Structure:
4.1 Introduction
Objectives
4.2 Introduction to Primary books
Self Assessment Questions 1
4.3 Journal
Self Assessment Questions 2
4.4 Ground rules of journal entry
Self Assessment Questions 3
4.5 Types of journal
Self Assessment Questions 4
4.6 Purchases Day book
Self Assessment Questions 5
4.7 Sales day book
Self Assessment Questions 6
4.8 Return Outward book
Self Assessment Questions 7
4.9 Return inward book
Self Assessment Questions 8
4.10 Bills receivable book
Self Assessment Questions 9
4.11 Bills payable book
Self Assessment Questions 10
4.12 Cash book
Self Assessment Questions 11
Self Assessment Questions 12
Terminal Questions
Answer to SAQs and TQs
4.1 Introduction
The accounting process actually begins with recording the transactions in an accounting book.
This book of original recording is called primary book and of course all transactions are recorded
basing on certain documents like invoices, vouchers or receipts etc., All transactions should
invariably be entered through the primary accounting books. Other wise, the final results of the
business concern project a distorted position or end up in preparing unreliable statements. So
making entries in the primary books is the basis for further accounting treatment such as posting
to ledger, preparation of trial balance etc.,
Learning Objectives:
After studying this unit, you should be able to understand the following
1. To know the various primary books, containing original entries.
2. To record transactions in General Journal adopting debit and credit principles.
3. To know in brief about subsidiary books
4. To open purchases day book and Purchase Returns Book.
5. To open Sales day book and Sales Returns Book.
6. To know about Bill Transactions.
7. To prepare Bills Receivable Book and Bills Payable Book.
8. To open Cash Book with Cash column only.
9. To understand the preparation of Cash Book with Cash and Bank Columns.
10. To understand the preparation of Cash Book with cash, bank and discount columns.
11. To know the preparation of Petty Cash Book.
12. To know how to prepare ledger accounts from individual subsidiary books.
once the transactions are recorded in the journal or other subsidiary books, posting is made to
ledger. It is also possible that entries are made directly to ledger accounts without bringing them
to journal at all. However, to help in cross checking, both journal and ledger accounts are
prepared.
4.3 Journal
It is a book containing systematic recording of transactions. The entry made is known as journal
entry and the process of writing the journal entry is called journalizing. Each page of the journal is
numbered and it is called journal folio (JF). Entries are made date wise and they reflect what
account is debited and what account is credited. The form of a journal is given below.
JOURNAL
Ledger Debit Credit
Date Particulars
Folio Rs. Rs.
2-4-2005 Cash A/c Dr 100000
To Capital A/c 100000
(Being capital brought in cash)
3-4-2005 Furniture A/c Dr 20000
To cash A/c 20000
(Being furniture purchased for cash)
The ledger folio mentioned in the third column indicates the number of page in the ledger book
where the respective account summary is stated. For instance, the cash account is separately
mentioned in page number 120 of the ledger book, then the ledger folio is 120. Similarly the folio
number is given to other accounts. Usually the entry is read as ‘cash account debtor to capital
account’ and so on. For every journal entry, narration is given to briefly describe the transaction.
Illustration 1
Enter the following transactions in the books of Gopichand
1. 10-5-2004 Started business with capital of Rs.50000
2. 12-5-2004 Bought goods worth Rs.30000
3. 14-5-2004 Sold goods to Ram Charan for Rs.5000 for cash
4. 15-5-2004 Sold goods to Kanthilal Rs.12000 on credit
5. 20-5-2004 Paid wages to daily workers Rs.300
Answer
Journal Entries in the books of Gopichand
Date Particulars LF Debit (Rs.) Credit (Rs.)
10-5-04 Cash A/c Dr 50000
To Capital A/c 50000
(Being capital brought in cash)
12-5-04 Goods A/c Dr 30000
To Cash A/c 30000
(Being Goods purchased for cash)
14-5-04 Cash A/c Dr 5000
To Goods A/c 5000
(Being goods sold on cash to Ram Charan)
15-5-04 Kanthilal A/c Dr 12000
To Goods a/c 12000
(Being goods sold on credit to Kanthilal)
20-5-04 Wages A/c Dr 300
2. All such transaction which cannot be included under different subsidiary books are entered in
journal proper.
3. Can we post the transactions to ledger accounts from the entries made in subsidiary books ?
4. The purpose of subsidiary books is to classify enumerable transactions into various functional
activities.
Inward Amount
Date Name of Supplier Ledger Folio
Invoice No Rs.
2006
August 5 Rao Bros, Bangalore 567 36,000
8 Snow white Co, 87 45,000
16 Best & Company 146 29,000
Total 1,10,000
Inward invoice is the document sent by the supplier while selling the goods. Every invoice
received is numbered and this number is stated in the purchases book for reference. From the
above entries made in the purchases book, it is possible to record journal entries. Whenever,
purchases are made, goods account is debited because it is real account and the supplier’s
account is credited because the supplier is the giver and it is personal account. The journal
entries for the above transactions appear as under:
Observe that in every case of credit purchase, the supplier’s account is credited and goods
account is debited.
At the end of the day or week or month, the total of purchases is transferred to one ledger
account known as Purchases account in the ledger.
Outward Invoice number is the number of the invoice issued by the businessman to the customer.
The total of Rs. 1,11,000 will be transferred to sales account in the ledger. Similarly the
respective ledger accounts of the customers will be prepared in the ledger.
Debit Amount
Date Name of supplier Ledger folio
note No. Rs.
2006 August, 12 Snow White Co 25 5000
24 Best & Co 26 7000
Total 12,000
The total of the book is transferred to ledger to an account called purchase returns account,
which shows credit balance. The respective personal accounts of the suppliers/creditors are
debited in their respective ledger accounts.
As usual the total of the book is transferred to an account called sales returns account in the
ledger and this account shows debit balance. The respective personal accounts of the customers
are credited with the value of the goods returned by them.
For every bill the due date is calculated after adding three days of grace. The person from whom
the bill is received and the person who accepted the bill could be the same person or different
persons. The total of the bill receivable is transferred to bills receivable account in the ledger.
4. 12 Cash Book
Cash book is an important subsidiary book and a book of original entry. It is a record of cash
receipts and cash payments made during a particular period. On the right hand side, receipts are
recorded and on the left hand side, payments are recorded. A simple cash book has two sides,
receipts side and payment side. The receipts are on debit side and the payments are on credit
side. Just as a ledger account, the words ‘To’ and ‘By’ are used. Cash book may also contain
cash column and bank column. Cash column represents cash in the business and bank column
represents cash kept in the bank. Bank column of cash book is a reflection of bank pass book.
In this connection, it is important to note that in a few transactions, affecting both cash and bank
accounts, contra entries are drawn. For example, cash is deposited in the bank is a transaction in
which cash goes out and bank is the receiver. In cash account, it is recorded as payment and in
bank account it is treated as a receipt. Similarly when cash is withdrawn from bank for office
purpose, contra entry is drawn, debiting cash account and crediting bank account.
Cash book containing cash and bank columns is known as two column cash book. In the case of
three column cash book, on the receipt side, cash, bank and discount allowed columns are
stated. On the credit side, cash, bank and discount received columns are mentioned.
4. cash discount allowed to customers appears an ____ side of cash book. Cash discount
received appears are ____ side of cash book.
5. discount columns are independently totaled and not balanced.
6. Bank columns of cash book indicates Bank transations made by business man.
7. contra entry is an entry where both cash account and bank account are affected.
There is a distinct method, namely imprest system which is adopted in maintaining such petty
cash book. Under this system, at the beginning of a month, a definite sum of money is given by
chief cashier to petty cashier for petty expenses. At the commencement of the next period, the
petty cashier receives money equal to what is spent during the earlier period. For instance, in the
beginning of January, 2004, a sum of Rs.10000 is given to petty cashier assuming that such
miscellaneous expenses may be to the order of Rs.10000. By the end of January, it may be
found that the actual expenses are only Rs.9000. Then the chief cashier will reimburse Rs.9000
so that the opening balance for the month of February will be Rs.10000. This is also called
analytical petty cash book.
Illustration:
Enter the following transactions in an analytical petty cash book.
2005
November 1st . Received a cheque for petty cash Rs.1000
2nd . Paid bus fare to messengers Rs50
Total
Amt
V Payme Ledger
Recd CBF Date Particulars Analysis of payments LF
No nts A/cs
Rs
Rs
Tra Post Carr P&S Wages Sundry
Rs Rs Rs Rs Rs Exps
Rs
1,000 Nov To Bank
st 50
1 By bus fare 50
nd
70
2 ByAutofare 70
th
80
4 By postal 80
10th
By Stationery 90
12th
By Carriage 60
15th
By Envelopes 50
16th
By Wages 100
20th
90
By tips 50
25th
By Telegram 20
30th
By Balance C/d 570
Nov 60
30th ____ 50
Dec 1st 80 100
___120 50
430
20 ____ _____
80 140 100 50
1,000
Note:
1. CBF stands for cash book folio
2. V.No stands for Voucher No
3. Tra stands for Travelling expenses
4. Carr indicates Carriage expenses
Terminal Question
1. Purchases book records___________________ purchases.
2. Cash purchases are recorded on-_____________ side of cash book..
3. Credit sales are entered in ____________________________ book.
4. Record a journal entry for drawings made for personal purposes of the businessman.
5. If drawings are made from bank for office purpose, what is the entry?
6. During the year, if the total owner’s equity of Beta Co increased from Rs50,000 to Rs60000, it
is because of earnings made during the year. Is this statement necessarily true?
7. Complete the following matrix by entering either debit or credit in each cell.
Item Increases Decreases
Assets
Liabilities
Owner’s equity
Income
Expenses
8. Listed below a number of transactions. Identify which account to be debited and which
account to be credited, as shown for the first transaction.
Transaction Debit Credit
Paid to Gopal, a creditor Gopal account Cash account
Paid rent in advance for the next year
Purchased stationery
Paid rent for the proprietor’s house
Purchases machinery on part payment
Charged customers for services provided
Collected cash for the services provided
Received a cheque from customer on account
Paid dividend
Paid wages for construction of business premises
Paid interest charges on loan
Electricity bill paid
Salaries paid
9. Journalise the following transactions in the books of Harinam Singh for the month of April,
2005.
Rs.
st
1 Harinam Singh started business with cash 60,000
nd
2 Purchased furniture for cash 10,000
th
4 Purchased goods for cash 25,000
th
5 Bought goods from Karmesh 25,000
th
7 Sold goods for cash 44,000
th
9 Sold goods to Ramesh 30,000
th
10 Paid cash Kamalnath 15,000
th
11 Received cash from Ramanath 10,000
th
18 Purchased goods from Sohan Kumar 12,000
th
25 Purchased computers on credit from Shivshankar 28,000
29th Paid salaries 7,000
th
30 Withdrew cash for personal use from the office 10,000
th
30 Paid wages 5,500
10. Record the following transactions in the subsidiary books of Ramachandra and Sons of
Chennai and show the totals of each book for the month of January, 2000.
Date Transaction Amount (Rs.)
Jan 1 Bought goods from Das Gupta 20,000
2 Sold to Sen Gupta 12,500
3 Sold goods to Ramesh 30,000
5 Bought goods from Suresh 15,000
7 Sold goods to Anand 13,000
8 Received goods returned by Sen Gupta 5,500
9 Purchased goods from Shyam Sundar 16,000
10 Roy bought goods from us 25,000
11 Roy returned goods to us 3,000
14 Sold goods to Ram 45,000
16 Bought goods from Naresh 20,000
20 Returned goods to Naresh 4,000
22 Purchased furniture from Vibhu 10,000
30 Sold goods on cash to Khadju 9,000
30 Paid cash to Suresh 10,000
11. Enter the following transactions in the single column cash book of Gopichand.
March, 2003
1st .Commenced business with cash 20000
2nd Bought goods for cash 5000
rd
3 . Sold goods for cash 4000
4th . Goods purchased from Ravi Kumar 10000
th
10 .Paid to Ravi Kumar 7000
14th . Cash sales 8000
th
18 . Purchased furniture for office 4000
nd
22 . Paid wages 500
th
25 . Paid rent 600
th
30 . Received Commission 4000
th
30 . Withdrew for personal purpose 1000
st
31 . Paid salary 900
12. Record the following transactions in two column cash book(Cash and Bank)in the books of
Soft Silk Co., for the month of July, 2004.Find out the closing balances.
July, 2004 Rs.
st
01 . Opening balance b/d(Cash) 14,500
(Bank) 7,000
th
04 . Cash purchases 6,700
th
05 . Rent for June month paid by cheque 2,500
th
09 . Cash sales 15,200
th
12 . Dividend received from X Co and paid it into bank 4,350
th
15 . Cash deposited into bank 5,000
th
18 . cash paid to Rahim Bros to settle his account 10,000
th
20 . Repairs paid 1,000
nd
22 . Commission paid by cheque 2,000
rd
23 . Customer, Deepak remitted to our bank account 20,000
th
25 . Cash withdrawn from bank for office use 5,000
th
27 . Drawings made from business cash for personal purposes 2,000
th
28 . Purchased stationery by cash 3,000
th
30 . Cash withdrawn for personel use from bank 1,400
13. Enter the following transactions in the cash book with discount, cash and bank columns
May 1st . Balance of cash in hand Rs. 14000; bank overdraft at bank Rs.5000
4th Invested further capital Rs. 10000 out of which Rs.6000 was deposited in the bank.
6th . Sold goods for cash Rs. 30000
6th Collected from debtors of last year Rs. 80000; Discount allowed to them Rs. 2000.
10th . Purchased goods for cash Rs. 55,000
11th . Paid Ram Vilas, our creditor Rs. 25,000; discount allowed by him Rs.650
13th . Commission paid to our agent Rs. 5,300
14th . Office furniture purchased for cash Rs. 2,000
14th . Rent paid Rs 400; electricity charges paid Rs. 1,000
14th . Drew cheque for personal use Rs. 7,000
17th . Cash sales Rs. 25,000
18th . Collection from Atal Bihari Rs.40,000, deposited in the bank on 19th April.
19th . Drew from the bank for office use Rs.5,000
22nd . Drew cheque for petty expenses Rs.1,500
24th . Dividend received by cheque Rs.500, deposited in the bank on the same day.
25th . Commission received by cheque Rs.2,300, de[posited in the bank on 28th April
29th . Drew from the bank for salary of the office staff Rs15,000
30th . Deposited cash in the bank Rs.10,000.
ii. Sales Tax A/c 40,000, To cash A/c 40,000 ( sales Tax paid )
iii. Cash A/c the 5000 To BOB A/c 5000 ( cash drawn for mis.expenses )
9.
st
1 1 Cash a/c Debited Capital a/c Credited
nd
2 2 Furniture a/c Debited Cash a/c Credited
th
3 4 Goods a/c Debited Cash a/c Credited
th
4 5 Purchases a/c Debited Kamalesh a/c Credited
th
5 7 Cash a/c Debited Goods a/c Credited
th
6 9 Ramesh a/c Debited Sales a/c Credited
th
7 10 Kamel nath a/c Debited Cash a/c Credited
th
8 11 Cash a/c Debited Kamanath a/c Credited
th
9 18 Purchases a/c Debited Sohan Kuma Credited
th
10 25 Computers a/c Debited Shiva Shankar Credited
th
11 29 Salaries a/c Debited Cash a/c Credited
th
12 30 Drawings a/c Debited Cash a/c Credited
10.
Total of Purchases Day book:
Das Gupta Rs. 20,000
Suresh Rs. 15,000
Shyan sunda Rs. 16,000
Naresh Rs. 4,000
Rs. 55,000
12.
Cash Bank Cash Bank
To Opening bal b/d 14,500 7000 By Purchases 6700
To Sales 15,200 By Rent 2500
To Cash 5000 By dividend 4350
To Deepak 20,000 By bank 5000
To Bank ( c ) By Rahim & Bus 10,000
By repairs 1000
By commission paid 2000
By cash ( c ) 5000
By drawings 2000
By stationery 3000
By drawings 1400