Recording Of Transactions – II

This page contains the CBSE accountancy class 11 chapter Recording of Transactions – II notes. You can find the questions/answers/solutions for the chapter 4 of CBSE class 11 accountancy in this page. So is the case if you are looking for CBSE class 11 Commerce related topic Recording of Transactions – II
This page contains solutions to theoretical questions (Test your understanding questions, Short answers and Long answers) for the chapter 4 Recording of Transactions – II. If you’re looking for solutions to numerical questions, you can find them at
  1. Simple Cash Book Numerical Questions Solutions
  2. Bank Column Cash Book Numerical Questions Solutions
  3. Petty Cash Book Numerical Questions Solutions
  4. Other Subsidiary Books Numerical Questions Solutions
  5. Recording, Posting and Balancing Numerical Questions Solutions
Test your understanding – I
  1. When a firm maintains a cash book, it need not maintain :
    1. Journal Proper
    2. Purchases (journal) book
    3. Sales (journal) book
    4. Bank and cash accounts in the ledger ✔
  2. Double column cash book records
    1. All Transactions
    2. Cash and Bank Transactions ✔
    3. Only cash transactions
    4. Only bank transactions
  3. Goods purchased on cash are recorded in the
    1. Purchases (journal) book
    2. Sales (journal) book
    3. Cash book ✔
    4. Purchases return (journal) book
  4. Cash book does not record transactions of
    1. Cash nature
    2. Credit nature ✔
    3. Cash and credit nature
    4. None of these
  5. Total of these transactions is posted in purchases account
    1. Purchase of furniture
    2. Cash and credit purchase ✔
    3. Purchases return
    4. Purchase of stationery
  6. The periodic total of sales return journal is posted to :
    1. Sales account
    2. Goods account
    3. Purchase returns account
    4. Sales return account ✔
  7. Credit balance of bank account in cash book shows :
    1. Overdraft
    2. Cash deposted in our bank ✔
    3. Cash withdrawn from bank
    4. None of these
  8. The periodic total of purchases return journal is posted to :
    1. Purchase account
    2. Profit and loss account
    3. Purchase returns account ✔
    4. Furniture account
  9. Balancing of account means :
    1. Total of debit side
    2. Total of credit side
    3. Difference in total of debit & credit ✔
    4. None of these
Test your understanding – II
  1. Fill in the correct words
    1. Cash book is a ……….. journal. (subsidiary)
    2. In Journal proper, only ……….. discount is recorded. (cash)
    3. Return of goods purchased on credit to the suppliers will be entered in ……….. journal (purchases return)
    4. Assets sold on credit are entered in ……….. (journal proper)
    5. Double column cash book records transactions related to ……….. and ……….. (cash, bank)
    6. Total of the debit side of cash book is ……….. than the credit side. (more)
    7. Cash book does not record the ……….. transactions. (credit)
    8. In double column cash book ……….. transactions are also recorded. (bank)
    9. Credit balance shown by a bank column in cash book is ……….. (overdraft)
    10. The amount paid to the petty cashier at the beginning of a period is known as ……….. amount. (imprest)
    11. In purchase book, goods purchased on ……….. are recorded. (credit)
  2. State whether the following statements are True or False :
    1. Journal is a book of secondary entry. (❌ False)
    2. One debit account and more than one credit account in a entry is called compound entry. (✔ True)
    3. Assets sold on credit are entered in sales journal. (❌ False)
    4. Cash and credit purchases are entered in purchase Journal. (❌ False)
    5. Cash sales are entered in sales journal. (❌ False)
    6. Cash book records transactions relating to receipts and payments. (✔ True)
    7. Ledger is a subsidiary book. (✔ True)
    8. Petty cash book is a book having record of big payments. (❌ False)
    9. Cash received is entered on the debit side of cash book. (✔ True)
    10. Transaction recorded both on debit and credit side of cash book is known as contra entry. (✔ True)
    11. Balancing of account means total of debit and credit side. (❌ False)
    12. Credit purchase of machine is entered in purchase journal. (❌ False)
Short Answer Questions
Briefly state how the cash book is both journal and a ledger.
All the transactions related to cash receipts and cash payments are recorded into the cash book. As the information posted to the cash account will also be the same, cash book as it is will server the purpose of both journal as well as the ledger (cash) account. As preparing another ledger (cash) account will be mere copying of the entries from the cash book, cash book serves the purpose of both journal as well as the ledger (cash) account.





What is the purpose of contra entry?
It is common to record the bank transactions in the cash book itself by providing a separate column for the bank transactions. When the cash is deposited into the bank or cash is withdrawn from the bank, both of these entries are recorded into the cash book. As this transaction has no impact on the financial position of the business they are indicated by the letter C in the L.F. column on both sides. Here C denotes ‘Contra’ and it indicates that these transactions need not be posted into the ledger account.
What are special purpose books?
As many of the business transactions are repetitive in nature, transactions of of similar nature are recorded together in special journals. They prove to be economical and also make the division of labour possible in accounting work. The transactions which can not be recorded in any of the special journals are recorded in another special book called Journal Proper
The following are the special purpose books.

  1. Cash Book
  2. Purchases Book
  3. Purchases Return (Return Outwards) Book
  4. Sales Book
  5. Sales Return (Return Inwards) Book
  6. Journal Proper
What is petty cash book? How is it prepared?

In every organizations, a large number of small payments like conveyance, cartage, postage, telegram and other small expenses are repetitive in nature. Recording all these expenses in the cash book will overburden the cashier and make the cashbook bulky. To avoid this, such payments are recorded in a book called petty cash book by a separate cashier known as petty cashier.

Petty cash book is prepared based on the Imprest System. The petty cashier is handed over a definite sum (for instance ₹ 3000) called imprest amount. After spending substantial amount of this imprest amount, the petty cashier reimburses this amount from the head cashier and the next cycle of recording these petty expenses start. The frequency of reimbursement might be weekly, fortnightly or monthly.

The petty cashbook is balanced periodically by opening a petty cash account in the ledger.

Explain the meaning of posting of journal entries.
Posting refers to transferring the journal entries into the corresponding individual ledger accounts.
Define the purpose of maintaining subsidiary journal.
Many of the business transactions are repetitive in nature. Due to this reason, transactions which are similar in nature are recorded in special journals also known as daybooks or subsidiary journals. Maintaining subsidiary journals proves out to be

  1. Economical and take advantage of division of labour.
  2. Efficiency is improved as specific transactions are handled by specific people who have expertise in handling those transactions.
  3. The analysis of transactions which are similar in nature becomes easier.
Write the difference between return Inwards and return outwards.
  Return Inwards Return Outwards
Definition Goods sold out are returned back by the customer for various reasons like goods are not of the required quality or are defective etc. Goods purchased are returned back to the supplier for various reasons like goods are not of the required quality or are defective etc.
Acknowledgement A credit note (in duplicate) is prepared and the original one is sent to the customer for making the necessary entries in their books. A debit note (in duplicate) is prepared and the original one is sent to the supplier for making the necessary entries in their books.
Posting Posting from the sales return journal requires that the customer’s account be credited with the amount of returns and the sales return account be debited with the periodical total. Posting from the purchases returns journal requires that the supplier’s individual accounts are debited with the amount of returns and the purchases returns account is credited with periodical total.
Alias Name Sales returns Purchases returns
What did you understand by ledger folio?
Ledger Folio, abbreviated as L.F., is a column in the journal where in the page number of the ledger book on which the relevant account appears is recorded. In the journal, this column is filled up at the time of posting and not at the time of making journal entry. In a double entry cash book, when recording the cash deposit to bank or withdrawal from bank, this column is filled with the letter C which stands for Contra and indicates that these entries are not to be posted to the ledger account.
What is the difference between Trade Discount and Cash Discount?
  Trade Discount Cash Discount
Definition Trade Discount is the discount provided when the goods or services are purchased. Ex. 20% discount on mobile phones. Cash discount is the discount provided when payment is made.
Purpose The sole purpose is to encourage customers to buy more and there by increase the sales. The sole purpose is to encourage customers to pay either early or on-time.
Recording This discount is not recorded in the accounting books (it appears only in the invoice/bill) The discount is recorded in the cash book on

  1. Discount provided on the debit side
  2. Discount received on the credit side
Write the process of preparing ledger from a journal.
The following steps are used in the process of preparing the ledger from a journal.

  1. Account to be debited as entered in the journal is located in the ledger.
  2. The date of transaction is entered into the date column on the debit side.
  3. The name of the account through which it has been debited in the journal is written in the particulars column.
  4. Enter the page number of the journal in the J.F. column. The corresponding page number of the ledger account is written in the L.F. column of the journal.
  5. Enter the corresponding amount in the amount column on the debit side.

Follow the above procedure for making the entry on the credit side of the account to be credited.

What did you understand by Imprest amount in petty cash book?
  1. The imprest amount is a definite sum given to the petty cashier at the start of a certain period for handling the petty expenses.
  2. All the small payments are made out of this imprest amount.
  3. After spending substantial amount of this imprest amount, the petty cashier reimburses the amount spent from the head cashier.
  4. The next period of payment of petty expenses start.
  5. The spent imprest amount is reimbursed at periodic intervals like weekly, fortnightly or monthly depending on the frequency of small payments.
  6. Petty cash book is balanced periodically. The difference between the total receipts and total payments is the balance with the petty cashier.
  7. A petty cash account is opened in the ledger. It is debited with the amount provided to the petty cashier.
  8. Each expense account is individually debited with the periodic total as per the respective column by writing petty cash account and the petty cash account is credited with the total expenditure incurred during the period by writing sundries as per the petty cash book.
Long Answer Questions
Explain the need for drawing up the special purpose books.
Many of the business transactions are repetitive in nature. So, it is more sensible to group such transactions together and record them together. For this purpose the journal is sub-divided into special journals and the transactions of similar nature are recorded together. This strategy has the following advantages.

  1. Accuracy: Each type of special journal is handled by an accountant who has expertise in that and there by the accuracy is increased and defects are reduced minimal.
  2. Efficiency: It makes the division of labour possible and the transactions are handled by accountants who have expertise in handling those transactions. This increases the efficiency.
  3. Concise Descriptions: When recording a transactions in a specific journal, it is not required to provide additional details. For instance, when a purchase transaction is recorded in purchase journal we do not describe it as a purchase transaction. As it is present in the purchase journal, people will by default understand that it is a purchase related transaction.
  4. Minimal Posting: The totals (not individual transactions) can be posted to the ledger account periodically. This reduces the volume of posting.
  5. Fraud Prevention: As specific individuals are responsible for a special purpose book, they feel more responsible and this reduces the possibility of any fraud as any fraud will point to them only.
  6. Faster process: As multiple books are handled by multiple accountants, the recording work moves faster.





What is cashbook? Explain the types of cashbook.
A cash book is a book, also known as book of original entry in which all transactions related to cash receipts and cash payments are recorded. Cash book is very popular book and is maintained by all organizations, big or small, profit or non-profit. Cash book is generally made on monthly basis. It begins with cash or bank balances at the beginning of the period. When a cash book is maintained, the cash transactions are directly recorded into it and there won’t be a separate recording of the transactions in the journal and there won’t be a separate ledger account for posting the cash or bank transactions.
The following are the types of cash book

  1. Single column cash book: In this all the cash transactions of the business are recorded in the chronological order i.e. it is a complete record of cash receipts and cash payments. This is used by organizations which maintain all the cash receipts and payments in cash (without any bank account). There will be only one amount column on the credit and debit side of the cash book.
    The following is the format of single column cash book.

    Cash book
    Dr. Cr.
    Date Receipts L.F. Amount
    Date Payments L.F. Amount
  2. Double column Cash Book: In this type of cash book, there are two columns of amount on each side of the cash book. This type of cash book is handy when the number of bank transactions is large. The bank transactions are recorded in this cash book itself instead of recording them in journal. Thus this cash book provides the exact position of the bank account at any time.
    When the cash is deposited into the bank or cash is withdrawn from the bank, both the entries are recorded in the cash book as both aspects of the transaction appear in the cash book itself. When the cash is deposited 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 of the cash column. When the cash is withdraw from the bank, the amount withdrawn is written on the right side in the bank column and at the same time the same amount is entered on the left side of the cash column. These entries are marked with the letter C in the L.F., indicating that such entries are Contra. A contra entry indicates that such entries should not be posted to the ledger account.
    The bank column is balanced in the same way as the cash column. However when there is an overdraft there can be credit balance in the bank column. When the cheque is received and deposited in to the bank on the same day, it is recorded in the bank column on the receipts side. If the check is not deposited on the same day, it is entered into the cash column. The following day when it is deposited into the bank, a contra entry is made and the corresponding amount is recorded into the bank and cash columns. Dishonoured cheque amounts are recorded on the credit side. Bank related charges are also recorded on the credit side.
    When double column cash book is used, the bank account is not opened in the ledger.
    The following is the format of single column cash book.

    Cash book
    Dr. Cr.
    Date Receipts L.F. Cash
    Bank
    Date Payments L.F. Cash
    Bank
  3. Petty Cash Book: Petty cash book is used for recording a large number of small payments such as conveyance, cartage, postage, telegram and other expenses (miscellaneous expenses) which are usually in nature. The purpose is to avoid the cashier from being overburdened by allocating the maintenance of these expenses to a separate accountant. Maintaining the petty cash book will also make keep the main cash book slim.
    Petty cash book works on the imprest system. At the beginning of the accounting period, a definite sum, called imprest amount, is provided to the cashier. After spending substantial amount of imprest amount for paying the small expenses, the petty cashier reimburses the spent amount periodically.
    In some cases, the petty cash book is maintained in the main cash book itself. In this case, a separate petty cash book is not maintained.
    Petty cashbook will usually have a number of columns for the amount on the payment side (credit) besides the first other amount column. At the end there will be Miscellaneous column followed by a Remarks column.
    At the end of the period, all amount columns are totaled.
    Petty cash book is balanced periodically. The difference between the total receipts and total payments is the balance with the petty cashier. This balance is carried to the next period and petty cashier is paid the amount actually spent. A petty cash account is opened in the ledger. It is debited with the amount given to the petty cashier. Each expense account is individually debited with the periodic total as per the respective column by writing Petty cash account and petty cash account is credited with the total expenditure incurred during the period by writing sundries as per petty cash book.
    The following is the format of the petty cash book.

    Petty Cash Book
    Amount
    Received
    Date Particulars Voucher
    No.
    Amount
    Paid
    Analysis of Payments
    2014
    May
        Postage Telephone
    & Telegram
    Conveyance Stationery Misc.
What is contra entry? How can you deal this entry while preparing double column cash book?
It is common to record the bank transactions in the cash book itself by providing a separate column for the bank transactions. When the cash is deposited into the bank or cash is withdrawn from the bank, both of these entries are recorded into the cash book. As this transaction has no impact on the financial position of the business they are indicated by the letter C in the L.F. column on both sides. Here C denotes ‘Contra’ and it indicates that these transactions need not be posted into the ledger account.

While posting the entries to double column cash book the following procedure is adopted.

  1. When cash is deposited into the bank / account is opened in the bank:
    1. The amount deposited is recorded on the debit side in the Bank column. The L.F. column is marked as C
    2. The cash column is credited on the right side with the same amount. And the corresponding L.F. column is marked as C

    An example is provided below:

    Cash book
    Dr. Cr.
    Date Receipts L.F. Cash
    Bank
    Date Payments L.F. Cash
    Bank
    01 Dec Cash C   40,000 01 Dec Bank C 40,000  
  2. When cash is withdrawn from the bank:
    1. The amount withdrawn is recorded on the debit side in the Cash column. The L.F. column is marked as C
    2. The bank column is credited on the right side with the same amount. And the corresponding L.F. column is marked as C

    An example is provided below:

    Cash book
    Dr. Cr.
    Date Receipts L.F. Cash
    Bank
    Date Payments L.F. Cash
    Bank
    01 Dec Bank C 40,000   01 Dec Cash C   40,000
  3. When cheque is received and deposited into the bank on the same day: It will not be a Contra entry.
  4. When cheque is received and deposited into the bank on a subsequent day (not on the same day):
    1. On the date of receipt it is considered as cash received and recorded on the receipts side of the cash book in the cash column.
    2. On the day it is deposited into the bank, it is recorded in the bank column on the receipts (Dr.) side. The L.F. column is marked as C
    3. A corresponding entry is made into the cash column on the payments side (Cr.). The corresponding L.F. column is marked as C.

    An example is provided below:

    Cash book
    Dr. Cr.
    Date Receipts L.F. Cash
    Bank
    Date Payments L.F. Cash
    Bank
    01 Dec Debtors   40,000   02 Dec Bank C 40,000  
    02 Dec Cash C   40,000          
What is petty cash book? Write advantages of petty cash book.

In every organizations, a large number of small payments like conveyance, cartage, postage, telegram and other small expenses are repetitive in nature. Recording all these expenses in the cash book will overburden the cashier and make the cashbook bulky. To avoid this, such payments are recorded in a book called petty cash book by a separate cashier known as petty cashier.

Petty cash book is prepared based on the Imprest System. The petty cashier is handed over a definite sum (for instance ₹ 3000) called imprest amount. After spending substantial amount of this imprest amount, the petty cashier reimburses this amount from the head cashier and the next cycle of recording these petty expenses start. The frequency of reimbursement might be weekly, fortnightly or monthly.

The petty cashbook is balanced periodically by opening a petty cash account in the ledger.

The following is the format of the petty cash book.

Petty Cash Book
Amount
Received
Date Particulars Voucher
No.
Amount
Paid
Analysis of Payments
2014
May
    Postage Telephone
& Telegram
Conveyance Stationery Misc.

The following are the advantages of petty cash book:

  1. Division of labour: It facilitates the petty expenses to be handled separately and relieves the cashier from being overburdened.
  2. Avoiding bulky cash books: The small expenses are more in number and occupy lot of space in the cash book, if recorded in the cash book itself. Maintaining the petty cash book for recording these small expenses saves lot of space in the main cash book and prevents it from being bulky. It also saves the ledger accounts from being bulky, as only totals of various expenses are posted periodically.
  3. Cash book is less prone to errors: The head cashier audits the petty account periodically and releases the balance amount. This prevents many errors as all the small expenses are handled separately and less number of transactions in the main cash book.
  4. Focusing on important transactions: The head cashier can focus on what is important for the business and use his expertise where it is required most.
  5. Control of expenses: As the petty cashier is responsible for the petty expenses and the head cashier audits the petty expenses periodically, misuse of funds is minimized.
  6. Ease of posting: The posting to ledger becomes easier as only total of the petty expenses is posted periodically.
Describe the advantages of sub-dividing the Journal.
  1. Accountability: As individual accounts are handled by individual accountants, they feel more accountable and ensure that the accounts are free from any fraudulent entries.
  2. Accuracy: The specialization makes the account to be recorded more accurately and they will be less error prone.
  3. Division of Labour: As different accounts are handled by different accountants, it brings in specialization. It also helps in recording the transactions in parallel and there by the process becomes faster. Specialization minimizes errors and increases the accountability of the individual accountants.
  4. Economical: As division of labour brings in specialization, the process becomes efficient and there by becomes economical.
  5. Efficiency: Efficiency is improved as specific transactions are handled by specific people who have expertise in handling those transactions.
  6. Ease of Audit and analysis: The analysis of transactions which are similar in nature becomes easier.
  7. Time Sensitive: Specialization brings in time efficiency.
  8. Productivity: As the accountants gain expertise in handling specific account, in increases their productivity.
What do you understand by balancing of account?
The accounts in the ledger are balanced at periodic intervals of daily, weekly, fortnightly, monthly, quarterly or any other pre-defined periodic intervals. The goal of balancing is to ascertain the net position of each amount. The following steps are involved in the balance of the accounts.

  1. The debit and credit side are totaled.
  2. The total on the side which is higher is written on the corresponding side.
  3. The difference between both the sides is recorded on the shorter side. This makes the total on both the sides equal.
    1. In case the debit side exceeds the credit side, the difference is written on the credit side. This is called Debit Balance.
    2. If the credit side exceeds the debit sided, the difference is written on the debit side. This is called Credit Balance.
  4. The words balance c/d are written against the amount of the difference between the two sides. Balance c/d stands for balance carried down.
  5. The amount of balance is brought down (b/d) in the next accounting period. It is denoted with Balance b/d. This indicates that it is a continuing account, till finally settled or closed. Here Balance b/d stands for Balance Brought Down.

The accounts of expenses losses and gains/revenues are not balanced. Instead, these are transferred to trading and profit and loss account.


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You might also want to refer the following pages.

  1. Introduction to Accounting
  2. Theory Base of Accounting
  3. Recording of Transactions – I