By Auto fare 55 55
May 03 By Courier services 40 40
May 04 By Postal stamps 105 105
May 05 By Stationery 225 225
May 08 By Taxi fare 195 195
May 10 By Auto fare 60 60
May 16 By Computer stationery 165 165
May 20 By Office sanitation 60 60
May 29 By Unloading charges 40 40
Total Expenses 945 145 310 390 100
May 31 By Balance c/d 1,055
2,000 2,000
1,055 Jun 01 To Balance b/d
945 Jun 01 To Cash A/c (Reimbursement)

Journal Entries

Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
2017
May 01 Petty Cash A/cDr. 2,000
To Cash A/c 2,000
(Being cash received to establish the petty cash fund)
May 31 Postage & Courier A/cDr. 145
Conveyance A/cDr. 310
Stationery A/cDr. 390
Miscellaneous Expenses A/cDr. 100
To Petty Cash A/c 945
(Being petty expenses for the month of May recorded)
Jun 01 Petty Cash A/cDr. 945
To Cash A/c 945
(Being cash received to reimburse the petty expenses under imprest system)

Ledger Postings

Cash Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        May 01 By Petty Cash A/c 2,000
        Jun 01 By Petty Cash A/c 945

Petty Cash Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
May 01 To Cash A/c 2,000 May 31 By Sundry Expenses* 945
May 31 By Balance c/d 1,055
2,000 2,000
Jun 01 To Balance b/d 1,055
Jun 01 To Cash A/c 945

Postage & Courier Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
May 31 To Petty Cash A/c 145        

Conveyance Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
May 31 To Petty Cash A/c 310        

Stationery Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
May 31 To Petty Cash A/c 390        

Miscellaneous Expenses Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
May 31 To Petty Cash A/c 100        

Purchases (Journal) Book

The Purchases Book, also known as the Purchases Journal or Invoice Book, is a special purpose subsidiary book used to record all credit purchases of goods. The term 'goods' specifically refers to the items or merchandise in which the business deals, i.e., items purchased with the intention of resale. Maintaining this book helps in quick, efficient, and accurate recording of voluminous and repetitive purchase transactions.

Understanding the Purchases Book (Without GST)

Initially, we will understand the working of a Purchases Book in a non-GST environment, which focuses purely on the cost of goods purchased.

Scope of the Purchases Book

It is crucial to understand what is recorded in the Purchases Book and what is excluded to maintain accounting accuracy.

Source Document & Format

The primary source document for recording an entry is the Purchase Invoice received from the supplier. Entries are made for the net amount of the invoice, which is the amount after deducting any Trade Discount. It's important to note that Trade Discount is shown as a deduction in the invoice but is not recorded as a separate account in the books of accounts.

Purchases Book (Simple Format)

Date Invoice No. Name of Supplier (Account to be Credited) L.F. Amount (₹)
         

Posting from the Purchases Book

Posting from the Purchases Book to the ledger is a systematic process:

  1. Individual Posting: Each transaction is posted to the credit side of the respective supplier's personal account in the ledger. This is usually done daily.
  2. Periodic Posting: At the end of a specific period (usually a month), the 'Amount' column of the Purchases Book is totaled. This total is posted to the debit side of the Purchases Account.

Example 1 (Without GST). Prepare the Purchases Book for M/s. Premier Garments, Mumbai, for October 2017 from the following transactions and post them to the ledger.

  • Oct 01: Purchased goods on credit from 'Surat Textiles' (Invoice No. 450): 100 meters of Silk @ ₹800/meter; 200 meters of Cotton @ ₹300/meter. Trade Discount 10%.
  • Oct 04: Purchased goods for cash from 'Local Fabrics' for ₹15,000.
  • Oct 07: Purchased from 'Delhi Woolens' on credit (Invoice No. 812): 50 Shawls @ ₹1,200 each.
  • Oct 10: Purchased a sewing machine on credit from 'Usha Machines Ltd.' for ₹25,000 (Invoice No. UM-77).
  • Oct 12: Purchased from 'Rajasthan Prints' on credit (Invoice No. 333): 80 Kurtis @ ₹500 each. Trade Discount 5%.
  • Oct 15: Purchased goods from 'Surat Textiles' on credit (Invoice No. 498): 300 meters of Cotton @ ₹310/meter.
  • Oct 18: Bought packing materials on credit from 'Packers Point' for ₹5,000.
  • Oct 21: Purchased from 'Fashion Forward Inc.' on credit (Invoice No. 2021): 40 Designer Jackets @ ₹2,500 each. Trade Discount 15%.
  • Oct 25: Purchased goods from 'Delhi Woolens' on credit (Invoice No. 855): 20 Sweaters @ ₹900 each.
  • Oct 28: Purchased from 'Kolkata Silks' on credit (Invoice No. K-90): 50 Silk Sarees @ ₹4,000 each. Trade Discount 20%.
  • Oct 30: Purchased from 'Rajasthan Prints' on credit (Invoice No. 390): 100 Skirts @ ₹450 each.

Answer:

Analysis of Transactions:

  • Transactions to be recorded in Purchases Book: The transactions dated Oct 01, 07, 12, 15, 21, 25, 28, and 30 are credit purchases of goods, which M/s. Premier Garments deals in. These will be entered in the Purchases Book.
  • Transactions to be excluded from Purchases Book:
    • Oct 04: This is a cash purchase of goods and will be recorded in the Cash Book.
    • Oct 10: A sewing machine is an asset for the business, not goods for resale. This credit purchase of an asset will be recorded in the Journal Proper.
    • Oct 18: Packing materials are an expense, not goods. This credit purchase will also be recorded in the Journal Proper.

Purchases Book of M/s. Premier Garments

Date Invoice No. Name of Supplier L.F. Amount (₹)
2017
Oct. 01 450 Surat Textiles
(Silk 80,000 + Cotton 60,000 = 1,40,000 Less 10% TD)		 1,26,000
Oct. 07 812 Delhi Woolens
(50 Shawls @ ₹1,200)		 60,000
Oct. 12 333 Rajasthan Prints
(80 Kurtis @ ₹500 = 40,000 Less 5% TD)		 38,000
Oct. 15 498 Surat Textiles
(300m Cotton @ ₹310)		 93,000
Oct. 21 2021 Fashion Forward Inc.
(40 Jackets @ ₹2,500 = 1,00,000 Less 15% TD)		 85,000
Oct. 25 855 Delhi Woolens
(20 Sweaters @ ₹900)		 18,000
Oct. 28 K-90 Kolkata Silks
(50 Sarees @ ₹4,000 = 2,00,000 Less 20% TD)		 1,60,000
Oct. 30 390 Rajasthan Prints
(100 Skirts @ ₹450)		 45,000
Oct. 31 Total to Purchases A/c (Dr.) 6,25,000

Journal Proper Entries (for excluded transactions)

Journal Entries

Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
2017
Oct. 10 Machinery A/cDr. 25,000
To Usha Machines Ltd. A/c 25,000
(Being sewing machine purchased on credit)
Oct. 18 Packing Materials Expense A/cDr. 5,000
To Packers Point A/c 5,000
(Being packing materials purchased on credit)

Ledger Posting

Surat Textiles Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Oct. 01 By Purchases A/c 1,26,000
        Oct. 15 By Purchases A/c 93,000

Delhi Woolens Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Oct. 07 By Purchases A/c 60,000
        Oct. 25 By Purchases A/c 18,000

Rajasthan Prints Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Oct. 12 By Purchases A/c 38,000
        Oct. 30 By Purchases A/c 45,000

Fashion Forward Inc. Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Oct. 21 By Purchases A/c 85,000

Kolkata Silks Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Oct. 28 By Purchases A/c 1,60,000

Purchases Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Oct. 31 To Sundries as per Purchases Book 6,25,000        

Incorporating Goods and Services Tax (GST)

In the current business environment, most transactions are subject to GST. This requires a more detailed or 'analytical' Purchases Book to account for the tax component correctly.

How GST is Treated in Accounting

GST paid on the purchase of goods or services is known as Input GST. For the business, Input GST is treated as an asset because the business can claim this amount as a credit to reduce its final GST liability payable to the government (which arises from GST collected on sales, known as Output GST).

Analytical Purchases Book with GST (Format)

To accommodate GST, separate columns are added for each type of Input GST. The total invoice value now includes the cost of goods plus the applicable GST.

Date Invoice No. Name of Supplier L.F. Purchases (Cost) (₹) Input CGST (₹) Input SGST (₹) Input IGST (₹) Total Amount (₹)
                 

Posting from the Analytical Purchases Book

The posting process is expanded:

  1. Individual Posting: The respective supplier's account is credited with the amount from the 'Total Amount' column.
  2. Periodic Posting: The totals of the various columns are posted as follows:
    • Total of 'Purchases (Cost)' column is debited to the Purchases Account.
    • Total of 'Input CGST' column is debited to the Input CGST Account.
    • Total of 'Input SGST' column is debited to the Input SGST Account.
    • Total of 'Input IGST' column is debited to the Input IGST Account.

Example 2 (With GST). Prepare the Purchases Book for M/s. BANSAL ELECTRONICS, Delhi, for September 2017. Applicable GST rates are CGST @ 9%, SGST @ 9%, and IGST @ 18%.

  • Sep 02: Purchased from M/s Ahuja Electronics, Delhi (Invoice No. 101): 10 Music Systems @ ₹8,000 each. Trade Discount @ 15%.
  • Sep 08: Purchased from M/s Punjab Traders, Ludhiana (Invoice No. 234): 50 LED TVs @ ₹12,000 each. Trade Discount @ 20%.
  • Sep 16: Purchased from M/s Jindal & Sons, Delhi (Invoice No. 567): 100 Mobile Chargers @ ₹250 each.

Answer:

Books of M/s. BANSAL ELECTRONICS, Delhi

Purchases (Journal) Book

Date Invoice No. Name of Supplier L.F. Purchases (₹) Input CGST (₹) Input SGST (₹) Input IGST (₹) Total Amount (₹)
2017
Sep. 02 101 M/s Ahuja Electronics, Delhi
(80,000 - 15% TD = 68,000)		 68,000 6,120 6,120 - 80,240
Sep. 08 234 M/s Punjab Traders, Ludhiana
(6,00,000 - 20% TD = 4,80,000)		 4,80,000 - - 86,400 5,66,400
Sep. 16 567 M/s Jindal & Sons, Delhi
(100 chargers @ 250 = 25,000)		 25,000 2,250 2,250 - 29,500
Sep. 30 Total 5,73,000 8,370 8,370 86,400 6,76,140

Working Notes:

Calculation for Transaction on Sep 02 (Intra-State)
Particulars Amount (₹)
List Price of 10 Music Systems @ $\textsf{₹ }$ 8,000 80,000
Less: Trade Discount @ 15% ($\textsf{₹ } 80,000 \times 0.15$) (12,000)
Net Purchase Value 68,000
Add: Input CGST @ 9% ($\textsf{₹ } 68,000 \times 0.09$) 6,120
Add: Input SGST @ 9% ($\textsf{₹ } 68,000 \times 0.09$) 6,120
Total Invoice Amount 80,240

Calculation for Transaction on Sep 08 (Inter-State)
Particulars Amount (₹)
List Price of 50 LED TVs @ $\textsf{₹ }$ 12,000 6,00,000
Less: Trade Discount @ 20% ($\textsf{₹ } 6,00,000 \times 0.20$) (1,20,000)
Net Purchase Value 4,80,000
Add: Input IGST @ 18% ($\textsf{₹ } 4,80,000 \times 0.18$) 86,400
Total Invoice Amount 5,66,400

Calculation for Transaction on Sep 16 (Intra-State)
Particulars Amount (₹)
List Price of 100 Chargers @ $\textsf{₹ }$ 250 25,000
Net Purchase Value (No Trade Discount) 25,000
Add: Input CGST @ 9% ($\textsf{₹ } 25,000 \times 0.09$) 2,250
Add: Input SGST @ 9% ($\textsf{₹ } 25,000 \times 0.09$) 2,250
Total Invoice Amount 29,500

Ledger Posting

Individual supplier accounts are credited with their total invoice amounts. At the end of the month, the column totals are debited to their respective accounts in the general ledger.

M/s Ahuja Electronics Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 02 By Purchases A/c 80,240

M/s Punjab Traders Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 08 By Purchases A/c 5,66,400

M/s Jindal & Sons Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 16 By Purchases A/c 29,500

Purchases Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 30 To Sundries as per Purchases Book 5,73,000        

Input CGST Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 30 To Sundries as per Purchases Book 8,370        

Input SGST Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 30 To Sundries as per Purchases Book 8,370        

Input IGST Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 30 To Sundries as per Purchases Book 86,400        

Purchases Return (Return Outwards) Book

The Purchases Return Book, also known as the Return Outwards Book, is a special purpose subsidiary book used to record the return of goods that were originally purchased on credit. When goods are returned to a supplier, they are moving 'outward' from the business, which is why it is also called the Return Outwards Book.

Goods may be returned for various reasons, such as:

Like the Purchases Book, this book only records the return of goods. The return of an asset purchased on credit (e.g., returning a faulty piece of furniture) is recorded in the Journal Proper.

Source Document: The Debit Note

When a business returns goods to a supplier, it prepares a document called a Debit Note and sends the original copy to the supplier. A Debit Note is a formal document that serves as an intimation to the supplier that their account is being debited by the business for the value of the goods returned. This debit reduces the amount owed to the supplier.

A Debit Note is the primary source document for making entries in the Purchases Return Book. It typically contains the supplier's name, a unique serial number, date, details of the goods being returned, a reference to the original purchase invoice, and the reason for the return.

Specimen format of a Debit Note showing details of returned goods.

Purchases Return Book (Without GST)

First, we will understand the format and posting in a non-GST environment, where the focus is solely on the value of the goods being returned.

Format of Purchases Return Book

Date Debit Note No. Name of Supplier (Account to be Debited) L.F. Amount (₹)
         

Posting from Purchases Return Book

The posting process is the reverse of posting from the Purchases Book:

  1. Individual Posting: Each entry is posted to the debit side of the respective supplier's account in the ledger. This reduces the balance payable to that supplier. This is typically done daily.
  2. Periodic Posting: The periodic total of the Purchases Return Book (usually at the end of the month) is posted to the credit side of the Purchases Return Account in the ledger. The Purchases Return account is a contra-expense account that reduces the total purchases.

Example 1 (Without GST). Prepare the Purchases Return Book of M/s. Premier Garments, Mumbai, for October 2017 from the following transactions and post them into the ledger. (Refer to the purchases made in the previous example).

  • Oct 03: Returned 10 meters of defective Silk to 'Surat Textiles' (Debit Note No. 101). The silk was purchased @ ₹800/meter, with a 10% trade discount.
  • Oct 09: Returned 5 shawls to 'Delhi Woolens' as they were not as per sample (Debit Note No. 102). The shawls were purchased @ ₹1,200 each.
  • Oct 13: Returned 4 Kurtis to 'Rajasthan Prints' (Debit Note No. 103). They were purchased @ ₹500 each, with a 5% trade discount.
  • Oct 14: The sewing machine purchased from 'Usha Machines Ltd.' was found faulty and returned.
  • Oct 17: Returned 20 meters of cotton to 'Surat Textiles' (Debit Note No. 104). It was purchased @ ₹310/meter.
  • Oct 20: Returned packing materials worth ₹500 to 'Packers Point'.
  • Oct 23: Returned 3 Designer Jackets to 'Fashion Forward Inc.' (Debit Note No. 105). They were purchased @ ₹2,500 each, with a 15% trade discount.
  • Oct 27: Returned 2 Sweaters to 'Delhi Woolens' (Debit Note No. 106). They were purchased @ ₹900 each.
  • Oct 29: Returned 5 Silk Sarees to 'Kolkata Silks' (Debit Note No. 107). They were purchased @ ₹4,000 each, with a 20% trade discount.
  • Oct 31: Returned 10 Skirts to 'Rajasthan Prints' (Debit Note No. 108). They were purchased @ ₹450 each.

Answer:

Analysis of Transactions:

  • All transactions except those on Oct 14 and Oct 20 involve the return of 'goods' that were purchased on credit. These will be recorded in the Purchases Return Book.
  • Oct 14 & 20: The return of the sewing machine (an asset) and packing materials (an expense) are not returns of 'goods for resale'. Therefore, these will be recorded in the Journal Proper.

Purchases Return Book of M/s. Premier Garments

Date Debit Note No. Name of Supplier L.F. Amount (₹)
2017
Oct. 03 101 Surat Textiles
(8,000 - 10% TD)		 7,200
Oct. 09 102 Delhi Woolens
(5 Shawls @ ₹1,200)		 6,000
Oct. 13 103 Rajasthan Prints
(2,000 - 5% TD)		 1,900
Oct. 17 104 Surat Textiles
(20m Cotton @ ₹310)		 6,200
Oct. 23 105 Fashion Forward Inc.
(7,500 - 15% TD)		 6,375
Oct. 27 106 Delhi Woolens
(2 Sweaters @ ₹900)		 1,800
Oct. 29 107 Kolkata Silks
(20,000 - 20% TD)		 16,000
Oct. 31 108 Rajasthan Prints
(10 Skirts @ ₹450)		 4,500
Oct. 31 Total to Purchases Return A/c (Cr.) 49,975

Ledger Posting

Surat Textiles Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Oct. 03 To Purchases Return A/c 7,200
Oct. 17 To Purchases Return A/c 6,200

Delhi Woolens Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Oct. 09 To Purchases Return A/c 6,000
Oct. 27 To Purchases Return A/c 1,800

Purchases Return Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Oct. 31 By Sundries as per P. Ret. Book 49,975

Purchases Return Book (With GST)

When goods are returned in a GST environment, the Input GST credit claimed at the time of purchase must also be reversed. The Purchases Return Book must, therefore, have columns to record this reversal.

Reversal of Input Tax Credit (ITC)

When goods are returned, the business is no longer entitled to the Input Tax Credit (ITC) it claimed on those goods. This credit must be reversed. The reversal is done by crediting the respective Input GST accounts (Input CGST, Input SGST, or Input IGST), effectively cancelling the original debit entry made at the time of purchase.

Analytical Purchases Return Book with GST (Format)

Date Debit Note No. Name of Supplier L.F. Purchases Return (₹) Input CGST (₹) Input SGST (₹) Input IGST (₹) Total Amount (₹)
 

Posting from Analytical Purchases Return Book

  1. Individual Posting: The supplier's account is debited with the total amount from the 'Total Amount' column.
  2. Periodic Posting: The column totals are posted as follows:
    • Total of 'Purchases Return' column is credited to the Purchases Return Account.
    • Total of 'Input CGST' column is credited to the Input CGST Account.
    • Total of 'Input SGST' column is credited to the Input SGST Account.
    • Total of 'Input IGST' column is credited to the Input IGST Account.

Example 2 (With GST). From the following details of M/s. BANSAL ELECTRONICS, Delhi, prepare the Purchases Return Book for September 2017. Applicable GST: CGST @9%, SGST @9%, IGST @18%.

  • Sep. 10: Returned one Music System to M/s Ahuja Electronics, Delhi (Debit Note No. 51). The original purchase price was ₹8,000, less 15% Trade Discount.
  • Sep. 15: Returned two defective LED TVs to M/s Punjab Traders, Ludhiana (Debit Note No. 52). Original purchase price was ₹12,000 per TV, less 20% Trade Discount.

Answer:

The Purchases Return Book (also known as the Return Outwards Journal) is a subsidiary book used to record the return of goods previously purchased on credit. When goods are returned, the Input Tax Credit (ITC) claimed at the time of purchase must be reversed.

Since M/s. BANSAL ELECTRONICS is based in Delhi:

  • Returns to a Delhi supplier (Intra-State) will reverse Input CGST and Input SGST.
  • Returns to an out-of-state supplier like Ludhiana, Punjab (Inter-State) will reverse Input IGST.

Books of M/s. BANSAL ELECTRONICS, Delhi

Purchases Return (Journal) Book

Date Debit Note No. Name of Supplier L.F. Purchases Return (₹) Input CGST (₹) Input SGST (₹) Input IGST (₹) Total Amount (₹)
2017
Sep. 10 51 M/s Ahuja Electronics, Delhi
(8,000 - 15% TD = 6,800)		 6,800 612 612 - 8,024
Sep. 15 52 M/s Punjab Traders, Ludhiana
(2 TVs @ 12,000 = 24,000 - 20% TD = 19,200)		 19,200 - - 3,456 22,656
Sep. 30 Total 26,000 612 612 3,456 30,680

Working Notes:

Calculation for Transaction on Sep 10 (Intra-State)
Particulars Amount (₹)
List Price of 1 Music System 8,000
Less: Trade Discount @ 15% ($\textsf{₹ } 8,000 \times 0.15$) (1,200)
Value of Goods Returned (Purchases Return) 6,800
Add: Reversed Input CGST @ 9% ($\textsf{₹ } 6,800 \times 0.09$) 612
Add: Reversed Input SGST @ 9% ($\textsf{₹ } 6,800 \times 0.09$) 612
Total Amount (Debited to Supplier) 8,024

Calculation for Transaction on Sep 15 (Inter-State)
Particulars Amount (₹)
List Price of 2 LED TVs @ $\textsf{₹ }$ 12,000 each 24,000
Less: Trade Discount @ 20% ($\textsf{₹ } 24,000 \times 0.20$) (4,800)
Value of Goods Returned (Purchases Return) 19,200
Add: Reversed Input IGST @ 18% ($\textsf{₹ } 19,200 \times 0.18$) 3,456
Total Amount (Debited to Supplier) 22,656

Ledger Posting

Individual supplier accounts are debited with the total amount from the debit note. At the end of the month, the column totals for Purchases Return and GST accounts are credited in the general ledger.

M/s Ahuja Electronics Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 10 To Purchases Return A/c 8,024

M/s Punjab Traders Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Sep. 15 To Purchases Return A/c 22,656

Purchases Return Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Sep. 30 By Sundries as per P. Ret. Book 26,000

Input CGST Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Sep. 30 By Sundries as per P. Ret. Book 612

Input SGST Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Sep. 30 By Sundries as per P. Ret. Book 612

Input IGST Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
        Sep. 30 By Sundries as per P. Ret. Book 3,456

Sales (Journal) Book

The Sales Book (or Sales Journal) is a special purpose subsidiary book maintained to record all credit sales of goods. It functions as a chronological record of credit sales, helping to simplify the ledger and make the recording process more efficient. It is the counterpart to the Purchases Book and follows a similar principle of specialization.

Sales Book (Without GST)

We'll first explore the Sales Book in a simple, non-GST context to understand its fundamental mechanics.

Scope of the Sales Book

It is vital to distinguish which transactions belong in the Sales Book:

Source Document and Format

The source document for the Sales Book is the firm's own Sales Invoice. When goods are sold on credit, the seller prepares an invoice, usually in duplicate or triplicate. The original copy is sent to the customer, and a carbon copy is retained. This copy serves as the basis for the entry in the Sales Book.

Specimen format of a Sales Invoice

Sales Book (Simple Format)

Date Invoice No. Name of Customer (Account to be Debited) L.F. Amount (₹)
         

Posting from the Sales Book

  1. Individual Posting: Each entry from the Sales Book is posted to the debit side of the respective customer's account in the ledger, as they are now a debtor to the business. This is usually done daily.
  2. Periodic Posting: The periodic total of the Sales Book (usually monthly) is posted to the credit side of the Sales Account in the ledger, as sales is a revenue for the business.

Example 1 (Without GST). Prepare the Sales Book for M/s. Koina Supplies for April 2017 from the following transactions and post them to the ledger.

  • April 01: Sold goods to M/s Raman Traders on credit (Invoice No. 178): 2 water purifiers @ ₹2,100 each; 5 buckets @ ₹130 each.
  • April 04: Sold goods for cash to a walk-in customer for ₹5,000.
  • April 06: Sold goods to M/s Nutan Enterprises on credit (Invoice No. 180): 5 roadside containers @ ₹4,200 each.
  • April 10: Sold old office furniture on credit to M/s. Old Mart for ₹8,000 (Invoice No. OM-01).
  • April 12: Sold goods to M/s. Global Traders on credit (Invoice No. 181): 10 water filters @ ₹900 each; 20 large drums @ ₹1,500 each. Trade discount 10%.
  • April 18: Sold goods to M/s Raman Traders on credit (Invoice No. 195): 100 big buckets @ ₹85 each.
  • April 22: Sold goods to M/s Modern Retailers on credit (Invoice No. 196): 50 water purifiers @ ₹2,200 each. Trade discount 5%.
  • April 26: Sold goods to M/s Nutan Enterprises on credit (Invoice No. 201): 20 water filters @ ₹950 each.
  • April 30: Sold the old delivery van for ₹75,000 on credit to Mr. Ashok.

Answer:

Analysis of Transactions:

The following points detail which transactions are recorded in the Sales Book and which are not:

  • The transactions dated April 01, 06, 12, 18, 22, and 26 will be recorded in the Sales Book as they represent the credit sale of goods that the business deals in.

  • April 04: This is a cash sale of goods. Therefore, it will not be recorded in the Sales Book but will be recorded in the Cash Book.

  • April 10 & 30: These are credit sales of assets (old furniture and an old delivery van). Since the Sales Book is meant only for recording the credit sale of trade goods, these transactions will be recorded in the Journal Proper.

Sales Book of M/s. Koina Supplies

Date Invoice No. Name of Customer L.F. Amount (₹)
2017
Apr. 01 178 M/s Raman Traders
(2 Purifiers @ ₹2,100 + 5 Buckets @ ₹130)		 4,850
Apr. 06 180 M/s Nutan Enterprises
(5 containers @ ₹4,200)		 21,000
Apr. 12 181 M/s. Global Traders
(Filters ₹9,000 + Drums ₹30,000 = ₹39,000 Less 10% TD)		 35,100
Apr. 18 195 M/s Raman Traders
(100 buckets @ ₹85)		 8,500
Apr. 22 196 M/s Modern Retailers
(50 purifiers @ ₹2,200 = ₹1,10,000 Less 5% TD)		 1,04,500
Apr. 26 201 M/s Nutan Enterprises
(20 filters @ ₹950)		 19,000
Apr. 30 Total to Sales A/c (Cr.) 1,92,950

Ledger Posting

M/s Raman Traders Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 01To Sales A/c4,850
Apr. 18To Sales A/c8,500

M/s Nutan Enterprises Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 06To Sales A/c21,000
Apr. 26To Sales A/c19,000

M/s. Global Traders Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 12To Sales A/c35,100

M/s Modern Retailers Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 22To Sales A/c1,04,500

Sales Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
    Apr. 30By Sundries as per Sales Book1,92,950

Sales Book with GST

When goods are sold, GST is collected from the customer. This collected GST is known as Output GST and is a liability for the business, as it must be paid to the government after adjusting for Input GST.

Analytical Sales Book with GST (Format)

To record GST properly, an analytical sales book with separate columns for each type of Output GST is used.

Date Invoice No. Name of Customer L.F. Sales (Value) (₹) Output CGST (₹) Output SGST (₹) Output IGST (₹) Total Amount (₹)
 

Posting from Analytical Sales Book

  1. Individual Posting: The customer's account is debited with the total invoice amount from the 'Total Amount' column.
  2. Periodic Posting: The column totals are posted as follows:
    • Total of 'Sales (Value)' column is credited to the Sales Account.
    • Total of 'Output CGST' column is credited to the Output CGST Account (a liability account).
    • Total of 'Output SGST' column is credited to the Output SGST Account.
    • Total of 'Output IGST' column is credited to the Output IGST Account.

Example 2 (With GST). Prepare the Sales Book of M/s Vineet Stores, Jaipur (Rajasthan) for December 2017. Applicable GST rates: CGST @ 2.5%, SGST @ 2.5%, IGST @ 5%.

  • Dec. 01: Sold goods to M/s Rohit Stores, Ajmer (Invoice No. 325): 30 Kids Books @ ₹60 each; 20 Animal Books @ ₹50 each.
  • Dec. 05: Sold goods to M/s Mera Stores, Delhi (Invoice No. 328): 100 Greeting Cards @ ₹12 each; 50 Musical Cards @ ₹50 each. Trade Discount 5%.
  • Dec. 10: Sold goods to M/s Mega Stationers, Jaipur (Invoice No. 329): 50 Writing Pads @ ₹20 each; 50 Colour Books @ ₹30 each.

Answer:

Sales Book of M/s. Vineet Stores, Jaipur

Date Invoice No. Name of Customer L.F. Sales (₹) Output CGST @2.5% (₹) Output SGST @2.5% (₹) Output IGST @5% (₹) Total Amount (₹)
2017
Dec. 01 325 M/s Rohit Stores, Ajmer
(Kids Books ₹1,800 + Animal Books ₹1,000)		 2,800.00 70.00 70.00 - 2,940.00
Dec. 05 328 M/s Mera Stores, Delhi
(Gross ₹3,700 - 5% TD = ₹3,515)		 3,515.00 - - 175.75 3,690.75
Dec. 10 329 M/s Mega Stationers, Jaipur
(Writing Pads ₹1,000 + Colour Books ₹1,500)		 2,500.00 62.50 62.50 - 2,625.00
Dec. 31 Total 8,815.00 132.50 132.50 175.75 9,255.75

Working Notes

Calculation of Invoice Values
1. Dec 01: M/s Rohit Stores, Ajmer (Intra-State)
Value of Goods (₹1,800 + ₹1,000) 2,800.00
Add: Output CGST @ 2.5% on ₹2,800 70.00
Add: Output SGST @ 2.5% on ₹2,800 70.00
Total Invoice Value 2,940.00
2. Dec 05: M/s Mera Stores, Delhi (Inter-State)
Value of Goods (₹1,200 + ₹2,500) 3,700.00
Less: Trade Discount @ 5% on ₹3,700 (185.00)
Taxable Value 3,515.00
Add: Output IGST @ 5% on ₹3,515 175.75
Total Invoice Value 3,690.75
3. Dec 10: M/s Mega Stationers, Jaipur (Intra-State)
Value of Goods (₹1,000 + ₹1,500) 2,500.00
Add: Output CGST @ 2.5% on ₹2,500 62.50
Add: Output SGST @ 2.5% on ₹2,500 62.50
Total Invoice Value 2,625.00

Ledger Postings

M/s Rohit Stores Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 01To Sales A/c2,940.00

M/s Mera Stores Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 05To Sales A/c3,690.75

M/s Mega Stationers Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 10To Sales A/c2,625.00

Sales Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 31By Sundries (as per Sales Book)8,815.00

Output CGST Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 31By Sundries (as per Sales Book)132.50

Output SGST Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 31By Sundries (as per Sales Book)132.50

Output IGST Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 31By Sundries (as per Sales Book)175.75

Sales Return (Return Inwards) Book

The Sales Return Book is a special purpose subsidiary book used to record goods returned by customers, which were originally sold to them on credit. Since the returned goods are physically coming 'inward' into the business, this book is also known as the Return Inwards Book.

Just like purchases return, sales returns occur for various reasons, such as goods being defective, damaged, or not conforming to the customer's order. This book only records the return of goods. The return of an asset (e.g., old furniture) that was sold on credit would be recorded through the Journal Proper.

Source Document: The Credit Note

When a customer returns goods, the seller prepares a Credit Note and sends the original copy to the customer. A Credit Note is a formal document indicating that the customer's account has been credited in the seller's books. This credit reduces the total amount receivable from that customer.

Contents of a Credit Note

The Credit Note is the primary source document for recording entries in the Sales Return Book. It generally includes:

Specimen format of a Credit Note issued to a customer.

Sales Return Book (Without GST)

Let's first examine the simple format and posting procedure in a non-GST scenario.

Format of Sales Return Book

Date Credit Note No. Name of Customer (Account to be Credited) L.F. Amount (₹)
         

Posting from Sales Return Book

The posting process is the opposite of posting from the Sales Book:

  1. Individual Posting: Each entry is posted to the credit side of the respective customer's account in the ledger. This reduces the amount receivable from the customer.
  2. Periodic Posting: The periodic total of the Sales Return Book is posted to the debit side of the Sales Return Account in the ledger. The Sales Return account is a contra-revenue account, which is deducted from total sales to arrive at net sales.

Example 1 (Without GST). Prepare the Sales Return Book for M/s. Koina Supplies for April 2017 from the following transactions and post them to the ledger. (Refer to the sales made in the previous example).

  • April 03: M/s Raman Traders returned one water purifier sold to them @ ₹2,100 (Credit Note No. 201).
  • April 09: M/s Nutan Enterprises returned one roadside container as it was damaged. It was sold for ₹4,200 (Credit Note No. 202).
  • April 15: M/s. Global Traders returned 2 large drums, sold to them @ ₹1,500 each, less 10% trade discount (Credit Note No. 203).
  • April 18: The old office furniture sold to M/s. Old Mart was returned by them.
  • April 20: M/s Raman Traders returned 10 big buckets sold to them @ ₹85 each (Credit Note No. 204).
  • April 25: M/s Modern Retailers returned 2 water purifiers sold to them @ ₹2,200 each, less 5% trade discount (Credit Note No. 205).
  • April 28: M/s Nutan Enterprises returned 3 water filters sold to them @ ₹950 each (Credit Note No. 206).

Answer:

Analysis of Transactions:

  • All transactions, except the one on April 18, involve the return of 'goods' that were previously sold on credit. Therefore, these will be recorded in the Sales Return Book (also known as Returns Inward Book).

  • April 18: This transaction involves the return of old office furniture, which is an asset, not goods for resale. The return of an asset will be recorded in the Journal Proper, not in the Sales Return Book.

Sales Return Book of M/s. Koina Supplies

Date Credit Note No. Name of Customer L.F. Amount (₹)
2017
Apr. 03 201 M/s Raman Traders 2,100
Apr. 09 202 M/s Nutan Enterprises 4,200
Apr. 15 203 M/s. Global Traders
(Gross ₹3,000 Less 10% TD)		 2,700
Apr. 20 204 M/s Raman Traders 850
Apr. 25 205 M/s Modern Retailers
(Gross ₹4,400 Less 5% TD)		 4,180
Apr. 28 206 M/s Nutan Enterprises 2,850
Apr. 30 Total to Sales Return A/c (Dr.) 16,880

Ledger Posting

M/s Raman Traders Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 03By Sales Return A/c2,100
Apr. 20By Sales Return A/c850

M/s Nutan Enterprises Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 09By Sales Return A/c4,200
Apr. 28By Sales Return A/c2,850

M/s. Global Traders Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 15By Sales Return A/c2,700

M/s Modern Retailers Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 25By Sales Return A/c4,180

Sales Return Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2017 2017
Apr. 30To Sundries as per Sales Return Book16,880    

Sales Return Book with GST

When a customer returns goods, the Output GST that was collected at the time of sale must also be reversed. The business's liability to pay that portion of GST to the government is cancelled.

Reversal of Output GST Liability

To reverse the liability, the respective Output GST accounts (Output CGST, Output SGST, or Output IGST), which were credited at the time of sale, are now debited.

Analytical Sales Return Book with GST (Format)

Date Credit Note No. Name of Customer L.F. Sales Return (₹) Output CGST (₹) Output SGST (₹) Output IGST (₹) Total Amount (₹)
 

Posting from Analytical Sales Return Book

  1. Individual Posting: The customer's account is credited with the total amount from the 'Total Amount' column.
  2. Periodic Posting: The column totals are posted as follows:
    • Total of 'Sales Return' column is debited to the Sales Return Account.
    • Total of 'Output CGST' column is debited to the Output CGST Account (to reverse the credit).
    • Total of 'Output SGST' column is debited to the Output SGST Account.
    • Total of 'Output IGST' column is debited to the Output IGST Account.

Example 2 (With GST). Prepare the Sales Return Book of M/s Vineet Stores, Jaipur (Rajasthan) for December 2017. Applicable GST rates: CGST @ 2.5%, SGST @ 2.5%, IGST @ 5%.

  • Dec. 15: Goods returned by M/s Rohit Stores, Ajmer (Credit Note No. 201): 2 Kids Books @ ₹60 each; 1 Animal Book @ ₹50 each.
  • Dec. 22: Goods returned by M/s Mega Stationers, Jaipur (Credit Note No. 204): 5 Writing Pads @ ₹20 each.
  • Dec. 30: Goods returned by M/s Mera Stores, Delhi (Credit Note No. 207): 10 Musical Cards @ ₹50 each, less 5% trade discount.

Answer:

Sales Return Book of M/s. Vineet Stores, Jaipur

Date Credit Note No. Name of Customer L.F. Sales Return (₹) Output CGST @2.5% (₹) Output SGST @2.5% (₹) Output IGST @5% (₹) Total Amount (₹)
2017
Dec. 15 201 M/s Rohit Stores, Ajmer
(₹120 + ₹50 = ₹170)		 170.00 4.25 4.25 - 178.50
Dec. 22 204 M/s Mega Stationers, Jaipur
(5 pads @ ₹20 = ₹100)		 100.00 2.50 2.50 - 105.00
Dec. 30 207 M/s Mera Stores, Delhi
(Gross ₹500 - 5% TD = ₹475)		 475.00 - - 23.75 498.75
Dec. 31 Total 745.00 6.75 6.75 23.75 782.25

Working Notes

Calculation of Credit Note Values
1. Dec 15: M/s Rohit Stores, Ajmer (Intra-State)
Value of Goods Returned (₹120 + ₹50) 170.00
Add: Output CGST @ 2.5% on ₹170 4.25
Add: Output SGST @ 2.5% on ₹170 4.25
Total Credit Note Value 178.50
2. Dec 22: M/s Mega Stationers, Jaipur (Intra-State)
Value of Goods Returned 100.00
Add: Output CGST @ 2.5% on ₹100 2.50
Add: Output SGST @ 2.5% on ₹100 2.50
Total Credit Note Value 105.00
3. Dec 30: M/s Mera Stores, Delhi (Inter-State)
Value of Goods Returned 500.00
Less: Trade Discount @ 5% on ₹500 (25.00)
Taxable Value of Return 475.00
Add: Output IGST @ 5% on ₹475 23.75
Total Credit Note Value 498.75

Ledger Postings

M/s Rohit Stores Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 15By Sales Return A/c178.50

M/s Mega Stationers Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 22By Sales Return A/c105.00

M/s Mera Stores Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 30By Sales Return A/c498.75

Sales Return Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 31To Sundries (as per S.R. Book)745.00

Output CGST Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 31To Sundries (as per S.R. Book)6.75

Output SGST Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 31To Sundries (as per S.R. Book)6.75

Output IGST Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Dec. 31To Sundries (as per S.R. Book)23.75

Journal Proper

The Journal Proper, also known as the General Journal, is the subsidiary book of original entry that records all transactions which, due to their nature, cannot be recorded in any of the other special purpose books (i.e., Cash Book, Purchases Book, Sales Book, Purchases Return Book, and Sales Return Book). It acts as a residual journal, capturing all non-repetitive, miscellaneous, and adjustment-related transactions, ensuring that every business transaction has a place in the books of original entry.

Types of Entries Recorded in the Journal Proper

The Journal Proper is versatile and crucial for maintaining accurate financial records. The most common types of entries recorded are detailed below:

  1. Opening Entries: At the beginning of a new financial year, an opening entry is passed to bring the closing balances of assets and liabilities from the previous year's Balance Sheet into the new set of books. The entry is framed by debiting all asset accounts, crediting all liability accounts, and crediting the Capital Account with the balancing figure (Assets - Liabilities).

    Example Entry:

    Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
    2023
    Apr. 01 Machinery A/cDr. 1,50,000
    Debtors A/cDr. 50,000
    To Creditors A/c 40,000
    To Capital A/c (Balancing Figure) 1,60,000
    (Being opening balances of assets, liabilities and capital brought forward)

  2. Closing Entries: At the end of the financial year, all nominal accounts (revenues and expenses) must be closed. Their balances are transferred to the Trading and Profit & Loss Account to ascertain the gross profit/loss and net profit/loss. These transfer entries are passed in the Journal Proper.

    Example Entry:

    Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
    2024
    Mar. 31 Trading A/cDr. 3,25,000
    To Purchases A/c 3,00,000
    To Wages A/c 25,000
    (Being direct expenses transferred to Trading Account at year-end)

  3. Adjustment Entries: To ensure that the financial statements present a true and fair view and adhere to the accrual basis of accounting, certain adjustments are needed at the year-end. These entries, such as for outstanding expenses, prepaid expenses, accrued income, unearned income, depreciation on assets, and interest on capital, are all recorded in the Journal Proper.

    Example Entry (for Depreciation):

    Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
    2024
    Mar. 31 Depreciation A/cDr. 15,000
    To Machinery A/c 15,000
    (Being depreciation charged on machinery for the year)

  4. Rectification Entries: These are entries passed to correct errors that may have been discovered in the books of accounts after the initial recording and posting. For instance, if a purchase was wrongly debited to the wrong account, a rectification entry in the Journal Proper would fix it.

    Example Entry:

    Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
    2024
    Jan. 15 Repairs A/cDr. 5,000
    To Purchases A/c 5,000
    (Being rectification of error where repairs were wrongly debited to Purchases Account)

  5. Transfer Entries: An entry passed to transfer an amount from one account to another. The most common example is transferring the final balance of the Drawings Account to the Capital Account at the end of the year to reflect the reduction in the owner's equity.

    Example Entry:

    Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
    2024
    Mar. 31 Capital A/cDr. 50,000
    To Drawings A/c 50,000
    (Being drawings account balance transferred to Capital Account at year-end)

  6. Miscellaneous Entries: This is a broad category for unique transactions that don't fit into any other specialised journal. This includes:

    • Credit purchase or sale of assets (e.g., machinery, furniture).
    • Goods transactions not for sale:
      • Goods withdrawn by the owner for personal use (Drawings of goods).
      • Goods distributed as free samples for sales promotion (Advertisement expense).
      • Goods given away as charity or donation.
    • Loss of Goods: Recording the value of goods lost due to fire, theft, or damage, and any related insurance claims.
    • Bills of Exchange Transactions: Entries for the endorsement and dishonour of bills of exchange.

    Example Entry (for goods taken for personal use):

    Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
    2023
    Dec. 18 Drawings A/cDr. 1,000
    To Purchases A/c 1,000
    (Being goods withdrawn by the proprietor for personal use)

Example. Pass the necessary journal entries in the Journal Proper of M/s. Modern Traders for the month of March, 2018.

  • Mar 01: The following balances appeared in the books from the previous year: Machinery ₹2,00,000; Debtors (Rohan) ₹50,000; Creditors (Sunil) ₹30,000.
  • Mar 05: Purchased a new computer on credit from 'Tech Solutions' for ₹60,000.
  • Mar 10: The proprietor, Mr. Sharma, took goods worth ₹5,000 for his personal use.
  • Mar 15: Sold the old office furniture on credit to 'Gupta & Co.' for ₹12,000.
  • Mar 20: Distributed goods costing ₹8,000 as free samples to promote a new product line.
  • Mar 25: Goods worth ₹15,000 were destroyed by fire. The insurance company admitted a claim for ₹10,000.
  • Mar 31: Provide depreciation on machinery @ 10% for the year.
  • Mar 31: Salaries of ₹20,000 are outstanding for the month of March.

Answer:

Journal Proper of M/s. Modern Traders

Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
2018
Mar. 01 Machinery A/cDr. 2,00,000
Rohan's A/c (Debtor)Dr. 50,000
To Sunil's A/c (Creditor) 30,000
To Capital A/c (Balancing Figure) 2,20,000
(Being opening balances brought forward)
Mar. 05 Office Equipment A/c (Computer)Dr. 60,000
To Tech Solutions A/c 60,000
(Being computer purchased on credit)
Mar. 10 Drawings A/cDr. 5,000
To Purchases A/c 5,000
(Being goods withdrawn for personal use)
Mar. 15 Gupta & Co. A/cDr. 12,000
To Furniture A/c 12,000
(Being old furniture sold on credit)
Mar. 20 Advertisement (or Free Samples) A/cDr. 8,000
To Purchases A/c 8,000
(Being goods distributed as free samples)
Mar. 25 Loss by Fire A/cDr. 15,000
To Purchases A/c 15,000
(Being goods lost by fire)
Mar. 25 Insurance Company A/cDr. 10,000
Profit & Loss A/c (Net Loss)Dr. 5,000
To Loss by Fire A/c 15,000
(Being insurance claim admitted and net loss transferred)
Mar. 31 Depreciation A/cDr. 20,000
To Machinery A/c 20,000
(Being depreciation charged on machinery @ 10% on ₹2,00,000)
Mar. 31 Salaries A/cDr. 20,000
To Outstanding Salaries A/c 20,000
(Being salaries for March outstanding)

Balancing The Accounts

Balancing an account is the process of equalizing the two sides (debit and credit) of a ledger account to determine its closing balance at the end of an accounting period. This process is fundamental to the accounting cycle, as it summarizes the net effect of all transactions related to an account and provides the necessary figures for preparing a Trial Balance and, subsequently, the final financial statements.

Purpose and Significance of Balancing

Procedure for Balancing an Account

The steps involved in balancing a typical asset, liability, or capital account are as follows:

  1. Total Both Sides: Add up the amounts in the debit column and the credit column of the account separately (this can be done on a rough sheet of paper).

  2. Find the Difference: Calculate the difference between the larger total and the smaller total. This difference is the 'balance' of the account.

  3. Insert the Balance on the Shorter Side: Write the difference (the balance amount) in the amount column of the side which has the smaller total. This action will make the totals of both sides equal.

  4. Write Particulars for the Balance: In the particulars column against this balance amount, write "By Balance c/d" (carried down) if the balance is on the credit side, or "To Balance c/d" if it is on the debit side. The date used is the last day of the accounting period (e.g., March 31, April 30).

  5. Total and Rule Off: Now, write the equal totals on both sides opposite each other. Rule off the account by drawing a double line below the totals. This signifies the closure of the account for that period.

  6. Bring Down the Balance: On the first day of the next accounting period, bring the closing balance down to the opposite side, below the double lines. In the particulars column, write "To Balance b/d" (brought down) if it's a debit balance, or "By Balance b/d" if it's a credit balance. This becomes the opening balance for the new period.

Types of Balances

Balancing vs. Closing of Accounts

It is important to distinguish between balancing and closing.

Comprehensive Illustration

Example: The following transactions pertain to M/s. Modern Electronics, Delhi for the month of April, 2018. Prepare the necessary subsidiary books, post them to the ledger, and balance the accounts.

  1. Apr. 01: Opening Balances: Cash in Hand ₹25,000; Cash at Bank ₹1,50,000; Stock ₹80,000; Machinery ₹2,00,000; Debtors: Ram Electronics ₹30,000; Creditors: Soni Pvt. Ltd. ₹50,000.
  2. Apr. 02: Purchased goods on credit from Soni Pvt. Ltd. (Invoice No. 110): 10 LED TVs @ ₹20,000 each. Trade Discount 10%.
  3. Apr. 03: Sold goods on credit to Ram Electronics (Invoice No. 501): 5 LED TVs @ ₹25,000 each.
  4. Apr. 04: Paid salaries for March by cheque, ₹35,000.
  5. Apr. 05: Cash sales of 2 Music Systems @ ₹15,000 each.
  6. Apr. 06: Received a cheque from Ram Electronics for ₹1,00,000.
  7. Apr. 07: Deposited the cheque from Ram Electronics into the bank.
  8. Apr. 08: Purchased office furniture on credit from 'Style Furnishers' for ₹40,000.
  9. Apr. 09: Sold goods on credit to 'Vijay Sales' (Invoice No. 502): 20 Music Systems @ ₹18,000 each. Trade Discount 5%.
  10. Apr. 10: Paid Soni Pvt. Ltd. ₹1,00,000 by cheque in part settlement.
  11. Apr. 11: Ram Electronics returned 1 defective LED TV from the sale on Apr. 03 (Credit Note No. 41).
  12. Apr. 12: Withdrew cash from bank for office use, ₹20,000 (Contra).
  13. Apr. 13: Purchased goods on credit from 'LG India' (Invoice No. 734): 15 Refrigerators @ ₹30,000 each.
  14. Apr. 14: Returned 2 LED TVs to Soni Pvt. Ltd. from the purchase on Apr. 02 (Debit Note No. 21).
  15. Apr. 15: Sold goods on credit to 'Gita Stores' (Invoice No. 503): 5 Refrigerators @ ₹35,000 each.
  16. Apr. 16: Paid for office stationery in cash, ₹1,500.
  17. Apr. 17: Paid rent in cash, ₹12,000.
  18. Apr. 18: Proprietor withdrew goods for personal use, cost ₹5,000.
  19. Apr. 19: Purchased goods on credit from Soni Pvt. Ltd. (Invoice No. 125): 20 Washing Machines @ ₹15,000 each.
  20. Apr. 20: Vijay Sales returned goods worth ₹10,000 (list price) from the sale on Apr. 09 (Credit Note No. 42).
  21. Apr. 21: Sold goods on credit to Ram Electronics (Invoice No. 504): 10 Washing Machines @ ₹18,000 each.
  22. Apr. 22: Received cash from Vijay Sales ₹2,00,000.
  23. Apr. 23: Purchased delivery van on credit from 'Tata Motors' for ₹4,50,000.
  24. Apr. 24: Goods destroyed by fire, cost ₹10,000.
  25. Apr. 25: Paid electricity bill by cheque, ₹4,500.
  26. Apr. 26: Paid for carriage on purchases in cash, ₹2,000.
  27. Apr. 27: Sold goods for cash, ₹60,000.
  28. Apr. 28: Deposited cash into bank, ₹50,000 (Contra).
  29. Apr. 29: Sold old machinery for ₹20,000 on credit to 'Scrap Dealers'.
  30. Apr. 30: Paid telephone charges in cash, ₹1,800.
  31. Apr. 30: Paid salaries for April in cash, ₹30,000.
  32. Apr. 30: Received commission in cash, ₹5,000.
  33. Apr. 30: Purchased postage stamps, ₹500.
  34. Apr. 30: Paid Soni Pvt. Ltd. final settlement by cheque.
  35. Apr. 30: Charge depreciation on Machinery @ 10% p.a. (for one month).

Answer:

1. Subsidiary Books

(i) Purchases Book

DateInvoice No.Name of SupplierL.F.Amount (₹)
2018
Apr. 02110Soni Pvt. Ltd.
(₹2,00,000 - 10% TD)		1,80,000
Apr. 13734LG India
(15 Refrigerators @ ₹30,000)		4,50,000
Apr. 19125Soni Pvt. Ltd.
(20 Washing Machines @ ₹15,000)		3,00,000
Apr. 30Total to Purchases A/c (Dr.)9,30,000

(ii) Sales Book

DateInvoice No.Name of CustomerL.F.Amount (₹)
2018
Apr. 03501Ram Electronics
(5 LED TVs @ ₹25,000)		1,25,000
Apr. 09502Vijay Sales
(Gross ₹3,60,000 - 5% TD)		3,42,000
Apr. 15503Gita Stores
(5 Refrigerators @ ₹35,000)		1,75,000
Apr. 21504Ram Electronics
(10 Washing Machines @ ₹18,000)		1,80,000
Apr. 30Total to Sales A/c (Cr.)8,22,000

(iii) Purchases Return Book

DateDebit Note No.Name of SupplierL.F.Amount (₹)
2018
Apr. 1421Soni Pvt. Ltd.
(Gross ₹40,000 - 10% TD)		36,000
Apr. 30Total to Purchases Return A/c (Cr.)36,000

(iv) Sales Return Book

DateCredit Note No.Name of CustomerL.F.Amount (₹)
2018
Apr. 1141Ram Electronics
(1 TV @ ₹25,000)		25,000
Apr. 2042Vijay Sales
(Gross ₹10,000 - 5% TD)		9,500
Apr. 30Total to Sales Return A/c (Dr.)34,500

(v) Journal Proper

Journal Entries

Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
2018
Apr. 01 Cash A/cDr. 25,000
Bank A/cDr. 1,50,000
Stock A/cDr. 80,000
Machinery A/cDr. 2,00,000
Ram Electronics A/cDr. 30,000
To Soni Pvt. Ltd. A/c 50,000
To Capital A/c (Bal. Fig.) 4,35,000
(Being opening entry passed for assets and liabilities)
Apr. 08 Furniture A/cDr. 40,000
To Style Furnishers A/c 40,000
(Being furniture bought on credit)
Apr. 18 Drawings A/cDr. 5,000
To Purchases A/c 5,000
(Being goods withdrawn for personal use)
Apr. 23 Delivery Van A/cDr. 4,50,000
To Tata Motors A/c 4,50,000
(Being delivery van bought on credit)
Apr. 24 Loss by Fire A/cDr. 10,000
To Purchases A/c 10,000
(Being goods destroyed by fire)
Apr. 29 Scrap Dealers A/cDr. 20,000
To Machinery A/c 20,000
(Being old machinery sold on credit)
Apr. 30 Depreciation A/cDr. 1,667
To Machinery A/c 1,667
(Being depreciation for one month charged on opening balance: $(\textsf{₹ } 2,00,000 \times 10\% \times \frac{1}{12})$ )

(vi) Cash Book (Double Column)

Dr. (Receipts)Cr. (Payments)

DateParticularsL.F.Cash (₹)Bank (₹)DateParticularsL.F.Cash (₹)Bank (₹)
2018 2018
Apr. 01To Balance b/d25,0001,50,000Apr. 04By Salaries A/c35,000
Apr. 05To Sales A/c30,000Apr. 10By Soni Pvt. Ltd. A/c1,00,000
Apr. 06To Ram Electronics1,00,000Apr. 12By Cash A/cC20,000
Apr. 07To Bank A/cC1,00,000Apr. 16By Stationery A/c1,500
Apr. 12To Bank A/cC20,000Apr. 17By Rent A/c12,000
Apr. 22To Vijay Sales2,00,000Apr. 25By Electricity A/c4,500
Apr. 27To Sales A/c60,000Apr. 26By Carriage A/c2,000
Apr. 28To Cash A/cC50,000Apr. 28By Bank A/cC50,000
Apr. 30To Commission A/c5,000Apr. 30By Telephone A/c1,800
Apr. 30By Salaries A/c30,000
Apr. 30By Postage A/c500
Apr. 30By Soni Pvt. Ltd. A/c3,94,000
Apr. 30By Balance c/d3,42,200(2,53,500)
4,40,0003,00,0004,40,0005,53,500
May 01 To Balance b/d 3,42,200 May 01 By Balance b/d (Overdraft) 2,53,500

2. Ledger Accounts (Balanced)

Capital Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2018 2018
Apr. 30To Balance c/d4,35,000Apr. 01By Sundries (Opening Entry)4,35,000
4,35,0004,35,000
May 01By Balance b/d4,35,000

Machinery Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2018 2018
Apr. 01To Balance b/d2,00,000Apr. 29By Scrap Dealers A/c20,000
Apr. 30By Depreciation A/c1,667
Apr. 30By Balance c/d1,78,333
2,00,0002,00,000
May 01To Balance b/d1,78,333

Ram Electronics Account (Debtor)

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2018 2018
Apr. 01To Balance b/d30,000Apr. 06By Cash A/c1,00,000
Apr. 03To Sales A/c1,25,000Apr. 11By Sales Return A/c25,000
Apr. 21To Sales A/c1,80,000Apr. 30By Balance c/d2,10,000
3,35,0003,35,000
May 01To Balance b/d2,10,000

Soni Pvt. Ltd. Account (Creditor)

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2018 2018
Apr. 10To Bank A/c1,00,000Apr. 01By Balance b/d50,000
Apr. 14To Purchases Return A/c36,000Apr. 02By Purchases A/c1,80,000
Apr. 30To Bank A/c3,94,000Apr. 19By Purchases A/c3,00,000
5,30,0005,30,000

Note: This account is settled and has no balance to be carried down.

Salaries Account (Nominal Account - Not Balanced)

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
2018 2018
Apr. 04To Bank A/c35,000Apr. 30By Profit & Loss A/c (Transfer)65,000
Apr. 30To Cash A/c30,000
65,00065,000

Detailed Analysis of Transactions

This section explains the reasoning behind recording each transaction in its specific subsidiary book.

1. Apr. 01: Opening Balances...

Nature: Bringing forward the closing balances of assets and liabilities from the previous accounting period.

Treatment: This is recorded as an Opening Entry in the Journal Proper. All asset accounts are debited, and all liability and capital accounts are credited. Additionally, the opening cash and bank balances are recorded on the debit side of the Cash Book as 'To Balance b/d'.

2. Apr. 02: Purchased goods on credit from Soni Pvt. Ltd....

Nature: Credit purchase of 'goods' (items the business deals in).

Treatment: This transaction is recorded in the Purchases Book. The entry is made for the net amount after deducting the 10% trade discount: ₹2,00,000 - ₹20,000 = ₹1,80,000.

3. Apr. 03: Sold goods on credit to Ram Electronics...

Nature: Credit sale of 'goods'.

Treatment: Recorded in the Sales Book, as it's a credit sale of merchandise.

4. Apr. 04: Paid salaries for March by cheque...

Nature: Payment of an expense via bank.

Treatment: Recorded on the credit (payment) side of the Cash Book in the 'Bank' column.

5. Apr. 05: Cash sales of 2 Music Systems...

Nature: Sale of goods for immediate cash.

Treatment: Recorded on the debit (receipt) side of the Cash Book in the 'Cash' column.

6. Apr. 06: Received a cheque from Ram Electronics...

Nature: Receipt of a cheque which is not deposited on the same day.

Treatment: When a cheque is not deposited immediately, it is treated as 'Cash in Hand'. Therefore, this is recorded as a receipt in the 'Cash' column of the Cash Book.

7. Apr. 07: Deposited the cheque from Ram Electronics into the bank.

Nature: Depositing the cheque (previously treated as cash) into the bank.

Treatment: This is a Contra Entry. It involves both cash and bank accounts. It is recorded on both sides of the Cash Book:

  • On the credit (payment) side in the 'Cash' column (as cash is going out).
  • On the debit (receipt) side in the 'Bank' column (as the bank balance is increasing).

8. Apr. 08: Purchased office furniture on credit...

Nature: Credit purchase of an 'asset' (not goods).

Treatment: Since it's a non-cash, non-goods transaction, it is recorded in the Journal Proper. The entry will be: Furniture A/c Dr. To Style Furnishers A/c.

9. Apr. 09: Sold goods on credit to 'Vijay Sales'...

Nature: Credit sale of 'goods' with a trade discount.

Treatment: Recorded in the Sales Book at the net amount after deducting the 5% trade discount: ₹3,60,000 - ₹18,000 = ₹3,42,000.

10. Apr. 10: Paid Soni Pvt. Ltd. ₹1,00,000 by cheque...

Nature: Payment to a creditor by cheque.

Treatment: Recorded on the credit (payment) side of the Cash Book in the 'Bank' column.

11. Apr. 11: Ram Electronics returned 1 defective LED TV...

Nature: Return of goods previously sold on credit.

Treatment: This is a sales return, so it is recorded in the Sales Return Book (or Return Inwards Book).

12. Apr. 12: Withdrew cash from bank for office use...

Nature: Transfer of funds from bank to cash.

Treatment: This is a Contra Entry recorded in the Cash Book. It appears on the debit side in the 'Cash' column and on the credit side in the 'Bank' column.

13. Apr. 13: Purchased goods on credit from 'LG India'...

Nature: Credit purchase of 'goods'.

Treatment: Recorded in the Purchases Book.

14. Apr. 14: Returned 2 LED TVs to Soni Pvt. Ltd....

Nature: Return of goods previously purchased on credit.

Treatment: This is a purchases return. It is recorded in the Purchases Return Book (or Return Outwards Book) at the net amount after deducting the original 10% trade discount.

15. Apr. 15: Sold goods on credit to 'Gita Stores'...

Nature: Credit sale of 'goods'.

Treatment: Recorded in the Sales Book.

16 - 17. Apr. 16 & 17: Paid for stationery and rent in cash.

Nature: Payment of expenses in cash.

Treatment: Both are recorded on the credit (payment) side of the Cash Book in the 'Cash' column.

18. Apr. 18: Proprietor withdrew goods for personal use...

Nature: Drawings of goods (a non-cash transaction reducing stock).

Treatment: Recorded in the Journal Proper. The entry is: Drawings A/c Dr. To Purchases A/c.

19 - 21. Apr. 19, 20 & 21: Purchase, Sales Return, and Sales transactions.

Treatment: These are standard transactions for their respective subsidiary books:

  • Apr. 19 (Purchase): Purchases Book.
  • Apr. 20 (Sales Return): Sales Return Book (at net value after 5% trade discount).
  • Apr. 21 (Sale): Sales Book.

22. Apr. 22: Received cash from Vijay Sales...

Nature: Cash receipt from a debtor.

Treatment: Recorded on the debit (receipt) side of the Cash Book in the 'Cash' column.

23. Apr. 23: Purchased delivery van on credit...

Nature: Credit purchase of an 'asset'.

Treatment: Recorded in the Journal Proper as: Delivery Van A/c Dr. To Tata Motors A/c.

24. Apr. 24: Goods destroyed by fire...

Nature: Abnormal loss of stock (non-cash).

Treatment: Recorded in the Journal Proper. The entry is: Loss by Fire A/c Dr. To Purchases A/c.

25. Apr. 25: Paid electricity bill by cheque...

Nature: Payment of an expense by cheque.

Treatment: Recorded on the credit (payment) side of the Cash Book in the 'Bank' column.

26 - 27. Apr. 26 & 27: Paid for carriage and cash sales.

Treatment: Both are standard cash transactions recorded in the Cash Book. Carriage is a payment (credit side), and cash sales is a receipt (debit side).

28. Apr. 28: Deposited cash into bank...

Nature: Transfer of funds from cash to bank.

Treatment: This is a Contra Entry recorded on both sides of the Cash Book.

29. Apr. 29: Sold old machinery for ₹20,000 on credit...

Nature: Credit sale of an 'asset'.

Treatment: Recorded in the Journal Proper as: Scrap Dealers A/c Dr. To Machinery A/c.

30 - 33. Apr. 30: Cash payments and receipt.

Nature: Various cash expenses and a cash receipt.

Treatment: All these are recorded in the Cash Book in the 'Cash' column. Telephone, salaries, and postage are payments (credit side). Commission is a receipt (debit side).

34. Apr. 30: Paid Soni Pvt. Ltd. final settlement by cheque.

Nature: Final payment to a creditor by cheque.

Treatment: The amount paid is recorded on the credit (payment) side of the Cash Book in the 'Bank' column. The amount is calculated from their ledger account: $(\textsf{₹ } 50,000 + \textsf{₹ } 1,80,000 + \textsf{₹ } 3,00,000) $$ \ - \ $$ (\textsf{₹ } 1,00,000 + \textsf{₹ } 36,000) = \textsf{₹ } 3,94,000$.

35. Apr. 30: Charge depreciation on Machinery...

Nature: A non-cash adjustment entry for the period.

Treatment: Recorded in the Journal Proper. The entry is: Depreciation A/c Dr. To Machinery A/c. The calculation is based on the opening balance of machinery for one month: $(\textsf{₹ } 2,00,000 \times 10\% \times \frac{1}{12}) = \textsf{₹ } 1,666.67$, which is rounded to ₹1,667.

NCERT Questions Solution

Test Your Understanding - I

Select the Correct Answer

Question (a). When a firm maintains a cash book, it need not maintain ;

(i) Journal Proper

(ii) Purchases (journal) book

(iii) Sales (journal) book

(iv) Bank and cash account in the ledger

Answer:

(iv) Bank and cash account in the ledger

Reasoning: A cash book serves the dual purpose of being a book of original entry (a journal) and a book of final entry (a ledger). It records all cash transactions and, in the case of a double or triple column cash book, all bank transactions. Therefore, when a cash book is maintained, separate cash and bank accounts are not opened in the general ledger, as the cash book itself fulfills that role.

Question (b). Double column cash book records:

(i) All transactions

(ii) Cash and bank transactions

(iii) Only cash transactions

(iv) Only credit transactions

Answer:

(ii) Cash and bank transactions

Reasoning: A double column cash book has two amount columns on each side: one for cash transactions and one for bank transactions. It is specifically designed to record all receipts and payments made through both cash and the bank.

Question (c). Goods purchased on cash are recorded in the :

(i) Purchases (journal) book

(ii) Sales (journal) book

(iii) Cash book

(iv) Purchases return (journal) book

Answer:

(iii) Cash book

Reasoning: The Purchases (journal) Book is used exclusively for recording credit purchases of goods. Since this transaction involves cash, it must be recorded in the Cash Book. It would be entered on the credit (payment) side of the cash book.

Question (d). Cash book does not record transaction of :

(i) Cash nature

(ii) Credit nature

(iii) Cash and credit nature

(iv) None of these

Answer:

(ii) Credit nature

Reasoning: The cash book is specifically meant for recording all transactions involving cash and bank. Transactions of a credit nature, such as credit sales or credit purchases, do not involve an immediate inflow or outflow of cash and are therefore recorded in other subsidiary books like the Sales Journal or Purchases Journal.

Question (e). Total of these transactions is posted in purchase account :

(i) Purchase of furniture

(ii) Cash and credit purchase

(iii) Purchases return

(iv) Purchase of stationery

Answer:

(ii) Cash and credit purchase

Reasoning: The Purchases Account is meant for recording the purchase of goods for resale. This includes both cash purchases (recorded via the cash book) and credit purchases (recorded via the purchases book). The final balance of the Purchases Account reflects the total of both cash and credit purchases of goods. Purchase of assets like furniture or expenses like stationery are posted to their respective separate accounts.

Question (f). The periodic total of sales return journal is posted to :

(i) Sales account

(ii) Goods account

(iii) Purchases return account

(iv) Sales return account

Answer:

(iv) Sales return account

Reasoning: The Sales Return Journal (or Returns Inward Book) records goods returned by customers. At the end of the period, the total of this journal is posted to the debit side of the Sales Return Account in the ledger. This account is then deducted from the Sales account in the Trading Account.

Question (g). Credit balance of bank account in cash book shows :

(i) Overdraft

(ii) Cash deposited in our bank

(iii) Cash withdrawn from bank

(iv) None of these

Answer:

(i) Overdraft

Reasoning: The bank account is an asset. A debit balance signifies money in the bank (asset). A credit balance means that the payments from the bank are more than the receipts into the bank, indicating that the business has withdrawn more money than it had deposited. This facility is known as a bank overdraft and represents a liability to the bank.

Question (h). The periodic total of purchases return journal is posted to :

(i) Purchase account

(ii) Profit and loss account

(iii) Purchase returns account

(iv) Furniture account

Answer:

(iii) Purchase returns account

Reasoning: The Purchases Return Journal (or Returns Outward Book) is used to record goods returned to suppliers. The total of this journal at the end of a period is posted to the credit side of the Purchases Returns Account in the ledger. This account is then deducted from Purchases in the Trading Account.

Question (i). Balancing of account means :

(i) Total of debit side

(ii) Total of credit side

(iii) Difference in total of debit & credit

(iv) None of these

Answer:

(iii) Difference in total of debit & credit

Reasoning: Balancing an account is the process of calculating the difference between the sum of all its debit entries and the sum of all its credit entries. This resulting difference is the 'balance' of the account, which is then carried forward to the next accounting period.


Test Your Understanding - II

Question 1. Fill in the Correct Words :

  1. Cash book is a _________ journal.
  2. In Journal proper, only_________discount is recorded.
  3. Return of goods purchased on credit to the suppliers will be entered in _________ Journal.
  4. Assets sold on credit are entered in _________.
  5. Double column cash book records transaction relating to _________ and _________.
  6. Total of the debit side of cash book is _________ than the credit side.
  7. Cash book does not record the _________ transactions.
  8. In double column cash book _________ transactions are also recorded.
  9. Credit balance shown by a bank column in cash book is _________.
  10. The amount paid to the petty cashier at the beginning of a period is known as _________ amount.
  11. In purchase book goods purchased on _________ are recorded.

Answer:

a. Cash book is a subsidiary journal.

Explanation: The Cash Book is a unique book of accounts. It functions as a book of original entry because transactions are recorded here first, just like a journal. It also serves as a book of final entry because it acts as the Cash Account and Bank Account ledger. Books of original entry other than the Journal Proper are called subsidiary books or special purpose journals.

b. In Journal proper, only cash discount is recorded.

Explanation: Trade discount is a reduction in the list price and is not recorded in the books of accounts; transactions are recorded at the net value. Cash discount, however, is an incentive for prompt payment and is recorded as an expense (Discount Allowed) or income (Discount Received). While cash discount is typically recorded in a triple-column cash book, if a separate journal entry is needed for it, it would be passed through the Journal Proper.

c. Return of goods purchased on credit to the suppliers will be entered in Purchases Return Journal.

Explanation: Businesses maintain specific subsidiary books for frequent transactions. Just as credit purchases of goods are recorded in the Purchases Book, the return of these goods is recorded in a separate book called the Purchases Return Book or Returns Outward Journal.

d. Assets sold on credit are entered in Journal Proper.

Explanation: The Sales Book is used exclusively for the credit sale of 'goods' (items the business deals in). When an 'asset' like furniture, machinery, or a vehicle is sold on credit, it is a non-routine transaction that doesn't fit into any other subsidiary book. Therefore, it is recorded through a journal entry in the Journal Proper.

e. Double column cash book records transaction relating to cash and bank.

Explanation: A single column cash book only tracks cash transactions. A double-column cash book expands on this by adding a second amount column on both the debit and credit sides to record all transactions that happen through the business's bank account (cheque payments, deposits, etc.).

f. Total of the debit side of cash book is more than the credit side.

Explanation: This refers to the 'Cash' column. The debit side shows cash receipts, and the credit side shows cash payments. A business can never spend more physical cash than it has received. Therefore, the total receipts (debit side) will always be greater than or equal to the total payments (credit side). A credit balance in the cash column is a physical impossibility.

g. Cash book does not record the credit transactions.

Explanation: The fundamental purpose of a Cash Book is to record all transactions involving the receipt or payment of cash and cheques. Non-cash transactions, such as credit sales, credit purchases, depreciation, or goods taken by the proprietor, are not recorded in the Cash Book.

h. In double column cash book bank transactions are also recorded.

Explanation: The key feature that distinguishes a double-column cash book from a single-column one is the inclusion of a 'Bank' column. This allows the business to record all banking transactions directly in the cash book, making it a comprehensive record of both cash and bank balances.

i. Credit balance shown by a bank column in cash book is overdraft.

Explanation: A bank account is an asset, and assets normally have a debit balance. A credit balance in the bank column means that the withdrawals (payments) from the bank have exceeded the deposits. This negative balance is known as a Bank Overdraft, which is a short-term loan from the bank and is treated as a liability.

j. The amount paid to the petty cashier at the beginning of a period is known as imprest amount.

Explanation: The 'Imprest System' is a method for controlling petty cash expenses. The head cashier gives a fixed sum of money (the imprest amount) to the petty cashier. At the end of a period, the head cashier reimburses the petty cashier for the exact amount spent, bringing the cash in hand back up to the original imprest amount.

k. In purchase book goods purchased on credit are recorded.

Explanation: The Purchases Book is a special journal with a very specific purpose: to record only the credit purchases of goods meant for resale. Cash purchases are recorded in the Cash Book, and the credit purchase of assets is recorded in the Journal Proper.

Question 2. State whether the following statements are True or False :

  1. Journal is a book of secondary entry.
  2. One debit account and more than one credit account in a entry is called compound entry.
  3. Assets sold on credit are entered in sales journal.
  4. Cash and credit purchases are entered in purchase journal.
  5. Cash sales are entered in sales journal.
  6. Cash book records transactions relating to receipts and payments.
  7. Ledger is a subsidiary book.
  8. Petty cash book is a book having record of big payments.
  9. Cash received is entered on the debit side of cash book.
  10. Transaction recorded both on debit and credit side of cash book is known as contra entry.
  11. Balancing of account means total of debit and credit side.
  12. Credit purchase of machine is entered in purchase journal.

Answer:

  1. False.

    Explanation: The Journal is the book of primary or original entry where transactions are recorded for the first time. The Ledger is the book of secondary entry.

  2. True.

    Explanation: A simple journal entry involves one debit and one credit. A compound entry is any entry that involves more than two accounts (e.g., one debit and multiple credits, or vice versa).

  3. False.

    Explanation: The Sales Journal is exclusively for the credit sale of goods meant for resale. The credit sale of an asset is a non-recurring transaction and is recorded in the Journal Proper.

  4. False.

    Explanation: The Purchases Journal is used to record only credit purchases of goods. Cash purchases are recorded in the Cash Book.

  5. False.

    Explanation: The Sales Journal is used to record only credit sales of goods. Cash sales are recorded in the Cash Book.

  6. True.

    Explanation: This is the primary function of a cash book - to record all cash and bank inflows (receipts) on the debit side and all cash and bank outflows (payments) on the credit side.

  7. False.

    Explanation: The Ledger is the main or principal book of accounts where transactions are classified into individual accounts. Subsidiary books (like the cash book, sales journal, etc.) are sub-divisions of the Journal.

  8. False.

    Explanation: A petty cash book is maintained to record small, minor, and routine payments (like postage, stationery, conveyance) for which writing a cheque is impractical.

  9. True.

    Explanation: Cash is an asset. According to the rules of accounting, an increase in an asset is debited. Therefore, all cash receipts are entered on the debit side of the cash book.

  10. True.

    Explanation: This is the definition of a contra entry. It is a transaction that affects both the cash and bank accounts simultaneously (e.g., cash deposited in a bank or withdrawn from a bank for office use) and is recorded on both sides of a double-column cash book.

  11. False.

    Explanation: Balancing an account means calculating the difference between the total of the debit side and the total of the credit side to find the net balance.

  12. False.

    Explanation: The Purchases Journal is for the credit purchase of 'goods' only. A machine is a fixed 'asset'. The credit purchase of an asset is recorded in the Journal Proper.


Short Answers

Question 1. Briefly state how the cash book is both journal and a ledger.

Answer:

The Cash Book holds a unique position in accounting as it serves a dual purpose, acting as both a journal and a ledger. This is why it is often called a 'Journalised Ledger'.

1. As a Journal (Book of Original Entry):
Transactions involving cash or bank are recorded for the first time directly in the Cash Book in chronological order. Like a journal, it records the date, particulars, and amount for each transaction. Since transactions are first recorded here, it fulfills the role of a book of original entry.

2. As a Ledger (Book of Final Entry):
The Cash Book is maintained in the format of a ledger account, with distinct debit and credit sides. It provides the final balances for cash in hand and cash at bank at any given time. Because it provides these final balances, it eliminates the need to open separate 'Cash' and 'Bank' accounts in the main ledger, thus performing the function of a ledger account.

Question 2. What is the purpose of contra entry?

Answer:

A contra entry is a transaction that affects both the cash and bank accounts simultaneously and is recorded on both sides of a double-column or triple-column cash book.

The primary purpose of a contra entry is to record the movement of funds between the cash and bank accounts of the business. The two main examples are:

  • Cash deposited into the bank.
  • Cash withdrawn from the bank for office use.

Since both aspects of the transaction (the debit and the credit) are recorded within the cash book itself, the double-entry for the transaction is completed within one book. This eliminates the need for posting to separate cash or bank accounts in the general ledger. The letter 'C' is written in the Ledger Folio (L.F.) column to denote that it is a contra entry and requires no further posting.

Question 3. What are special purpose books?

Answer:

Special purpose books, also known as subsidiary books or day books, are subdivisions of the Journal. Instead of recording all transactions in one general journal, businesses with a large volume of repetitive transactions use separate special purpose books to record specific types of transactions.

Their main purpose is to make the recording process more efficient, systematic, and less cumbersome. The primary special purpose books are:

  • Cash Book: To record all cash and bank transactions.
  • Purchases Book: To record all credit purchases of goods.
  • Sales Book: To record all credit sales of goods.
  • Purchases Return Book: To record goods returned to suppliers.
  • Sales Return Book: To record goods returned by customers.
  • Journal Proper: To record all other transactions that cannot be entered in any of the above books (e.g., opening entries, closing entries, credit purchase/sale of assets).

Question 4. What is petty cash book? How it is prepared?

Answer:

A Petty Cash Book is a type of cash book maintained to record small, routine, and miscellaneous cash payments for which it is not practical to issue a cheque or make a formal payment entry every time, such as postage, stationery, conveyance, and office tea expenses.

It is usually prepared using the Imprest System. The process is as follows:

  1. Establishment of Imprest: The main cashier gives a fixed amount of cash (e.g., $\textsf{₹ } \ 2,000$) to the petty cashier at the beginning of the period. This fixed amount is called the 'imprest'.
  2. Recording Payments: The petty cashier makes all small payments from this imprest amount and records them in the petty cash book, obtaining supporting vouchers for each payment. The book has multiple columns to analyse payments under different expense heads.
  3. Reimbursement: At the end of the period (e.g., a week or a month), the petty cashier totals the payments. The main cashier then reimburses the exact amount spent, thus restoring the petty cashier's cash balance to the original imprest amount for the next period.

Question 5. Explain the meaning of posting of journal entries?

Answer:

Posting is the second step in the accounting process, which involves transferring the information from the book of original entry (the Journal or a subsidiary book) to the principal book of accounts (the Ledger).

Essentially, it is the process of classifying all the transactions recorded in the journal by grouping them into their respective individual accounts. For every journal entry, the amount recorded in the debit column is transferred to the debit side of the corresponding account in the ledger, and the amount recorded in the credit column is transferred to the credit side of its corresponding ledger account.

Posting transforms the chronological record of the journal into an analytical record in the ledger, which allows for the ascertainment of the net balance of each account.

Question 6. Define the purpose of maintaining subsidiary journal.

Answer:

Maintaining subsidiary journals (or special purpose books) serves several important purposes, especially for businesses with a high volume of transactions:

  • Division of Labour: The accounting work can be divided among several clerks. Different individuals can handle different books (e.g., one for cash, one for sales), leading to specialization and efficiency.
  • Saves Time and Effort: Recording similar transactions in a dedicated book is much faster than writing a full journal entry for each one.
  • Reduces Bulk of Journal: It prevents the General Journal from becoming excessively large and difficult to manage.
  • Facilitates Information Retrieval: It is easy to find specific information as all transactions of a similar nature are recorded in one place (e.g., to find total credit sales, one only needs to refer to the Sales Book).
  • Simplifies Posting: Instead of posting each individual transaction, the totals of subsidiary books can be posted to the control accounts in the ledger periodically (e.g., monthly), reducing the volume of posting work.

Question 7. Write the difference between return Inwards and return ouwards.

Answer:

Basis Return Inwards (Sales Return) Return Outwards (Purchases Return)
Meaning Goods sold on credit are returned by the customer to the business. Goods purchased on credit are returned by the business to the supplier.
Reason Goods may be defective, of the wrong specification, or damaged in transit. Goods may be defective, not as per the order, or damaged upon receipt.
Subsidiary Book Recorded in the Sales Return Journal. Recorded in the Purchases Return Journal.
Effect on Accounts It reduces the amount due from Debtors and reduces the effective sales. It reduces the amount payable to Creditors and reduces the total purchases.

Question 8. What do you understand by ledger folio?

Answer:

Ledger Folio (L.F.) refers to the page number of an account in the ledger book. It is a column maintained in the Journal and other subsidiary books.

When a transaction from the journal is posted to its respective account in the ledger, the page number on which that ledger account appears is recorded in the L.F. column of the journal.

Its primary purpose is to serve as a cross-referencing index. It indicates that the entry has been posted to the ledger and provides an easy way to trace any transaction from the journal to the specific page in the ledger where the posting has been made, thereby facilitating auditing and verification.

Question 9. What is difference between trade discount and cash discount?

Answer:

Basis Trade Discount Cash Discount
Purpose It is allowed by a seller to a buyer to promote sales or for bulk purchases. It is allowed to a debtor to encourage prompt or early payment.
Timing It is allowed at the time of purchase/sale. It is allowed at the time of making the payment.
Recording in Books It is not recorded separately in the books of accounts. Transactions are recorded at the net value (List Price - Trade Discount). It is always recorded separately in the books. It is an expense for the party allowing it and an income for the party receiving it.
Invoice It is shown as a deduction in the invoice itself. It is not shown in the invoice. It is related to the payment of the invoice amount.

Question 10. Write the process of preparing ledger from a journal.

Answer:

The process of preparing a ledger from a journal is called posting. It involves the following steps:

  1. Locate the Debited Account: Take the first entry from the journal and identify the account that has been debited. Find this account in the ledger (or open a new one if it doesn't exist).
  2. Make the Debit Posting: On the debit (left) side of this ledger account, record the date of the transaction, write the name of the account that was credited in the journal entry in the 'Particulars' column, enter the journal page number in the 'J.F.' column, and write the amount in the 'Amount' column.
  3. Locate the Credited Account: Go back to the same journal entry and identify the account that has been credited. Find this account in the ledger.
  4. Make the Credit Posting: On the credit (right) side of this ledger account, record the date, write the name of the account that was debited in the journal entry in the 'Particulars' column, enter the journal page number in the 'J.F.' column, and write the amount in the 'Amount' column.
  5. Cross-Reference in Journal: In the 'L.F.' (Ledger Folio) column of the journal, write the page numbers of the ledger accounts where the debit and credit postings have been made.
  6. Repeat: Repeat this process for all entries in the journal.

Question 11. What do you understand by Imprest amount in petty cash book?

Answer:

The Imprest Amount is the fixed sum of money advanced to the petty cashier by the main cashier at the beginning of a period to cover small, day-to-day expenses.

This amount is the cornerstone of the Imprest System of Petty Cash. The system operates as follows: the petty cashier spends money from this imprest amount. At the end of the specified period (e.g., a week or a month), the total amount spent is calculated. The main cashier then reimburses the petty cashier with the exact amount that was spent. This reimbursement brings the cash held by the petty cashier back up to the original imprest amount.

The purpose of the imprest system is to maintain strict control over petty cash expenses by ensuring that the fund is constantly replenished to a pre-determined level.


Long Answers

Question 1. Explain the need for drawing up the special purpose books.

Answer:

In a small business, it might be feasible to record all transactions in a single General Journal. However, as a business grows, the number of transactions increases significantly, making the use of a single journal inefficient and cumbersome. To overcome this, the journal is sub-divided into several books called Special Purpose Books or Subsidiary Books. Each book is designed to record a specific type of repetitive transaction.

The need for drawing up these books arises from the following advantages they provide:

1. Division of Work: The accounting work can be divided among several employees. For instance, one clerk can manage the Cash Book, another the Sales Book, and so on. This allows for the simultaneous recording of different types of transactions.

2. Specialisation and Efficiency: When an employee handles the same type of transaction repeatedly, they become an expert in that task. This specialization leads to greater speed, accuracy, and overall efficiency in the accounting process.

3. Saving of Time and Effort: Recording transactions in special journals is much faster than preparing a full journal entry for each one. For example, in a Sales Book, only the date, customer name, and amount are recorded, saving the time needed to write "Debtors A/c Dr. To Sales A/c" for every single credit sale.

4. Availability of Information: All transactions of a similar nature are grouped in one place, making it easy to access specific information. If management wants to know the total credit purchases for a month, they can simply refer to the Purchases Book.

5. Facilitates Posting: Instead of posting each individual transaction to the ledger, periodic totals from subsidiary books are posted to the control accounts in the ledger. This drastically reduces the volume of work in the ledger.

6. Ease in Error Detection: If the trial balance does not tally, errors can be located more easily as the work is divided. It is easier to check one book (e.g., the Sales Book) than to scan through a massive single journal.

Question 2. What is cash book? Explain the types of cash book.

Answer:

A Cash Book is a special purpose journal that is used to record all transactions involving cash and bank. It is a book of original entry because transactions are recorded here for the first time. However, it is unique because it is maintained in the form of a ledger account and serves the purpose of both a journal and a ledger. This is why it is also known as a 'Journalised Ledger'. When a cash book is maintained, separate cash and bank accounts are not opened in the ledger.

There are mainly four types of cash books:

1. Single Column Cash Book:
This is the simplest form of cash book and looks like a standard T-shaped account. It has only one amount column on each side to record cash receipts (debit side) and cash payments (credit side). It is suitable for very small businesses that have only cash transactions and very few or no bank transactions.

2. Double Column Cash Book:
This is the most common type of cash book. It has two amount columns on each side: one for 'Cash' and one for 'Bank'. This book is used to record all transactions involving both cash and bank. It also facilitates the recording of contra entries (transactions between cash and bank).

3. Triple Column Cash Book:
This cash book has three amount columns on each side: 'Cash', 'Bank', and 'Discount'. In addition to recording cash and bank transactions, it also provides separate columns to record cash discount allowed (on the debit side) and cash discount received (on the credit side). This type is useful for businesses where discount transactions are frequent.

4. Petty Cash Book:
This book is used to record numerous small, miscellaneous cash payments like postage, stationery, conveyance, etc. It is typically maintained on an 'Imprest System' where a fixed amount is given to a junior cashier (petty cashier) for a specific period.

Question 3. What is contra entry? How can you deal this entry while preparing double column cash book?

Answer:

A Contra Entry is a transaction that involves both the cash account and the bank account. Since a double-column cash book contains columns for both cash and bank, such a transaction is recorded on both the debit and credit sides of the cash book itself. The term 'contra' signifies that the double-entry aspect of the transaction is completed within the cash book, and no further posting is required to any account in the general ledger.

There are two main types of contra entries:

  1. Cash deposited into the bank.
  2. Cash withdrawn from the bank for office use.

Dealing with a Contra Entry in a Double Column Cash Book:

Let's take an example: Deposited $\textsf{₹ } \ 10,000$ cash into the bank.

Step 1: Analyse the transaction.
Two accounts are affected: Bank A/c and Cash A/c. Both are assets.

  • Bank balance is increasing, so Bank A/c will be debited with $\textsf{₹ } \ 10,000$.
  • Cash balance is decreasing, so Cash A/c will be credited with $\textsf{₹ } \ 10,000$.

Step 2: Record the Debit Aspect.
On the debit (receipts) side of the cash book, write 'To Cash A/c' in the particulars column and enter the amount $\textsf{₹ } \ 10,000$ in the Bank column.

Step 3: Record the Credit Aspect.
On the credit (payments) side of the cash book, write 'By Bank A/c' in the particulars column and enter the amount $\textsf{₹ } \ 10,000$ in the Cash column.

Step 4: Mark as Contra.
In the L.F. (Ledger Folio) column on both the debit and credit sides, the letter 'C' is written to indicate that it is a contra entry and does not need to be posted to the ledger.

Question 4. What is petty cash book? Write the advantages of petty cash book?

Answer:

A Petty Cash Book is a subsidiary book maintained to record minor day-to-day cash expenses of a business, such as postage, stationery, conveyance, refreshments, etc. It is managed by a junior employee called the 'petty cashier'. The system helps in keeping the main cash book free from numerous small entries.

The advantages of maintaining a petty cash book are:

1. Saves Time and Effort of the Main Cashier: The main cashier is relieved of the burden of handling and recording a large number of small payments. This allows them to focus on more significant transactions.

2. Keeps the Main Cash Book Concise: By recording small payments separately, the main cash book is not cluttered with numerous minor entries, making it easier to read and audit.

3. Effective Control over Small Payments: The imprest system, which is typically used for petty cash, provides excellent control. Since the petty cashier has to account for all expenses to get reimbursed, it discourages misuse of funds.

4. Convenient for Minor Payments: It is a convenient method for making small payments where issuing a cheque would be impractical and time-consuming.

5. Easy Analysis of Expenses: The analytical format of the petty cash book, with separate columns for different types of expenses (e.g., Postage, Conveyance, Stationery), allows for easy analysis and posting of the totals to the respective expense accounts in the ledger.

Question 5. Describe the advantages of sub-dividing the Journal.

Answer:

Sub-dividing the Journal into various special purpose books (subsidiary books) is a common practice in businesses of all sizes, except for the very smallest ones. This practice offers numerous significant advantages that streamline the accounting process.

The main advantages are described below:

1. Division of Work and Specialisation: The accounting workload can be distributed among several clerks. For example, one person can handle cash transactions (Cash Book), another can manage credit sales (Sales Book), and so on. This division leads to employees becoming specialized and efficient in their respective tasks.

2. Increased Efficiency and Speed: Recording transactions becomes much faster. Instead of writing a complete journal entry with debit, credit, and narration for every transaction, a simple one-line entry in a columnar book suffices. This speeds up the recording process tremendously.

3. Systematic and Organised Records: It provides a systematic grouping of transactions. All credit sales are in the Sales Book, all credit purchases in the Purchases Book, etc. This makes the accounting records neat, organized, and easy to understand.

4. Easy Access to Information: Information about a specific type of transaction can be obtained quickly and easily from its dedicated subsidiary book without having to search through a bulky general journal.

5. Simplified Posting to Ledger: The process of posting to the ledger is simplified. Instead of posting each individual transaction, periodic totals of the subsidiary books are posted to the relevant control accounts in the ledger. This saves time and reduces the chances of posting errors.

6. Better Internal Control: The division of duties among different clerks provides a system of internal checks. It becomes more difficult for a single person to commit and conceal fraud when the work is distributed.

Question 6. What do you understand by balancing of account?

Answer:

Balancing of an account is the process of finding the net difference between the sum total of the debit side and the sum total of the credit side of a ledger account. This process is undertaken periodically (e.g., at the end of every month or year) to determine the closing balance of each account, which represents its net position at that point in time.

The steps involved in balancing an account are as follows:

  1. Total Both Sides: The amount columns of both the debit and credit sides of the account are totalled separately on a rough sheet of paper.
  2. Find the Difference: The difference between the two totals is calculated. This difference is the 'balance'.
  3. Insert the Balance: The balance amount is written on the side which has the smaller total. If the debit side is larger, the balance is written on the credit side as "By Balance c/d" (carried down). If the credit side is larger, the balance is written on the debit side as "To Balance c/d". This makes the totals of both sides equal.
  4. Final Totals: Both sides are then totalled, and the final equal totals are written opposite each other below a single line. A double line is drawn below the totals to close the account for the period.
  5. Bring Down the Balance: The closing balance (c/d) is then brought down to the opposite side below the double lines to become the opening balance for the next period. It is written as "To Balance b/d" (brought down) or "By Balance b/d".

The balance can be a 'debit balance' (if the debit side is greater) or a 'credit balance' (if the credit side is greater). The balance of an account is what is shown in the Trial Balance.


Numerical Questions

Simple Cash Book

Question 1. Enter the following transactions in a simple cash book for December 2016:

Date (Dec 2016) Particulars Amount (₹)
01 Cash in hand 12,000
05 Cash received from Bhanu 4,000
07 Rent Paid 2,000
10 Purchased goods Murari for cash 6,000
15 Sold goods for cash 9,000
18 Purchase stationery 300
22 Cash paid to Rahul on account 2,000
28 Paid salary 1,000
30 Paid rent 500

Answer:

Cash Book (Simple Column)

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Amount (₹) Date Particulars L.F. Amount (₹)
2016 2016
Dec. 01 To Balance b/d 12,000 Dec. 07 By Rent A/c 2,000
Dec. 05 To Bhanu's A/c 4,000 Dec. 10 By Purchases A/c 6,000
Dec. 15 To Sales A/c 9,000 Dec. 18 By Stationery A/c 300
        Dec. 22 By Rahul's A/c 2,000
        Dec. 28 By Salary A/c 1,000
        Dec. 30 By Rent A/c 500
        Dec. 31 By Balance c/d 13,200
25,000 25,000
2017
Jan. 01 To Balance b/d 13,200        

Question 2. Record the following transaction in simple cash book for November 2016:

Date (Nov 2016) Particulars Amount (₹)
01 Cash in hand 12,500
04 Cash paid to Hari 600
07 Purchased goods 800
12 Cash received from Amit 1,960
16 Sold goods for cash 800
20 Paid to Manish 590
25 Paid cartage 100
31 Paid salary 1,000

Answer:

Cash Book (Simple Column)

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Amount (₹) Date Particulars L.F. Amount (₹)
2016 2016
Nov. 01 To Balance b/d 12,500 Nov. 04 By Hari's A/c 600
Nov. 12 To Amit's A/c 1,960 Nov. 07 By Purchases A/c 800
Nov. 16 To Sales A/c 800 Nov. 20 By Manish's A/c 590
        Nov. 25 By Cartage A/c 100
        Nov. 30 By Salary A/c 1,000
        Nov. 30 By Balance c/d 12,170
15,260 15,260
2016
Dec. 01 To Balance b/d 12,170        

Question 3. Enter the following transaction in Simple cash book for December 2017:

Date (Dec 2017) Particulars Amount (₹)
01 Cash in hand 7,750
06 Paid to Sonu 45
08 Purchased goods 600
15 Received cash from Parkash 960
20 Cash sales 500
25 Paid to S.Kumar 1,200
30 Paid rent 600

Answer:

Cash Book (Simple Column)

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Amount (₹) Date Particulars L.F. Amount (₹)
2017 2017
Dec. 01 To Balance b/d 7,750 Dec. 06 By Sonu's A/c 45
Dec. 15 To Parkash's A/c 960 Dec. 08 By Purchases A/c 600
Dec. 20 To Sales A/c 500 Dec. 25 By S. Kumar's A/c 1,200
        Dec. 30 By Rent A/c 600
        Dec. 31 By Balance c/d 6,765
9,210 9,210
2018
Jan. 01 To Balance b/d 6,765        

Bank Column Cash Book

Question 4. Record the following transactions in a bank column cash book for December 2016:

Date (Dec 2016) Particulars Amount (₹)
01 Started business with cash 80,000
04 Deposited in bank 50,000
10 Received cash from Rahul 1,000
15 Bought goods for cash 8,000
22 Bought goods by cheque 10,000
25 Paid to Shyam by cash 20,000
30 Drew from Bank for office use 2,000
31 Rent paid by cheque 1,000

Answer:

Cash Book (Double Column)

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Cash (₹) Bank (₹) Date Particulars L.F. Cash (₹) Bank (₹)
2016 2016
Dec. 01 To Capital A/c 80,000   Dec. 04 By Bank A/c C 50,000  
Dec. 04 To Cash A/c C   50,000 Dec. 15 By Purchases A/c 8,000  
Dec. 10 To Rahul's A/c 1,000   Dec. 22 By Purchases A/c   10,000
Dec. 30 To Bank A/c C 2,000   Dec. 25 By Shyam's A/c 20,000  
          Dec. 30 By Cash A/c C   2,000
          Dec. 31 By Rent A/c   1,000
          Dec. 31 By Balance c/d 5,000 37,000
83,000 50,000 83,000 50,000
2017
Jan. 01 To Balance b/d 5,000 37,000          

Question 5. Prepare a double column cash book with the help of following information for December 2016:

Date (Dec 2016) Particulars Amount (₹)
01 Started business with cash 1,20,000
03 Cash paid into bank 50,000
05 Purchased goods from Sushmita 20,000
06 Sold goods to Dinker and received a cheque 20,000
10 Paid to Sushmita cash 20,000
14 Cheque received on December 06, 2016 deposited into bank
18 Sold goods to Rani 12,000
20 Cartage paid in cash 500
22 Received cash from Rani 12,000
27 Commission received 5,000
30 Drew cash for personal use 2,000

Answer:

Note: The transaction on Dec 05 is a credit purchase and will not be recorded in the cash book. Similarly, the transaction on Dec 18 is a credit sale and will also not be recorded in the cash book.

Cash Book (Double Column)

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Cash (₹) Bank (₹) Date Particulars L.F. Cash (₹) Bank (₹)
2016 2016
Dec. 01 To Capital A/c 1,20,000   Dec. 03 By Bank A/c C 50,000  
Dec. 03 To Cash A/c C   50,000 Dec. 10 By Sushmita's A/c 20,000  
Dec. 06 To Sales A/c 20,000   Dec. 14 By Bank A/c C 20,000  
Dec. 14 To Cash A/c C   20,000 Dec. 20 By Cartage A/c 500  
Dec. 22 To Rani's A/c 12,000   Dec. 30 By Drawings A/c 2,000  
Dec. 27 To Commission A/c 5,000   Dec. 31 By Balance c/d 64,500 70,000
1,57,000 70,000 1,57,000 70,000
2017
Jan. 01 To Balance b/d 64,500 70,000          

Question 6. Enter the following transactions in double column cash book of M/s Ambica Traders for July 2017:

Date (July 2017) Particulars Amount (₹)
01 Commenced business with cash 50,000
03 Opened bank account with ICICI 30,000
05 Purchased goods for cash 10,000
10 Purchased office machine for cash 5,000
15 Sales goods on credit from Rohan and received chaeque 7,000
18 Cash sales 8,000
20 Rohan’s cheque deposited into bank
22 Paid cartage by cheque 500
25 Cash withdrawn for personal use 2,000
30 Paid rent by cheque 1,000

Answer:

Cash Book of M/s Ambica Traders

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Cash (₹) Bank (₹) Date Particulars L.F. Cash (₹) Bank (₹)
2017 2017
July 01 To Capital A/c 50,000   July 03 By Bank A/c C 30,000  
July 03 To Cash A/c C   30,000 July 05 By Purchases A/c 10,000  
July 15 To Rohan's A/c 7,000   July 10 By Office Machine A/c 5,000  
July 18 To Sales A/c 8,000   July 20 By Bank A/c C 7,000  
July 20 To Cash A/c C   7,000 July 22 By Cartage A/c   500
          July 25 By Drawings A/c 2,000  
          July 30 By Rent A/c   1,000
          July 31 By Balance c/d 11,000 35,500
65,000 37,000 65,000 37,000
2017
Aug. 01 To Balance b/d 11,000 35,500          

Question 7. Prepare double column cash book from the following information for July 2017:

Date (July 2017) Particulars Amount (₹)
01 Cash In hand 7,500
Bank overdraft 3,500
03 Paid wages 200
05 Cash sales 7,000
10 Cash deposited into bank 4,000
15 Goods purchased and paid by cheque 2,000
20 Paid rent 500
25 Drew from bank for personal use 400
30 Salary paid 1,000

Answer:

Cash Book (Double Column)

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Cash (₹) Bank (₹) Date Particulars L.F. Cash (₹) Bank (₹)
2017 2017
July 01 To Balance b/d 7,500   July 01 By Balance b/d (Overdraft)   3,500
July 05 To Sales A/c 7,000   July 03 By Wages A/c 200  
July 10 To Cash A/c C   4,000 July 10 By Bank A/c C 4,000  
          July 15 By Purchases A/c   2,000
          July 20 By Rent A/c 500  
          July 25 By Drawings A/c   400
          July 30 By Salary A/c 1,000  
          July 31 By Balance c/d 8,800  
July 31 To Balance c/d (Overdraft)   1,900          
14,500 5,900 14,500 5,900
2017 2017
Aug. 01 To Balance b/d 8,800   Aug. 01 By Balance b/d (Overdraft)   1,900

Question 8. Enter the following transaction in a double column cash book of M/s.Mohit Traders for January 2017:

Date (Jan 2017) Particulars Amount (₹)
01 Cash in hand 3,500
Bank overdraft 2,300
03 Goods purchased for cash 1,200
05 Paid wages 200
10 Cash sales 8,000
15 Deposited into bank 6,000
22 Sold goods for cheque which was deposited into bank same day 2,000
25 Paid rent by cheque 1,200
28 Drew from bank for personal use 1,000
31 Bought goods by cheque 1,000

Answer:

Cash Book of M/s Mohit Traders

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Cash (₹) Bank (₹) Date Particulars L.F. Cash (₹) Bank (₹)
2017 2017
Jan. 01 To Balance b/d 3,500   Jan. 01 By Balance b/d (Overdraft)   2,300
Jan. 10 To Sales A/c 8,000   Jan. 03 By Purchases A/c 1,200  
Jan. 15 To Cash A/c C   6,000 Jan. 05 By Wages A/c 200  
Jan. 22 To Sales A/c   2,000 Jan. 15 By Bank A/c C 6,000  
          Jan. 25 By Rent A/c   1,200
          Jan. 28 By Drawings A/c   1,000
          Jan. 31 By Purchases A/c   1,000
          Jan. 31 By Balance c/d 4,100 2,500
11,500 8,000 11,500 8,000
2017
Feb. 01 To Balance b/d 4,100 2,500          

Question 9. Prepare double column cash book from the following transactions for the year August 2017:

Date (Aug 2017) Particulars Amount (₹)
01 Cash in hand 17,500
Cash at bank 5,000
03 Purchased goods for cash 3,000
05 Received cheque from Jasmeet 10,000
08 Sold goods for cash 7,000
10 Jasmeet’s cheque deposited into bank
12 Purchased goods and paid by cheque 20,000
15 Paid establishment expenses through bank 1,000
18 Cash sales 7,000
20 Deposited into bank 10,000
24 Paid trade expenses 500
27 Received commission by cheque 6,000
29 Paid Rent 2,000
30 Withdrew cash for personal use 1,200
31 Salary paid 6,000

Answer:

Cash Book (Double Column)

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Cash (₹) Bank (₹) Date Particulars L.F. Cash (₹) Bank (₹)
2017 2017
Aug. 01 To Balance b/d 17,500 5,000 Aug. 03 By Purchases A/c 3,000  
Aug. 05 To Jasmeet's A/c* 10,000   Aug. 10 By Bank A/c C 10,000  
Aug. 08 To Sales A/c 7,000   Aug. 12 By Purchases A/c   20,000
Aug. 10 To Cash A/c C   10,000 Aug. 15 By Establishment Exp. A/c   1,000
Aug. 18 To Sales A/c 7,000   Aug. 20 By Bank A/c C 10,000  
Aug. 20 To Cash A/c C   10,000 Aug. 24 By Trade Expenses A/c 500  
Aug. 27 To Commission A/c   6,000 Aug. 29 By Rent A/c 2,000  
          Aug. 30 By Drawings A/c 1,200  
          Aug. 31 By Salary A/c 6,000  
          Aug. 31 By Balance c/d 8,800 10,000
41,500 31,000 41,500 31,000
2017
Sep. 01 To Balance b/d 8,800 10,000          

*Working Note:

The cheque received from Jasmeet on August 5 was not deposited into the bank on the same day. Therefore, it is first treated as 'Cash in Hand', and the Cash column is debited. On August 10, when this cheque is deposited into the bank, it is treated as a contra entry where cash is paid into the bank. Hence, the Bank column is debited and the Cash column is credited.

Question 10. M/s Ruchi trader started their cash book with the following balances on July 2017: cash in hand ₹1,354 and balance in bank current account ₹7,560. He had the following transaction in the month of July 2017: Prepare bank column cash book.

Date (July 2017) Particulars Amount (₹)
03 Cash sales 2,300
05 Purchased goods, paid by cheque 6,000
08 Cash sales 10,000
12 Paid trade expenses 700
15 Sales goods, received cheque (deposited same day) 20,000
18 Purchased motor car paid by cheque 15,000
20 Cheque received from Manisha (deposited same day) 10,000
22 Cash Sales 7,000
25 Manisha’s cheque returned dishonoured
28 Paid Rent 2,000
29 Paid telephone expenses by cheque 500
31 Cash withdrawn for personal use 2,000

Answer:

Cash Book of M/s Ruchi Traders

Dr. (Receipts) Cr. (Payments)

Date Particulars L.F. Cash (₹) Bank (₹) Date Particulars L.F. Cash (₹) Bank (₹)
2017 2017
July 01 To Balance b/d 1,354 7,560 July 05 By Purchases A/c   6,000
July 03 To Sales A/c 2,300   July 12 By Trade Expenses A/c 700  
July 08 To Sales A/c 10,000   July 18 By Motor Car A/c   15,000
July 15 To Sales A/c   20,000 July 25 By Manisha's A/c   10,000
July 20 To Manisha's A/c   10,000 July 28 By Rent A/c 2,000  
July 22 To Sales A/c 7,000   July 29 By Telephone Exp. A/c   500
          July 31 By Drawings A/c 2,000  
          July 31 By Balance c/d 15,954 6,060
20,654 37,560 20,654 37,560
2017
Aug. 01 To Balance b/d 15,954 6,060          

Petty Cash Book

Question 11. Prepare petty cash book from the following transactions. The imprest amount is ₹2,000.

Date (Jan 2017) Particulars Amount (₹)
01 Paid cartage 50
02 STD charges 40
02 Bus fare 20
03 Postage 30
04 Refreshment for employees 80
06 Courier charges 30
08 Refreshment of customer 50
10 Cartage 35
15 Taxi fare to manager 70
18 Stationery 65
20 Bus fare 10
22 Fax charges 30
25 Telegrams charges 35
27 Postage stamps 200
29 Repair on furniture 105
30 Laundry expenses 115
31 Miscellaneous expenses 100

Answer:

Petty Cash Book

Amount Received (₹) Date Voucher No. Particulars Total Paid (₹) Analysis of Payments
Postage & Courier (₹) Conveyance (₹) Stationery (₹) Refreshment (₹) Miscellaneous (₹)
2017
2,000 Jan. 01 To Cash A/c (Imprest)
Jan. 01 By Cartage 50 50
Jan. 02 By STD charges 40 40
Jan. 02 By Bus fare 20 20
Jan. 03 By Postage 30 30
Jan. 04 By Refreshment 80 80
Jan. 06 By Courier charges 30 30
Jan. 08 By Refreshment 50 50
Jan. 10 By Cartage 35 35
Jan. 15 By Taxi fare 70 70
Jan. 18 By Stationery 65 65
Jan. 20 By Bus fare 10 10
Jan. 22 By Fax charges 30 30
Jan. 25 By Telegrams charges 35 35
Jan. 27 By Postage stamps 200 200
Jan. 29 By Repairs 105 105
Jan. 30 By Laundry expenses 115 115
Jan. 31 By Miscellaneous expenses 100 100
Total 1,065 365 185 65 130 320
Jan. 31 By Balance c/d 935
2,000 2,000
935 Feb. 01 To Balance b/d
1,065 Feb. 01 To Cash A/c (Reimbursement)

Question 12. Record the following transactions during the week ending Dec.30, 2017 with a weekly imprest ₹ 500.

Date (Dec 2017) Particulars Amount (₹)
24 Stationery 100
25 Bus fare 12
25 Cartage 40
26 Taxi fare 80
27 Wages to casual labour 90
29 Postage 80

Answer:

Petty Cash Book

Amount Received (₹) Date Voucher No. Particulars Total Paid (₹) Analysis of Payments
Stationery (₹) Conveyance (₹) Wages (₹) Postage (₹)
2017
500 Dec. 24 To Cash A/c (Imprest)
Dec. 24 By Stationery 100 100
Dec. 25 By Bus fare 12 12
Dec. 25 By Cartage 40 40
Dec. 26 By Taxi fare 80 80
Dec. 27 By Wages 90 90
Dec. 29 By Postage 80 80
Total 402 100 132 90 80
Dec. 30 By Balance c/d 98
500 500
98 Dec. 31 To Balance b/d
402 Dec. 31 To Cash A/c (Reimbursement)

Other Subsidiary Books

Question 13. Enter the following transactions in the Purchase Journal (Book) of M/s Gupta Traders of July 2017:

July 01: Bought from Rahul Traders as per invoice no.20041

  • 40 Registers @ ₹60 each
  • 80 Gel Pens @ ₹15 each
  • 50 note books @ ₹20 each
  • Trade discount 10%.

July 15: Bought from Global Stationers as per invoice no.1132

  • 40 Ink Pads @ ₹8 each
  • 50 Files @ ₹10 each
  • 20 Color Books @ ₹20 each
  • Trade Discount 5%

July 23: Purchased from Lamba Furniture as per invoice no. 3201

  • 2 Chairs @ 600 per chair
  • 1 Table @ 1000 per table

July 25: Bought from Mumbai Traders as per invoice no.1111

  • 10 Paper Rim @ ₹100 per rim
  • 400 drawing Sheets @ ₹3 each
  • 20 Packets waters colour @ ₹40 per packet

Answer:

Note: The purchase of furniture on July 23 is a purchase of an asset, not goods meant for resale. Therefore, it will not be recorded in the Purchases Journal. This transaction will be recorded in the Journal Proper.

Purchases Book of M/s Gupta Traders

Date Invoice No. Name of Supplier L.F. Amount (₹)
2017
July 01 20041 Rahul Traders

40 Registers @ ₹60 = 2,400

80 Gel Pens @ ₹15 = 1,200

50 Note Books @ ₹20 = 1,000

Total = 4,600

Less: 10% TD = (460)

 4,140
July 15 1132 Global Stationers

40 Ink Pads @ ₹8 = 320

50 Files @ ₹10 = 500

20 Color Books @ ₹20 = 400

Total = 1,220

Less: 5% TD = (61)

 1,159
July 25 1111 Mumbai Traders

10 Paper Rims @ ₹100 = 1,000

400 Drawing Sheets @ ₹3 = 1,200

20 Water Colour Pkts @ ₹40 = 800

 3,000
July 31 Total to Purchases A/c (Dr.) 8,299

Question 14. Enter the following transactions in sales (journal) book of M/s.Bansal electronics:

September 01: Sold to Amit Traders as per bill no.4321

  • 20 Pocket Radio @ 70 per Radio
  • 2 T.V. set, B&W.(6”) @ 800 Per T.V.

September 10: Sold to Arun Electronics as per bill no.4351

  • 5 T.V. sets (20”) B&W @ ₹3,000 per T.V.
  • 2 T.V. sets (21”) Colour @ ₹ 4,800 per T.V.

September 22: Sold to Handa Electronics as per bill no.4,399

  • 10 Tape recorders @ ₹ 600 each
  • 5 Walkman @ ₹ 300 each

September 28: Sold to Harish Trader as per bill no.4430

  • 10 Mixer Juicer Grinder @ ₹ 800 each.

Answer:

Sales Book of M/s Bansal Electronics

Date Invoice No. Name of Customer L.F. Amount (₹)
2017
Sep. 01 4321 Amit Traders

20 Pocket Radios @ ₹70 = 1,400

2 B&W TV Sets @ ₹800 = 1,600

 3,000
Sep. 10 4351 Arun Electronics

5 B&W TV Sets @ ₹3,000 = 15,000

2 Colour TV Sets @ ₹4,800 = 9,600

 24,600
Sep. 22 4399 Handa Electronics

10 Tape Recorders @ ₹600 = 6,000

5 Walkman @ ₹300 = 1,500

 7,500
Sep. 28 4430 Harish Trader

10 Mixer Grinders @ ₹800 = 8,000

 8,000
Sep. 30 Total to Sales A/c (Cr.) 43,100

Question 15. Prepare a purchases return (journal) book from the following transactions for April 2017.

Date (April 2017) Particulars Amount (₹)
05 Returned goods to M/s Kartik Traders 1,200
10 Goods returned to Sahil Pvt. Ltd. 2,500
17 Goods returned to M/s Kohinoor Traders for list price ₹2,000 less 10% trade discount.
28 Return outwards to M/s Handa Traders 550

Answer:

Purchases Return Book

Date Debit Note No. Name of Supplier L.F. Amount (₹)
2017
Apr. 05 M/s Kartik Traders 1,200
Apr. 10 Sahil Pvt. Ltd. 2,500
Apr. 17 M/s Kohinoor Traders

(List Price ₹2,000 Less 10% TD)

 1,800
Apr. 28 M/s Handa Traders 550
Apr. 30 Total to Purchases Return A/c (Cr.) 6,050

Question 16. Prepare Return Inward Journal (Book) from the following transactions of M/s Bansal Electronics for July 2017:

Date (July 2017) Particulars Amount (₹)
04 M/s Gupta Traders returned the goods 1,500
10 Goods returned from M/s Harish Traders 800
18 M/s Rahul Traders returned the goods not as per specifications 1,200
28 Goods returned from Sushil Traders 1,000

Answer:

Sales Return Book of M/s Bansal Electronics

Date Credit Note No. Name of Customer L.F. Amount (₹)
2017
July 04 M/s Gupta Traders 1,500
July 10 M/s Harish Traders 800
July 18 M/s Rahul Traders 1,200
July 28 Sushil Traders 1,000
July 31 Total to Sales Return A/c (Dr.) 4,500

Recording, Posting and Balancing

Question 17. Prepare proper subsidiary books and post them to the ledger from the following transactions for the month of February 2017:

Date (Feb 2017) Particulars Amount (₹)
01 Goods sold to Sachin 5,000
04 Purchase from Kushal Traders 2,480
06 Sold goods to Manish Traders 2,100
07 Sachin returned goods 600
08 Returns to Kushal Traders 280
10 Sold to Mukesh 3,300
14 Purchased from Kunal Traders 5,200
15 Furniture purchased from Tarun 3,200
17 Bought of Naresh 4,060
20 Return to Kunal Traders 200
22 Return inwards from Mukesh 250
24 Purchased goods from Kirit & Co. for list price of 5,700
less 10% trade discount
25 Sold to Shri Chand goods 6,600
less 5% trade discount
26 Sold to Ramesh Brothers 4,000
28 Return outwards to Kirit and Co. 1,000
less 10% trade discount
28 Ramesh Brothers returned goods 500

Answer:

(i) Subsidiary Books

Sales Book

Date Invoice No. Name of Customer L.F. Amount (₹)
2017
Feb. 01 Sachin 5,000
Feb. 06 Manish Traders 2,100
Feb. 10 Mukesh 3,300
Feb. 25 Shri Chand

(List Price ₹6,600 Less 5% TD)

 6,270
Feb. 26 Ramesh Brothers 4,000
Feb. 28 Total to Sales A/c (Cr.) 20,670

Purchases Book

Date Invoice No. Name of Supplier L.F. Amount (₹)
2017
Feb. 04 Kushal Traders 2,480
Feb. 14 Kunal Traders 5,200
Feb. 17 Naresh 4,060
Feb. 24 Kirit & Co.

(List Price ₹5,700 Less 10% TD)

 5,130
Feb. 28 Total to Purchases A/c (Dr.) 16,870

Sales Return Book

Date Credit Note No. Name of Customer L.F. Amount (₹)
2017
Feb. 07 Sachin 600
Feb. 22 Mukesh 250
Feb. 28 Ramesh Brothers 500
Feb. 28 Total to Sales Return A/c (Dr.) 1,350

Purchases Return Book

Date Debit Note No. Name of Supplier L.F. Amount (₹)
2017
Feb. 08 Kushal Traders 280
Feb. 20 Kunal Traders 200
Feb. 28 Kirit & Co.

(List Price ₹1,000 Less 10% TD)

 900
Feb. 28 Total to Purchases Return A/c (Cr.) 1,380

Journal Proper

Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
2017
Feb. 15 Furniture A/cDr. 3,200
To Tarun's A/c 3,200
(Being furniture purchased on credit from Tarun)

(ii) Ledger Accounts

Sachin's Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Feb. 01 To Sales A/c 5,000 Feb. 07 By Sales Return A/c 600
Feb. 28 By Balance c/d 4,400
5,000 5,000

Kushal Traders' Account

Dr.Cr.

Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
2017 2017
Feb. 08 To Purchases Return A/c 280 Feb. 04 By Purchases A/c 2,480
Feb. 28 To Balance c/d 2,200
2,480 2,480

(Other ledger accounts for Manish, Mukesh, Kunal, Naresh, Kirit, Shri Chand, Ramesh Bros, Tarun, Sales, Purchases, Sales Return, Purchases Return, and Furniture would be prepared similarly.)

Question 18. The following balances of ledger of M/s Marble Traders on April 01, 2017.

Account (April 2017) Balance (₹)
Cash in hand 6,000
Cash at bank 12,000
Bills receivable 7,000
Ramesh (Cr.) 3,000
Stock (Goods) 5,400
Bills payable 2,000
Rahul (Dr.) 9,700
Himanshu (Dr.) 10,000

Transactions during the month were:

Date (April) Particulars Amount (₹)
01 Goods sold to Manish 3,000
02 Purchased goods from Ramesh 8,000
03 Received cash from Rahul in full settlement 9,200
05 Cash received from Himanshu on account 4,000
06 paid to Remesh by cheque 6,000
08 Rent paid by cheque 1,200
10 Cash received from manish 3,000
12 Cash sales 6,000
14 Goods returned to Ramesh 1,000
15 Cash paid to Ramesh in full settlement 3,700
Discount received 300
18 Goods sold to Kushal 10,000
20 Paid trade expenses 200
21 Drew for personal use 1,000
22 Goods return from Kushal 1,200
24 Cash received from Kushal 6,000
26 Paid for stationery 100
27 Postage charges 60
28 Salary Paid 2,500
29 Goods purchased from Sheetal Traders 7,000
30 Sold goods to Kirit 6,000
Goods purchased from Handa Traders 5,000

Journlise the above transactions and post them to the ledger.

Answer:

In the Books of M/s Marble Traders

(i) Subsidiary Books

Purchases Book

Date Invoice No. Name of Supplier L.F. Amount (₹)
2017
Apr. 02 Ramesh 8,000
Apr. 29 Sheetal Traders 7,000
Apr. 30 Handa Traders 5,000
Apr. 30 Total to Purchases A/c (Dr.) 20,000

Sales Book

Date Invoice No. Name of Customer L.F. Amount (₹)
2017
Apr. 01 Manish 3,000
Apr. 18 Kushal 10,000
Apr. 30 Kirit 6,000
Apr. 30 Total to Sales A/c (Cr.) 19,000

Purchases Return Book

Date Debit Note No. Name of Supplier L.F. Amount (₹)
2017
Apr. 14 Ramesh 1,000
Apr. 30 Total to Purchases Return A/c (Cr.) 1,000

Sales Return Book

Date Credit Note No. Name of Customer L.F. Amount (₹)
2017
Apr. 22 Kushal 1,200
Apr. 30 Total to Sales Return A/c (Dr.) 1,200

Cash Book (Double Column)

Dr. (Receipts)Cr. (Payments)

DateParticularsL.F.Cash (₹)Bank (₹)DateParticularsL.F.Cash (₹)Bank (₹)
2017 2017
Apr. 01To Balance b/d6,00012,000Apr. 06By Ramesh's A/c6,000
Apr. 03To Rahul's A/c9,200Apr. 08By Rent A/c1,200
Apr. 05To Himanshu's A/c4,000Apr. 15By Ramesh's A/c3,700
Apr. 10To Manish's A/c3,000Apr. 20By Trade Expenses A/c200
Apr. 12To Sales A/c6,000Apr. 21By Drawings A/c1,000
Apr. 24To Kushal's A/c6,000Apr. 26By Stationery A/c100
Apr. 27By Postage A/c60
Apr. 28By Salary A/c2,500
Apr. 30By Balance c/d26,6404,800
34,200 12,000 34,200 12,000

Journal Proper

Date Particulars L.F. Debit Amount (₹) Credit Amount (₹)
2017
Apr. 01 Cash A/cDr.6,000
Bank A/cDr.12,000
Bills Receivable A/cDr.7,000
Stock A/cDr.5,400
Rahul's A/cDr.9,700
Himanshu's A/cDr.10,000
To Ramesh's A/c3,000
To Bills Payable A/c2,000
To Capital A/c (Bal. Fig.)45,100
(Being assets and liabilities brought forward)
Apr. 03 Discount Allowed A/cDr.500
To Rahul's A/c500
(Being discount allowed on full settlement)
Apr. 15 Ramesh's A/cDr.300
To Discount Received A/c300
(Being discount received on full settlement)

(iii) Ledger Accounts

Capital Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Apr. 30To Balance c/d45,100Apr. 01By Sundries45,100
45,10045,100
May 01By Balance b/d45,100

Ramesh's Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Apr. 06To Bank A/c6,000Apr. 01By Balance b/d3,000
Apr. 14To Purchases Return A/c1,000Apr. 02By Purchases A/c8,000
Apr. 15To Cash A/c3,700
Apr. 15To Discount Received A/c300
11,00011,000

Rahul's Account

Dr.Cr.

DateParticularsJ.F.Amount (₹)DateParticularsJ.F.Amount (₹)
20172017
Apr. 01To Balance b/d9,700Apr. 03By Cash A/c9,200
Apr. 03By Discount Allowed A/c500
9,7009,700

(Other ledger accounts for Himanshu, Manish, Kushal, Kirit, Sheetal Traders, Handa Traders, Sales, Purchases, Sales Return, Purchases Return, and all other nominal and real accounts would be prepared similarly.)