SUIB-DIVISION OF JOURNAL

3.2 SUIB-DIVISION OF JOURNAL

As stated earlier, it is practically impossible to record all transactions in one book of prime ' entry. Hence, the journal is sub-divided into a number of subsidiary books. These are also caed special journals. The sub-division is done in such a way that a separate book is used for each type of transactions which are repetitive in nature and are sufficiently large in ' number, In any large business the subsidiary books generally used are as follows :

1 Cash Book: It is used for recording all cash receipts and cash payments including cash purchases and cash sales. 

2 Purchases Journal: It is used for recording all credit purchases of goods. 

3 Sales Journal: It is used for recording all credit sale of goods. 

4 Purchases Returns Journal: It is used for recording the returns of goods to suppliers. It is also known as 'Returns Outwards Book'. 

5 Sales Returns Journal: It is used for recording the returns of goods by customers. It is also known as 'Returns Inwards Book'. 

6 Bills Receivable Journal: This book is meant for recording transactions relating to bills of exchange and promissory notes received from debtors. 

7 Bills Payable Journal: This book is meant for recording bills of exchange and promissory notes accepted by the business in favor of creditors. 

8 Journal Proper: In this book only such transactions are recorded which are not covered, by any

 of the above named subsidiary books, for example, credit purchases of fixed assets, opening entry, rectification entries, etc.

The advantages of having a number of subsidiary books as listed above are as follows:

i)     Classification of transactions becomes automatic: As there is a separate book for each type of transactions, the transactions of same nature are automatically brought at one place. For example, all credit purchases of goods are recorded in the Purchases Journal and all credit sales are recorded, in the Sales Journal. 

ii) Reference becomes easy: If any reference is required, it can be traced easily by referring to the appropriate subsidiary book. You do not have to go through all the transactions recorded in the journal. 

iii) Facilitate division of work: Sub-division of journal into various subsidiary books facilitates division of work among many persons. This, in turn, facilitates prompt recording of transactions and saves a lot of time. 

iv) More particulars: More' details about the transactions can be given in subsidiary books than would be possible in one book.

v)    Responsibility can be fixed: The work of maintaining a particular book can be entrusted to a particular person. He will be responsible for keeping it up-to-date and in order.

vi)    Facilitates checking: When the Trial Balance does not agree, the location of errors will be relatively easy.

3.3 CASH BOOK

You know that in any business there would be numerous transactions which involve either receipt or payment of cash. Cash sales, receipts of cash from debtors, cash purchases, payment of cash to creditors, payment of expenses such as salaries, rent, taxes, etc. are examples of cash transactions. All these transactions are recorded in a separate book called Cash Book. The ruling of cash book is similar to that of a ledger account. A11 cash receipts are recorded on the debit side and all cash payments on the credit side. Thus, it serves the function of a Cash Account, As a matter of fact, cash book plays a dual role. It is a book of prime entry as well as ledger account. Hence, when cash book is maintained there is no need to have a Cash Account in the ledger.

There are different types of cash books in use by the business. These are:

           i)                    Simple or Single Column Cash Book
ii)                   Two or Double Column Cash Book
iii)                 Three or Triple Column Cash Book

We shall now consider them one by one and learn how they are prepared and posted into ledger.

 3.3.1 Single Column Cash Book

The simplest form of cash book is the Single Column Cash Book. It is like an ordinary Cash Account. Look at Figure 3.1 for its preform.

As stated earlier, the debit side of the cash book is used for recording all cash receipts and the credit side for all cash payments. In particulars column we write the name of the account in respect of which the amount is received or paid. The ledger folio (L.F.) column is used for writing the page number of the account where the entry has been posted in the ledger.

Posting the Cash Book : You must remember that there is no need to open a Cash Account. It is because when a cash transaction is recorded in the cash book the posting of cash aspect of the transactions stands duly covered. We are to make postings only to the other concerned accounts in the ledger in order to.complete the double entry, The rules of posting are :

1. for all transactions entered on the debit side of the cash book, credit the concerned accounts in the ledger by writing 'By Cash A/c' in the particulars column, and 
2. for all transactions entered on the credit side of the cash book, debit the concerned , I a~counts in the ledger 'by writing 'To Cash Afc' in the particulars column.

Thus, you will notice that all transactions appearing on the debit side of the cash book are to be posted on the credit side of the concerned accounts and those appearing on the credit side of the cash book are to be posted on the debit side of the concerned accounts.

Balancing the Cash Book: It is similar to the balancing of Cash Account. The cash book will always show a debit balance because cash payments can never exceed the'arnount of cash available. Hence, the total of the debit side in the cash book will always 'be more than the total of the credit side. The difference between the two indicates the cash in hand.

Look at illustration 1 and study how recording, posting and balancing of a Simple Cash Book is done.

3.3.2 Two Column Cash Book 

As you know, when cash is received from a debtor some cash discount may be allowed to him. Similarly, when payment is made to a creditor he may also allow some cash discount. While recording such transactions in the journal you learnt that cash and discount would go together in the form of a compound entry. So, when receipts from debtors and payments to creditors are to be recorded in the cash book, it is considered desirable to record the cash discount also in the cash book. For this purpose, an additional amount column is provided on both sides of the Cash Book. The discount allowetl to debtors is recorded on the debit side and the discount received from creditors on the credit side. Thus, you will have two amount columns on each side of the cash book, one for discount and the other for cash. That . is why it is called Two Column Cash Book.

The procedure for posting the discount column of the cash book to the ledger is as follows : 

 i)     Post the amounts entered in the discount allowed column to the credit side of the concemed                    personal accounts of the debtors by writing 'By Discount  Allowed/A/c'.

ii)     Post the amounts entered in the discount received column to the debit side of the concerned                    personal accounts of the creditors by writing 'To Discount Receivec! A/c'. 

iii)   Open ~iscount'~l1owed Account and Discount Received Account in the ledger. 

iv)     Total the discount allowed and discount received columns of the cash book. 

v)     Post the total of the discount allowed column to the debit of the Discount Allowed  Account by             writing 'To Sundries as per Cash Book'.

vi)     Post the total of the Discount  received column to the credit of is count Received  Account by                     writing 'By Sundries as per Cash Book'. 

You will observe that the posting of discount column is different from the posting of the '3. cash column. In case of cash columns, the postings are to be made only to the respective personal accounts while in case of discount columns postings are to be made not only to the personal accounts but also to the discount accounts. The total of discount allowed colutnn is posted to the debit of Discount Allowed Account and the total of discount received column is posted to the credit of Discount Received Account. It is because the cash book does not serve the purpose of a discount account and the double entry is not complete until postings are also made to the discount accounts.

As for the balancing of Two Column Cash Book, you should note that only the cash columns are to be balanced. The discount columns are not balanced, they are simply totalled. It is because the two discount columns relate to the two different heads of account, the , discount allowed and the discount received. By totalling the two discount columns you can find out the total amounts of ttie discount allowed and the discount received during a given period and complete their posting into the ledger.

Look at Illustration 2 and study how entries are made in the Two Column Cash Book, how they are posted to the concemed ledger accounts and how this cash book is balanced. 

3.3.3 Three Column. Cash Book

While recording transactions in the Simple Cash Book you learnt that when cash is deposited into the bank, an entry is made'on the credit side of the cash book and when cash is witlidrawn from the bank it is entered on the debit side of the cash book. When these entries are posted into ledger we open a Bank Account and post all deposits into bank on its debit side and all withdrawals from the bank on its credit side. The difference between the debit and the credit reflects the balance with the bank.

Now-a-days bank plays a very important role in business and almost every firm has an account with a bank. The businessman generally retains a small amount of cash and deposits the rest in his bank account. Most of the receipts and payments are made through cheques. As such, bank transactions are more numerous than the cash transactions. They can also be recorded in the cash bdok by providing an additional column for bank on both sides of the cash book. All deposits made in the bank are to be recorded in the bank column on the debit side and all withdrawals from the bank in the bank column on the credit side. The bank column would thus serve the purpose of a Bank Account and there will be no need to open a Bank Account in the l'edger.

The cash book containing a bank column, in addition to cash and discount columns, is called Three Column Cash Book. All receipts are recorded on the debit side of this cash book and all payments on the credit side. When the amount is received or paid in cash, it is recorded in cash column and when it is done by cheque, it is recorded in the bank column. If discount is also involved, it will be shown in the appropriate discount column. 

Contra.Entry: There are some transactions which affect Cash Account and Bank Account in such a manner that one is to be debited while the other is to be credited. This happens only when either cash is deposited in the bank or cash is withdrawn from the bank. When cash is deposited into the bank you have to debit the Bank Account and credit the Cash Account, and in case of withdrawal from the bank, you have to debit the Cash Account and credit the Bank Account. When these transactions are recorded in a Three Column Cash Book both aspects appear in the Cash Book itself. One aspect is recorded on the debit side and the other on the credit side. For example, when cash is deposited in the bank it is recorded (i) in bank column on the debit side of the cash book, and (ii) in cash column on the credit side of the cash book. Similarly, when cash is withdrawn from the bank it is recorded (i) in cash column on the debit side of the cash book, and (ii) in bank column on the credit side of the cash book. Thus, the double entry of the transaction is complete in the cash book itself. Such an accounting entry is known as 'Contra Entry'. The word 'contra' means 'the'other side' or 'the opposite side'. Thus, contra entry implies that the corresponding aspect of the transaction is entered on the other side of the cash book. Contra entries are not to be posted in the ledger because you do not have Cash Account and Bank Account in the ledger and the double entry is completed in the cash book itself. The capital letter 'C' is written in the L.F. column on both sides of the cash book. This indicates that it is a contra entry. Look at the entries made on December 20 and 24 under Illustration 3.  

Posting the Three Column Cash Book : All entries recorded in the Three Column Cash Book are to be posted to their respective ledger accounts, except the contra entries. For posting the entries recorded. on the debit side of the cash book, credit the accounts concerned in the ledger by writing 'By Cash A/c' if the entry is in cash column, and 'By Bank A/c' if the entry is in bank column. If discount is also involved, credit the concerned personal account by writing 'By Discount Allowed A/cl. A similar procedure is followed for posting the entries on the credit side of thecash book. Totals of the discount allowed and discount received columns shall be posted to the respective discount accounts the same way as for the Two Column Cash Book.

Balancing the Three Column Cash Book : The cash and bank columns are balanced ' separately like any other ledger account. As stated earlier, the Cash Account always shows a debit balance. The Bank Account also normally shows a debit balance. But, sometimes it may show a credit balance which indicates the overdraft. It reflects the amount withdrawn from the bank in excess of what is deposited in the bank. Of course, it is done with a prior arrangement with the bank and is a common practice in business. The procedure of recording the closing and opening balances is the same as in Two Column Cash Book. Note that the discount column are not to be balanced. They are simply totalled. 

Special points regarding cheques received: When a chequeh received from a party, normally it is deposited in the bank on the same day and entered in the bank column on the debit side of the cash book. Sometimes, for some reason, the cheque may not be deposited in the bank on the day of receipt. In such a situation it is kept in the cash box and entered in the cash column on the debit side of the cash book. Later on, when the cheque is deposited in the bank, it is recorded in the cash book as cash deposit in the form of a contra entry. In other words, it will be entered in the bank column on the debit side of the cash book and in the cash column on the credit side of the cash book. Look at illustration 3 and see how entries are made for the cheque received from Harish on December 28 and deposited in the bank on December 29. Normally this procedure is avoided. The entry is made directly in the bank qolurnn on the day the cheque is deposited in the bank. In the absence of any specific instructions, it can be presumed that the cheque received from a party was sent to the bank for collection on the same day. 

Sometimes, a cheque received from a party may not be deposited in the bank, but may be endorsed in favour of a creditor of the business. In that case the cheque received will be entered first in the cash column on the debit side of the cash book and then on its credit side in the cash column. This ensures entries in the personal accounts of (i) the party from whom it is received, and (ii) the party to whom it is endorsed (refer to entries in Illustration 3 for the cheque received from Vikas on December 26 which is endorsed in favour of Rakesh on December 27). 

Sometimes a cheque sent to the bank for collection may be dishonoured which means that, for some reason, the bank on which cheque was drawn refused its payment. In such a situation, the party from whom the cheque was received is to be debited and the Bank Account is to be credited. Hence, entry for the dishonour will be recorded in the bank column on the credit side of the cash book. This would nullify the effect of the entry made at the time of receiving and depositing the cheque. Look at the entry made on December 31 under Illustration 3 in respect of the dishonoured cheque of Harish. 

Study Illustration 3 carefully and you will be able to understand clearly the recording, posting and balancing of a Three Column Cash Book. 

Study Illustration 3 

carefully and you will be able to understand clearly the recording, posting and balancing of a Three Column Cash Book.   

Solution : 

 CASH BOOK

 (With Cash, Discount and Bank Columns) 

Notes:

1     Thnsaction 011 Decernber 20

Cash deposited in the bankhas been entered on both sides, in bank  column on the debit side and in cash column on the credit side. It is a contra entry, so 'C' has been written in L. F. column on both the sides. These entries have not been posted in the ledger. 

2     Transaction on December 26 

A cheque for Rs. 540 was received from Vikas on December 26. It had not been deposited in the bank but endorsed in favour of Rakesh on December 27. It has been entered first in the cash.column on the debit side on December 26 against the name of Vikas, and then in the cash column on the credit side on December 27 against the name of Rakesh. In the lepger, Vikas's Account gets the credit and Rakesh's Account gets the debit.

3     Transaction can December 28 

A cheque for Rs. 1 ,OtM received from Harish on December 28 is deposited in ihe bank on December 29. Hence, it has been entered in the cash column on December 28 and then shown as a-cash deposit on December 29 by way of a contra entry.

4 Transaction on December 31

Cheque for Rs. 1,000 received from Harish on December 28 and sent to bank for collection on Dscernber 29 is returned dishonoured. It is recorded on the credit side in the bank colurnn and posted to the debit side of Harish's Account. This nullifies the credit given to him on December 28.

 Notes:

1 Tiansaction on December 20

Cash deposited in the bank has been entered on both sides, in bank column on the debit side and in cash column on the credit side. It is a contra entry, so 'C' has been written in L. F, column on both the sides. These entries have not been posted in the ledger.

2 Transaction on December 26  

A cheque for Rs. 540 was received from Vikas on December 26. It had not been deposited in the bank but endorsed in favour of Rakesh on December 27. It has been entered first in the cash-column on the debit side on December 26 against the name of Vikas, and then in the cash column on the credit side on December 27 against the name of Rakesh. In the ledger, Vikas's Account gets the credit and Rakesh's Account gets the debit.

3 Transaction on December 281 

A cheque for Rs. 1,000 received from Harish on December 28 3s deposited ir! he bank on December 29. Hence, it has been entered in the cash column on December 28 and then shown as amsh deposit on December 29 by way of a contra entry.

4 Transaction on December 31 

Chequc for Rs. 1,000 received from Harish on December 28 and sent to bank for collection on December 29 is rehrned dishonoured. It is recorded on the credit side in the bank column and posted to the debit side of Harish's Account. This nullifies the credit given to him 03 December 28.

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