Books Of Original Entry-Journal

The word journal means a diary or a day book, where daily transactions are recorded in order of the Golden Rule of Accounting of course.

However, where the number of transactions are many it would be time consuming and cumbersome if each and every transaction were to be entered in a single Journal. Firms maintain subsidiary books to record transactions. These books are;

1. Cash Book (to record cash and bank transactions)

2. Petty Cash Book (to record cash payments involving small amounts)

3. Sales Book (to record credit sales)

4. Purchase Book (to record   credit purchases)

5. Sales Return Book (to record return from customers)

6. Purchase Returns Book (to record return to suppliers)

7. Bills Receivable Book (to record acceptances received)

8. Bills Payable Book (to record acceptances given)

9. Journal Proper (to record transactions which cannot be entered in any of the above specialized Journals)

Cash Book

All transactions relating to cash are recorded in the cash book, and on the basis of such a record ledger accounts are prepared. The different types of cash book are:

1. Simple Cash Book containing Cash Column only

2. Two Column Cash Book containing both Cash Column and Bank Column

3. Three Column Cash Book containing Cash, Bank and Discount columns.

(1)  Simple Cash Book

The simple cash book is maintained strictly for cash transactions, a bank book being maintained separately for bank transactions. The form of a simple cash book is like that of a two/double column Cash Book, just without the Bank Column. In this modern era where most economies are operating on a cashless basis, it is quite hard to a business entity operating a simple cash book.

(2) Two Column Cash Book

The Two Column Cash Book combines both bank and cash transactions for the sake of convenience due to the ever increasing bank transactions.

The Two Column Cash Book is so ruled that the debit column of cash and bank are placed alongside each other likewise with the credit column of cash and bank. The bank column contains details of payment made by Cheques and money received and paid into the bank A/c.  In the folio columns the letter “C” is used whenever cash is being paid into the bank or there is a receipt from the bank, “C” means contra item and described transaction affecting only cash and bank accounts.

We use the following transactions to illustrate a two column cash book;

ILLUSTRATION

Mr. Metuh made the following transactions for the month of January, and you are required to enter them in his cash book;

Jan 1 Balances brought dawn – bank N5, 000 and cash N450

3 Withdrew N2, 000 from bank

5 Bought goods for N1, 500 paying by Cheque

8 Bought stationery and paid in cash N50

11 Paid electricity bill N100 by Cheque

15 Sold goods for N2, 000 and received Cheque

20 Paid into bank N150

  Dr.(Receipts)                                                                  (Payments) Cr.

  Date     Part       LF      Cash   Bank    Date     Part        LF  Cash     Bank

Jan 1     Balb/d             450   5000      Jan 3    Cash          c              2,000

Jan 3    Bank       c     2,000                Jan 5   Purchases                    1,500

                                                           Jan 8   Stationery           50                   

                                                           Jan11   Electricity                       100   

Jan 15   Sales                        2,000     Jan20   Bank                150

Jan 20 Cash                             150     Jan31   Balance          2,150     3,550

                                2,450    7,150                                      2,450      7,150  

Feb 1     Bal b/d      2,450     7,150

Payments can easily be identified as either cash or bank payments. If a payment is made directly from bank account e.g., by a standing order it appears in the bank account column.

Payments of cash are entered in the cash column. When an amount is received by Cheque it should be recorded directly in the bank column.

(3) Three Column Cash Book

The three column cash book has the cash and bank discount column. Cash discount is an incentive given to customers to pay before the date specified. It encourages early payment and when given to a customer is a loss and when received from a supplier is a gain. Since this  discount  arises  only  when  cash  is  received  or  paid  it  is  recorded  in  the  cash  book, discount allowed on the debit side and discount received on the credit side of the cash book.

The discount columns are totaled and not balanced. The form of a three column cash book is illustrated with the following example:

May 1 Balances brought down – bank N3, 080, cash N709

2 Paid wages in cash N218

4 Received N177 cash from Obi after allowing him a discount of N13.

6 Paid Boniface N188 after deducting discount of N12 by Cheque.

8 Received Cheque of N485 from Moses after allowing him a discount of 3%.

10 Received cash from Amarachi of N150 after allowing a 3% discount

Dr.(Receipts)                                                                             (Payments)Cr.

Date     Part       LF    Dis/A Cash  Bank  Date  Part    LF   Dis/R Cash   Bank

May 1 Bal b/d                    709    3,080  May 2   Wages                218      

May 4 Obi                 13     177              May 6   Boniface     12                188

May 8  Moses       14.55                485   May 11 Balance c/d        818   3,377   

May 10Amarachi     4.50    150                  

May 11 Balance     32.05  1,036   3,565                                     1,036      3,565

June 1   Bal b/d                  818     3,377

The total of the debit discount column i.e., discount allowed is transferred to the discount allowed account in the ledger.  Similarly, discount received (credit discount column) is transferred to the discount received account in the ledger.

Our next tutorial will be on Petty Cash book or Imprest.