Introduction of Special Purpose Books 1 – Cash Book
Special Purpose books are those books which are used for quick, efficient and accurate recording of the business transactions such as cash book, purchase book, sale book, sales return book, purchase return book and journal proper.
Advantages of Subsidiary Books:
- Division of Work – Accounting work can be divided among a number of persons, since subsidiary books are maintained for each category of transactions.
- Specialisation and Efficiency – Same work is handled by a particular person for a considerable time, thus, he acquires specialisation in it and becomes more efficient in handling it.
- Saving of Time – Various accounting processes can be undertaken simultaneously because of the use of number of books, leading to completing the work timely.
- Availability of Information – Since separate book is maintained for each type of transactions, information relating to each type is available at one place.
- Facility in Checking – In case, the Trail Balance does not match, locating the error or errors is facilitated by the existence of separate books. Since the number of transactions is less in each Subsidiary Book as Compared to only one Journal, it is easy to locate the errors.
Cash Book:-
Cash Book is a book of primary entry in which cash and bank transactions are recorded in a chronological order, i.e., in the order they take place. Receipts are recorded on the debit side of Cash Book while payments are recorded on the credit side. Cash transactions are recorded in the cash column and bank transactions are recorded in the bank column. It is balanced by deducting total payments from total receipts to know cash in hand and balance at bank.
Features of Cash Book:-
- Only cash and bank transactions are recorded in the Cash Book.
- Cash Receipts and cheques deposited are recorded on the debit side while cash and cheque payments are recorded on the credit side.
- It records only one aspect of the transaction i.e., cash
- Cash and bank transactions are recorded in the Cash Book in a chronological order, i.e., in order they take place.
- It performs the function of both Journal and the Ledger at the same time.
Types of Cash books:-
- Simple Cash Book or Single Column Cash Book – Simple Cash Book looks like an account, with one column on each side. On the left-hand side receipts of cash are recorded and on the right-hand side payments are recorded. The ruling is as follows:
Dr. Simple Cash Book Cr
| Date | Particulars | V.No. | L.F. | Rs. | Date | Particulars | V.No. | L.F. | RS. |
| Receipt Side | Payment Side |
- Two-column or Double Column Cash Book (Cash Book with Cash and Bank Column) – Two-column Cash Book or Double Column Cash Book is a Cash Book Which has two columns for amount on each side; one column to record cash transactions and the other column to record bank transaction. Deposit of cash or cheques, withdrawal of cash from bank and issue of cheques, etc., are recorded in bank column of the Cash Book. Thus, Two-Column Cash Book represents two accounts, i.e., Cash Account and Bank Account.
Dr. Cash Book (Double Column) Cr
| Date | Particulars | L.F. | Cash | Bank | Date | Particulars | L.F. | Cash | Bank |
| Receipt Side | Payment Side |
Contra Entry:-
Contra entries are the entries which affect both cash and bank, i.e., balance of one will decrease and the other will increase due to such transactions. Such transactions are recorded on both sides of the Cash Book, once in the cash column and once in the bank column. Let us take an example to understand it better.
- Cash Deposited in Bank 20,000: In this transaction, Bank Account is to be debited and Cash Account is to be credited. Debit aspect is recorded in the receipts or debit side of the Double Column Cash Book in the Bank Column and credit aspect is recorded in the payments or credit side of Double Column Cash Book in the Cash column. In the Cash Book, it will be written as follows:
Dr. Cash Book Cr
| Date | Particulars | L.F. | Cash | Bank | Date | Particulars | L.F. | Cash | Bank |
| To Cash A/c | c | …… | 20,000 | By Bank A/c | c | 20,000 | …. |
- Cash Withdrawn from Bank for Office use 10,000: In this transaction, Cash Account is to be debited and Bank Account is credited. Debit aspect is recorded in the receipts or debit side of the Double Column Cash Book in the Cash Column and credit aspect is recorded in the payments or credit side of the Double Column Cash Book in the Bank Column. In the Cash Book it will be written as follows:
Dr. Cash Book Cr
| Date | Particulars | L.F. | Cash | Bank | Date | Particulars | L.F | Cash | Bank |
| To Bank A/c | c | 10,0000 | …… | By Cash A/c | c | …… | 10,000 |
Contra entries are not posted in the Ledger Account and are marked with the letter ‘C’ written in the L.F. column to indicate that these are contra transactions and are not posted in the Ledger Account.
Petty Cash Book:-
A petty Cash book is maintained to record small expenses such as postage, stationery, and telegrams. A separate column is used for each type of expenditure. The difference between the sum of the debit items and the sum of the credit items represents the balance of the petty cash in hand. A petty cash book also refers to the book in which small payments are recorded, which are not convenient to record in the main cash book.
Petty Cash Book may be maintained by Imprest system.
Imprest System of Petty Cash –
Imprest amount is a definite sum of money that is provided to petty cashier for a certain period which can be a week or month. Reimbursement is done after the end of the period in order to start a new Cycle.
Advantages of imprest system of petty cash:-
- Control over Mistakes – the Petty Cash Book is Checked by the head cashier at regular intervals so that a mistake, if committed, is soon rectified.
- Control Over Petty Expenses – Petty expenses are kept within the limits of Imprest since the petty cashier cannot spend more than the available petty cash.
- Control Over Frauds – Under this system misuse of cash can be minimised since the Petty Cashier is not allowed to draw cash as and when he desires.
Types of Petty Cash Books:-
- Simple Petty Cash Book – A book in which amount received and paid by Petty Cashier is recorded in one column each for Receipts and Payments.
| Amount Received | L.F. | Cash Book Folio | Date | Particulars | L.F. | Voucher No. | Amount Paid |
| Amount received | ……. | …… | …….. Heads of expenses | ……… ……. | ……. …….. |
- Analytical Petty Cash Book – A book with one column for receipts and more than one column for payments.
| Receipts | Date | Voucher no. | Particulars | Total Payment | Conveyance | Cartage | Stationery | Postage and Courier | Sundries |
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