Account 6 Marks Question

Petty Cash Book is used for recording payments of small expenses, which are of smaller denominations such as postage, stationery, conveyance, refreshment, etc. Person who maintains Petty Cash Book is known as petty cashier and these small expenses are termed as petty expenses.
It is prepared by the below given two methods.

1. Ordinary system: Under this system, a certain sum of money is given to the petty cashier for the payment of petty expenses. After spending the whole amount, the accounts are submitted by the petty cashier to the main cashier.
2. Imprest system: Under this system, a fixed sum of money is given to the petty cashier in the beginning of a period to meet the petty expenses to be incurred in that period. At the end of the period, the amount spent by the petty cashier is reimbursed. So, the petty cashier has the same fixed amount of money in the beginning of the next period.

The Performa of Petty Cash Book is given below.

Advantages of Petty Cash Book:
Simple method: Recording of transactions in a petty cash book is easy. In an analytical Petty Cash Book, there exists separate heads for different petty expenses, which makes recording much easier. Recording in a Petty Cash Book does not require formal knowledge of accounting principles and techniques.
Time saving: Recording in Petty Cash Book saves time and efforts of the chief cashier.
Efficient control: At the end of a period,Petty Cash Book is audited by the main cashier, so frauds and errors are less probable.
Convenient handling: Recording in Petty Cash Book is convenient, as entries are to be recorded under separate heads, which makes posting easier and quicker.

The process of preparing ledger from Journal can be explained with the help of an example. Let us suppose that machinery is purchased from Mr. X, so, the journal entry will be:
In this example, Machinery Account is debited and Mr. X Account is credited. Let us understand the process of preparing ledger from the journal entry. Account which is debited in the entry:Step 1: Indentify the account in ledger that is debited, i.e., ‘Machinery Account’.
Step 2: Enter date in the debit side of the ‘Machinery Account’ in the ‘Date’ column.
Step 3: Enter the name of the account as ‘Mr. X Account’ (which is credited in the entry) in the ‘Particulars’ column in the debit side of the Machinery Account
Step 4: Enter the page number of the journal, where the entry is recorded in the ‘J.F.’ (journal folio) column.
Step 5: Post the corresponding amount in the ‘Amount’ column, which is recorded against ‘Machinery Account’ in the journal entry.
Account which is credited in entry:Step 1: Indentify the account in ledger that is credited, i.e., ‘Mr. X Account’.
Step 2: Enter date in the credit side of ‘Mr. X Account’ in the ‘Date’ column.
Step 3: Enter the name of the account as ‘Machinery Account’ (which is debited in the entry) in the ‘Particulars’ column in the credit side of the ‘Machinery Account’.
Step 4: Enter the page number of the journal where the entry is recorded in the ‘J.F.’ (journal folio) column.
Step 5: Post the corresponding amount in the ‘Amount’ column, which is recorded against ‘Mr. X Account’ in the journal entry.

Debit Note:
This is referred to a note that is issued by the business to the other concerned parties. It represents the details and reasons for debiting the concerned party's account.
Example: Goods worth ₹ 2,000 returned by the business to Mr. Ramesh (a supplier).
In this case, Ramesh's Account will be debited with ₹ 2,000 as the goods purchased from him were returned to him. A issue of Debit Note in this case explains that Ramesh A/c has been debited with ₹ 2,000 with explanation, i.e. due to the goods returned by the business.
Credit Note:
Similar to the Debit Note, a Credit Note is also issued by the business to the other concerned parties. It represents the details and reasons for crediting the concerned party's account.
Example: Goods worth ₹ 2,000 were returned by Mr. Ramesh (a customer) to the business.
In this case, Ramesh's Account will be credited with ₹ 2,000 as the goods sold to him were returned back to the business. A issue of Credit Note in this case explains that Ramesh's A/c has been credited with ₹ 2,000 with explanation, i.e. due to the goods returned by him.
Both Debit Note as well as Credit Note also contains other important information such as, quantity of the goods (in units), amount of the transaction, Challan Number, Date, Names and Addresses of both the parties involved in the transaction.

Goods and Services Tax (GST): It is a tax levied and collected on supply (sale) of goods and/ or services or both. It is charged by the seller on the net sale value, i.e., sale value less trade discount. The seller is bound to charge GST on sale made and deposit it in the Government Account. For the seller of goods, it is not sale because it is collected on behalf of the Government and is to be paid into Government Account.
In the case of intra-state (i.e., within the state) sale of goods, both CGST and SGST is charged at half the prescribed rate of GST. And in the case of inter-state (i.e., outside the state) sale of goods, IGST is charged at the prescribed rate of GST.
CGST and SGST charged on intra-state sale of goods is credited to 'Output CGST Account and Output SGST Account' respectively. IGST charged on inter-state sale of goods is credited to Output IGST Account.

Petty Cash Book is the book which is used for the purpose of recording expenses involving small amounts. Besides petty expenses, receipts from main cashier are recorded. Petty Cash Book is like Petty Cash Account and is maintained by Petty Cashier.
Advantages of Imprest System of Petty Cash:

1. Control Over Mistakes: The Petty Cash Book is checked by the cashier at regular intervals so that a mistake, if committed, is soon rectified.
2. Control Over Petty Expenses: Petty expenses are kept within the limits of imprest since the petty cashier can never spend more than the available petty cash.
3. Control Over Frauds: Under this system defalcation of cash can be minimised since the Petty Cashier is not allowed to draw cash as and when he desires.

Debit Balance:

3. Wages.

4. Land and Building.

6. Commision Paid.

8. Cash in Hand.

10. Drawings.

12. Prepaid Rent.

13. Input IGST.

Credit Balance:

1. Rent Received.

2. Bank Overdraft.

5. ​​​​​​​Commision Received.

7. Rent Outstanding.

9. M/s. Gupta Traders.

11. Capital.

14. Output SGST.

Transfer entries are also termed as Closing entries. At the end of each year, balances in all accounts, except for assets and liabilities accounts are transferred to the other accounts to close these accounts and also for assessing the financial performance and positions. For example: All the expense accounts are transferred to the Debit side of the Trading and Profit and loss A/c and all the income or gains accounts are transferred to the Credit side of the Trading and Profit and Loss A/c by passing journal entries for the same. These are known as transfer entries This balances the expense accounts and the Trading and Profit and Loss A/c helps assess the financial performance of the firm. Another example would be the transfer of the Drawings A/c to the Debit side of the Capital account at the end of each year. This closes the drawings A/c and tells the balance of capital remaining in the firm.One transfer entry is given below:

Business transactions are numerous and it becomes difficult to record all the transactions in one book of primary entry, i.e., Journal Book. For example, in a business, many transactions may relate to receipts and payments of cash, sale of goods and their purchase. It is convenient to maintain a separate book for each such class of transactions--one to record cash transactions, another to record credit purchase of goods and yet another to record credit sale of goods. Book of this type is called a book of original entry or primary entry-it is a special form of Journal, a sub-division of it.
Advantages of Subsidiary Books
The use of subsidiary books has following advantages:

1. Division of Work: Since in place of one Journal, Subsidiary Books are maintained, accounting work can be divided among a number of persons.
2. Specialisation and Efficiency: When the same work is handled by a particular person for a considerable time, he acquires knowledge and expertise in it. He Become more efficient in handling it. Thus, accounting is done more efficiently.
3. Saving of Time: Various accounting processes can be undertaken simultaneously because of the use of number of books. Thus, it leads to completing the work timely.
4. Availability of Information: Since a separate book is maintained for each class of transactions, information relating to each class is available at one place.
5. Facility in Checking: In case, the Trial Balance does not agree, 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, is easy to locate the errors.
6. Responsibility: Division of work results in assigning a particular job to a particular person. If an error is committed in recording, responsibility can be easily fixed.

Note: Purchases book records only the credit purchase of goods, so transaction dated June 15 (being purchase of goods for cash) will not be recorded.

Note: Sales book records only the credit sales of goods, so transaction dated June 12 (being cash sales) will not be recorded.

Solution is as follows.

Solution is as follows.

Returns Inward Book of Anand Cloth House, Ajmal Khan Road, Mathura (U.P).

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 happen. 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.Types of Cash Book:

1. 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:

2. Two-Column or Double Column Cash Book (Cash Book with Cash and Bank Columns)

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 transactions. Deposit of cheques or cash, issue of cheques and withdrawal of cash from bank, 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.
Balanced:

1. Balancing of Single Column Cash Book:

Cash Book is balanced like an account. The total of receipts column is bigger than or equal to the total of payments column. The difference is written on the credit side as By Balance c/d. The totals are then entered in the two columns opposite to one another and then on the debit side, the balance is written as 'To Balance b/d' to show the cash balance in hand in the beginning of the next period.

2. Balancing of Double Column Cash Book:

Cash columns are balanced in the same manner as in the case of a Simple Cash Book. The process is similar for balancing the bank column.
Bank may allow to withdraw more amount than the deposited. If the bank allows the firm to withdraw more amount than the balance in the account, it is known as Overdraft. In such a case, total of the bank column on the credit side will be bigger than the total of debit side. The difference is written on the debit side as 'To Balance c/d'. Then the totals are written on the two sides opposite one another. The balance is then entered on the credit side mentioning 'By Balance b/d'.

Enterprises close their books of account at the end of each year. In this process nominal accounts are closed by transferring them to Profit and Loss Account. The balances of Personal and Real Accounts (under Traditional Approach for classification of accounts) and Asset, liability and Capital Accounts (under Modern Approach for classification of accounts) are carried forward to the next year. These balances become the opening balances of the next year. The first entry in the Journal is passed to record closing balances of the previous year. It is called Opening Entry. Following example will make it more clear:
Based on the above Balance Sheet, the Opening Entry will be:

Working Notes:
WN 1:

WN 2: Cash Deposited into the Bank,
Cash Deposited into the Bank = Total of Cash Column (Dr. side) - (Total of Cash Column (Cr. side) + Cash balance maintained)
Cash Deposited into the Bank = 23,350 - (5,400 + 7,500) = ₹ 10,450
Note: Transaction dated Feb. 12, 2017, will not be recorded in Cash Book because credit transactions will not affect the cash/ bank balance.

Solution is as follows:

Working Note:

Note: Cash transactions will not be recorded in Journal Proper.

The transaction that is entered in either sides of the double column or three column cash book, affecting both cash and the bank balances concomitantly is called contra entry. These entries result in increase in cash balances and decrease in bank balances or vice versa. In other words, a debit of bank account leads to a credit of cash account and a credit of bank account leads to a debit of cash account. For example, ₹ 200 cash deposited into bank. This transaction increases the bank amount on one hand; whereas, on the other hand reduces the cash balance. In this entry, in the debit side of the cash book, ‘Cash’ will be recorded with a balance of ₹ 200 in the bank column and in the credit side of the cash book, ‘Bank’ will be recorded with a balance of ₹ 200 in the cash column. This entry is a contra entry as it affects both cash and bank balance together. The contra entries are denoted by ‘C’.
Some transactions that lead to contra entry are given below.

1. Opening a bank account.
2. Depositing cash into bank.
3. Withdrawal from bank.

These transactions are recorded in a double column Cash Book as done below.

Working Note:

Working Notes:
WN 1:

WN 2: Cash Deposited into the Bank,
Cash Deposited into the Bank = Total of Cash Column (Dr. side) - (Total of Cash Column (Cr. side) + Cash balance maintained)
Cash Deposited into the Bank = 6,930 - (1,750 + 1,000) = ₹ 4,180