Class 11 Accountancy Recording of Transactions-II Notes

Class 11 Accountancy Recording of Transactions-II Notes

Chapter 4: Recording of Transactions – II

1. Introduction

As a business grows, recording every transaction in a single journal becomes difficult and time-consuming. To make accounting easier and more systematic, businesses use Special Purpose Books.

These books record similar types of transactions separately and help in:

  • Saving time
  • Improving accuracy
  • Reducing workload
  • Allowing division of work
  • Faster preparation of accounts

These books are also known as:

  • Subsidiary Books
  • Day Books
  • Special Journals

2. Types of Special Purpose Books

The major special purpose books are:

  1. Cash Book
  2. Purchases Book
  3. Purchases Return Book
  4. Sales Book
  5. Sales Return Book
  6. Journal Proper

3. Cash Book

Meaning

A Cash Book is a book used to record all cash and bank transactions of a business.

It serves two purposes:

  • Journal (Book of Original Entry)
  • Ledger Account of Cash/Bank

When a Cash Book is maintained:

  • Cash transactions are not recorded in the journal.
  • Separate cash account is not opened in the ledger.

4. Features of Cash Book

  • Records cash receipts and payments.
  • Maintained date-wise.
  • Shows cash balance at any time.
  • Acts as both journal and ledger.
  • Used by almost every organization.

5. Types of Cash Book

1. Single Column Cash Book

Contains only one amount column on each side.

Used when all transactions are made in cash.

Debit Side (Receipts)

Records:

  • Opening cash balance
  • Cash sales
  • Cash received from customers
  • Any other cash receipt

Credit Side (Payments)

Records:

  • Purchases for cash
  • Expenses paid
  • Drawings
  • Other cash payments

6. Balancing of Single Column Cash Book

Steps:

  1. Total both sides.
  2. Find the difference.
  3. Enter difference on payment side as Balance c/d.
  4. Bring it down next period as Balance b/d.

Important Point

Cash Book always shows a debit balance because cash payments cannot exceed available cash.

7. Posting from Single Column Cash Book

Debit Side Entries

Accounts appearing on the debit side are credited in the ledger.

Example:

Cash received from Mohan

Ledger Posting:

Mohan A/c Cr.

Credit Side Entries

Accounts appearing on the credit side are debited in the ledger.

Example:

Rent paid

Ledger Posting:

Rent A/c Dr.

8. Double Column Cash Book

Meaning

A Double Column Cash Book contains:

  • Cash Column
  • Bank Column

on both debit and credit sides.

It records both cash and bank transactions.

9. Advantages of Double Column Cash Book

  • Shows cash balance.
  • Shows bank balance.
  • Reduces journal entries.
  • Saves time.
  • Easy tracking of bank transactions.

10. Important Banking Terms

Pay-in-Slip

A form used to deposit money into a bank account.

Cheque

A written order directing a bank to pay a specified amount.

Bearer Cheque

Payment is made to the person holding the cheque.

Order Cheque

Payment is made only to the person named or as directed by that person.

Crossed Cheque

Cannot be encashed directly at the bank counter.

Payment is made through a bank account.

Account Payee Cheque

Amount is credited only to the account of the named person.

Provides maximum safety.

11. Contra Entry

Meaning

When cash is deposited into bank or withdrawn from bank, both aspects of the transaction appear in the Cash Book.

Such entries are called Contra Entries.

Symbol used:

C

Example

Cash deposited into bank ₹5,000

  • Bank Column (Debit)
  • Cash Column (Credit)

Both entries appear in the Cash Book.

No ledger posting is required.

12. Bank Overdraft

Meaning

When withdrawals from a bank exceed the available balance, the situation is called a Bank Overdraft.

It represents a liability of the business.

13. Dishonour of Cheque

Meaning

When a cheque is returned unpaid by the bank, it is called dishonour of cheque.

Common reason:

  • Insufficient funds

Effect:

The amount is reversed in the Cash Book.

14. Petty Cash Book

Meaning

A Petty Cash Book is maintained to record small and frequent expenses.

Examples:

  • Postage
  • Courier charges
  • Bus fare
  • Refreshments
  • Stationery
  • Telephone charges

15. Petty Cashier

The employee who handles small cash payments is called the Petty Cashier.

16. Imprest System

Meaning

Under this system, a fixed amount is given to the petty cashier at the beginning of a period.

This amount is called the Imprest Amount.

After spending money, the petty cashier receives reimbursement equal to the amount spent.

Example

Imprest Amount = ₹2,000

Expenses during month = ₹1,500

Reimbursement = ₹1,500

Balance remains ₹2,000 for the next period.

17. Advantages of Petty Cash Book

1. Saves Time

Chief cashier is free from handling small payments.

2. Better Control

Easy supervision of cash expenses.

3. Convenient Recording

Main Cash Book remains simple and organized.

4. Reduction in Errors

Small payments are separately recorded.

18. Common Columns in Petty Cash Book

  • Postage
  • Telephone
  • Conveyance
  • Stationery
  • Miscellaneous Expenses

19. Purchases Book

Meaning

Purchases Book records only credit purchases of goods.

Recorded Here

  • Credit purchase of goods meant for resale

Not Recorded

  • Cash purchases
  • Purchase of furniture
  • Purchase of machinery
  • Purchase of building

20. Source Document of Purchases Book

Invoice (Bill) received from supplier.

21. Posting of Purchases Book

Supplier Account

Credited individually.

Purchases Account

Debited with total of Purchases Book periodically.

22. Purchases Return Book

Also called:

Return Outward Book

Meaning

Used to record goods returned to suppliers.

Reasons:

  • Defective goods
  • Wrong quality
  • Wrong quantity

23. Debit Note

Meaning

A document sent by the buyer to the supplier when goods are returned.

It informs the supplier that his account has been debited.

24. Posting of Purchases Return Book

Supplier Account

Debited individually.

Purchases Return Account

Credited with total returns.

25. Sales Book

Meaning

Sales Book records only credit sales of goods.

Recorded Here

Credit sales of goods meant for resale.

Not Recorded

  • Cash sales
  • Sale of fixed assets

26. Source Document of Sales Book

Sales Invoice

issued to customers.

27. Posting of Sales Book

Customer Account

Debited individually.

Sales Account

Credited with total sales.

28. Sales Return Book

Also called:

Return Inward Book

Meaning

Records goods returned by customers.

29. Credit Note

Meaning

A document prepared by the seller when goods are returned by customers.

It informs the customer that his account has been credited.

30. Posting of Sales Return Book

Customer Account

Credited individually.

Sales Return Account

Debited with total returns.

31. Difference Between Debit Note and Credit Note

BasisDebit NoteCredit Note
Prepared ByBuyerSeller
Used ForPurchase ReturnsSales Returns
EffectSupplier A/c DebitedCustomer A/c Credited
PurposeInform supplier of returnInform customer of return

32. Journal Proper

Meaning

Transactions that cannot be recorded in any special journal are entered in the Journal Proper.

It is also called:

  • Residual Journal
  • General Journal

33. Transactions Recorded in Journal Proper

1. Opening Entries

Recording opening balances of:

  • Assets
  • Liabilities
  • Capital

2. Adjustment Entries

Examples:

  • Outstanding Expenses
  • Prepaid Expenses
  • Depreciation
  • Accrued Income

3. Rectification Entries

Used to correct accounting errors.

4. Transfer Entries

Examples:

  • Drawings transferred to Capital Account
  • Closing entries of expenses and incomes

Quick Revision

Cash Book

Records all cash and bank transactions.

Single Column Cash Book

Contains only cash column.

Double Column Cash Book

Contains cash and bank columns.

Contra Entry

Cash ↔ Bank transfer recorded on both sides of Cash Book.

Petty Cash Book

Records small daily expenses.

Imprest System

Fixed amount given to petty cashier and replenished periodically.

Purchases Book

Records credit purchases of goods.

Purchases Return Book

Records goods returned to suppliers.

Sales Book

Records credit sales of goods.

Sales Return Book

Records goods returned by customers.

Debit Note

Prepared by buyer for purchase returns.

Credit Note

Prepared by seller for sales returns.

Journal Proper

Records transactions not entered in any subsidiary book.

Multiple Choice Questions (MCQs)

  1. Which book is used to record repetitive transactions of a similar nature?
    a) Ledger
    b) Journal Proper
    c) Subsidiary Book
    d) Trial Balance
  2. Cash transactions are recorded in:
    a) Purchases Book
    b) Sales Book
    c) Cash Book
    d) Journal Proper
  3. Credit purchases of goods are recorded in:
    a) Purchases Book
    b) Cash Book
    c) Sales Book
    d) Petty Cash Book
  4. Credit sales of goods are recorded in:
    a) Sales Book
    b) Purchases Book
    c) Cash Book
    d) Journal Proper
  5. A Petty Cash Book is maintained for:
    a) Large payments
    b) Small routine expenses
    c) Credit purchases
    d) Credit sales
  6. A cheque received from a customer is first entered in:
    a) Ledger
    b) Cash Book
    c) Trial Balance
    d) Balance Sheet
  7. The system generally followed in petty cash management is:
    a) Double Entry System
    b) Imprest System
    c) Single Entry System
    d) Cash System
  8. Returns of goods purchased on credit are recorded in:
    a) Sales Return Book
    b) Purchases Return Book
    c) Cash Book
    d) Journal Proper
  9. Returns of goods sold on credit are recorded in:
    a) Sales Return Book
    b) Purchases Return Book
    c) Cash Book
    d) Ledger
  10. A Debit Note is generally prepared by:
    a) Supplier
    b) Purchaser
    c) Banker
    d) Auditor
  11. A Credit Note is generally issued by:
    a) Purchaser
    b) Customer
    c) Seller
    d) Banker
  12. Contra entries appear in:
    a) Purchases Book
    b) Sales Book
    c) Cash Book
    d) Journal Proper
  13. Bank overdraft means:
    a) Excess cash balance
    b) Negative bank balance
    c) Additional capital
    d) Cash discount
  14. Which book acts as both a journal and a ledger?
    a) Sales Book
    b) Cash Book
    c) Purchases Book
    d) Returns Book
  15. Transactions not recorded elsewhere are entered in:
    a) Journal Proper
    b) Sales Book
    c) Cash Book
    d) Purchases Book

Fill in the Blanks

  1. The Cash Book records all ______ and bank transactions.
  2. Credit purchases of goods are entered in the ______ Book.
  3. Credit sales of goods are entered in the ______ Book.
  4. Small day-to-day expenses are recorded in the ______ Cash Book.
  5. The amount fixed for petty expenses is called ______.
  6. Goods returned to suppliers are entered in the ______ Return Book.
  7. Goods returned by customers are entered in the ______ Return Book.
  8. A ______ Note is issued by the purchaser when goods are returned.
  9. A ______ Note is issued by the seller when goods are returned.
  10. A transaction involving cash and bank simultaneously is called a ______ entry.
  11. An unfavorable bank balance is known as ______.
  12. The Cash Book serves as both a journal and a ______.
  13. Transactions omitted from subsidiary books are recorded in ______ Proper.
  14. A cheque deposited into the bank increases the ______ column.
  15. Petty cash expenses are reimbursed periodically under the ______ System.

True or False

  1. Cash sales are recorded in the Sales Book.
  2. The Cash Book is a subsidiary book.
  3. Purchases Book records credit purchases of goods only.
  4. Sales Book records cash sales.
  5. Petty Cash Book records small expenses.
  6. A Debit Note is prepared by the purchaser.
  7. A Credit Note is issued by the seller.
  8. Journal Proper records opening entries.
  9. Contra entries affect both cash and bank columns.
  10. Cash Book does not require posting of cash transactions to the Cash Account.
  11. Purchases Return Book records goods returned to suppliers.
  12. Sales Return Book records goods returned by customers.
  13. Bank overdraft represents a favorable balance.
  14. The Imprest System helps control petty expenses.
  15. Subsidiary books reduce clerical work.

Match the Following

Column AColumn B
Cash BookCash and bank transactions
Sales BookCredit sales
Purchases BookCredit purchases
Petty Cash BookSmall expenses
Debit NoteGoods returned to supplier
Credit NoteGoods returned by customer
Contra EntryCash-bank transfer
Sales Return BookReturns inward
Purchases Return BookReturns outward
Journal ProperResidual transactions

One-Word Answer Questions

  1. Book used for recording credit purchases.
  2. Book used for recording credit sales.
  3. Book used for small expenses.
  4. Document issued by purchaser for returned goods.
  5. Document issued by seller for returned goods.
  6. Transfer between cash and bank.
  7. Excess withdrawal from bank.
  8. Book for recording returns to suppliers.
  9. Book for recording returns from customers.
  10. Residual journal.

Very Short Answer Questions

  1. What are subsidiary books?
  2. Define Cash Book.
  3. What is a Petty Cash Book?
  4. What is a contra entry?
  5. What is a cheque?
  6. What is bank overdraft?
  7. What is a Debit Note?
  8. What is a Credit Note?
  9. What is Journal Proper?
  10. What is the Imprest System?

Short Answer Questions

  1. State any three advantages of subsidiary books.
  2. Explain the purpose of maintaining a Cash Book.
  3. Differentiate between cash and bank columns.
  4. Why is a Petty Cash Book maintained?
  5. Explain the Imprest System.
  6. Distinguish between Debit Note and Credit Note.
  7. Explain the meaning of contra entry.
  8. Why are returns books maintained?
  9. What transactions are recorded in Journal Proper?
  10. Explain the importance of special purpose books.

Long Answer Questions

  1. Explain the need for subsidiary books in accounting.
  2. Describe the features and advantages of a Cash Book.
  3. Explain the preparation and use of a Petty Cash Book.
  4. Discuss the Imprest System of petty cash management.
  5. Explain the purpose and format of Purchases Book.
  6. Explain the purpose and format of Sales Book.
  7. Describe Purchases Return Book and Sales Return Book.
  8. Explain Debit Note and Credit Note with examples.
  9. Discuss the various transactions recorded in Journal Proper.
  10. Explain how special purpose books improve accounting efficiency.

Assertion–Reason Questions

  1. Assertion: Cash Book is both a journal and a ledger.
    Reason: Cash and bank accounts are maintained within it.
  2. Assertion: Purchases Book records only credit purchases of goods.
    Reason: Cash purchases are recorded in the Cash Book.
  3. Assertion: Petty Cash Book helps control expenses.
    Reason: Small expenses are recorded systematically.
  4. Assertion: Contra entries are not posted separately.
    Reason: They affect both cash and bank columns of the Cash Book.
  5. Assertion: Journal Proper records transactions not entered elsewhere.
    Reason: All transactions can be recorded in subsidiary books.

Answers – Multiple Choice Questions (MCQs)

  1. c) Subsidiary Book
  2. c) Cash Book
  3. a) Purchases Book
  4. a) Sales Book
  5. b) Small routine expenses
  6. b) Cash Book
  7. b) Imprest System
  8. b) Purchases Return Book
  9. a) Sales Return Book
  10. b) Purchaser
  11. c) Seller
  12. c) Cash Book
  13. b) Negative bank balance
  14. b) Cash Book
  15. a) Journal Proper

Answers – Fill in the Blanks

  1. cash
  2. Purchases
  3. Sales
  4. Petty
  5. imprest
  6. Purchases
  7. Sales
  8. Debit
  9. Credit
  10. contra
  11. bank overdraft
  12. ledger
  13. Journal
  14. bank
  15. Imprest

Answers – True or False

  1. False
  2. True
  3. True
  4. False
  5. True
  6. True
  7. True
  8. True
  9. True
  10. True
  11. True
  12. True
  13. False
  14. True
  15. True

Answers – Match the Following

Column AColumn B
Cash BookCash and bank transactions
Sales BookCredit sales
Purchases BookCredit purchases
Petty Cash BookSmall expenses
Debit NoteGoods returned to supplier
Credit NoteGoods returned by customer
Contra EntryCash-bank transfer
Sales Return BookReturns inward
Purchases Return BookReturns outward
Journal ProperResidual transactions

Answers – One Word Questions

  1. Purchases Book
  2. Sales Book
  3. Petty Cash Book
  4. Debit Note
  5. Credit Note
  6. Contra Entry
  7. Bank Overdraft
  8. Purchases Return Book
  9. Sales Return Book
  10. Journal Proper

Answers – Very Short Answer Questions

  1. Subsidiary books are special books used to record transactions of a similar nature.
  2. Cash Book is a book used to record all cash and bank transactions.
  3. Petty Cash Book records small and recurring expenses.
  4. A contra entry is a transaction involving both cash and bank accounts.
  5. A cheque is a written order directing a bank to pay a specified amount.
  6. Bank overdraft is the excess amount withdrawn from a bank account over the available balance.
  7. A Debit Note is a document sent by the purchaser to the supplier for goods returned.
  8. A Credit Note is a document sent by the seller to the buyer acknowledging returned goods.
  9. Journal Proper is used to record transactions not entered in any subsidiary book.
  10. The Imprest System is a system in which a fixed amount is provided for petty expenses and reimbursed periodically.

Answers – Short Answer Questions

1. State any three advantages of subsidiary books.

  • Save time and effort.
  • Reduce clerical errors.
  • Facilitate division of work.

2. Explain the purpose of maintaining a Cash Book.

It records all cash receipts, cash payments, bank deposits, and bank withdrawals systematically.

3. Differentiate between cash and bank columns.

  • Cash Column records cash transactions.
  • Bank Column records bank-related transactions.

4. Why is a Petty Cash Book maintained?

To record and control small routine expenses efficiently.

5. Explain the Imprest System.

A fixed amount is given to the petty cashier, and the amount spent is reimbursed periodically to restore the original balance.

6. Distinguish between Debit Note and Credit Note.

Debit NoteCredit Note
Issued by purchaserIssued by seller
For goods returned to supplierFor goods returned by customer

7. Explain the meaning of contra entry.

A transaction that affects both cash and bank accounts, such as depositing cash into the bank.

8. Why are returns books maintained?

To record returns separately and reduce workload in the Journal.

9. What transactions are recorded in Journal Proper?

Opening entries, closing entries, adjustment entries, rectification entries, and transfer entries.

10. Explain the importance of special purpose books.

They simplify recording, save time, improve accuracy, and make accounting more efficient.

Answers – Long Answer Questions

1. Explain the need for subsidiary books in accounting.

Subsidiary books are maintained because recording all transactions in one journal becomes difficult when transactions increase. They classify transactions according to nature, save time, reduce errors, and facilitate division of work.

2. Describe the features and advantages of a Cash Book.

Features:

  • Records cash and bank transactions.
  • Functions as both a journal and a ledger.
  • Shows cash and bank balances.

Advantages:

  • Saves time.
  • Reduces posting work.
  • Provides quick information about balances.

3. Explain the preparation and use of a Petty Cash Book.

A Petty Cash Book records small expenses such as postage, stationery, and conveyance. It is maintained by the petty cashier and helps control minor expenditures.

4. Discuss the Imprest System of petty cash management.

Under this system, a fixed amount is provided to the petty cashier. At the end of a specified period, the amount spent is reimbursed so that the petty cash balance returns to the original fixed amount.

5. Explain the purpose and format of Purchases Book.

Purchases Book records only credit purchases of goods. It contains date, supplier name, invoice details, and amount.

6. Explain the purpose and format of Sales Book.

Sales Book records only credit sales of goods. It includes date, customer name, invoice number, and sales amount.

7. Describe Purchases Return Book and Sales Return Book.

  • Purchases Return Book records goods returned to suppliers.
  • Sales Return Book records goods returned by customers.

These books help maintain accurate records of returned goods.

8. Explain Debit Note and Credit Note with examples.

A Debit Note is issued by the purchaser when goods are returned to the supplier.
A Credit Note is issued by the seller acknowledging the return and reducing the amount payable.

9. Discuss the various transactions recorded in Journal Proper.

Journal Proper records:

  • Opening entries
  • Closing entries
  • Adjustment entries
  • Transfer entries
  • Rectification entries
  • Rare or non-routine transactions

10. Explain how special purpose books improve accounting efficiency.

Special purpose books classify transactions, reduce workload, speed up recording, facilitate division of work, improve accuracy, and simplify ledger posting.

Answers – Assertion–Reason Questions

1.

Assertion: True
Reason: True
Conclusion: Reason correctly explains the Assertion.

2.

Assertion: True
Reason: True
Conclusion: Reason correctly explains the Assertion.

3.

Assertion: True
Reason: True
Conclusion: Reason correctly explains the Assertion.

4.

Assertion: True
Reason: True
Conclusion: Reason correctly explains the Assertion.

5.

Assertion: True
Reason: False
Conclusion: Assertion is true but Reason is false.