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.
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