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Accounting grade 11- Chapter 4 recording of transaction ii

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1. 1 Recording of Transactions - II Questions For Practice Short Answers 1. Briefly state how the cash book is both journal and a ledger. Ans) Cash book is journal in the…
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  • 1. 1 Recording of Transactions - II Questions For Practice Short Answers 1. Briefly state how the cash book is both journal and a ledger. Ans) Cash book is journal in the sense that all cash transactions are primarily recorded in the cash book with narration and therefore, these are posted to the relevant accounts in the ledger. Cash book is also ledger in the sense that it serves the purpose of cash account and bank account (in case of triple column cash book) 2. What is the purpose of contra entry? Ans) The purpose of Contra Entry is to record reverse or offset an entry on the other side of an account. If a debit entry is recorded in an account, contra entry will be recorded on the credit side and vice-versa. Debit and credit aspects of a single transaction are entered in the same account, but in different columns. Each entry in this case is viewed as a contra entry of the other. 3. What are special purpose books? Ans) Special purpose books are : 1. Cash Book 2. Purchases Book 3. Purchases Return (Return Outwards) Book 4. Sales Book 5. Sales Return (Return Inwards) Book 6. Journal Proper 4. What is petty cash book? How it is prepared? Ans) Businesses generally keep small amounts of cash to meet small miscellaneous payments such as entertainment expenses and stationery costs. Such payments are generally recorded in the book called as petty cash. It is prepared by imprest system whereby an amount is paid in advance called as 'Float' & it is a fixed amount. This is the maximum amount of cash that can be held at any time. Each time cash level runs low, the petty cash imprest is injected with cash by drawing a cheque. The amount of reimbursement is equal to the expenses paid through petty cash since the time of last reimbursement. Petty cash balance after reimbursement reverts to back to the level of the float.
  • 2. 2 5. Explain the meaning of posting of journal entries? Ans) Posting is the process of transferring the entries from the books of original entry (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. 6. Define the purpose of maintaining subsidiary journal. Ans) Subsidiary books are maintained because it may be impossible to record each transaction into the ledger as it occurs. Subsidiary books record the details of the transactions and therefore help the ledger to become brief. Future reference and any desired analysis becomes easy as transactions of similar nature are recorded together in subsidiary books. 7. Write the difference between return Inwards and return outwards. Ans ) Return Outwards: Faulty or wrong goods that the business returns back to suppliers. Return Inwards: Faulty or wrong goods that the customers return back to the business 8. What do you understand by ledger folio? Ans ) Ledger folio is page number of an entry in the company's ledger. A ledger folio in accounting is often abbreviated LF. 9. What is difference between trade discount and cash discount? Ans) Cash Discount Trade Discount Is a reduction granted by supplier from the invoice price in consideration of immediate or prompt payment Is a reduction granted by supplier from the list price of goods or services on business consideration re: buying in bulk for goods and longer period when in terms of services
  • 3. 3 As an incentive in credit management to encourage prompt payment Allowed to promote the sales Not shown in the supplier bill or invoice Shown by way of deduction in the invoice itself Cash discount account is opened in the ledger Trade discount account is not opened in the ledger Allowed on payment of money Allowed on purchase of goods It may vary with the time period within which payment is received It may vary with the quantity of goods purchased or amount of purchases made 10. Write the process of preparing ledger from a journal. Ans) The complete process of posting from journal to ledger is as follows: Step 1 : Locate in the ledger, the account to be debited as entered in the journal. Step 2 : Enter the date of transaction in the date column on the debit side. Step 3 : In the ‘Particulars’ column write the name of the account through which it has been debited in the journal. Step 4 : Enter the page number of the journal in the folio column and in the journal write the page number of the ledger on which a particular account appears. Step 5 : Enter the relevant amount in the amount column on the debit side. It may be noted that the same procedure is followed for making the entry on the credit side of that account to be credited. An account is opened only once
  • 4. 4 in the ledger and all entries relating to a particular account is posted on the debit or credit side, as the case may be. 11. What do you understand by Imprest amount in petty cash book? Ans) Imprest amount in petty cash book an amount paid in advance called as 'Float' & it is a fixed amount. This is the maximum amount of cash that can be held at any time. Each time cash level runs low, the petty cash imprest is injected with cash by drawing a cheque. The amount of reimbursement is equal to the expenses paid through petty cash since the time of last reimbursement. Petty cash balance after reimbursement reverts to back to the level of the float. Long Answers 1. Explain the need for drawing up the special purpose books. Ans) A small business may be able to record all its transactions in one book only, i.e., the journal. But as the business expands and the number of transactions becomes large, it may become cumbersome to journalise each transaction. For quick, efficient and accurate recording of business transactions, Journal is sub-divided into special journals. 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. Transactions that cannot be recorded in any special journal are recorded in journal called the Journal Proper. Special journals prove economical and make division of labour possible in accounting work. Q.2. What is n Cash Book? Explain the types of cash book. Ans) Cash book is used to record cash receipts and cash payments side by side. Cash book is ruled like a ledger account with the debit and credit sides and the balance represents cash in hand at the end of accounting period. Besides being a book of original entry, the Cash Book also serves as a ledger account. As such there is no need to open a separate cash account in the ledger. The basic form of Cash Book remaining the same, additional columns may be provided on either side, if necessary. Cash book may be of following types: (i) Simple Cash Book — Simple Cash Book has only one amount column on each side. This book serves the purpose of cash account. It is suited to concerns which have only cash transactions. (ii) Two-column Cash Book — Two-column Cash Book has two amount columns: one for cash and another for Bank on each side. This book serves the purpose of cash account as well as Bank account. It is suited to concerns which have cash transactions and banking transactions. A business concern need not maintain a separate account for the banking transactions. At the end of the accounting period the cash book reveals not only cash in hand but balance at bank also. There may be a two-column cash book containing cash column and discount column also. On the debit side, all cash receipts and discount allowed to customers arc recorded. On the credit side,
  • 5. 5 all cash payments and discount received from creditors are recorded (iii) Three-column Cash Book —Three-column Cash Book is prepared when there are a large number of cash and banking transactions. This Cash Book has three amount columns on each side, namely: cash column, bank column and discount column. (iv) Petty Cash Book —In order to make the task of the cashier easy. A petty cashier is appointed and handed over a small sum of money. He meets out small payments like stationery, postage, conveyance cartage etc. At the end of the given period, the petty cashier submits the account to the cashier who reimburses him for payments. Q.3. What is contra entry ? How can you deal this entry while preparing double column Cash Book? Ans) Contra Entry is an entry which is recorded to reverse or offset an entry on the other side of an account. If a debit entry is recorded in an account, contra entry will be recorded on the credit side and vice-versa. Debit and credit aspects of a single transaction are entered in the same account, but in different columns. Each entry in this case is viewed as a contra entry of the other. Just like cash transactions, all payments into the bank are recorded on the left side and all withdrawals/ payments through the bank are recorded on the right side of two column cash book. When cash is deposited in the bank or cash is withdrawn from the bank, both the entries are recorded in the two column cash book. This is so because both aspects of the transaction appear in the two column cash book itself. When cash is paid into the bank, the amount deposited is written on the left side in the bank column and at the same time the same amount is entered on the right side in the cash column. The reverse entries are recorded when cash is withdrawn from the bank for use in the office. Against such entries the word C, which stands for contra is written in the L.F. column indicating that these entries are not to be posted to the ledger account. Q.4. What is petty cash book ? Write the Advantages of petty cash book. Ans) Petty cash book may be defined as a specialised cash book which is used by a petty cashier to record all the small payments such as cartage. postage. stationery. conveyance etc. Following are the advantages of maintaining a petty cash book : (1) Saving of time — The head cashier is not bothered to make petty expenses and record their entries. This saves his time which can be utilised for other important matters. (2) Saving of labour— Petty Cash Book saves the labour of head cashier in recording each and every entry in Cash Book and posting them to the ledger accounts. (3) Simple to adopt —This is a simple method. Imprest system of petty cash facilitates its easy use. (4) Lesser mistakes Since the petty cash book is maintained separately. the possibility of mistakes is reduced. The head cashier can check the accuracy of every entry. (5) Control over payments — The head cashier supervises the maintenance of petty cash book and verifies the different payments from vouchers This reduces the chances of fraud and wrong payment. Q.5. Describe the advantages of sub-dividing the journal. Ans)Following arc the advantages of sub-division of journal i.e.. subsidiary books :
  • 6. 6 (1)The most important advantage of the sub-division of journal is that it permits division of labour which is very necessary in a large organisation. The process of recording can be divided among several persons. each of whom is responsible for particular type of transactions. (2)Since, there is a separate book for each class of transactions. The information relating to each class of transactions is available at one place. Sub-division of journal provides classified information. Periodical details of important business transactions can be known very easily. (3)Various accounting processes may be undertaken simultaneously because of the use of a number of books. This will lead to the work being completed quickly and efficiently. (4)Errors and mistakes if any, in entering transactions can be located easily from subsidiary books. (5)There is less wastage of stationery- because there will be no repetition of journal entries. The record can be made much briefer and a great amount of clerical effort and stationery can be saved. Q.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. Numerical Questions 1. Enter the following transactions in a simple cash book for December 2005: Rs. 01 Cash in hand 12,000 05 Cash received from Bhanu 4,000 07 Rent Paid 2,000 10 Purchased goods Murari for cash 6,000 15 Sold goods for cash 9,000 18 Purchase stationery 300 22 Cash paid to Rahul on account 2,000 28 Paid salary 1,000 30 Paid rent 500 (Ans. Cash in hand Rs. 13,200)
  • 7. 7 Solution: Dr. Cash book Cr. Date Particulars L. F Amount Date Particulars L. F Amount ₹ P ₹ P 2005 01 Dec 05 Dec 15 Dec To Balance b/d To Bhannu To Sales A/C 12,000 4,000 9,000 25,000 2005 07 Dec 10 Dec 18 Dec 22 Dec 28 Dec 30 Dec 31 Dec By Rent A/C By Purchase A/C By Stationery A/C By Rahul By Salary A/C By Rent A/C By Balance c/d 2,000 6,000 300 2,000 1,000 500 13,200 25,000 2. Record the following transaction in simple cash book for November 2005: Rs 01 Cash in hand 12,500 04 Cash paid to Hari 600 07 Purchased goods 800 12 Cash received from Amit 1,960 16 Sold goods for cash 800 20 Paid to Manish 590 25 Paid cartage 100 31 Paid salary 1,000 (Ans. Cash in hand Rs. 12,170)
  • 8. 8 Solution: Dr. Cash book Cr. Date Particulars L. F Amount Date Particulars L. F Amount ₹ P ₹ P 2005 01 Nov 12 Nov 16 Nov To Balance b/d To Amit To Sales A/C 12,500 1,960 800 15,260 2005 04 Nov 07 Nov 20 Nov 25 Nov 31 Nov 31 Nov By Hari By Purchase A/C By Manish By Cartage A/C By Salary A/C By Balance c/d 600 800 590 100 1,000 12,170 15,260 3. Enter the following transaction in Simple cash book for December 2005 : Rs. 01 Cash in hand 7,750 06 Paid to Sonu 45 08 Purchased goods 600 15 Received cash from Parkash 960 20 Cash sales 500 25 Paid to S.Kumar 1,200 30 Paid rent 600 (Ans. Cash in hand Rs. 6,765)
  • 9. 9 Solution: Dr. Cash book Cr. Date Particulars L. F Amount Date Particulars L. F Amount ₹ P ₹ P 2005 01 Dec 15 Dec 20 Dec To Balance b/d To Parkash To Sales A/C 7,750 960 500 9,210 2005 06 Dec 08 Dec 25 Dec 30 Dec 31 Dec By Sonu By Purchase A/C By S.Kumar By Rent A/C By Balance c/d 45 600 1,200 600 6,765 9,210 4. Record the following transactions in a bank column cash book for December 2005: Rs. 01 Started business with cash 80,000 04 Deposited in bank 50,000 10 Received cash from Rahul 1,000 15 Bought goods for cash 8,000 22 Bought goods by cheque 10,000 25 Paid to Shyam by cash 20,000 30 Drew from Bank for office use 2,000 31 Rent paid by cheque 1,000 (Ans. Cash in hand Rs. 5,000: cash at bank Rs. 37,000)
  • 10. 10 Solution: Dr. Bank Column Cash book Cr. Date Particulars L.F Amount Date Particulars L.F Amount Cash ₹ Bank ₹ Cash ₹ Bank ₹ 2005 01 Dec 04 Dec 10 Dec 30 Dec To Balance b/d To Cash A/C To Rahul To Bank A/C © © 80,000 1,000 2,000 83,000 50,000 50,000 2005 04 Dec 15 Dec 22 Dec 25 Dec 30 Dec 30 Dec 31 Dec By Bank A/C By Purchase A/C By Purchase A/C By Shyam By Cash A/C By Rent A/C By Balance c/d © © 50,000 8,000 20,000 5,000 83,000 10,000 2,000 1,000 37,000 50,000 5. Prepare a double column cash book with the help of following information for December 2005 : Rs. 01 Started business with cash 1,20,000 03 Cash paid into bank 50,000 05 Purchased goods from Sushmita 20,000 06 Sold goods to Dinker and received a cheque 20,000 10 Paid to Sushmita cash 20,000 14 Cheque received on December 06, 2005 deposited into bank 18 Sold goods to Rani 12,000 20 Cartage paid in cash 500 22 Received cash from Rani 12,000 27 Commission received 5,000 30 Drew cash for personal use 2,000 (Ans. Cash in hand Rs. 64,500 : Cash at bank Rs. 70,000)
  • 11. 11 Solution: Dr. Double Column Cash book Cr. Date Particulars L.F Amount Date Particulars L.F Amount Cash ₹ Bank ₹ Cash ₹ Bank ₹ 2005 01 Dec 03 Dec 06 Dec 14 Dec 22 Dec 27 Dec To Balance b/d To Cash A/C To Dinker To Cash A/C To Rani To Commission A/C © © 1,20,000 20,000 12,000 5,000 1,57,000 50,000 20,000 70,000 2005 03 Dec 10 Dec 14Dec 20 Dec 30 Dec 31 Dec By Bank A/C By Sushmita By Bank A/C By Cartage A/C By Drawings A/C By Balance c/d © © 50,000 20,000 20,000 500 2,000 64,500 1,57,000 70,000 70,000 6. Enter the following transactions in double column cash book of M/s Ambica Traders for November 2005: Rs. 01 Commenced business with cash 50,000 03 Opened bank account with ICICI 30,000 05 Purchased goods for cash 10,000 10 Purchased office machine for cash 5,000 15 Sales goods on credit from Rohan and received cheque 7,000 18 Cash sales 8,000 20 Rohan’s cheque deposited into bank 22 Paid cartage by cheque 500 25 Cash withdrawn for personal use 2,000 30 Paid rent by cheque 1,000 (Ans. Cash in hand Rs. 11,000, Cash at bank Rs. 35,500)
  • 12. 12 Solution: Dr. Double Column Cash book Cr. Date Particulars L.F Amount Date Particulars L.F Amount Cash ₹ Bank ₹ Cash ₹ Bank ₹ 2005 01 Nov 03 Nov 15 Nov 18 Nov 20 Nov To Balance b/d To Cash A/C To Sales A/C To Sales A/C To Cash A/C © © 50,000 7,000 8,000 65,000 30,000 7,000 37,000 2005 03 Nov 05 Nov 10 Nov 20 Nov 22 Nov 25 Nov 30 Nov 31 Nov By Bank A/C By Purchase A/C By Office Machine A/C By Bank A/C By Cartage A/C By Drawings A/C By Rent A/C By Balance c/d © © 30,000 10,000 5,000 7,000 2,000 11,000 65,000 500 1,000 35,500 37,000 7. Prepare double column cash book from the following information for September 2005: Rs. 01 Cash In hand 7,500 Bank overdraft 3,500 03 Paid wages 200 05 Cash sales 7,000 10 Cash deposited into bank 4,000 15 Goods purchased and paid by cheque 2,000 20 Paid rent 500 25 Drew from bank for personal use 400 30 Salary paid 1,000
  • 13. 13 (Ans. Cash in hand Rs. 8,800, Bank overdraft Rs. 1,900) Solution: Dr. Double Column Cash book Cr. Date Particulars L.F Amount Date Particulars L.F Amount Cash ₹ Bank ₹ Cash ₹ Bank ₹ 2005 01 Sep 05 Sep 10 Sep 31 Nov To Balance b/d To Sales A/C To Bank A/C To Balance c/d © 7,500 7,000 14,500 4,000 1,900 5,900 2005 01 Sep 03 Sep 10 Sep 15 Sep 20 Sep 25 Sep 30 Sep 31 Nov By Balance b/d By Wage A/C By Bank A/C By Purchases A/C By Rent A/C By Drawings A/C By Salary A/C By Balance c/d © 200 4,000 500 1,000 8,800 14,500 3,500 2,000 400 5,900 8. Enter the following transaction in a double column cash book of M/s.Mohit Traders for January 2005 : Rs. 01 Cash in hand 3,500 Bank overdraft 2,300 03 Goods purchased for cash 1,200 05 Paid wages 200 10 Cash sales 8,000 15 Deposited into bank 6,000 22 Sold goods for cheque which was deposited into 2,000 bank same day
  • 14. 14 25 Paid rent by cheque 1,200 28 Drew from bank for personal use 1,000 31 Bought goods by cheque 1,000 (Ans. Cash in hand Rs. 4,100 Cash at bank Rs. 2,500) Solution: Dr. Double Column Cash book Cr. Date Particulars L.F Amount Date Particulars L.F Amount Cash ₹ Bank ₹ Cash ₹ Bank ₹ 2005 01 Jan 10 Jan 15 Jan 22 Jan To Balance b/d To Sales A/C To Cash A/C To Sales A/C © 3,500 8,000 11,500 6,000 2,000 8,000 2005 01 Jan 03 Jan 05 Jan 15 Jan 25 Jan 28 Jan 31 Jan 31 Jan By Balance b/d By Purchases A/C By wages A/C By Bank A/C By Rent A/C By Drawings A/C By Purchases A/C By Balance c/d © 1,200 200 6,000 4,100 11,500 2,300 1,200 1,000 1,000 2,500 8,000 9. Prepare double column cash book from the following transactions for the year December 2005: Rs. 01 Cash in hand 17,500 Cash at bank 5,000 03 Purchased goods for cash 3,000 05 Recei
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