SUB-DIVISION OF JOURNALS- CASH BOOK

SUB-DIVISION OF JOURNALS

Journal is divided into two types

1.       General Journal and

2.       Special Journal

General Journal:

àThis is a book of chronological record of transactions.

àThis book records those transactions which occur so infrequently that they do not warrant the setting up of special journals.

Examples of such entries:

1.       Opening entries

2.       Closing entries

3.       Rectification of errors.

The form of this journal is as under:

Date

Particulars

L. F

Dr.  amount

Cr. amount

        L.F.: ledger Folio

       Dr.: Debit

      Cr.: Credit

      Recording of transactions in this book is called journalizing and the record of transactions is known as    journal entry.

Special Journal:

It is subdivided into Cash Book, Purchase Day Book, Sales Day Book, Returns Inward Book, Returns Outward Book, Bills Receivable Book and Bills Payable Book.  These books are called subsidiary books.

Importance of sub-division of Journals

When the number of transactions is large, it is practically not possible to record all the transactions through one journal because of the following limitations of journal:

1.       The system of recording all transactions in a journal requires (a) Writing down the name of the account involved as many times as the transaction occurs; and (b) an individual posting of each account debited and credited and hence, involves the repetitive journalizing and posting labour.

2.       Such a system cannot provide the information on a prompt basis.

3.       Such a system does not facilitate the installation of an internal check system because the journal can be handled by only one person

4.       The journal becomes huge and voluminous.

To overcome the shortcomings of the use of the journal only as a book of original entry, the journal is sub-divided into special journal.

The journal is sub-divided in such a way that a separate book is used for each category of transactions which are repetitive in nature and are sufficiently large in number.

Compound Journal

If for a single transaction, only one account is debited and one account is credited,  it is known as simple journal.

If the transaction requires more than one account which is to be debited or more than one account is to be credited, it is known as compound journal.

The following illustration will make it clear:

Illustration 1:

1.       Started business with cash Rs.50000; plant Rs.24000; stock Rs.4000

2.       Sold goods for cash Rs.8000 and to Ms. Agarwal for Rs.10000

3.       Ms.Agarwal settled her account less discount Rs.600

In the books of --------------------

journal

Date	Particulars	L. F	Dr.  amount	Cr. amount
1	Cash A/c                                 Dr. Plant A/c                                Dr. Stock A/c                               Dr. To Capital A/c (Being business started with cash, plant and stock as capital)		50000 24000   4000	78000
2	Cash A/c                                         Dr. Ms. Agarwal’s A/c                        Dr. To Sales A/c (Being goods sold for cash Rs.8000 and on credit Rs.10000)		8000 10000	18000
3	Cash A/c                                           Dr. Discount Allowed A/c                    Dr. To Ms. Agarwal’s A/c (Being cash received as final settlement and discount allowed)		9400   600	10000

Subsidiary books

Although once understand, the entries are easy to be written, but if transactions are too many, it may become difficult to manage them and retrieve.  Imagine there are 25 purchase transactions in a day.  Because the journal will record all transaction chronologically, it may be possible that the purchase transactions could be scattered i.e. they may not all come together one after the other.  Now, at the end of the day if the owner wants to know the total purchased made during the day, the accountant will spend time first to retrieve all purchase transactions from journal and then take total. This involves time.

This being the greatest limitation of journal, it is generally sub-divided into more than one journal.  On what logic is such a sub-division made? It is done on the basis of similar transactions which are clubbed in a single book e.g. purchase transactions, sales transaction etc. The sub-division of journal is done as follows.

Transaction	Subsidiary Book
All cash and bank transactions	Cash Book –has columns for cash, bank and cash discount
All credit purchase of goods – only those goods that are purchased for resale are covered here.	Purchase day book or purchase register
All credit sale of goods	Sales day book or sales register
All purchase returns- i.e. return of goods back to suppliers due to defects	Purchase return book or return outward book
All sales returns – i.e. return of goods back from customers	Sales return book or return inward book
All bill receivables – these are bills accepted by customers to be honored at an agreed date.  This is dealt with in depth later in the study note	Bills receivable book
All bills payable- these are bills accepted by the business to be honored by paying to suppliers at an agreed date.	Bills payable book
For all other transactions not covered in any of the above categories- i.e. purchase or sale of assets, expense accruals, rectification entries, adjusting entries, opening entries and closing entries	Journal Proper

Recording of Cash and Bank Transactions

Cash Book

A cash book is a special journal which is used for recording all cash receipts and all cash payments.  Cash book is a book of original entry since transactions are recorded for the first time from the source documents.  The cash book is larger in the sense that it is designed in the form of a cash account and records cash receipts on the debit side and cash payments on the credit side.  Thus, the cash book is both a journal and a ledger.

Cash Book as the only Book of Original Entry

This cash book records all types of transactions even if these are some credit transactions i.e. all transactions are recorded and not like the ordinary cash book where only cash transactions are recorded.  For non cash transactions, that will be two entries in the cash book, ultimately that will be no effect in cash balance.  For example, if goods are sold to Mr.X on credit for Rs.5000, the entries will be

1	Cash A/c                                                                 Dr. To Sales A/c	5000	5000
2	X A/c                                                                      Dr. To Cash A/c	5000	5000

Although the original entry is

1

X A/c                                                                 Dr. To Sales A/c

5000

5000

Types of Cash Book

There are different types of cash book as follows:

1.       Single column cash book: Single Column Cash Books has one amount column on each side.  All cash receipts are recorded on the debit side and all payments on the payment side, this book is nothing but a Cash Account and there is no need to open separate cash account in the ledger.

2.       Double column Cash Book: Cash Book with Discount Column has two amount columns, one for cash and other for discount on each side.  All cash receipts and cash discount allowed are recorded on the debit side and all cash payments and discount received are recorded on the credit side.

3.       Triple Column Cash Book: Triple Column Cash Book has three amount columns, one for cash, one for Bank and one for discount, on each side.  All cash receipts, deposits into book and discount allowed are recorded on debit side and all cash payment, withdrawals from bank and discount received are corded on the credit side.  In fact, a triple column cash book serves the purpose of cash account and bank account both.  Thus, there is no need to create these two accounts in the ledger.

Specimen of Single Column Cash Book

Dr.                                                                                                                                                                          Cr.

Receipts				Payments
Date	Particulars	L.F	Cash	Date	Particulars	L.F	Cash

Specimen of Double Column Cash Book

Dr.                                                                                                                                                                          Cr.

Receipts					Payments
Date	Particulars	L.F	Cash	Disc. Allowed	Date	Particulars	L.F	Cash	Disc. Received

Specimen of Triple Column Cash Book

Dr.                                                                                                                                                                          Cr.

Receipts						Payments
Date	Particulars	L.F	Cash	Bank	Disc. Allowed	Date	Particulars	L.F	Cash	Bank	Disc. Received

Double column cash book containing contra transaction and cheque transaction.

The double column cash book has columns on both sides of the cash book.  This cash book can have two columns on both the sides under:

(a). Cash and discount columns

(b). Cash and Bank Columns

©. Bank and discount columns.

(I)                 Contra Transactions

Transactions which relates to allowing discount or receiving discount in cash after the settlement of the dues are known as contra transactions.

Example:

1.       Received Rs.500 as discount from Mr.Ghosh whose account was previously settle infull

Cash A/c                                              Dr.          500

  To  Discount received A.c                                           500

(Being cash received as discount from Mr.Ghosh whose account was previously settled in full)

2.       Paid Rs.400 as discount to Mr.Ghosh Dastidar who settled his account in full previously.

Discount allowed A/c                     Dr.          400

  To cash A/c                                                                       400

(Being discount allowed in cash to mr.Ghosh Dastidar who settled his account in full)

(II)               Cheque Transactions

When a cheque is received and no any other information at a later date about the same is given, it will be assumed that the said cheque has already been deposited into bank on the same day when it was received.  Then the entry should be as under:

Bank A/c                                      Dr

To Debtors / Party A/c

But if it is found that the said cheque has been deposited into the bank at a later date, then the entry will be:

(i)                  When the cheque is received

Cash A/c                      Dr.

To Debtors / Party A/c

(ii)                When the same was deposited into bank at a later date

Bank A/c                      Dr.

To Cash A/c

(iii)               When the said cheque is dishonoured by the bank

Debtors / Party A/c                 Dr.

To Bank a/c

Let us see an illustration for the following cash and bank transactions in the books of Mr.Abhishek

January 1 Opening cash balance was Rs.3,800 and bank balance was Rs.27,500

January 4 wages paid in cash Rs.1500

January 5 Received cheque of Rs.19,800 from KBK enterprises after allowing discount of Rs.200

January 7 Paid Consultancy charges by cheque for Rs.7500

January 10 Cash of Rs.2500 withdrawn from bank

January 12 received a cheque for Rs.4500 in full settlement of the account of Mr.X at a discount of 10% and deposited the same into the Bank

January 15 X’s cheque returned dishonoured by the bank

In the books of Mr. Abhishek

Cash Book

Dr.                                                                                                                                                                          Cr.

Receipts						Payments
Date	Particulars	L.F	Cash	Bank	Disc. Allowed	Date	Particulars	L.F	Cash	Bank	Disc. Received
1 jan	Opening Balance		3800	27500		4-JAN	wages paid		1500
5-jan	Recd from KBK			19800	200	7-jan	Consultancy fees			7500
10-jan	Cash Withdrawn		2500			10-jan	Cash Withdrawn			2500
12-Jan	Mr.X			4500	500	15-jan	Mr.X			4500	500
							Closing Balance		4800	37300
			6300	51800	700				6300	51800

Please note that the balance of discount columns is not taken and these are posted directly to the respective ledger account separately. The balance of cash and bank columns are posted into cash and bank accounts periodically.  The posting into ledger is explained later.