Class 11 Accountancy Notes Chapter 4 (Recording of Transactions-II) – Financial Accounting-I Book

Alright class, let's delve into Chapter 4: Recording of Transactions-II. This chapter builds upon our understanding of the Journal by introducing specialized books designed to handle a large volume of similar transactions efficiently. This is crucial not just for your Class 11 understanding, but also forms a foundational concept often tested in government recruitment exams involving accountancy.

Need for Subdivision of the Journal (Special Purpose Books / Subsidiary Books)

Imagine a large business. If every single transaction, from buying pencils to major sales, were recorded chronologically in one single Journal, it would become incredibly bulky and difficult to manage. Finding specific information would be time-consuming. To overcome these limitations, the Journal is subdivided into specialized journals or books, each recording a specific type of transaction.

Advantages of Using Special Purpose Books:

1. Division of Work: Accounting work can be divided among several clerks, each handling one specific book (e.g., one person handles cash, another handles credit purchases).
2. Specialization and Efficiency: Division of work leads to specialization, increasing efficiency and accuracy.
3. Time Saving: Recording and posting become faster as repetitive transactions are grouped together.
4. Ease in Posting: Posting to the ledger becomes simpler as totals from subsidiary books can be posted periodically.
5. Information Availability: Information about specific areas (like total credit sales or cash balance) is readily available from the respective books.
6. Internal Check: Facilitates internal checks as work done by one person is automatically checked by another during the accounting process.

Major Special Purpose Books:

1. Cash Book: Records all cash and bank transactions.
2. Purchases Book: Records all credit purchases of goods (items the business deals in).
3. Sales Book: Records all credit sales of goods.
4. Purchases Return Book: Records the return of goods purchased on credit.
5. Sales Return Book: Records the return of goods sold on credit.
6. Journal Proper (General Journal): Records transactions that cannot be recorded in any other special purpose book.

Let's examine these in detail.

1. Cash Book

The Cash Book is unique because it serves a dual purpose: it's a book of original entry (like a Journal) and also acts as the Cash Account and Bank Account (part of the Ledger). Therefore, when a Cash Book is maintained, separate Cash and Bank accounts are not opened in the Ledger.

Types of Cash Books:

(a) Single Column Cash Book:

• Records only cash transactions.
• Has one amount column on each side (Debit for receipts, Credit for payments).
• Format:

  Date	Particulars	L.F.	Amount (₹)	Date	Particulars	L.F.	Amount (₹)
  	(Receipts)		(Debit)		(Payments)		(Credit)

• Balancing: Total the Debit side (receipts) and the Credit side (payments). The difference is the 'Balance c/d' (carried down), usually on the credit side (as receipts normally exceed payments). This balance becomes 'Balance b/d' (brought down) on the debit side for the next period.

(b) Double Column Cash Book:

• Has two amount columns on each side. Common combinations are:
  • Cash and Discount Columns: Records cash transactions along with cash discounts allowed (on debit side) and received (on credit side).
    • Discount Columns: These columns are not balanced. They are simply totalled periodically. The total of the Discount Allowed column (Dr.) is posted to the debit of the Discount Allowed Account in the ledger. The total of the Discount Received column (Cr.) is posted to the credit of the Discount Received Account in the ledger.
  • Cash and Bank Columns: Records both cash and bank transactions. This is very common.
    • Contra Entries: Transactions involving both cash and bank accounts (where one increases and the other decreases) are recorded on both sides of the Cash Book. These are called Contra Entries, denoted by 'C' in the L.F. column.
      • Example 1: Cash Deposited into Bank: Bank A/c is debited (Bank column, Dr. side), and Cash A/c is credited (Cash column, Cr. side).
      • Example 2: Cash Withdrawn from Bank for Office Use: Cash A/c is debited (Cash column, Dr. side), and Bank A/c is credited (Bank column, Cr. side).
    • Balancing: Cash columns and Bank columns are balanced independently, similar to the single column cash book. The bank column can sometimes have a credit balance (overdraft).

(c) Triple Column Cash Book:

• Most comprehensive type, with three amount columns on each side: Cash, Bank, and Discount.
• Combines the features of the Cash & Discount and Cash & Bank double column cash books.
• Format:

  Date	Particulars	L.F.	Disc. All. (₹)	Cash (₹)	Bank (₹)	Date	Particulars	L.F.	Disc. Rec. (₹)	Cash (₹)	Bank (₹)
  	(Receipts)		(Dr.)	(Dr.)	(Dr.)		(Payments)		(Cr.)	(Cr.)	(Cr.)

• Recording & Balancing: Follows the rules discussed for double column books. Contra entries affect Cash and Bank columns. Discount columns are only totalled for posting to the ledger. Cash and Bank columns are balanced independently.

(d) Petty Cash Book:

• Maintained to record small, repetitive payments (e.g., postage, stationery, conveyance, tea expenses).
• Usually managed by a separate cashier called the 'Petty Cashier'.
• Imprest System: This is the most common system for managing petty cash.
  1. The Head Cashier gives a fixed sum (called 'imprest amount') to the Petty Cashier at the beginning of a period (e.g., a week or month).
  2. The Petty Cashier makes small payments out of this fund and records them in the Petty Cash Book.
  3. At the end of the period, the Petty Cashier submits the accounts (Petty Cash Book and vouchers) to the Head Cashier.
  4. The Head Cashier reimburses the exact amount spent by the Petty Cashier.
  5. This brings the Petty Cashier's balance back to the original imprest amount for the next period.
• Format (Analytical Petty Cash Book): Has one column for receipts and multiple columns for analysis of payments under different heads (e.g., Postage, Stationery, Conveyance, Miscellaneous).

  Amt Recd	Date	Particulars	V. No.	L.F.	Total Paid	Postage	Stationery	Conveyance	Misc.

• Advantages: Saves Head Cashier's time, controls petty expenses, simplifies main Cash Book recording.
• Posting: The total of each analysis column (Postage, Stationery, etc.) is debited to the respective expense account in the ledger periodically. The total payments are credited to the Petty Cash Account (or sometimes directly considered within the main Cash Book system).

2. Purchases Book (Purchases Journal / Purchases Day Book)

• Purpose: To record credit purchases of goods only. ('Goods' means items the business buys for resale or for use in production).
• Source Document: Purchase Invoice (received from the supplier).
• Exclusions:
  • Cash purchases of goods (recorded in Cash Book).
  • Purchase of assets (e.g., furniture, machinery) on credit (recorded in Journal Proper).
• Format:

  Date	Invoice No.	Name of Supplier (Account to be Credited)	L.F.	Details	Amount (₹)

• Recording: Record the net amount after deducting any Trade Discount. (Cash discount is not recorded here as payment hasn't happened yet). Details column may show gross amount less trade discount.
• Posting:
  • Individual Entries: The account of each supplier is credited daily or frequently in the Ledger with the amount of their respective invoice.
  • Periodic Total: The total of the Purchases Book is posted to the debit side of the Purchases Account in the Ledger periodically (e.g., monthly) with the narration "Sundries as per Purchases Book".

3. Sales Book (Sales Journal / Sales Day Book)

• Purpose: To record credit sales of goods only.
• Source Document: Sales Invoice (issued to the customer).
• Exclusions:
  • Cash sales of goods (recorded in Cash Book).
  • Sale of assets on credit (recorded in Journal Proper).
• Format:

  Date	Invoice No.	Name of Customer (Account to be Debited)	L.F.	Details	Amount (₹)

• Recording: Record the net amount after deducting any Trade Discount.
• Posting:
  • Individual Entries: The account of each customer is debited daily or frequently in the Ledger with the amount of their respective invoice.
  • Periodic Total: The total of the Sales Book is posted to the credit side of the Sales Account in the Ledger periodically (e.g., monthly) with the narration "Sundries as per Sales Book".

4. Purchases Return Book (Return Outwards Book / Journal)

• Purpose: To record the return of goods previously purchased on credit.
• Source Document: Debit Note (issued by the business to the supplier, indicating that the supplier's account is being debited). Sometimes, the supplier issues a Credit Note which is used as a basis.
• Format:

  Date	Debit Note No.	Name of Supplier (Account to be Debited)	L.F.	Details	Amount (₹)

• Posting:
  • Individual Entries: The account of each supplier (to whom goods are returned) is debited daily or frequently in the Ledger.
  • Periodic Total: The total of the Purchases Return Book is posted to the credit side of the Purchases Return Account (or Return Outwards Account) in the Ledger periodically.

5. Sales Return Book (Return Inwards Book / Journal)

• Purpose: To record the return of goods previously sold on credit by customers.
• Source Document: Credit Note (issued by the business to the customer, indicating that the customer's account is being credited).
• Format:

  Date	Credit Note No.	Name of Customer (Account to be Credited)	L.F.	Details	Amount (₹)

• Posting:
  • Individual Entries: The account of each customer (who returned goods) is credited daily or frequently in the Ledger.
  • Periodic Total: The total of the Sales Return Book is posted to the debit side of the Sales Return Account (or Return Inwards Account) in the Ledger periodically.

6. Journal Proper (General Journal)

• This is the residual journal. It records transactions that do not fit into any of the special purpose books mentioned above (including the Cash Book).
• Types of Entries Recorded:
  1. Opening Entries: Made at the beginning of the accounting year to record assets, liabilities, and capital appearing in the previous year's Balance Sheet.
  2. Closing Entries: Made at the end of the accounting year to transfer balances from revenue and expense accounts to the Trading and Profit & Loss Account.
  3. Transfer Entries: To transfer an amount from one account to another (e.g., transfer of drawings to Capital account).
  4. Adjustment Entries: Made at the end of the accounting period to record outstanding expenses, prepaid expenses, accrued income, income received in advance, depreciation, etc., before preparing final accounts.
  5. Rectification Entries: To correct errors made in recording transactions.
  6. Credit Purchase/Sale of Assets: When assets (other than goods) are bought or sold on credit.
  7. Bills Receivable and Bills Payable Entries: Recording acceptance, endorsement, discounting (sometimes), dishonour of bills.
  8. Miscellaneous Entries: Any other entry that doesn't fit elsewhere, e.g., goods lost by fire/theft, goods withdrawn by proprietor for personal use, goods given as charity/free samples.
• Format: Standard Journal format (Date, Particulars, L.F., Debit Amount, Credit Amount).
• Posting: Each entry from the Journal Proper is posted individually to the respective debit and credit accounts in the Ledger.

This detailed overview covers the core concepts of Chapter 4. Remember, the key is understanding which book is used for which type of transaction and the subsequent posting process to the Ledger.

Now, let's test your understanding with some Multiple Choice Questions.

Multiple Choice Questions (MCQs)

1. Which of the following transactions is recorded in the Purchases Book?
   (a) Purchase of goods for cash
   (b) Purchase of office furniture on credit
   (c) Purchase of goods on credit
   (d) Cash withdrawn from bank

2. A Contra Entry is recorded in which type of Cash Book?
   (a) Single Column Cash Book only
   (b) Petty Cash Book
   (c) Triple Column Cash Book
   (d) Purchases Return Book

3. The total of the Sales Book is posted periodically to the:
   (a) Debit side of Sales Account
   (b) Credit side of Sales Account
   (c) Debit side of Debtors Account
   (d) Credit side of Creditors Account

4. A Debit Note is the source document for recording transactions in the:
   (a) Sales Book
   (b) Sales Return Book
   (c) Purchases Book
   (d) Purchases Return Book

5. The Imprest System is commonly used for managing:
   (a) Bank transactions
   (b) Credit Sales
   (c) Petty Cash
   (d) Asset Purchases

6. Which of the following is recorded in the Journal Proper?
   (a) Cash sales of goods
   (b) Credit purchase of goods
   (c) Depreciation charged on machinery
   (d) Payment of salaries in cash

7. In a Triple Column Cash Book, the discount columns are:
   (a) Balanced monthly
   (b) Never balanced, only totalled
   (c) Used for contra entries
   (d) Posted daily to the ledger

8. Goods returned by a customer, originally sold on credit, are recorded in:
   (a) Sales Book
   (b) Purchases Return Book
   (c) Sales Return Book
   (d) Journal Proper

9. Cash discount received is recorded on the:
   (a) Debit side of the Cash Book (Discount column)
   (b) Credit side of the Cash Book (Discount column)
   (c) Debit side of the Cash Book (Cash column)
   (d) Credit side of the Cash Book (Cash column)

10. The dual role of Journal and Ledger is performed by:
    (a) Sales Book
    (b) Purchases Book
    (c) Journal Proper
    (d) Cash Book

Answer Key:

1. (c)
2. (c) (Also applicable to Double Column Cash Book with Cash & Bank columns)
3. (b)
4. (d)
5. (c)
6. (c)
7. (b)
8. (c)
9. (b)
10. (d)

Study these notes carefully. Understanding the purpose and mechanics of each subsidiary book is essential for accurate accounting and will be beneficial for your exams. Let me know if any part needs further clarification!