As a business expands, the volume of transactions grows, making it cumbersome to record all entries in a single journal. To ensure quick, efficient, and accurate recording, the journal is sub-divided into special journals (also known as subsidiary books or daybooks).
These books are designed to record transactions of a repetitive and similar nature. The primary special purpose books discussed in this chapter are:
The Cash Book is a book of original entry that records all transactions relating to cash receipts and payments. It serves the purpose of both a journal and a ledger account, meaning no separate cash account is required in the ledger.
The Single Column Cash Book records only cash receipts (on the debit side) and cash payments (on the credit side) in chronological order. It contains only one amount column on each side.
| Dr. (Debit Side) | Cr. (Credit Side) | ||||||
|---|---|---|---|---|---|---|---|
| Date | Receipts | L.F. | Amount (Rs.) | Date | Payments | L.F. | Amount (Rs.) |
A Double Column Cash Book contains two columns of amount on each side: one for cash transactions and one for bank transactions. This is highly useful as modern businesses conduct most transactions through banks.
| Dr. | Cr. | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Date | Receipts | L.F. | Cash (Rs.) | Bank (Rs.) | Date | Payments | L.F. | Cash (Rs.) | Bank (Rs.) |
To prevent the main cash book from becoming bulky with numerous small payments (like postage, cartage, stationery, and conveyance), businesses maintain a Petty Cash Book managed by a petty cashier.
The petty cashier operates on the Imprest System. Under this system, a fixed sum (imprest amount) is given to the petty cashier at the start of a period. At the end of the period, the main cashier reimburses the exact amount spent, restoring the original balance.
The relationship between the imprest amount, amount spent, and balance is represented as:
$$\text{Imprest Amount} = \text{Amount Spent} + \text{Balance Cash in Hand}$$The Purchases Book is used to record only credit purchases of goods. Cash purchases are recorded in the Cash Book, and credit purchases of assets are recorded in the Journal Proper.
This book records the return of goods purchased on credit to suppliers due to defects or poor quality.
The Sales Book is used to record all credit sales of merchandise. Cash sales are recorded in the Cash Book, and credit sales of assets are recorded in the Journal Proper.
This book records the return of goods by customers who purchased them on credit.
The Journal Proper (or Journal Residual) is used to record transactions that cannot be entered into any other subsidiary book. It typically includes:
Balancing an account means totaling both sides of a ledger account and finding the difference between them to ascertain the net position.