Recording of Transactions - II

A cash book records all cash receipts and payments, so it acts as a journal because transactions are entered there first as they occur. At the same time, it serves as a ledger because it contains the cash/bank account itself, so no separate cash or bank account is needed in the ledger.

The purpose of a contra entry is to record a transaction that affects both cash and bank sides of the cash book, such as cash deposited into bank or cash withdrawn from bank. It is marked with C in the L.F. column to show that it should not be posted to the ledger.

Special purpose books are journals divided into separate books for recording transactions of a similar nature, such as cash transactions, credit purchases, credit sales, and returns. They are also called daybooks or subsidiary books.

A petty cash book is a separate cash book maintained to record small, repetitive payments like postage, conveyance, cartage, and stationery. It is usually prepared under the imprest system: a fixed amount is given to the petty cashier at the beginning, small payments are made from it, and the amount spent is reimbursed periodically to restore the imprest.

Posting means transferring the entries recorded in the journal to the appropriate ledger accounts. In other words, each debit and credit entry of the journal is entered in the relevant account in the ledger.

The purpose of maintaining a subsidiary journal is to make recording easier, quicker, and more systematic by separating different kinds of transactions into different books. This saves time, reduces the workload of the main journal, and helps in division of labour and more accurate accounting.

Return inwards means goods returned by customers to the business; it is also called sales return. Return outwards means goods returned to suppliers by the business; it is also called purchases return.

Ledger folio (L.F.) is the page number of the ledger account to which a journal or subsidiary book entry is posted. It helps in quick reference and cross-checking between books.

Trade discount is a reduction in the list price allowed by the seller at the time of sale, and it is not recorded separately in the books. Cash discount is allowed for prompt payment and is recorded in the accounts because it depends on payment, not on the sale price itself.