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NCERT Class 11 Accountancy Chapter 4 Recording of Transactions-II
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Recording of Transactions-II
Chapter: 4
| PART – I |
| Short Answers |
1. Briefly state how the cash book is both journal and a ledger.
Ans: Cash book is a book in which all transactions relating to cash receipts and cash payments are recorded. It starts with the cash or bank balances at the beginning of the period. Generally, it is made on monthly basis. This is a very popular book and is maintained by all organisations, big or small, profit or not-forprofit. It serves the purpose of both journal as well as the ledger (cash) account. It is also called the book of original entry. When a cashbook is maintained, transactions of cash are not recorded in the journal, and no separate account for cash or bank is required in the ledger.
2. What is the purpose of contra entry?
Ans: It is used for transactions such as cash to bank, cash to cash, bank to cash, and bank to bank. Contra entry ensures accurate bookkeeping, entry in a cash book and involves double entries for debit and credit sides. It aids in tracking financial records efficiently.The purpose of contra entry is to show the transactions that impact cash and bank balances. This entry does not affect the financial positions of a business. A contra entry is recorded on both sides of a 2-column cash book and has a “C” sign on the ledger folio column.
3. What are special purpose books?
Ans: Following are the special purpose books:
(i) Cash Book.
(ii) Purchases Book.
(iii) Purchases Return (Return Outwards) Book.
(iv) Sales Book.
(v) Sales Return (Return Inwards) Book.
(vi) Journal Proper.
4. What is petty cash book? How it is prepared?
Ans: In every organisation, a large number of small payments such as conveyance, cartage, postage, telegrams and other expenses (collectively recorded under miscellaneous expenses) are made. These are generally repetitive in nature. If all these payments are handled by the cashier and are recorded in the main cash book, the procedure is found to be very cumbersome. The cashier may be overburdened and the cash book may become very bulky. To avoid this, large organisations normally appoint one more cashier (petty cashier) and maintain a separate cash book to record these transactions. Such a cash book maintained by petty cashier is called petty cash book.
This petty cash book has two sides: the credit side and the debit side. In the particulars column – a single column – the particulars of cash receipts and expenses. In the other column, the debit and credit dates are mentioned. Additionally, the money received from the head cashier is written on the debit money column.
5. Explain the meaning of posting of journal entries?
Ans: The process of exchanging recorded business occurrences from the general journal to the ledger is known as posting journal entries. In other words, following journalizing, posting is the next phase of the process. Many of the business transactions are repetitive in nature. They can be easily recorded in special journals, each meant for recording all the transactions of a similar nature. For example, all cash transactions may be recorded in one book, all credit sales transactions in another book and all credit purchases transactions in yet another book and so on. These special journals are also called daybooks or subsidiary books.
6. Define the purpose of maintaining subsidiary journal.
Ans: Many of the business transactions are repetitive in nature. They can be easily recorded in special journals, each meant for recording all the transactions of a similar nature. For example, all cash transactions may be recorded in one book, all credit sales transactions in another book and all credit purchases transactions in yet another book and so on. These special journals are also called daybooks or subsidiary books. A subsidiary journal, also known as a subsidiary ledger.
The purposes of maintaining subsidiary Journal are given below:
(i) It saves time and efforts in recording.
(ii) It enables division of work, leading to an enhancement of efficiency and effectiveness, as particular accountant takes care of particular books.
7. Write the difference between return Inwards and return outwards.
Ans: The difference between return Inwards and return outwards:
| Return Inwards | Return outwards |
| Return inwards is defined as the receipt back of the goods by the seller which is originally sold to the buyer because of excess goods or defective goods. | Return outwards, also known as purchases returns or purchases allowances, refers to goods that a business returns to its suppliers or vendors. |
8. What do you understand by ledger folio?
Ans: Ledger Folio refers to the page number of the ledger account on which the relevant account appears. It serves as a cross-reference between the account’s entries in the journal and its detailed entries in the ledger.
9. What is difference between trade discount and cash discount?
Ans: Difference between trade discount and cash discount:
| Trade | Cash discount |
| Trade discount is given on the catalogue price of the goods | the cash discount is given on the invoice price |
| Trade discount is granted with the aim of increasing the sales in bulk quantity. | Cash discount is granted to facilitate a quick payment. A trade discount is shown as a deduction in the invoice. |
10. Write the process of preparing ledger from a journal.
Ans: Posting is the process of transferring the entries from journal to the ledger. In other words, posting means grouping of all the transactions in respect to a particular account at one place for meaningful conclusion and to further the accounting process. After the transactions are recorded in the journal, it is then posted in the principal book called as ‘Ledger’. The process of transferring the entries from journal to respective ledger accounts is called ledger posting.
11. What do you understand by Imprest amount in petty cash book?
Ans: The petty cashier works on the Imprest system. Under this system, a definite sum, say ` 2,000 is given to the petty cashier at the beginning of a certain period. This amount is called imprest amount. The petty cashier goes on making all small payments out of this imprest amount and when he has spent the substantial portion of the imprest amount say `1,780, he gets reimbursement of the amount spent from the head cashier. Thus, he again has the full imprest amount in the beginning of the next period. The reimbursement may be made on a weekly, fortnightly or monthly basis, depending on the frequency of small payments. In certain cases, the petty cash system is operated through the main cash book itself. In such instances, the petty cash book is not maintained independently.
| Long Answers |
1. Explain the need for drawing up the special purpose books.
Ans: Special purpose books are beneficial in:
Accuracy: As each journal is managed by a different accountant having specific expertise, it improves accuracy and reduces defects.
Recording: Accuracy in accounting refers to the precision and correctness of financial information recorded and reported by an organisation.
Concise Descriptions: expressing or covering much in few words; brief in form but comprehensive in scope; succinct; terse: a concise explanation of the company’s retirement plan.
Minimal Posting: Posting in accounting refers to moving a transaction entry from a journal to a general ledger, which contains all of a company’s financial accounts. A journal’s entries are chronological while a ledger compiles its transactions by accounts, such as assets or liabilities.
Efficiency: Efficiency in accounting generally refers to the use of certain ratios and measurements designed to assess the effectiveness of a specific company or firm. Efficiency ratios are used to assess the financial condition of a company based on the way it manages its assets.
2. What is cash book? Explain the types of cash book.
Ans: Cash book is a book in which all transactions relating to cash receipts and cash payments are recorded. It starts with the cash or bank balances at the beginning of the period. Generally, it is made on monthly basis. This is a very popular book and is maintained by all organisations, big or small, profit or not-forprofit. It serves the purpose of both journal as well as the ledger (cash) account. It is also called the book of original entry. When a cashbook is maintained, transactions of cash are not recorded in the journal, and no separate account for cash or bank is required in the ledger.
Following are the types of cash book:
(i) Single Column Cash Book: The single column cash book records all cash transactions of the business in a chronological order, i.e., it is a complete record of cash receipts and cash payments. When all receipts and payments are made in cash by a business organisation only, the cash book contains only one amount column on each (debit and credit) side.
(ii) Double Column Cash Book: In this type of cash book, there are two columns of amount on each side of the cash book. In fact, now-a-days bank transactions are very large in number. In many organisations, as far as possible, all receipts and payments are affected through bank.
(iii) Three-column cash book: A three-column cash book or treble column cash book is one in which there are three columns on each side- debit and credit side. One is used to record cash transactions, the second is used to record bank transactions and the third is used to record discounts received and paid.
3. What is contra entry? How can you deal this entry while preparing double column cash book?
Ans: A contra entry is an entry that is recorded when both the debit and credit affect the same account and which results in a net-zero effect on the account. A contra account is an account used in a general ledger to reduce the value of a related account. These transactions are recorded between bank and cash accounts. Contra entry refers to transactions involving cash and bank account. In other words, any entry which affects both cash and bank accounts is called a contra entry. Contra in Latin means the opposite. It is more popularly known as contra voucher. When a cheque is received, it may be deposited into the bank on the same day or it may be deposited on another day. In case, it is deposited on the same day the amount is recorded in the bank column of the cash book on the receipts side. If the cheque is deposited on another day, in that case, on the date of receipt it is treated as cash received and hence recorded in the cash column on the receipts side. On the day of deposit to the bank, it is shown in the Bank Column on receipt (Dr.) side and in the Cash Column on the payment (Cr.) side. This is a contra entry.
(i) Opening of a bank account.
(ii) Depositing cash into bank.
(ii) Withdrawal from bank.
4. What is petty cash book? Write the advantages of petty cash book?
Ans: In every organisation, a large number of small payments such as conveyance, cartage, postage, telegrams and other expenses (collectively recorded under miscellaneous expenses) are made. These are generally repetitive in nature. If all these payments are handled by the cashier and are recorded in the main cash book, the procedure is found to be very cumbersome. The cashier may be overburdened and the cash book may become very bulky. To avoid this, large organisations normally appoint one more cashier (petty cashier) and maintain a separate cash book to record these transactions. Such a cash book maintained by petty cashier is called petty cash book.
Following are the advantages of petty cash book:
(i) Saving of Time and efforts of chief cashier: The chief cashier is not required to deal with petty disbursements. He can concentrate on cash transactions involving large amount of cash. It saves time and labour and helps chief cashier to discharge his duties more effectively.
(ii) Effective control over cash disbursements: Cash control becomes easy because of division of work. The head cashier can control big payments directly and petty payments by keeping a proper check on the petty cashier. This way the chances of making frauds and embezzlements become very difficult.
(iii) Convenient recording: Recording of petty disbursements in the main cash book makes it bulky and unmanageable. Further, the materiality principle requires that insignificant details need not be given in the main cash book. This way the cash book reveals only material and useful information. Recording of such small payments becomes easy as the totals of different types of expenses are posted to ledger. It also saves time and effort of posting individual items in the ledger. In nutshell it can be stated that preparation of petty cash book is a cost reduction control measure.
5. Describe the advantages of subdividing the Journal.
Ans: Following are the advantages of subdividing the Journal:
(i) Accountability: Accountability is an essential concept in corporate finance. It is defined as an entity’s actions to take responsibility for their actions. This can range from accounting for financial discrepancies, conduct toward employees, financial mismanagement, or losing shareholder confidence.
(ii) Accuracy: Accuracy in financial accounting refers to the precision and correctness of the financial information provided. Accurate financial statements are free from errors and misstatements, ensuring stakeholders can rely on the financial information provided.
(iii) Division of Labour: Division of labour’ is a term that describes the specialised functions of cell organelles which come together to ensure the cell is capable of surviving as well as performing it’s role in the body.
(iv) Productivity: Productivity is a measure of how efficiently a person completes a task. We can define it as the rate at which a company or country produces goods and services (output), usually judged based on the amounts of inputs (labour, capital, energy, or other resources) used to deliver those goods and services.
(v) Economical: As division of labour brings in specialisation, the process becomes efficient and there by becomes economical.
6. What do you understand by balancing of account?
Ans: Accounts in the ledger are periodically balanced, generally at the end of the accounting period, with the object of ascertaining the net position of each amount. Balancing of an account means that the two sides are totaled and the difference between them is shown on the side, which is shorter in order to make their totals equal. The words ‘balance c/d’ are written against the amount of the difference between the two sides. The amount of balance is brought (b/d) down in the next accounting period indicating that it is a continuing account, till finally settled or closed.
In case the debit side exceeds the credit side, the difference is written on the credit side, if the credit side exceeds the debit side, the difference between the two appears on the debit side and is called debit and credit balance respectively. The 2024-25 142 Accountancy accounts of expenses losses and gains/revenues are not balanced but are closed by transferring to trading and profit and loss account. The balancing of the an account is illustrated below with the help of an example explaining the complete process of recording the transactions, posting to ledger and balancing there of.
