CBSE Class 11 Accountancy Chapter 4: Recording of Transactions – II NCERT Solutions

The cash book serves a dual purpose in accounting. Firstly, it acts as a journal because all cash and bank receipts and payments are recorded directly into it from the source documents. This eliminates the need to record these specific transactions in the general journal. Secondly, it functions as a ledger. By recording all cash and bank transactions, the cash book itself provides the necessary information to determine the cash and bank balances at any given time. Therefore, a separate cash account or bank account in the ledger is not required, as the cash book effectively summarizes these accounts.

A contra entry is a special type of entry used in a two-column cash book (which includes both cash and bank columns) to record transactions that affect both the cash and bank accounts simultaneously. The primary purpose of a contra entry is to show the movement of funds between the business's cash on hand and its bank account. For example, when cash is deposited into the bank, it is a contra entry (debit bank, credit cash). Similarly, when cash is withdrawn from the bank for office use, it is also a contra entry (debit cash, credit bank). These entries are typically denoted by the letter 'C' in the ledger folio (L.F.) column of the cash book to indicate that the transaction has been posted on both sides of the cash book and does not require further posting in the ledger.

Special purpose books, also known as subsidiary books, are specialized journals maintained by businesses to record specific types of routine and repetitive transactions efficiently. As the volume of business transactions increases, it becomes impractical to record every transaction in the general journal. Therefore, businesses create separate books for frequently occurring transactions, such as a Sales Book for credit sales, a Purchases Book for credit purchases, a Sales Returns Book for goods returned by customers, and a Purchases Returns Book for goods returned to suppliers. Maintaining these books simplifies the recording process, allows for the division of work among accounting staff, and makes the accounting process more economical and accurate.

A petty cash book is a subsidiary book used to record small, miscellaneous expenses, often referred to as petty expenses. These typically include payments for items like postage, stationery, printing, conveyance, refreshments, and minor repairs. The person responsible for managing this fund is called the petty cashier.

The petty cash book is generally 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 records all payments made from this fund in the petty cash book. At the end of the period, the petty cashier submits the petty cash book and any remaining cash to the main cashier, who then reimburses the petty cashier for the total amount spent, replenishing the fund for the next period.
2. Imprest System: This is the more common and recommended method. In this system, a fixed sum of money (the imprest amount) is given to the petty cashier at the beginning of a specific period (e.g., a week or a month). Throughout the period, the petty cashier makes payments for petty expenses and records them in the petty cash book. At the end of the period, the petty cashier presents the petty cash book and the remaining cash to the main cashier. The main cashier then provides the petty cashier with an amount equal to the total expenses incurred, so that the petty cashier once again has the original fixed imprest amount for the commencement of the next period. This ensures that the petty cashier always has a consistent fund available for small expenses.

Posting is the process of transferring the debit and credit amounts from the journal (or subsidiary books like the cash book, sales book, etc.) to their respective accounts in the ledger. The ledger is a principal book of accounts that contains all the accounts of the business, such as cash, bank, debtors, creditors, sales, purchases, etc. When a transaction is recorded in the journal, it affects at least two accounts (one debit and one credit). Posting involves systematically transferring the debit amount of a transaction to the debit side of the relevant account in the ledger and the corresponding credit amount to the credit side of the other relevant account in the ledger. This process helps in summarizing the effect of transactions on each individual account and facilitates the preparation of the trial balance and financial statements.