Chapter Overview — Recording of Transactions II
In the previous chapter, you learned how to record transactions in a journal. When the number of transactions grows large, recording every transaction in one journal becomes impractical. Recording of Transactions II introduces books of original entry (subsidiary books and the cash book) that divide the recording work, save time, and reduce errors.
After studying this chapter, you will be able to:
- Explain the meaning and types of cash books
- Prepare single-column, double-column, and three-column cash books
- Record transactions in petty cash book under the imprest system
- Use subsidiary books — Purchase Book, Sales Book, Purchase Returns Book, Sales Returns Book
- Maintain Bills Receivable and Bills Payable books
- Identify transactions that go into the Journal Proper
Cash Book — Meaning and Importance
A cash book is a book of original entry in which all cash transactions (receipts and payments) are recorded in chronological order. It is unique because it serves a dual purpose — it is both a journal (book of original entry) and a ledger (it replaces the cash account in the ledger).
Features of a Cash Book
1. It is a book of original entry — transactions are first recorded here 2. It replaces the Cash Account in the ledger 3. It has two sides: Debit (receipts) and Credit (payments) 4. It always shows a debit balance (unless there is a bank overdraft) 5. It is maintained by every business irrespective of size
Types of Cash Books
There are three main types of cash books, depending on the number of columns on each side:
1. Single-Column Cash Book
Records only cash transactions. It has one column each on the debit and credit side.
| Debit (Receipts) | Credit (Payments) | ||||
|---|---|---|---|---|---|
| Date | Particulars | Amount | Date | Particulars | Amount |
| Jan 1 | To Balance b/d | 5,000 | Jan 5 | By Rent | 2,000 |
| Jan 10 | To Sales | 8,000 | Jan 15 | By Salaries | 3,000 |
| Jan 20 | To Ramesh | 4,000 | Jan 25 | By Balance c/d | 12,000 |
| Total | 17,000 | Total | 17,000 |
Rules for recording:
- Cash received → Debit side with "To [source name]"
- Cash paid → Credit side with "By [purpose/recipient name]"
2. Double-Column Cash Book
Has two columns on each side. The two most common forms are:
a) Cash Book with Cash and Discount Columns:
| Debit Side | Credit Side | ||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | Discount | Cash | Date | Particulars | Discount | Cash |
- Discount Allowed (received less from debtor) → Debit side discount column
- Discount Received (paid less to creditor) → Credit side discount column
- At the end, discount columns are totaled and transferred to the ledger (Discount Allowed A/c and Discount Received A/c)
b) Cash Book with Cash and Bank Columns:
Records both cash and bank transactions. Includes contra entries (entries that appear on both sides, marked with "C" in L/F column).
Examples of contra entries:
- Cash deposited into bank → Bank column debit, Cash column credit
- Cash withdrawn from bank → Cash column debit, Bank column credit
3. Three-Column Cash Book
This is the most comprehensive form. It has three columns on each side: Cash, Bank, and Discount.
Three-Column Cash Book — Format and Worked Example
Format
| Date | Particulars | L/F | Discount | Cash | Bank | Date | Particulars | L/F | Discount | Cash | Bank | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ------ | ------------- | ----- | ---------- | ------ | ------ | -- | ------ | ------------- | ----- | ---------- | ------ | ------ |
| (Rs) | (Rs) | (Rs) | (Rs) | (Rs) | (Rs) |
- Left side (Debit): Receipts — cash received, cheques deposited into bank, discount allowed
- Right side (Credit): Payments — cash paid, cheques issued, discount received
- Contra entries (cash-to-bank or bank-to-cash transfers) appear on both sides, marked with "C" in the L/F column
Worked Example
Prepare a Three-Column Cash Book from the following transactions of M/s Sharma Traders for January 2025:
| Date | Transaction | Amount (Rs) |
|---|---|---|
| Jan 1 | Cash in hand | 10,000 |
| Jan 1 | Bank balance | 25,000 |
| Jan 3 | Sold goods for cash | 6,000 |
| Jan 5 | Received cheque from Rajesh (Rs 5,000) allowed discount Rs 200 | 4,800 |
| Jan 7 | Deposited cash into bank | 4,000 |
| Jan 10 | Purchased goods by cheque | 8,000 |
| Jan 12 | Paid salaries in cash | 3,000 |
| Jan 15 | Paid rent by cheque | 2,500 |
| Jan 18 | Withdrew cash from bank for office use | 2,000 |
| Jan 20 | Paid to Suresh (Rs 3,000) received discount Rs 150 | 2,850 |
| Jan 25 | Sold goods and received cheque | 7,000 |
| Jan 28 | Deposited the above cheque into bank | 7,000 |
| Jan 31 | Paid electricity bill in cash | 800 |
Three-Column Cash Book of M/s Sharma Traders
| Date | Particulars | L/F | Disc. | Cash | Bank | Date | Particulars | L/F | Disc. | Cash | Bank | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ------ | ------------- | ----- | ------- | ------ | ------ | -- | ------ | ------------- | ----- | ------- | ------ | ------ |
| Jan 1 | To Balance b/d | 10,000 | 25,000 | Jan 7 | By Bank | C | 4,000 | |||||
| Jan 3 | To Sales | 6,000 | Jan 10 | By Purchases | 8,000 | |||||||
| Jan 5 | To Rajesh | 200 | 4,800 | Jan 12 | By Salaries | 3,000 | ||||||
| Jan 7 | To Cash | C | 4,000 | Jan 15 | By Rent | 2,500 | ||||||
| Jan 18 | To Bank | C | 2,000 | Jan 18 | By Cash | C | 2,000 | |||||
| Jan 25 | To Sales | 7,000 | Jan 20 | By Suresh | 150 | 2,850 | ||||||
| Jan 28 | To Bank (Cheque deposit) | 7,000 | Jan 28 | By Bank (Cheque deposit transfer) | 7,000 | |||||||
| Jan 31 | By Electricity | 800 | ||||||||||
| Jan 31 | By Balance c/d | 10,200 | 22,450 | |||||||||
| Total | 200 | 22,000 | 40,800 | Total | 150 | 22,000 | 40,800 |
Note: The Jan 28 cheque of Rs 7,000 received on Jan 25 and deposited on Jan 28 can be recorded directly into the bank column on Jan 25 (when received) without a separate Jan 28 entry. Both approaches are acceptable.
Petty Cash Book
Small, repetitive payments such as postage, stationery, conveyance, cartage, and telegrams are too numerous and too small to be recorded in the main cash book. A separate petty cash book is maintained for such expenses.
Simple Petty Cash Book
Identical in format to a single-column cash book. Only one amount column on each side.
- Debit side: Amount received from the main cashier
- Credit side: Petty expenses paid
Analytical Petty Cash Book
Has separate analysis columns for different types of petty expenses on the credit (payment) side.
Format:
| Date | Particulars | Total Payment | Postage | Stationery | Conveyance | Cartage | Others |
|---|---|---|---|---|---|---|---|
| Jan 3 | Postage stamps | 50 | 50 | ||||
| Jan 5 | Bus fare | 30 | 30 | ||||
| Jan 8 | Pens and paper | 120 | 120 | ||||
| Jan 10 | Cartage for goods | 80 | 80 | ||||
| Total | 280 | 50 | 120 | 30 | 80 | 0 |
Imprest System of Petty Cash
Under the imprest system, the petty cashier is given a fixed amount at the beginning of a period (e.g., Rs 2,000 per month). At the end of the period, the main cashier reimburses exactly the amount spent, so the petty cashier starts the next period with the same fixed amount.
Example: If the imprest amount is Rs 2,000 and the petty cashier spent Rs 1,650 in January, the main cashier will reimburse Rs 1,650 on January 31 so that the petty cashier begins February with Rs 2,000 again.
Advantages of the imprest system:
- Controls petty expenses (cannot exceed the imprest amount)
- Reduces the burden on the main cashier
- Easy to verify and audit
- Saves time in recording small transactions
Subsidiary Books
When a business has many transactions, the journal is divided into several subsidiary books (also called special journals), each meant for a specific type of transaction. This division saves time, reduces errors, and allows division of work among clerks.
Types of Subsidiary Books
1. Cash Book — for all cash and bank transactions 2. Purchase Book — for credit purchases of goods 3. Sales Book — for credit sales of goods 4. Purchase Returns Book (Returns Outward Book) — for goods returned to suppliers 5. Sales Returns Book (Returns Inward Book) — for goods returned by customers 6. Bills Receivable Book — for bills receivable (promissory notes, acceptances received) 7. Bills Payable Book — for bills payable (promissory notes, acceptances given) 8. Journal Proper — for transactions not covered by any of the above
Purchase Book
Records only credit purchases of goods that the business deals in. Cash purchases go in the cash book. Purchase of assets on credit goes in the Journal Proper.
Format:
| Date | Invoice No. | Name of Supplier | L/F | Details | Amount |
|---|---|---|---|---|---|
| Jan 5 | 101 | Ramesh & Co. | 10 shirts @ Rs 500 each | 5,000 | |
| Jan 12 | 102 | Suresh Traders | 20 trousers @ Rs 800 each | 16,000 | |
| Total | 21,000 |
Posting to ledger:
- Individual supplier accounts → Credited in the ledger
- Purchases account → Debited with the total at month-end
Sales Book
Records only credit sales of goods that the business deals in. Cash sales go in the cash book. Sale of assets on credit goes in the Journal Proper.
Format:
| Date | Invoice No. | Name of Customer | L/F | Details | Amount |
|---|---|---|---|---|---|
| Jan 8 | 201 | Amit Kumar | 5 shirts @ Rs 600 each | 3,000 | |
| Jan 18 | 202 | Deepak Stores | 10 trousers @ Rs 1,000 each | 10,000 | |
| Total | 13,000 |
Posting to ledger:
- Individual customer accounts → Debited in the ledger
- Sales account → Credited with the total at month-end
Purchase Returns Book (Returns Outward Book)
Records goods returned to suppliers (out of goods previously purchased on credit).
Format:
| Date | Debit Note No. | Name of Supplier | L/F | Details | Amount |
|---|---|---|---|---|---|
| Jan 15 | 01 | Ramesh & Co. | 2 shirts returned (defective) | 1,000 | |
| Total | 1,000 |
Posting to ledger:
- Individual supplier accounts → Debited
- Purchase Returns account → Credited with total at month-end
Sales Returns Book (Returns Inward Book)
Records goods returned by customers (out of goods previously sold on credit).
Format:
| Date | Credit Note No. | Name of Customer | L/F | Details | Amount |
|---|---|---|---|---|---|
| Jan 20 | 01 | Amit Kumar | 1 shirt returned | 600 | |
| Total | 600 |
Posting to ledger:
- Individual customer accounts → Credited
- Sales Returns account → Debited with total at month-end
Bills Receivable Book
A bill of exchange is a written unconditional order by the drawer to the drawee to pay a certain sum on a specified date. When a business receives a bill of exchange (or promissory note), it is recorded in the Bills Receivable Book.
Format:
| Date | From Whom Received | L/F | Date of Bill | Due Date | Term | Amount |
|---|---|---|---|---|---|---|
| Jan 5 | Ajay | Jan 5 | Apr 5 | 3 months | 10,000 |
Posting to ledger:
- Individual drawer's account → Debited
- Bills Receivable account → Credited with total at month-end (it is an asset)
Bills Payable Book
When a business accepts a bill of exchange or issues a promissory note, the transaction is recorded in the Bills Payable Book.
Format:
| Date | To Whom Given | L/F | Date of Bill | Due Date | Term | Amount |
|---|---|---|---|---|---|---|
| Jan 10 | Vijay | Jan 10 | Mar 10 | 2 months | 15,000 |
Posting to ledger:
- Individual payee's account → Credited
- Bills Payable account → Debited with total at month-end (it is a liability)
Journal Proper
The Journal Proper (also called the Residual Journal) records all transactions that do not fit into any of the other subsidiary books. These include:
1. Opening entries — to record opening balances of assets, liabilities, and capital at the beginning of the year 2. Closing entries — to transfer revenue and expense accounts to the Trading and P&L Account 3. Adjustment entries — for adjustments at the end of the accounting period (outstanding expenses, prepaid income, depreciation, etc.) 4. Transfer entries — to transfer amounts from one account to another 5. Rectification entries — to correct errors discovered in the books 6. Purchase/Sale of assets on credit — not recorded in Purchase/Sales books (those books are for goods only) 7. Transactions that are neither cash nor credit purchases/sales of goods — e.g., issuing shares, writing off bad debts
Example — Opening Entry:
| Date | Particulars | L/F | Debit Rs | Credit Rs |
|---|---|---|---|---|
| Apr 1 | Cash A/c Dr. | 20,000 | ||
| Bank A/c Dr. | 50,000 | |||
| Stock A/c Dr. | 30,000 | |||
| Furniture A/c Dr. | 10,000 | |||
| To Sundry Creditors A/c | 15,000 | |||
| To Capital A/c (Balancing figure) | 95,000 | |||
| (Being opening balances brought forward) |
Distinction Between Various Books
| Basis | Cash Book | Purchase Book | Sales Book | Journal Proper |
|---|---|---|---|---|
| Purpose | Record cash and bank transactions | Record credit purchases of goods | Record credit sales of goods | Record residual transactions |
| Type of transactions | Cash receipts and payments | Credit purchases only | Credit sales only | All other transactions |
| Acts as both journal and ledger? | Yes (for cash/bank accounts) | No — only a journal | No — only a journal | No — only a journal |
| Columns | Multiple (cash, bank, discount) | Date, supplier, amount | Date, customer, amount | Date, particulars, debit, credit |
| Basis | Purchase Returns Book | Sales Returns Book | Bills Receivable Book | Bills Payable Book |
|---|---|---|---|---|
| Records | Goods returned to suppliers | Goods returned by customers | Bills accepted by others | Bills accepted by the business |
| Nature | Reduction of purchases | Reduction of sales | Asset | Liability |
| Note type | Debit note issued | Credit note issued | Bill received | Bill given |
Common Mistakes to Avoid
1. Recording cash purchases in the Purchase Book — Only credit purchases of goods go in the Purchase Book. Cash purchases go in the Cash Book.
2. Recording purchase of assets in the Purchase Book — The Purchase Book is only for goods the business trades in. Purchase of furniture, machinery, etc., on credit goes in the Journal Proper.
3. Forgetting contra entries — When cash is deposited into the bank or withdrawn from the bank, both sides of the cash book are affected. Mark these with "C" in the L/F column.
4. Not balancing discount columns — Discount columns are totaled and transferred to the ledger. They are not balanced like cash and bank columns.
5. Mixing up discount allowed and discount received — Discount allowed appears on the debit side; discount received appears on the credit side.
6. Recording returns in the wrong book — Goods returned to suppliers go in the Purchase Returns Book (not Purchase Book). Goods returned by customers go in the Sales Returns Book (not Sales Book).
7. Omitting the imprest reimbursement — Under the imprest system, the petty cashier must be reimbursed the exact amount spent at the end of the period.
8. Treating bills receivable and bills payable incorrectly — Bills Receivable is an asset (debited in the ledger); Bills Payable is a liability (credited in the ledger).
Exam Tips
1. Cash book questions are the most frequently asked — Practice three-column cash book with contra entries, bank columns, and discount columns.
2. Learn the format — Examiners award marks for correct format. Always draw proper columns and headings.
3. Contra entries are a favourite exam topic — Remember the "C" marking and that contra entries appear on both sides.
4. Subsidiary book totals are posted, not individual entries — At month-end, the total of the Purchase Book is posted to the Purchases Account. Individual amounts are posted to respective supplier/customer accounts daily.
5. Distinguish between goods and assets — This is a common trick in exams. Purchase of machinery on credit goes to Journal Proper, not Purchase Book.
6. Petty cash book imprest system — Remember: reimburse only the amount spent, not the full imprest amount.
7. Show all workings — Even if your final answer is wrong, you get partial marks for correct format and correct postings.
8. Time management — Allocate about 20-25 minutes for a full cash book problem in the exam.
Quick Revision Notes
- Cash Book = Journal + Ledger for cash/bank; types: Single, Double, Three-column
- Three-column cash book: Cash, Bank, Discount columns on both sides
- Contra entries: Cash deposited into bank (Bank Dr, Cash Cr) and Cash withdrawn from bank (Cash Dr, Bank Cr) — marked "C"
- Discount columns: Not balanced; totaled and transferred to ledger
- Petty Cash Book: For small repetitive expenses; Imprest system = fixed advance + reimbursement of exact amount spent
- Purchase Book: Credit purchases of goods only; not assets, not cash purchases
- Sales Book: Credit sales of goods only; not assets, not cash sales
- Purchase Returns Book: Goods returned to suppliers (Debit notes)
- Sales Returns Book: Goods returned by customers (Credit notes)
- Bills Receivable Book: Bills received from others (asset)
- Bills Payable Book: Bills given/accepted by the business (liability)
- Journal Proper: Opening entries, closing entries, adjustment entries, rectification entries, credit purchase/sale of assets, transfer entries
- Subsidiary books enable division of work, reduce errors, save time, and make auditing easier
Further Reading
- [Chapter 5 — Bank Reconciliation Statement](/school/cbse/class/11/accountancy/cbse-bank-reconciliation-statement)
- [Chapter 6 — Depreciation, Provisions and Reserves](/school/cbse/class/11/accountancy/cbse-depreciation-provisions-reserves)
- [Recording of Transactions II — NCERT Exercise Solutions](/school/cbse/class/11/accountancy/solutions/cbse-recording-transactions-2-exercise-solutions)
- [All Class 11 Accountancy Solutions](/school/cbse/class/11/accountancy/solutions)
- [Class 11 Accountancy Subject Guide](/school/cbse/class/11/accountancy)