Chapter 4 Recording of Transactions II Solutions
Question - 11 : - What do you understand by Imprest amount in petty cash book?
Answer - 11 : -
Imprest amount is a definite sum of money that is provided to petty cashier for a certain period which can be a week or month. Reimbursement is done after the end of the period in order to start a new cycle.
Question - 12 : - Explain the need for drawing up the special purpose books.
Answer - 12 : -
Special purpose books are beneficial in:
• Accuracy: As each journal is managed by a different accountant having specific expertise, it improves accuracy and reduces defects.
• Efficiency: Increases efficiency by dividing workload
• Concise Descriptions: The journal describes the purpose of recording. For example a record in the purchase journal, will be understood by default that it is a purchase related transaction.
• Minimal Posting: Reduces the volume of posting as totals can be done periodically.
• Fraud Prevention: As recording of different journals are assigned to different individual, fraud prevention is prevented.
• Faster process: As multiple books are handled by multiple accountants, the recording work moves faster.
Question - 13 : - What is cash book? Explain the types of cash book.
Answer - 13 : -
A cash book is also known as book of original entry in which all transactions related to cash receipts and cash payments are recorded. All cash deposits and withdrawals are recorded in a sequential order. Cash receipts are recorded in cash column and bank deposits are recorded in bank column, and all cash deposits are added in cash column, cheque payment get recorded in credit side under bank column. It serves as a principal book.
Types of cash book are:
1. Single Column Cash Book: In this type of cash book all recordings related to cash takes place, it is useful for organisations that maintain only cash transactions. It contains records of cash receipts and cash payments.
2. Double Column Cash Book: The two column cash book is also referred to as the double column cash book. It contains two money columns on both sides (i.e. debit and credit), one side is for recording cash transactions while the other is for recording bank transactions.
Cash transactions are recorded in cash column and thus functions as a cash account whereas bank column records all bank related transactions such as payments made by cheques and functions as a bank account. Some organisations prefer the double column cash book as it contains both cash and bank columns and thus it is easy to maintain instead of maintaining two separate ledgers.
| Cash Book |
| Dr. | | | | | | | | | Cr. |
| Date | Particulars | L.F. | Cash ₹ | Bank ₹ | Date | Particulars | L.F. | Cash ₹ | Bank ₹ |
| Cash | (C) | | – | | Bank | (C) | – | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
3. Triple Column Cash Book: Triple column cashbook is a type of cash book that has provisions for three columns which are cash, bank and discount. It is used by large firms that frequently deal with cash and bank transactions as well as which allow cash discounts. The procedure of recording data is similar to double column cash book. The cash and bank columns are periodically totalled and balanced, while the discount column is only totalled. Discount allowed is recorded on the debit while discount received from suppliers is recorded on credit side.
4. Petty Cash Book: A cash book that records all those expenses that are small and hold little value is called a petty cash book. The transactions related to stamps, stationery, postage, daily wages etc. are recorded in petty cash book.
Question - 14 : - What is contra entry? How can you deal this entry while preparing double column cash book?
Answer - 14 : -
An entry that is recorded to reverse an entry on the opposite side of an account is called contra entry. For example when a debit entry gets recorded in an account, a contra entry will be posted in the credit side. Similarly a contra entry will be posted in debit side if an entry gets recorded in credit side.
Some transactions that can lead to contra entry are provided below.
1. Opening of a bank account
2. Depositing cash into bank
3. Withdrawal from bank
These transactions are recorded in a double column Cash Book as shown below.
| Cash Book |
| Dr. | | | | | | | | | Cr. |
| Date | Particulars | L.F. | Cash ₹ | Bank ₹ | Date | Particulars | L.F. | Cash ₹ | Bank ₹ |
| Cash | (C) | | | | Bank | (C) | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Answer - 15 : -
Recording of repetitive expenses in cash book will burden the cashier. Hence, a separate book is created where petty expenses are recorded. Examples of such type of expenses are: Stationery, Refreshment, Postage, and Conveyance. Petty cash book is maintained by Petty cashier.
Preparation is mostly done by Imprest System as it is more convenient. In this system, petty cashier is given a pre-defined sum of the money for a period. At the end of the period, the amount spent by him is reimbursed by cashier so that the cashier has the same amount again at the start of the period.
The Performa of Petty Cash Book is given below.
| Petty Cash Book |
| Dr. | Cr. |
| Amount Received | Date | Particulars | Voucher No. | Amount Paid ₹ | Analysis of Payments |
| Postage | Stationery | Conveyance | Telephone and Telegram | Miscellaneous | Remarks |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Advantages of Petty Cash Book:
1. Division of labour: By delegating the work to a petty cashier the cashier is able to look into other aspects of a firm.
2. Avoid bulky cash books: Recording repetitive transactions in a cash book makes it bulky, petty cash makes it easy and avoids making cash book bulky.
3. Less error prone: Head cashier will be making periodic audits on the petty cash book, so it will be error free.
4. Ease of posting: Only the petty expenses are recorded periodically which makes posting easier.
Question - 16 : - Describe the advantages of sub-dividing the Journal.
Answer - 16 : -
Sub dividing of Journal has following advantages:
- Accountability: As each accounts are handled by individual accountants, it makes them more accountable and ensure that accounts are properly maintained.
- Accuracy: Each accountant will be specialized in the work assigned to them and hence less chances of errors.
- Division of Labour: As accounts are maintained by separate accountants it ensures faster recording and parallel recording of transactions.
- Economical: As division of labour brings in specialization, the process becomes efficient and there by becomes economical.
- Ease of Audit and analysis: The analysis of transactions which are similar in nature becomes easier.
- Productivity: As the accountants gain expertise in handling specific account, in increases their productivity.
Question - 17 : - What do you understand by balancing of account?
Answer - 17 : -
The accounts in the ledger are balanced at periodic intervals of daily, weekly, fortnightly, monthly, quarterly or any other pre-defined periodic intervals. The goal of balancing is to determine the net position of each amount. The following steps are involved in the balance of the accounts.
- The debit and credit side are totalled.
- The total on the side which is higher is written on the corresponding side.
- The difference between both the sides is recorded on the shorter side. This makes the total on both the sides equal.
- In case the debit side exceeds the credit side, the difference is written on the credit side. This is called Debit Balance.
- If the credit side exceeds the debit sided, the difference is written on the debit side. This is called Credit Balance.
- The words balance c/d are written against the amount of the difference between the two sides. Balance c/d stands for balance carried down.
- The amount of balance is brought down (b/d) in the next accounting period. It is denoted with Balance b/d. This indicates that it is a continuing account, till finally settled or closed. Here Balance b/d stands for Balance Brought Down.
- The accounts of expenses losses and gains/revenues are not balanced. Instead, these are transferred to trading and profit and loss account.
Question - 18 : - Enter the following transactions in a simple cash book for December 2016: | | | ₹ |
| 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 - 18 : -
| Cash book |
| Dr. | Cr. |
| Date | Receipts | L.F. | Amount
₹ | Date | Payments | L.F. | Amount
₹ |
| 2016 | | | | 2016 | | | |
| 01 Dec | Balance b/d | | 12,000 | 07 Dec | Rent | | 2,000 |
| 05 Dec | Bhanu | | 4,000 | 10 Dec | Purchases | | 6,000 |
| 15 Dec | Sales | | 9,000 | 18 Dec | Stationery | | 300 |
| | | | 22 Dec | Rahul | | 2,000 |
| | | | 28 Dec | Salaries | | 1,000 |
| | | | 30 Dec | Rent | | 500 |
| | | | 31 Dec | Balance c/d | | 13,200 |
| | | 25,000 | | | | 25,000 |
| | | | | | | |
Question - 19 : - Enter the following transaction in Simple cash book for December 2018:
| | ₹ |
| 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 D. Kumar | 1,200 |
| 30 | Paid rent | 600 |
| | |
Answer - 19 : -
| Cash book |
| Dr. | Cr. |
| Date | Receipts | L.F. | Amount
₹ | Date | Payments | L.F. | Amount
₹ |
| 2018 | | | | 2018 | | | |
| 01 Dec | Balance b/d | | 7,750 | 06 Dec | Sonu | | 45 |
| 15 Dec | Parkash | | 960 | 08 Dec | Purchases | | 600 |
| 20 Dec | Sales | | 500 | 25 Dec | S.Kumar | | 1,200 |
| | | | 30 Dec | Rent | | 600 |
| | | | 31 Dec | Balance c/d | | 7,760 |
| | | 9,210 | | | | 9,210 |
| | | | | |
| |
Question - 20 : - Record the following transaction in simple cash book for November 2017: | | ₹ | |
| 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 | |
| 30 | Paid salary | 1,000 | |
Answer - 20 : -
| Cash book |
| Dr. | Cr. |
| Date | Receipts | L.F. | Amount
₹ | Date | Payments | L.F. | Amount
₹ |
| 2017 | | | | 2017 | | | |
| 01 Nov | Balance b/d | | 12,500 | 04 Nov | Hari | | 600 |
| 12 Nov | Amit | | 1,960 | 07 Nov | | Purchases | 800 |
| 16 Nov | Sales | | 800 | 20 Nov | Manish | | 590 |
| | | | 25 Nov | Cartage | | 100 |
| | | | 30 Nov | Salaries | | 1,000 |
| | | | 30 Nov | Balance c/d | | 12,170 |
| | | 15,260 | | | | 15,260 |
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