3.0 Objectives
After studying this unit you should be able to:
• Explain the need for sub-division of journal
• Prepare different types of cash books
• Post cash book entries into ledger
• Ascertain the causes of difference between the cash book and pass book balances
• Prepare a bank reconciliation statement
• Adjust the cash book balance
• Describe the importance of bank reconciliation statement
• Prepare petty cash book and post it into ledger.
3.1 Introduction
In Unit 2 you learnt that all business transactions are
first recorded in the journal and then posted into ledger. In practice, the
number of transactions is so large that it becomes difficult to record all of
them in one book of prime entry. Hence, the journal is sub-divided into a
number of special journals called Subsidiary Books. Each book is used for
recording transactions ‘of one category only. For example, Cash Book is used
for recording all cash transactions, Purchases Book is used for recording all
credit purchases of goods, and Sales Book is used for recording all credit
sales of goods, and so on. This enables us to divide the work among different
persons and ensure prompt recording of transactions, In this unit you will learn about the most important
subsidiary book called Cash Book. We shall discuss various types of cash books
and study how transactions are recorded in each type of cash book and posted
from cash book to ledger. You will also learn about the banking transactions,
their recording in Three Column Cash Book and the preparation of a Bank Reconciliation,
Statement.
3.2 Sub-division of Journal
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