Recording of Transactions – II
1. Cash Book
- A Cash Book is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals.
- It serves as both a journal and a ledger for cash transactions.
Types of Cash Books:
- Single Column Cash Book: Records only cash transactions.
- Double Column Cash Book: Records both cash and bank transactions.
- Triple Column Cash Book: Records cash, bank, and discount transactions.
2. Format of Cash Book
- Date: The date of the transaction.
- Particulars: Details of the transaction.
- Ledger Folio (L.F.): Reference to the ledger where the transaction is posted.
- Amount columns: Separate columns for cash, bank, and discount (in the case of a triple column cash book).
3. Petty Cash Book
- Used for recording small day-to-day expenses, managed by a petty cashier.
- Follows the imprest system, where a fixed amount is given to the petty cashier at the start of a period.
4. Purchase Book
- Also known as the Purchase Journal, it records all credit purchases of goods.
- Cash purchases are recorded in the Cash Book.
5. Sales Book
- Also known as the Sales Journal, it records all credit sales of goods.
- Cash sales are recorded in the Cash Book.
6. Purchase Returns Book
- Records the return of goods purchased on credit.
- Also called the Return Outward Book.
7. Sales Returns Book
- Records the return of goods sold on credit.
- Also called the Return Inward Book.
8. Journal Proper
- Also known as the General Journal, it records transactions that do not fit into other books of original entry.
- Common entries include opening entries, closing entries, transfer entries, adjustment entries, and rectification entries.
9. Ledger
- A ledger is a book where all the journal entries are classified and posted account-wise.
- Each account has its own ledger page.
10. Posting from Subsidiary Books to Ledger
- The process of transferring information from the subsidiary books to the ledger accounts.
- Ensures that all financial data is organized and easily accessible.
11. Balancing the Ledger Accounts
- The process of totaling the debit and credit sides of a ledger account and determining the balance.
- If the debit side is greater, it shows a debit balance; if the credit side is greater, it shows a credit balance.
12. Trial Balance
- A statement prepared to check the arithmetic accuracy of the ledger accounts.
- Lists all the ledger accounts and their balances.
- The total of debit balances should equal the total of credit balances.
13. Bank Reconciliation Statement
- A statement prepared to reconcile the bank balance as per the Cash Book with the balance as per the Bank Statement.
- Helps identify discrepancies due to outstanding checks, deposits in transit, bank charges, and errors.
14. Depreciation
- Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life.
- Methods of calculating depreciation include:
- Straight Line Method (SLM): Depreciation is charged evenly over the asset’s useful life.
- Written Down Value Method (WDV): Depreciation is charged on the reducing balance of the asset.
15. Provision and Reserves
- Provision: An amount set aside to cover known liabilities or depreciation.
- Reserves: Profits set aside to strengthen the financial position of the business.
16. Errors and Their Rectification
- Identifying and correcting errors in the books of accounts.
- Types of errors include:
- Errors of omission: Transactions not recorded.
- Errors of commission: Transactions recorded incorrectly.
- Compensating errors: Errors that cancel each other out.
- Errors of principle: Transactions recorded against accounting principles.
- Errors can be rectified by passing appropriate journal entries.
By mastering these concepts, students will gain a deeper understanding of the detailed processes involved in recording transactions, ensuring the accuracy and integrity of financial records.
