Account 4 Marks Question

Transactions	Books of Original Entry	Reason
Goods purchased from Ram Lal @ ₹ 5,000 on credit.	Purchases Book	Purchases book records only credit purchase of goods.
Provision for doubtful debts created @ 5% on debtors with book value of ₹ 10,000	Journal Proper	Provision for doubtful debts is recorded in journal proper.
Defective goods sold to Babita on credit worth ₹ 4,000 were returned by her.	Sales Return Book	Goods returned by customer which were earlier sold on credit are recorded in Sales Return Book.
Purchased furniture on credit from Mr. Ratan Singh for ₹ 15,000 for use in the business.	Journal Proper	Purchases book records only credit purchase of goods, so Furniture purchased on credit will be recorded in Journal Proper.

Difference between sales Book and sales Account.

	Basis	Sales Book	Sales Account
1.	Part	It is part of journal Book.	It is part of Ledger.
2.	Format	Like a ledger account, it does not have debit and credit columns.	It has debit and credit columns.
3.	Contents	Only credit sales of goods are recorded.	Credit as well as cash sales of goods are recorded.
4.	Amount	Total amount of sales book is posted to the sales account periodically.	Balance in the account is transferred to the Trading Account.

Solution is as follows.

1. Cash Book: To record receipts and payments of cash, including receipts into and payments from the bank.
2. Purchases Book: To record credit purchases of goods.
3. Sales Book: To record the credit sales of goods.
4. Purchases Return Book: To record the return of goods previously purchased on credit.
5. Sales Return Book: To record the return of credit sales made by customers.
6. Journal Proper: To record the transactions which cannot be recorded in any of the above books.

Petty Cash Book is used for recording payment of petty expenses, which are of smaller denominations like postage, stationery, conveyance, refreshment, etc. Person who maintains petty cash book is known as petty cashier and these small expenses are termed as petty expenses.
It is prepared by two methods:
Ordinary system: In this case, a fixed sum of money is paid to petty cashier for the payment of petty expenses and after spending the whole amount, the account is submitted by the petty cashier to the main cashier.
Imprest system: In this case, a fixed sum of the money is given to the petty cashier in the beginning of a period and at the end of the period the amount spent by him is reimbursed, so that he has a fixed amount in the beginning of every new period.

Basis of Difference	Return Inwards	Return Inwards
Meaning	Goods sold to the customers, are returned by them.	Goods purchased are returned to the suppliers.
Balance	It has debit balance.	It has credit balance.
Treatment	It is deducted from Sales in the Trading Account.	It is deducted from Purchases in the Trading Account.
Issued	Credit note is prepared by the seller.	Debit note is prepared by the buyer.
Reduction	It reduces the payment from the Debtors.	It reduces the payment made to the Creditors.
Term	It is also termed as Sales Returns.	It is also termed as Purchases Returns.

Cash Book is a Journalised Ledger:
Sometimes a question arises whether Cash book is a journal or ledger? It is a journal since the transactions are recorded in it for the first time from the source documents and from there these are posted to the respective accounts in the ledger. The Cash book is also a ledger in the sense that it serves the purpose of a Cash account also. When a Cash book is prepared, no separate Cash account is opened in the ledger. As such, the Cash book is a journal as well as a ledger and hence it may be called “journalised ledger”.

Solution is as follows.

Note: In Sales Book, we record only the credit sale of goods, so transaction dated March 20 (being sale of electronics for cash) will not be recorded.

The needs for drawing up the special purpose book are given below.

1. Quick and efficient recording: It is a time consuming process to record all the transactions in a journal. If there are separate books, then recording of transactions can be done more efficiently and timely. So, the need of special purpose book arises.
2. Repetitive nature: In every business, some transactions are similar and repetitive in nature. It will be more convenient to record all similar transactions at one place. For example, all credit sales transactions are recorded in the Sales Book.
3. Economical: It is more economical as recording through the special purpose books saves time and also enhances the efficiency of accountants and clerks.
4. Easy posting: If similar transactions are recorded at one place, posting becomes easier.
5. Complete information at one place: All information related to purchases, sales, cash receipts, payments, etc. are easily and hassle-free available.

Cash Under this system, an estimate is made of amount required for petty expenses for a period a week, (say for week, a fortnight or a month). The amount so ascertained is given to the Petty Cashier in the beginning of a period. The amount paid by him during the period. Thus, he will again have the fixed amount in the beginning of the new period reimbursed. This amount is called imprest money. This system of paying advance in the beginning and reimbursing the amount spent from time to time is called imprest system.

When cash is deposited into the bank it increases the bank balance and reduces tha cash balance hence it affects the Cash Column as tha Bank column As such tha same amount is recorded on tha debit side as well as on the credit side on tha to Cash A/c is written and the amount is recorded in the bank colimn On thr Cr.side 'By Bank A/c' is written and the amount is recorded in the Cash Column. Debit Bank A/c (As bank is receiving the Cash, i.e., Debit the receiver) Credit Cash A/c (As Cash is going out) For example, if we deposit ₹ 2,000 into the bank it will be recorded in the cash book as follows:

Solution is as follows:

	Cash A/c		Cash Book
1.	It is an account in tha Ledger.	1.	It is a separate book maintained for recording Cash transactions.
2.	Cash account is opened in tha ledger and posting is done in this account from journal.	2.	It is a book of original entry because all cash transactions are first of all recorded in Cash book and then posted from Cash book to various accounts in tha ledger.
3.	When transactions of Cash are recorded in journal, it is necessary to open a Cash A/c in ledger.	3.	When transaction of Cash are recorded in Cash book, there is no necessity to open a Cash A/c in tha ledger.
4.	It only records one aspect of a transaction i.e.,Cash.	4.	It fecords both tha aspects of a teansaction.

The advantages of Bill of Exchange are:

1. Facilitates Purchase and Sale of Goods on Credit: It facilitates credit purchase and sale of goods because Bill of Exchange is an unconditional promise to pay.
2. Serves as a Source of Finance: Bills of Exchange can be discounted with a bank or NBFC so that the enterprise allowing credit can receive the amount immediately without the debtor having to pay before time.
3. Easy to Recover the Amount: If a Bill of Exchange is dishonoured, it is easier to recover the amount legally than in the case of an ordinary debt.
4. Endorsement: A Bill of Exchange can be endorsed to other parties; thus it serves almost the same purpose as cash.

Similarities of Cash Book with Ledger.

1. Form of Cash book closely resembles to a ledger account. It has two equally divided sides having identical columns. The left side (receipts side) is the debit side and the right side (payment side) is the credit side.a
2. Cash book itself serves as a Cash account also and as such when a Cash book is maintained, Cash account is not opened in the Ledger. The Cash book, hence, is a part of ledger also.
3. Just like a ledger account, the words ‘To' and 'By' are used in a Cash Book also.
4. It is balanced just like a ledger account.

Solution is as follows:

Solution is as follows.

Solution is as follows.

CASH BOOK is used to record all transactions relating to cash receipts and cash payments. The number of cash transactions is quite large in every business and it is quite unpracticable and inconvenient to record all cash transactions in the journal. It is, therefore, necessary to maintain a separate book for cash transactions. This book enables a businessman to know the balance of cash in hand and at bank at any point of time. It also gives information about the daily receipts, payments and the closing cash balance at the end of each day. Hence, this is a very popular book and is maintained by all the organisations - big or small.

If a cheque received from a customer a customer and deposited into Bank for collection is dishonoured an entry will be made on the credit side of the Cash by entering by entering the amount of the dishonoured cheque in the bank column in particulars column the name of the customer will be entered For example a cheque for ₹ 2,000 received from ram kumar is dishoured it will be recorded on the credit side as "By ram kumar" and amount will be entered in bank column.

Advantages of Sub-Division of Journal:

1. Division of Work: Since in place of one Journal, Subsidiary Books are maintained, accounting work can be divided among a number of persons.
2. Specialisation and Efficiency: When the same work is handled by a particular person for a considerable time, he acquires knowledge and expertise in it. He becomes more efficient in handling it. Thus, accounting is done more efficiently.
3. Saving of Time: Various accounting processes can be undertaken simultaneously because of the use of number of books. Thus, it leads to completing the work timely.
4. Availability of Information: Since a separate book is maintained for each class of transactions, information relating to each class is available at one place.

It is both a subsidiary book (book of original entry) and a principal book. When a cash book is maintained, transactions of cash are not recorded in the journal. As all the cash transactions are recorded for the first time in the cash book, it is therefore a book of original entry. But when a cash book is prepared, cash account in the ledger is not prepared. In this way, cash book represents the cash account and hence, becomes the principal book of accounts. As such, the cash book is a subsidiary book as well as principal book.

Contra Entry: Contra entries are the entries which affect both cash and bank, i.e., balance of one will decrease and the other will increase due to such transactiors. Such transactions are recorded on both sides of the Cash Book. Let us take an example to understand it better.

1. Cash deposited into the Bank ₹ 20,000: In this transaction, Bank Account is to be debited and Cash Account is to be credited. Debit aspect is recorded on the debit side of the Bank Column and credit aspect is recorded on the credit side of Cash Column.
2. Cash withdrawn from Bank for Office Use ₹ 10,000: In this transacts: 09, Cash Account is to be debited and Bank Account is credited. Debit aspect is recorded on the debit side of the Double Column Cash Book in the Cash Column and credit aspect is recorded on the credit side of the Double Column Cash Book in the Bank Column.

When the size of the business grows and the number of transactions become very large, it is no longer possible to record all transactions in one Journal only. As such, the Journal is sub-divided into a number of Special Journal These special journals are also known as Sub-division of Journal.
Subsidiary books or the books of original entry Each subsidiary book is meant for recording all the transactions of a similar nature. For example, all cash transactions may be recorded in one book, all credit purchase transactions in another book and all credit sales transactions in yet another book, and so on. Thus, the subsidiary books may be defined as books where the transactions are entered first and then ledger accounts are prepared on their basis. Following subsidiary books are most commonly.

Note: In Sales Book, we record only the credit sale of goods, so transaction dated June 12 (being Computer sold on credit) and June 20 (being Sofa Sets sold for cash) will not be recorded.

Entries in the Petty Cash Book are posted into the ledger accounts at the end of the specified period, i.e., month or quarter as the case is. Petty Cash Book is considered as a memorandum book. The petty expenses are not directly posted to ledger accounts. A Petty Cash Account is maintained in the ledger. When Petty Cash is advanced to the petty cashier, the Chief Cashier records it on the credit side of Cash Book as “By Petty Cash A/c". At the end of specified period (say a week, a fortnight or a month), for the total expenses paid a Journal entry is passed by debiting individual petty expenses and crediting to Petty Cash Account. All the accounts reating to petty expenses are maintained in the ledger individually. Posting is made on the debit side of these accounts by writing "To Petty Cash A/c” in the Particulars Column.

1. Purchases Book, because it is credit purchase of goods for sale.
2. Journal Proper, because it will not be recorded in any other subsidiary books.
3. Sales Return Book, because it is return of goods sold.
4. Journal Proper, because it will not be recorded in other subsidiary books.

The process of accounting starts from identification of financial and non-financial events. Financial events are first recorded in a Journal. A small business has lesser number of transactions and thereby it may be possible to record these transactions through Journal entry. However, on the contrary, as the business grows, there will be voluminous number of transactions and the firm may experience difficulty, thereby it becomes tedious to record through Journal entry. Thus, in order to save time and effort, it is recommended to sub-divide Journal. Sub-division of Journal provides scope for division of work. This leads to the improvement of efficiency and effectiveness and infuses higher degree of accountability to the accountants for the specific subsidiary Journal assigned to them. The purposes of maintaining subsidiary Journal are given below.

1. It saves time and efforts in recording.
2. It enables division of work, leading to an enhancement of efficiency and effectiveness, as particular accountant takes care of particular books.
3. It also makes each accountant more responsible and accountable for the books assigned to them.
4. It records routine and repetitive transactions at one place, which leads to easy accessibility of information and hassle-free communication.

S.No.	Based on Traditional Classification of Account			S.No.	Based on Modern Classification of Accounts
	Type of Account	Debit	Credit		Types of Accounts	Debit	Credit
1.	Personal A/c	The Receiver	The Giver	1.	Asset A/c	Increase	Decrease
2.	Real A/c	What comes in	What goes out	2.	Liabilities A/c	Decrease	Increase
3.	Nominal A/c	All Expenses and Losses	All Income and Gains	3.	Capital A/c	Decrease	Increase
				4.	Revenue A/c	Decrease	Increase
				5.	Expense A/c	Increase	Decrease

Note: Sales book records only the credit sale of goods, so transaction dated Jan 20 (being sale of newspapers), Jan. 24 (being cash sales) and June 31 (being credit sale of fixed asset) will not be recorded.
1 Gross = 12 Dozen.
15 Gross = 12 × 15 = 180 Dozen.

Imprest amount is an amount of money given by the main cashier to the petty cashier in the beginning of a period. At the end of the period, the amount spent by the petty cashier gets reimbursed in such a manner, that he has the same amount of cash in hand in the beginning of next period. For example, if the main cashier gives an imprest amount of ₹ 1,000 to the petty cashier on April 01, 2011 and at the end of the month the petty expenses amount to be ₹ 850, which is spent by the petty cashier during the month. In this case, ₹ 850 will be reimbursed, so, that on May 01, 2011, the petty cashier will have ₹ 1,000 at his disposable to meet petty expenses for the next month.