CBSE Class 11 Accountancy: Recording of Transactions – II NCERT Solutions

Solution: The cash book serves a dual purpose in accounting. Firstly, it functions as a journal because all cash and bank transactions are recorded directly into it from their respective source documents, eliminating the need for separate entries in the general journal. Secondly, it acts as a ledger because it summarizes all cash receipts and payments, allowing for the direct determination of the cash and bank balances. This eliminates the need to prepare separate Cash and Bank accounts in the general ledger, thus consolidating the recording and balancing functions.

Solution: The purpose of a contra entry is to record transactions that affect both the cash and bank accounts within the cash book itself. These typically include cash deposited into the bank or cash withdrawn from the bank for office use. By recording these on both the debit and credit sides of the two-column cash book (or relevant columns in other formats), it ensures that the cash and bank balances remain accurate without requiring separate journal entries. A contra entry is usually indicated by the letter 'C' in the ledger folio (LF) column.

Solution: Special purpose books, also known as subsidiary books, are specialized journals created to record specific types of routine and repetitive business transactions efficiently. Examples include the Sales Book for credit sales, Purchases Book for credit purchases, Sales Returns Book for goods returned by customers, and Purchases Returns Book for goods returned to suppliers. Maintaining these books simplifies the recording process, saves time and effort, allows for the division of work among accounting staff, and makes information more accessible.

Solution: A petty cash book is a subsidiary book used to record small, miscellaneous expenses, often referred to as petty expenses, such as postage, stationery, conveyance charges, and refreshments. The person responsible for maintaining this book is called the petty cashier.

It is typically prepared using one of two methods:

1. Ordinary System: Under this method, the petty cashier is given a fixed amount of money at the beginning of a period to cover petty expenses. The petty cashier makes payments from this fund and submits the account of expenses incurred to the main cashier, usually when the initial amount is exhausted or at the end of the period.
2. Imprest System: This is the more common method. A fixed sum of money is given to the petty cashier at the beginning of a period (e.g., a week or a month). Throughout the period, the petty cashier makes payments for petty expenses. At the end of the period, the petty cashier submits a summary of expenses to the main cashier. The main cashier then reimburses the petty cashier for the exact amount spent, restoring the petty cash fund to its original fixed amount for the start of the next period. This ensures the petty cashier always has a consistent amount available.

Solution: Posting is the fundamental process in double-entry bookkeeping where transactions initially recorded in the journal (or subsidiary journals) are transferred to their respective accounts in the ledger. For each journal entry, the debit amount is posted to the debit side of the corresponding ledger account, and the credit amount is posted to the credit side of its respective ledger account. This process systematically organizes all financial data by account type, enabling the preparation of financial statements.

Solution: Subsidiary journals are maintained to manage the large volume of transactions that occur in a growing business more effectively than using a single general journal. The primary purposes include:

1. Efficiency and Time Saving: They allow for the quick and systematic recording of routine and repetitive transactions (like credit sales, credit purchases, etc.) in specialized books, saving considerable time and effort.
2. Division of Work: They facilitate the division of labor within the accounting department, as different accountants can be assigned responsibility for specific subsidiary journals, leading to specialization and increased accuracy.
3. Accountability: Assigning specific books to individual accountants enhances their responsibility and accountability for the accuracy of the records within those books.
4. Accessibility of Information: Transactions of a similar nature are grouped together, making it easier to locate specific information quickly and simplifying the process of analysis and communication.

Solution: The key differences between return inwards and return outwards are as follows:

Basis of Difference	Return Inwards (Sales Returns)	Return Outwards (Purchases Returns)
Meaning	Goods sold to customers that are returned by them.	Goods purchased that are returned to suppliers.
Balance	It has a debit balance.	It has a credit balance.
Treatment in Trading Account	It is deducted from Sales.	It is deducted from Purchases.
Document Issued	Credit Note is prepared by the seller.	Debit Note is prepared by the buyer.
Effect on Payment/Receivables	It reduces the amount receivable from debtors.	It reduces the amount payable to creditors.
Alternative Term	Also termed as Sales Returns.	Also termed as Purchases Returns.

Solution: Ledger Folio (L.F.) is a reference number or page number that is entered in the L.F. column of a journal entry. It indicates the specific page number in the ledger where the corresponding account has been debited or credited. When a transaction is posted from the journal to the ledger, the page number of the ledger account is written in the L.F. column of the journal. This facilitates easy location and cross-referencing of accounts in the ledger, making the audit and verification process more efficient.

Solution: The differences between trade discount and cash discount are significant:

Trade Discount:

It is a reduction in the price of goods offered by the seller to the buyer, usually based on the list price or catalogue price.

It is allowed at the time of sale, irrespective of whether the payment is made immediately or later.

It is not recorded in the books of accounts; only the net amount (after deducting trade discount) is recorded.

Its purpose is to encourage bulk purchases or to maintain a consistent pricing policy.

Cash Discount:

It is a reduction in the amount payable offered by the seller to the buyer as an incentive for making prompt payment.

It is allowed only when the payment is made within a specified period, often after the sale has occurred.

It is recorded in the books of accounts, as it affects the actual amount received or paid. It is shown as an expense for the seller and income for the buyer.

Its purpose is to expedite the collection of payments from customers.