Subdivision of Journal

Learning Objectives:

1. What is subdivision of journal?
2. Define and explain cash book and bank reconciliation statement
3. What are the different types of cash book?
4. Write single, double, and three column cash book.
5. Prepare a bank reconciliation statement.

Though the principle of journalising all transactions, known as continental system of bookkeeping is quite perfect in actual business but in a large business it is found inconvenient to Journalise every transaction and sometime it becomes rather impossible for one man to Journalise numerous transactions on a business in one journal. Therefore, the journal is sub-divided into different journals known as the subsidiary books or books of prime entry or books of original entry. These are the books in which are recorded the details of transactions as they take place from day to day, in a classified manner.

In every trading concern, the transactions, however numerous they may be, can be grouped into small number of classes. They consist chiefly of receipts and payments of cash, purchases and sales of goods, returns of goods purchased and sold, bills receivable and bills payable. The journal is divided in such a way that a separate book is used for each class of transactions.

The important subsidiary books used in modern business world are the following:-

1. Cash Book: It is used to record all cash receipts and payments.
2. Purchases Book: It is used to record all credit purchases.
3. Sales Book: It is used to record all credit sales
4. Purchases returns book: It is used to record all goods returned by us to our suppliers.
5. Sales Returns Book: It is used to record all goods returned to us by our customers.
6. Bills Receivable Book: It is used to record all accepted bills received by us.
7. Bills payable Book: It is used to record all bill accepted by us to our creditors.
8. Journal Proper: It is used for recording those transactions for which there is no separate book.

All these subsidiary books are called books of original entry, as transactions in their original form are entered therein.

Advantages of Different Journals: The advantages of having several books of original entry in place of one journal may be stated to as follows:

1. It may be impossible to record each transaction into the ledger as it occurs. Subsidiary books record the details of the transactions and therefore, helps the ledger to become brief.
2. As similar transactions are recorded together in the same book, future reference to any of them becomes easy.
3. The chance of fraudulent alteration in an account is reduced as the book of original entry keeps records of the transactions in a chronological order.
4. The work of posting can be entrusted to several clerks at the same time and thus the ledger of a large business can be written up much more quickly.
5. As each journal contains separately transactions of similar nature any desired analysis can be made conveniently.

Definition and Explanation of Cash Book:

Learning Objectives:

1. Define and explain cash book.
2. How a cash book is balanced.
3. Prepare a format of the simple cash book.

Cash book is a book of original entry in which transactions relating only to cash receipts and payments are recorded in detail. When cash is received it is entered on the debit or left hand side. Similarly, when cash is paid out the same is recorded on the credit or right hand side of the cash book.

The cash book, though it serves the purpose of a cash book of original entry viz., cash journal really it represents the cash account of the ledger separately bound for the sake of convenience. It is more a ledger than a journal. It is journal as cash transactions are chronologically recorded in it. It is a ledger as it contains a classified record of all cash transactions. The balances of the cash book are recorded in the trial balance and the balance sheet.

Vouchers:

For Every entry made in the cash book there must be a proper voucher. Vouchers are documents containing evidence of payment and receipts. When money is received generally a printed receipt is issued to the payer but counterfoil or the carbon copy of it is preserved by the cashier. The copy receipts are called debit vouchers, and they support the entries appearing on the debit side of the cash book. Similarly when payment is made a receipt is obtained from the payee. These receipts are known as credit vouchers. All the debit and credit vouchers are consecutively numbered. For ready reference the number of the vouchers are noted against the respective entries. A column is provided on either side of the cash book for this purpose.

Balancing Cash Book:

The cash book is balanced at the end of a given period by inserting the excess of the debit on the credit side as "by balance carried down" to make both sides agree. The balance is then shown on the debit side by "To balance brought down" to start the next period. As one cannot pay more than what he actually receives, the cash book recording cash only can never show a credit balance.

Format:

The following is the simple format of a cash book:

Date	Particulars	L.F.	Amount	Date	Particulars	L.F.	Amount

Single Column Cash Book:

Learning Objectives:

1. Define and explain single column cash book.
2. Prepare a single column cash book.

Definition and Explanation:

Single column cash book records only cash receipts and payments. It has only one money column on each of the debit and credit sides of the cash book. All the cash receipts are entered on the debit side and the cash payments on the credit side.

While writing a single column cash book the following points should be kept in mind:

1. The pages of the cash book are vertically divided into two equal parts. The left hand side is for recording receipts and the right hand side is for recording payments.
2. Being the cash book with the balance brought forward from the preceding period or with what we start. It appears at the top of the left side as "To Balance" or "To Capital" in case of a new business.
3. Record the transactions in order of date.
4. If any amount of cash is received on an account, the name of that account is entered in the particulars column by the word "To" on the left hand side of the cash book.
5. If any amount is paid on account, the name of the account is written in the particulars column by the word "By" on the right hand side of the cash book.
6. It should be balanced at the end of a given period.

Posting:

The balance at the beginning of the period is not posted but other entries appearing on the debit side of the cash book are posted to the credit of the respective accounts in the ledger, and the entries appearing on the credit side of the cash book are posted to the debit of the proper accounts in the ledger.

Format of the Single Column Cash Book:

Following is the format of the single column cash book:

Date	Particulars	L.F.	Amount	Date	Particulars	L.F.	Amount

Example:

Write the following transactions in the simple cash book and post into the ledger:

1991
Jan. 1	Cash in hand	15,000
" 6	Purchased goods for cash	2,000
" 16	Received from Akbar	3,000
" 18	Paid to Babar	1,000
" 20	Cash sales	4,000
" 25	Paid for stationary	60
" 30	Paid for salaries	1,000
" 31	Purchased office furniture	2,000

Solution:

Cash Book

Date	Particulars	L.F.	Amount	Date	Particulars	L.F.	Amount
1991 Jan. 1 16 20	To Balance b/d To Akbar To sales a/c To Balance b/d		15,000 3,000 4,000 22,000 15,940	Jan. 6 18 25 30 31	By Purchases a/c By Babar By stationary By Salaries a/c By Furniture a/c By Balance c/d		2,000 1,000 60 1,000 2,000 15,940 22,000

Akbar

1991 Jan. 16

By Cash

$ 3,000

Sales Account

1991 Jan. 2

By Cash

$ 4,000

Purchases Account

1991 Jan. 6

To Cash

$ 2,000

Babar Account

1991 Jan. 18

To Cash

$ 1,000

Stationary Account

1991 Jan. 25

To Cash

$ 60

Salaries Account

1991 Jan. 30

To Cash

$ 1,000

Furniture Account

1991 Jan. 31

To Cash

$ 2,000

Two Column Cash Book/Double Column Cash Book:

Learning Objectives:

1. Define and explain a two/double column cash book.
2. Prepare a two column cash book.
3. What is the difference between a single column cash book and a double column cash book?

Definition and Explanation:

A double column cash book or two column cash book is one which consists of two separate columns on the debit side as well as credit side for recording cash and discount. In many concerns it is customary for the trader to allow or to receive small allowance off or against the dues. These allowances are made for prompt settlement of accounts. In certain business almost all receipts or payments are accompanied by such discounts and in order to avoid unnecessary postings separate columns in the cash book are introduced to record the discounts received or allowed. These discount columns are memorandum columns only. They do not form the discount account. The discount column on the debit side of the cash book will record discounts allowed and that on the credit side discounts received.

Posting:

The cash columns will be posted in the same way as single column cash book. But as regards discount column, each item of discount allowed (Dr. side of the cash book) will be posted to the credit of the respective personal accounts. Similarly each item of discount received will be posted to the debit of the respective personal account. Total of the discount column on the debit side of the cash book will be posted to the debit side of the discount account in the ledger and the total of discount column on the credit side of the cash book on the credit side of the discount account. The discount columns are not balanced like cash column of the tow column cash book.

Format of the Double Column Cash Book:

Debit Side Credit Side

Date	Particulars	V.N.	L.F.	Discount	Cash	Date	Particulars	V.N.	L.F.	Discount	Cash

Example of Two Column Cash Book:

From the following transactions write up a two column cash book and post into ledger:

1991
Jan. 1	Cash in hand $2,000
" 7	Received from Riaz & Co. $200; discount allowed $10
" 12	Cash sales $1,000
" 15	Paid Zahoor Sons $500; discount received $15
" 20	Purchased goods for cash $300
" 25	Received from Salman $500; discount allowed $15
" 27	Paid Hussan & Sons $300.
" 28	Bought furniture for cash $100
" 31	Paid rent $100

Solution:

Cash Book

Debit Side Credit Side

Date	Particulars	V.N.	L.F.	Discount	Cash	Date	Particulars	V.N.	L.F.	Discount	Cash
1991 Jan.1 " 7 " 12 " 25 1991 Feb1	To Balance b/d To Riaz & Co. To Sales a/c To Salman To Balance b/d			10 15	2,000 200 1,000 500	1991 Jan.5 " 20 " 27 " 28 " 31	By Zahoor & Sons By purchase a/c By Hussan&Sons By Furniture a/c By Rent a/c By Balance c/d			15	500 300 300 100 100 2,400
				25	3,700					15	3,700
					2,400

Riaz & Co.

1991 Jan. 7

By Cash By Discount

$ 200 10

Sales Account

1991 Jan. 12

By Cash

$ 1,000

Salman Account

1991 Jan. 25

By Cash By Discount

$ 500 15

Babar Account

1991 Jan. 18

To Cash

$ 1,000

Zahoor Account

1991 Jan. 15

To Cash Discount

$ 500 15

Purchases Account

1991 Jan. 20

To Cash

$ 300

Hussan & Sons

1991 Jan. 27

To Cash

$ 300

Furniture Account

1991 Jan. 28

To Cash

$ 100

Rent Account

1991 Jan. 31

To Cash

$ 100

Discount Account

1991 Jan. 31

To Sundries as per Cash book

$ 25

1991 Jan. 31

By Sundries as per cash book

15