Definition and Explanation of Cash Book:

Cash bookis a book of original entry in which transactions relating only to cash receipts andpaymentsarerecordedin detail. When cash is received it is entered on the debit or left hand side. Similarly, when cash is paid out the same isrecordedon the credit or right hand side of the cash book.

Thecash book, though it serves the purpose of acash bookof original entry viz., cash journal really it represents the cash account of the ledger separately bound for the sake of convenience. It is more a ledger than a journal. It is journal as cash transactions are chronologicallyrecordedin it. It is a ledger as it contains a classified record of all cash transactions. Thebalancesof thecash bookarerecordedin the trial balance and the balance sheet.

Vouchers:

For Every entry made in thecash bookthere must be a proper voucher. Vouchers are documents containing evidence ofpaymentand receipts. When money is received generally a printed receipt is issued to the payer but counterfoil or thecarbon copyof it is preserved by the cashier. The copy receipts are called debit vouchers, and they support the entries appearing on the debit side of thecash book. Similarly whenpaymentis made a receipt is obtained from the payee. These receipts are known as credit vouchers. All thedebit and creditvouchers are consecutively numbered. For ready reference thenumberof the vouchers are noted against the respective entries. A column is provided on either side of thecash bookfor this purpose.

Balancing Cash Book:

Thecash bookis balanced at the end of a given period by inserting the excess of the debit on the credit side as "by balance carried down" to make both sides agree. The balance is then shown on the debit side by "To balance brought down" to start the next period. As one cannot pay more than what he actually receives, thecash bookrecording cash only can never show a credit balance.

Format:

The following is the simple format of acash book:

Date	Particulars	L.F.	Amount	Date	Particulars	L.F.	Amount

Single Column Cash Book:

Definition and Explanation:

Single column cash bookrecords only cash receipts andpayments. It has only one money column on each of thedebit and creditsides of the cash book. All the cash receipts are entered on the debit side and the cashpaymentson the credit side.

While writing a single column cash book the following points should be kept in mind:

1. The pages of the cash book are vertically divided into two equal parts. The left hand side is for recording receipts and the right hand side is for recordingpayments.
2. Being the cash book with thebalancebrought forward from the preceding period or with what we start. It appears at the top of the left side as "ToBalance" or "To Capital" in case of a newbusiness.
3. Record the transactions in order of date.
4. If any amount of cash is received on an account, the name of that account is entered in the particulars column by the word "To" on the left hand side of the cash book.
5. If any amount is paid on account, the name of the account is written in the particulars column by the word "By" on the right hand side of the cash book.
6. It should be balanced at the end of a given period.

Posting:

Thebalanceat the beginning of the period is not posted but other entries appearing on the debit side of the cash book are posted to the credit of the respective accounts in the ledger, and the entries appearing on the credit side of the cash book are posted to the debit of the proper accounts in the ledger.

Format of the Single Column Cash Book:

Following is the format of the single column cash book:

Date	Particulars	L.F.	Amount	Date	Particulars	L.F.	Amount

Example:

Write the following transactions in the simple cash book and post into the ledger:

1991
Jan. 1	Cash in hand	15,000
"  6	Purchased goods for cash	2,000
"  16	Received from Akbar	3,000
"  18	Paid to Babar	1,000
"  20	Cash sales	4,000
"  25	Paid for stationary	60
"  30	Paid forsalaries	1,000
"  31	Purchasedoffice furniture	2,000

Solution:

Cash Book

Date	Particulars	L.F.	Amount	Date	Particulars	L.F.	Amount
1991 Jan. 1 16   20	ToBalanceb/d To Akbar To sales a/c     ToBalanceb/d		15,000 3,000 4,000 22,000 15,940	Jan. 6 18    25   30   31	By Purchases a/c By Babar By stationary BySalariesa/c By Furniture a/c ByBalancec/d		2,000 1,000 60 1,000 2,000 15,940 22,000

Akbar

1991 Jan. 16

By Cash

$ 3,000

Sales Account

1991 Jan. 2

By Cash

$ 4,000

Purchases Account

1991 Jan. 6

To Cash

$ 2,000

Babar Account

1991 Jan. 18

To Cash

$ 1,000

Stationary Account

1991 Jan. 25

To Cash

$ 60

Salaries Account

1991 Jan. 30

To Cash

$ 1,000

Furniture Account

1991 Jan. 31

To Cash

$ 2,000

Two Column Cash Book/Double Column Cash Book:

Definition and Explanation:

Adouble column cash bookortwo column cashbook is one which consists of two separate columns on the debit side as well as credit side for recording cash and discount. In many concerns it is customary forthe traderto allow or to receive small allowance off or against the dues. These allowances are made for prompt settlement of accounts. In certainbusinessalmost all receipts orpaymentsare accompanied by such discounts and in order to avoid unnecessary postings separate columns in the cash book are introduced to record the discounts received or allowed. These discount columns are memorandum columns only. They do not form the discount account. The discount column on the debit side of the cash book will record discounts allowed and that on the credit side discounts received.

Posting:

The cash columns will be posted in the same way as single column cash book. But as regards discount column, each item of discount allowed (Dr. side of the cash book) will be posted to the credit of the respective personal accounts. Similarly each item of discount received will be posted to the debit of the respective personal account. Total of the discount column on the debit side of the cash book will be posted to the debit side of the discount account in the ledger and the total of discount column on the credit side of the cash book on the credit side of the discount account. The discount columns are not balanced like cash column of the tow column cash book.

Format of the Double Column Cash Book:

            Debit Side                                                     Credit Side

Date	Particulars	V.N.	L.F.	Discount	Cash	Date	Particulars	V.N.	L.F.	Discount	Cash

Example of Two Column Cash Book:

From the following transactions write up a two column cash book and post into ledger:

1991
Jan. 1	Cash in hand $2,000
"  7	Received from Riaz & Co. $200; discount allowed $10
"  12	Cash sales $1,000
"  15	Paid Zahoor Sons $500; discount received $15
"  20	Purchased goods for cash $300
"  25	Received from Salman $500; discount allowed $15
"  27	Paid Hussan & Sons $300.
"  28	Bought furniture for cash $100
"  31	Paid rent $100

Solution:

Cash Book

            Debit Side                                                     Credit Side

Date	Particulars	V.N.	L.F.	Discount	Cash	Date	Particulars	V.N.	L.F.	Discount	Cash
1991 Jan.1 "  7 "  12 "  25 1991 Feb1	To Balance b/d To Riaz & Co. To Sales a/c To Salman To Balance b/d			10 15	2,000 200 1,000 500	1991 Jan.5 "  20 "  27 "  28 "  31	By Zahoor & Sons By purchase a/c By Hussan&Sons By Furniture a/c By Rent a/c By Balance c/d			15	500 300 300 100 100 2,400
				25	3,700					15	3,700
					2,400

Riaz & Co.

1991 Jan. 7

By Cash By Discount

$ 200 10

Sales Account

1991 Jan. 12

By Cash

$ 1,000

Salman Account

1991 Jan. 25

By Cash By Discount

$ 500 15

Babar Account

1991 Jan. 18

To Cash

$ 1,000

Zahoor Account

1991 Jan. 15

To Cash Discount

$ 500 15

Purchases Account

1991 Jan. 20

To Cash

$ 300

Hussan & Sons

1991 Jan. 27

To Cash

$ 300

Furniture Account

1991 Jan. 28

To Cash

$ 100

Rent Account

1991 Jan. 31

To Cash

$ 100

Discount Account

1991 Jan. 31

To Sundries as per Cash book

$ 25

1991 Jan. 31

By Sundries as per cash book

15

Three Column Cash Book:

Definition and Explanation:

Athree column cash bookortreble column cash bookis one in which there are three columns on each side -debit and creditside. One is used to record cash transactions, the second is used to record bank transactions and third is used to record discount received and paid.

When atraderkeeps a bank account it becomes necessary to record the amounts deposited into bank and withdrawals from it. Fir this purpose one additional column is added on each side of the cash book. One of  the mainadvantages of a three column cash bookis that it is very helpful to businessmen, since it reveals the cash andbank depositsat a glance

Writing a Three column Cash Book:

Opening Balance:

Put the opening balance (if any) on cash in hand and cash at bank on the debit side in the cash book and bank columns. If the opening balance is credit balance (overdraft) then it will be put in the credit side of the cash book in the bank column.

Cheque/Check or Cash Received:

If achequeis received from any person and is paid into the bank on the same date it will appear on the debit side of the cash book as "To a Person". The amount will be shown in the bank column. If thechequereceived is not deposited into the bank on the same date then the amount will appear in the cash column. Cash received will be recorded in the usual manner in the cash column.

Payment By Cheque/Check or Cash:

When wemake paymentbycheque, this will appear on the credit side "By a person" and the amount in the bank column. If thepaymentis made in cash it will be recorded in usual manner in the cash column.

Contra Entries:

If an amount is entered on the debit side of the cash book, and the exact amount is again entered on the credit side of the same account, it is called "contra entry". Similarly an amount entered on the credit side of an account also may have a contra entry on the debit side of the same account.

Contra entries are passed when:

1. Cash is deposited into bank by office:It ispaymentfrom cash and receipt in bank. Therefore, enter on credit side, cash column "By Bank" and on debit side bank column "To Cash". The reason for making two entries is to comply with the principle of double entry which in such transactions is completed and therefore, no posting of these items is necessary. Such entries are marked in the cash book with the letter "C" in the folio column
2. Cheque/Check is drawn for office use:It ispaymentby bank and receipt in cash. Therefore, enter on the debit side, cash column "To Bank" and on credit side, bank column "By Cash".

Bank Charges and Bank Interest Allowed:

Bank charges appear on the credit side, bank column "Bank Charges." Bank interest allowed appear on the debit side, bank column "To Interest".

Posting:

The method of posting three column cash book into the ledger is as follows:

1. The opening balance of cash in hand and cash at bank are not posted.
2. Contra Entries marked with "C" are not posted.
3. All other items on the debit side will be posted to the credit of respective accounts in the ledger and all other items on the credit side will be posted to the debit of the respective accounts.
4. As regards discounts the total of the discount allowed will be posted to the debit of the discount account in the ledger and total of the discount received to the credit side of the discount account.

Format of the Three Column Cash Book:

            Debit Side                                                     Credit Side

Date

Particulars

V.N.

L.F.

Dis-count

Cash

Bank

Date

Particulars

V.N.

L.F.

Dis-count

Cash

Bank

Example of Three Column Cash Book:

On January 1, 1991 Noorani Stores cash book showed debit balance of cash $1,550 and bank $13,575. During the month of January followingbusinesswas transacted.

1991
Jan.1	Purchased officetypewriterfor cash $750; cash sales $315
"	Deposited cash $500
"   4	Received from A. Hussan acheque for $2,550 in partpayment of his account
"   6	Paid bycheque for merchandise purchased worth $1,005
"   8	Deposited into bank the chequereceived from A. Hussan.
"   10	Received from Hayat Khan acheque for $775 in full settlement of his account and allowed him discount $15.
"   12	Sold merchandise to Divan Bros. for $1,500 who paid bychequewhich was deposited in the bank.
"   16	Paid Salman $915 bycheque, discount received $5
"   27	Paid to Gulzar Ahmad bycheque$650
"   30	Paid salariesby cheque$1,750
"   31	Deposited into bank the chequeof Hayat Khan.
"  31	Drew from bank for office use $250.

You are required to enter the above transactions in three column cash book and balance it.

Solution:

Noorani Stores
Cash Book

            Debit Side                                                     Credit Side

Date	Particulars	V.N.	L.F.	Dis-count	Cash		Date	Particulars	V.N.	L.F.	Dis-count	Cash
1991 Jan.1 "  1 "  3 "  4 "  8 "  10 "  12 "  31 "  31 1991 Feb.1	To Balance b/d To Sales a/c To Cash a/c To A Hussan To Cash To Hayat Khan To Sales a/c To Cash To Bank To Balance b/d		C C C C	15	1,550 1,315 2,550 775 250	13,575 500 2,550 1,500 775	1991 Jan.1 "  3 "  6 "  8 "  16 "  27 "  30 "  31 "  31	By Office Equip. By Bank By Purchases a/c By Bank By Salman By Gulzar By Salaries a/c By Bank By Cash By Balanced c/d		C C C C	5	750 500 2,550 775 1,865	1,005 915 650 1,750 250 14,330
				15	6,440	18,900					5	6,440	18,900
					1,865	14,330

Sales Account

1991 Jan. 1 "  12

By Cash By Cash

$ 1,315 1,500

A. Hussan

1991 Jan. 4

By Cash

$ 2,550

Hayat Khan

1991 Jan. 10

By Cash By Discount

$ 775 15

Office Equipment Account

1991 Jan. 1

To Cash

$ 750

Purchase Account

1991 Jan. 6

To Cash

$ 1,005

Salman

1991 Jan. 16

To Cash To Discount

$ 915 5

Gulzar Ahmad

1991 Jan. 27

To Cash

$ 650

Salaries Account

1991 Jan. 30

To Cash

$ 1,750

Discount Account

1991 Jan. 31

To Sundries as per Cash book

$ 15

1991 Jan. 31

By Sundries as per cash book

5

PRINCIPLES OF ACCOUNTS (7110) SYLLABUS 2015:Double Entry Book-Keeping System

Concept and Meaning

Book keeping is that branch of knowledge which tells us how to keep a record of financial transaction. The need for recording such transactions arises because it is difficult to remember the various financial payments and receipt taking place during a period of time. There are two systems of book. Keeping i.e., single entry and double entry system. Under single entry, only an account or effect of each transaction relating to a supplier or a customer or cash is recorded. It ignores two aspect of a transaction.

Double entry system, system is modern and scientific system of recording the financial transaction. It was publicized by Luca Pacioli in 1495. This system recognizes that every financial transaction has two aspects. Both of these aspect, i.e. one is debit and another is credit must be recorded in this system of book-keeping. The rules of double entry system are that every debit there is a corresponding credit of the same amount. In other words there are two parties in every transaction, one is given another is receiver. The following definition further more clear the meaning of the double entry book keeping.

William Pickles "Double entry system seeks to records every transaction in money or money's worth in its double aspects. The receipt of a benefit by one account and the surrender of a benefit by another account, the former entry are being to the debit of the account receiving and the later to the credit of that account surrendering."

In summary double entry system is that method of book keeping which recognize the fact that every financial transaction has two aspects. For example, KHALID sold goods toTARIQ of Rs. 5000 in cash. In this case, KHALID is given and TARIQ is receiver of goods on the other hand, KHALID receives cash from TARIQ

Thinks to Remember

Double entry system of book keeping is a scientific system of book-keeping as recording. Keeping under this system is made with cause and effect. The rule for double entry is that every debit should have a credit and every credit should have a debit.

Features of Double Entry System of Book-keeping

The following are some features or characteristics of double-entry book-keeping.

1.      Double effecting: It follows the principle of double aspect by debiting and crediting the transaction.

2.      Equal effect: It assumes that debit must be equal to credit mount i.e. It considers the effect of equal amount.

3.      Debit and credit: It has two sides i.e. debit and credit. For example, the benefit receive is given the name debit and the benefit giver is given credit.

4.      Account: It maintains the records of personal, real as well as nominal accounts.

5.      Arithmetical accuracy: Another features of double entry system of book keeping to check arithmetical accuracy by preparing trial balance.

Importance or Advantage of Double Entry Book-Keeping System

The following are the advantages of double-entry book-keeping.

1.      Complete records of each transaction: Double entry system presents a complete record of transaction. Because it records both the aspect of every transaction, which relates to personal or impersonal.

2.      Checking of arithmetical accuracy: Arithmetical accuracy can be checked by preparing trial balance from all ledgers concerned.

3.      Profit or loss: Profit and loss account can easily be prepared. The exact reason for profit and loss can be ascertain.

4.      Financial position: It provides full particulars of various assets and liabilities of the business, so financial position can be known by preparing balance sheet. A comparative study of the balance sheet for various years shows a firm's progress.

5.      Frauds and errors: It prevents frauds and errors and makes their detection easier.

6.      Accepted by court and tax authorities: This system keeps a complete record of financial transaction therefore, it is accepted by court, tax authorities and banking institutions.

7.      Scientific and systematic: Double entry system of book-keeping is scientific and systematic records of financial transaction.

Disadvantage of Double Entry Book Keeping System

1.      Expensive: It is an expansive system of book-keeping which is not favorable for small business.

2.      Complicated: It is complicated system where certain rules and regulations are to be followed.

3.      Fails: It fails to disclose the error of omission, error of principles, errors of commission, and compensating errors.

Accounting Process or Cycle

Accounting process is a complete sequence of accounting activities that are started with the primary entry of transaction in to journal and ends with the preparation of final accounts. It includes identifying, recording, classifying, summarizing and communicating financial transaction. These business transactions are recorded in a set of rules books, such as journal, ledger, cash book etc. Unless these transactions are recorded properly, he will not be in a position to know where actually he stands. Accounting process is a continuous process in the life of business organization. Following is the complete cycle of accounting.

 Identification of financial transaction---Journalizing and recording in subsidiary book---Posting in to general 

ledger a/c---Preparation of trial balance---Preparation of final a/c---Interpretation and evaluation 

1.      Identification of financial transaction: A business may perform several transaction of which only financial transactions are recorded in accounts.

2.      Journalizing and recording in subsidiary books: In the second step of accounting process, they are recorded in journal vouchers. Some special transactions are divided in to subsidiary book as like sales books, purchases books, sales return books, cash book etc.

3.      Posting into ledger account: It is the process of posting into the various ledger accounts like purchases, sales debtors, creditors, income account, expenditure account etc. from the subsidiary books.

4.      Preparation of trial balance: After preparing ledger a/c, all the balance of ledger accounts are transferred to trial balance. It is prepared to check the arithmetical accuracy of financial records.

5.      Preparation of final account: After preparing trial balance, the final accounts are prepared. Final account shows the profit or loss and the position of assets and liabilities of the organization.

6.      Interpretation and evaluation of financial statement: It is the last step of accounting cycle. It helps to know about real position of the organization like liquidity, profitability, owners capital borrowed capital. Interpretation and evaluation of final accounts and other books of account provide the information to the owner, manager and other intuition.

Basic Terminologies

1.      Capital: The amount with which the trader starts his business or the amount which is actually invested in the business at any given time is known as capital.

2.      Liabilities: Capital of the proprietor and the debt which are due by the firm to other parties are collectively known as liability. The liabilities are two types: Long term liabilities and short term liabilities.

         (a) Long term liabilities: Liabilities those are repaid after a long period is known as long-term liabilities. Those are debenture mortgages, bank loan, capital etc.

         (b) Short term liabilities: Liabilities is also know as current liabilities, which are paid within short period or accounting year, those are creditors, bills payable, outstanding expenses bank overdraft.

3.      Drawing: Drawing are the withdraws by money (cash) or money's worth (goods) by the proprietor from the business for his personal use.

4.      Creditor: It denotes the providers of goods or service to the business on credit.

5.      Debtors: Debtors are the customers who purchases good or services from the business on credit.

6.      Ledger: Ledger is a main book of account. It contains all the account of the business in a well arranged form.

7.      Assets: Assets are economic resources which are owned by a business and are expected to benefit future operation.

         Assets = Capital and liabilities

Assets are divided as following:

(i)     Current assets: Assets which can be converted in to cash within short period or within a year is known as current year. Those are stock, prepaid expenses, debtors account receivable bills receivable.

(ii)    Fixed assets: Fixed assets are those assets which are acquired only for use and not for resale. Land and building, plant and machine, furniture, equipment etc. are example of fixed assets.

(iii)   Intangible assets: Intangible assets cannot be seen and touch but exist only in their financial value. Goodwill trade marks, copyright, patent, etc. are example of intangible assets.

8.      Sales: Sales of goods or service for money or moneys worth is known as sales. The transfer of other assets than goods is not regarded as sales.

9.      Purchases: Purchase refers to acquiring of raw materials by a manufacturing concern for the purpose of conversion into finished product. In case of a trading concern, purchases means acquiring by it of goods for the purpose of sale.

10.    Goods: Commodities bought for the purpose of resale are termed as goods. That is, things (or service) which a businessman sells are called goods. Thus a cloth merchant deals in cloth, a rice merchant deals in rice, cloth and rice are goods.

11.    Transaction: A business transaction involves exchange of value or benefit between two person. A exchange means giving and receiving of equal value. Transaction has two aspect-giving and receiving. The types of transactions are:

         (a) Cash transaction: Cash transaction involves immediate payment and receipts of cash.

         (b) Credit transaction: Credit transaction is different from cash transaction, because there is no immediate receipt and payment. They do not involve receipt or payment of money.

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