NCERT Solutions Class 11 Accountancy Chapter 4 Recording of Transactions 2

Question 1. Briefly state how the cash book is both journal and a ledger?
Answer: Because transactions are entered directly from source documents into the cash book, there is no need to record them first in the journal. In addition, the cash book provides the closing balances of both cash and bank accounts, which eliminates the necessity of keeping separate ledger accounts for cash and bank. Therefore, a single cash book successfully performs the roles of both a book of original entry and a principal ledger.
In simple words: The cash book is like a journal because we write down transactions there first. It is also like a ledger because it shows our final cash and bank balances without needing extra accounts.

Exam Tip: Mention that the cash book has a dual role, functioning both as a book of original entry (journal) and a principal book (ledger) to secure full marks.

 

Question 2. What is the purpose of contra entry?
Answer: A contra entry is used to show the deposit of cash into a bank account or the withdrawal of cash from a bank. It is intended to reflect transactions that simultaneously impact cash and bank registers. These transactions do not alter the overall financial standing of the firm. They are recorded on both the debit and credit sides of a double-column cash book and are identified using the letter 'C' in the ledger folio column.
In simple words: A contra entry happens when you move money between your cash box and your bank account. It shows up on both sides of the cash book.

Exam Tip: Always write the letter 'C' in the Ledger Folio (L.F.) column for contra entries to indicate that no further ledger posting is required.

 

Question 3. What are special purpose books?
Answer: Since firms have a massive volume of transactions, the main journal is split into smaller segments to make accounting faster, more reliable, and accurate. These designated registers, such as purchase books or sales books, track routine and recurring business events. Using these registers saves operational costs and allows different clerks to manage specific books simultaneously.
In simple words: Special purpose books are smaller journals used to record specific, repetitive events like credit sales or purchases. They help split up the work among different people.

Exam Tip: Remember that special purpose books are also known as subsidiary books, and they are designed to handle repetitive credit transactions.

 

Question 4. What is petty cash book? How it is prepared?
Answer: A petty cash book is maintained to record tiny, everyday payments such as taxi fares, stamps, office tea, and small office supplies. The clerk responsible for this book is called the petty cashier, and the minor expenditures are known as petty expenses. It can be set up in two distinct ways:
1. Simple or Ordinary Method: The head cashier gives a lump sum of money to the petty cashier to pay for small items, and once the money is fully spent, the petty cashier submits the expense details to get a new advance.
2. Imprest Method: Under this arrangement, the petty cashier starts the week or month with a fixed float. At the end of the term, the head cashier reimburses the exact total spent, restoring the petty cashier's balance to its original starting amount for the next period.
In simple words: This book keeps track of very small daily costs like tea, bus fares, or envelopes. It can be run by giving a simple allowance or using a top-up system called the imprest system.

Exam Tip: Pay close attention to the Imprest System, as examiners frequently ask about how the reimbursement amount is calculated to restore the original float.

 

Question 5. Explain the meaning of posting of journal entries?
Answer: Posting refers to the systematic transfer of financial details from the primary journal to the individual accounts in the ledger. Every economic activity is recorded first in a journal and then categorized into its respective ledger accounts.
In simple words: Posting is just copying the information from your journal entries into the separate accounts in the ledger book.

Exam Tip: Clearly define posting as the transfer process from the book of original entry to the principal book of accounts.

 

Question 6. Define the purpose of maintaining subsidiary journal.
Answer: The accounting cycle starts by recognizing and recording business events in a journal. While a small firm with few transactions can easily manage with a single journal, expanding operations make recording everything in one place highly impractical. Splitting the journal into subsidiary books helps resolve this issue by allowing division of labor. This enhances performance, saves time, and holds each clerk accountable for their designated ledger.
The key reasons for keeping subsidiary journals include:
1. Saving time and effort during the record-keeping process.
2. Encouraging specialization, as specific accountants are assigned to particular books.
3. Increasing individual responsibility and accountability for the accuracy of each ledger.
4. Keeping similar, routine transactions in one place for fast retrieval and communication.
In simple words: As a business grows, it gets too busy for one single journal. Keeping subsidiary journals lets different people work on different books, making the work faster and more organized.

Exam Tip: When describing the benefits of subsidiary journals, highlight division of labor, increased efficiency, and ease of locating specific transaction details.

 

Question 7. Write the difference between return inwards and return outwards.
Answer: The primary distinctions between return inwards and return outwards are detailed in the table below:

In simple words: Return inwards means customers sent back items they bought from you (sales returns). Return outwards means you sent back items you bought from a supplier (purchase returns).
Exam Tip: Make sure to specify which note is issued for each - a credit note is prepared for sales returns, while a debit note is prepared for purchase returns.

 

Question 8. What do you understand by ledger folio?
Answer: A ledger folio refers to the page number of an account in the ledger book, recorded within the dedicated 'L.F.' column of a journal. When a journal entry is written, the exact ledger page number is noted next to each account name. This helps accountants locate the specific account quickly, saving valuable time during audit and reconciliation.
In simple words: Ledger folio is the page number in the ledger book where an account is kept. It makes it very easy to find the account later.

Exam Tip: Remember that the Ledger Folio column remains empty when first recording the entry in the journal, and it is only filled in at the time of posting.

 

Question 9. What is difference between trade discount and cash discount?
Answer: The primary distinctions between trade discount and cash discount are outlined below:

In simple words: Trade discount is a price cut given to everyone to sell more goods, and it is not written in the accounts. Cash discount is given only to make people pay their bills quickly, and it is written in the accounts.
Exam Tip: Remember that trade discount is deducted from the list price and only net sales are recorded, whereas cash discount is recorded as an expense or income in the books.

 

Question 10. Write the process of preparing ledger from a journal.
Answer: The steps for preparing a ledger from a journal can be demonstrated using an example. Suppose a business buys machinery from Mr. X on credit. The journal entry is:
Machinery A/c Dr.
To Mr. X A/c

In this transaction, the Machinery Account is debited while Mr. X's Account is credited. Here is how we post this entry to the ledger:

For the account being debited (Machinery Account):
Step 1: Open the Machinery Account in the ledger.
Step 2: Enter the date of the transaction on the debit side under the 'Date' column.
Step 3: Write the name of the opposite account, i.e., 'Mr. X A/c', in the 'Particulars' column on the debit side.
Step 4: Record the page number of the journal where this entry exists in the 'J.F.' (Journal Folio) column.
Step 5: Write the transaction amount in the debit 'Amount' column.

For the account being credited (Mr. X Account):
Step 1: Open Mr. X's Account in the ledger.
Step 2: Enter the transaction date on the credit side under the 'Date' column.
Step 3: Write the name of the debited account, i.e., 'Machinery A/c', in the 'Particulars' column on the credit side.
Step 4: Mention the journal page number in the 'J.F.' column.
Step 5: Write the transaction amount in the credit 'Amount' column.
In simple words: To post to a ledger, open the debited account and write the credited account's name on its left (debit) side. Then, open the credited account and write the debited account's name on its right (credit) side.

Exam Tip: Ensure that the words "To" are used on the debit side and "By" are used on the credit side when making particulars entries in the ledger accounts.

 

Question 11. What do you understand by Imprest amount in petty cash book?
Answer: The imprest amount is a predetermined float provided by the head cashier to the petty cashier at the start of an accounting period. When the period ends, the exact amount spent by the petty cashier is topped up or reimbursed. This ensures that the petty cashier begins every new term with the same initial sum of money. For instance, if the head cashier provides Rs 1,000 on April 1, 2011, and the petty cashier spends Rs 850 on miscellaneous items by the end of April, the head cashier will refund exactly Rs 850. This restores the petty cashier's wallet to the standard Rs 1,000 balance on May 1, 2011.
In simple words: The imprest amount is a fixed pocket money given to the small-expense cashier. Every month, they are given back exactly what they spent so they start the new month with the same full amount.

Exam Tip: Understand that under the imprest system, the cash in hand plus the total of unposted petty vouchers must always equal the original imprest amount.

 

Long Answer Type Questions

 

Question 1. Explain the need for drawing up the special purpose books.
Answer: Maintaining special purpose books is essential for several reasons:
1. Speed and Accuracy: Recording every single transaction in one general journal is highly time-consuming. Dividing the transactions into dedicated books ensures they are recorded efficiently and on time.
2. Routine Transactions: Many transactions in a business are identical and repetitive. It is much more practical to group these similar entries together in one designated place, such as logging all credit sales in the Sales Book.
3. Cost-Effective: Using specialized books reduces administrative costs because it saves time and boosts the operational productivity of the accounting staff.
4. Simplified Ledger Posting: When similar entries are consolidated in a single register, transferring them to individual ledger accounts becomes much easier and less prone to errors.
5. Centralized Information: Anyone can quickly find complete details about sales, purchases, payments, or cash receipts in their respective books without having to search through miscellaneous records.
In simple words: Special books like the Sales Book make accounting much easier. They save time, let different staff members work at the same time, keep repetitive entries in one place, and prevent errors.

Exam Tip: When discussing the need for special books, use key terms like "division of labor", "saving time", and "easy reference for repetitive transactions".

 

Question 2. What is cash book? Explain the types of cash book.
Answer: A Cash Book is a book of original entry that records all cash inflows, cash outflows, bank deposits, and bank withdrawals in chronological order. Cash receipts and bank deposits are noted on the debit side, while cash payments and cheque issuances are written on the credit side. Generally updated on a monthly basis, it serves as both a primary journal and a ledger account.
The main types of cash books are:
1. Single Column Cash Book: This format has only one amount column on each side to record simple cash transactions. Debit side tracks receipts, while the credit side tracks payments.
2. Double Column Cash Book: This version contains two amount columns - one for cash and one for bank transactions - on both sides. Cash transactions are handled under real account rules, while bank deposits are debited and withdrawals or cheque payments are credited in the bank column.
3. Triple Column Cash Book: This features three amount columns on each side, representing cash, bank, and discount. Discount allowed is recorded alongside receipts on the debit side, while discount received is entered alongside payments on the credit side.
4. Petty Cash Book: This is a separate register used to track minor daily expenses like postage, stationery, and refreshments.
In simple words: A cash book is where you write down all the money coming in and going out. It can have one column for cash, two columns for cash and bank, or three columns to include discounts.

Exam Tip: Remember that a cash book serves a dual purpose - it is a journal because transactions are recorded directly, and a ledger because it represents cash and bank accounts.

 

Question 3. What is contra entry? How can you deal this entry while preparing double column cash book?
Answer: A contra entry is a transaction recorded on both sides of a double-column or triple-column cash book, affecting cash and bank balances at the same time. These entries do not change the total wealth of the business but show the movement of funds between cash and bank. For example, if Rs 200 cash is deposited into the bank, bank balance goes up while cash in hand goes down. In a double-column cash book, this is recorded by debiting Rs 200 in the bank column (with 'To Cash A/c' in particulars) and crediting Rs 200 in the cash column (with 'By Bank A/c' in particulars). To identify these entries, the letter 'C' is written in the L.F. column on both sides.

Common examples of contra entries include:
1. Depositing cash to open a bank account.
2. Depositing surplus office cash into the bank.
3. Withdrawing cash from the bank for office use.

In simple words: A contra entry is when money moves between cash and bank. It is written on both sides of the double-column cash book with a 'C' mark to show it doesn't need to be posted to another ledger.
Exam Tip: Make sure you do not post contra entries to the ledger, as the dual recording in the cash book completes the entry.

 

Question 4. What is petty cash book? Write the advantages of petty cash book?
Answer: A petty cash book is used to log low-value expenditures like cartage, postage, stationary, and refreshments. The staff member who manages this book is the petty cashier. It is prepared using either the ordinary system (providing a simple float) or the imprest system (where the exact amount spent is reimbursed at the end of the term).

The key benefits of maintaining a petty cash book are:
1. Simplicity: Keeping these records is straightforward and does not require complex accounting skills. Having separate heads for various small expenses simplifies the recording process.
2. Saves Time: It prevents the main cashier from being constantly interrupted for tiny payments, allowing them to focus on larger financial tasks.
3. Better Control: Since the main cashier reviews and audits the petty cash receipts at the end of each period, errors and fraudulent activities are minimized.
4. Easier Posting: Since similar small expenses are grouped under separate columns, posting the monthly totals to the main ledger is very fast and easy.

In simple words: A petty cash book is a small record book for tiny costs. It is simple to use, saves the chief cashier's time, helps prevent mistakes, and makes it easy to group small bills together.
Exam Tip: In exams, drawing the analytical columns for "Analysis of Payments" is critical. Remember to label the columns correctly based on common small expenses.

 

Question 5. Describe the advantages of sub-dividing the Journal.
Answer: Dividing the general journal into various subsidiary books offers several advantages:
1. Division of Work: Managing all transactions in a single journal leads to confusion and slow work when multiple accountants are involved. Splitting the journal into specialized books allows different clerks to work on different books simultaneously, ensuring smooth operations.
2. Time Efficiency: Recording transactions in specialized books is significantly faster than using a single, long-form journal.
3. Quick Access to Data: Since similar transactions are grouped in dedicated registers, fetching specific financial information is fast and direct.
4. Higher Accountability: Because specific books are assigned to particular accountants, each person becomes fully responsible for the maintenance and accuracy of their assigned book.
5. Simpler Error Detection: Finding and correcting mistakes is much easier because each subsidiary book contains fewer entries compared to a single massive journal.
6. Work Specialization: When clerks handle the same repetitive tasks daily, they become highly skilled and specialized in that specific area of bookkeeping.
In simple words: Splitting the journal means different people can work on different books at the same time. This makes the work faster, helps find errors quickly, and makes everyone more responsible for their own book.

Exam Tip: Use academic terms like "division of labor", "accountability", and "specialization" to ensure full marks on this question.

 

Question 6. What do you understand by balancing of account?
Answer: Accounts are updated on a daily, weekly, or monthly basis, and must be balanced at the end of each period. Balancing an account is performed using the following steps:
1. Calculate the sum of the debit side and the credit side separately to find out which side has a higher total.
2. Write down this larger total on both sides in the total row.
3. Find the difference between the debit total and the credit total. This difference is known as the closing balance or 'Balance carried down' (written as 'Balance c/d').
4. Place 'Balance c/d' on the side that has the smaller total to make both sides equal.
5. If 'Balance c/d' is written on the debit side, the account is said to have a 'Credit balance'. If it is written on the credit side, the account has a 'Debit balance'.
6. Once the account is closed, this 'Balance c/d' is brought forward to the next period as 'Balance brought down' (written as 'Balance b/d') on its true side.

Closing balances of personal and real accounts are carried over to the next period in this manner. For nominal accounts, the difference is closed by transferring the balance directly to the Trading Account or the Profit and Loss Account.
In simple words: Balancing means finding the difference between what was put on the left side and what was put on the right side of an account. We add this difference to the smaller side to make them equal, then carry it over to the next period.

Exam Tip: Make sure you know that nominal accounts are not balanced with "c/d" and "b/d" entries; instead, they are closed by transferring their totals directly to the Trading or Profit & Loss Account.

 

Numerical Questions

 

Question 1. Enter the following transactions in a simple cash book for December 2005:
01 Cash in hand Rs 12,000
05 Cash received from Bhanu Rs 4,000
07 Rent Paid Rs 2,000
10 Purchased goods Murari for cash Rs 6,000
15 Sold goods for cash Rs 9,000
18 Purchase stationery Rs 300
22 Cash paid to Rahul on account Rs 2,000
28 Paid salary Rs 1,000
30 Paid rent Rs 500
Answer: The cash book entries are listed and balanced in the statement below:

In simple words: To make a simple cash book, write all the money received on the left (debit) side and all the money paid out on the right (credit) side. The difference at the end of the month is your closing cash balance.
Exam Tip: Always make sure both sides of your cash book balance out perfectly at the end of the month, and don't forget to carry down the closing balance to the next month as 'Balance b/d'.

 

Question 2. Record the following transaction in simple cash book for November 2005:
01 Cash in hand Rs 12,500
04 Cash paid to Hari Rs 600
07 Purchased goods Rs 800
12 Cash received from Amit Rs 1,960
16 Sold goods for cash Rs 800
20 Paid to Manish Rs 590
25 Paid cartage Rs 100
31 Paid salary Rs 1,000
Answer:

Note: The question contains a typo since November 31 is not a valid date, as November has only 30 days. Therefore, this transaction has been recorded on November 30.
In simple words: A simple cash book records all cash coming in on the left side (receipts) and all cash going out on the right side (payments). The difference between the two sides represents the cash remaining at the end of the month.
Exam Tip: Ensure that you balance both sides of the cash book accurately. The balancing figure (Balance c/d) must always be placed on the side with the lower total to make both column totals equal.

 

Question 3. Enter the following transaction in Simple cash book for December 2005:
01 Cash in hand Rs 7,750
06 Paid to Sonu Rs 45
08 Purchased goods Rs 600
15 Received cash from Parkash Rs 960
20 Cash sales Rs 500
25 Paid to S. Kumar Rs 1,200
30 Paid rent Rs 600
Answer:

In simple words: All money received is entered under the debit side, while all cash payments are listed under the credit side. The closing balance shows how much cash is left in hand at the end of December.
Exam Tip: Double-check your calculations when finding the closing balance (Balance c/d). A small addition error can lose you easy marks on the totals.

 

Question 4. Record the following transactions in a bank column cash book for December 2005:
01 Started business with cash Rs 80,000
04 Deposited in bank Rs 50,000
10 Received cash from Rahul Rs 1,000
15 Bought goods for cash Rs 8,000
22 Bought goods by cheque Rs 10,000
25 Paid to Shyam by cash Rs 20,000
30 Drew from Bank for office use Rs 2,000
31 Rent paid by cheque Rs 1,000
Answer:

In simple words: A double column cash book tracks both physical cash and bank deposits in separate columns. When money moves directly between cash and bank, we use a contra entry marked with 'C' to show the internal transfer.
Exam Tip: Always mark contra entries with a 'C' in the Ledger Folio (L.F.) column. Remember that depositing cash into the bank decreases cash (credit) and increases bank (debit).

 

Question 5. Prepare a double column cash book with the help of following information for December 2005:
01 Started business with cash Rs 1,20,000
03 Cash paid into bank Rs 50,000
05 Purchased goods from Sushmita Rs 20,000
06 Sold goods to Dinker and received a cheque Rs 20,000
10 Paid to Sushmita cash Rs 20,000
14 Cheque received on December 06, 2005 deposited into bank
18 Sold goods to Rani Rs 12,000
20 Cartage paid in cash Rs 500
22 Received cash from Rani Rs 12,000
27 Commission received Rs 5,000
30 Drew cash for personal use Rs 2,000
Answer:

In simple words: Cheques received but not deposited on the same day are initially treated as cash. When they are deposited later, we record a contra entry transferring that amount from cash to the bank column.
Exam Tip: Pay close attention to transactions involving cheques. If a cheque is received on one day and deposited on another, remember to treat it as cash on the receipt date and make a contra entry on the deposit date.

 

Question 6. Enter the following transactions in double column cash book of M/s Ambica Traders for November 2005:
01 Commenced business with cash Rs 50,000
03 Opened bank account with ICICI Rs 30,000
05 Purchased goods for cash Rs 10,000
10 Purchased office machine for cash Rs 5,000
15 Sales goods on credit from Rohan and received cheque Rs 7,000
18 Cash sales Rs 8,000
20 Rohan's cheque deposited into bank
22 Paid cartage by cheque Rs 500
25 Cash withdrawn for personal use Rs 2,000
30 Paid rent by cheque Rs 1,000
Answer:

In simple words: When we sell goods on credit and receive a cheque that is not deposited immediately, we record it under cash. Later, depositing this cheque requires a contra entry to shift the amount from cash to the bank.
Exam Tip: Be careful with cash withdrawals for personal use (Drawings) versus office use. Personal withdrawals go to the Cash column as 'Drawings' and are not contra entries, unlike office withdrawals.

 

Question 7. Prepare double column cash book from the following information for September 2005:
01 Cash in hand Rs 7,500
Bank overdraft Rs 3,500
03 Paid wages Rs 200
05 Cash sales Rs 7,000
10 Cash deposited into bank Rs 4,000
15 Goods purchased and paid by cheque Rs 2,000
20 Paid rent Rs 500
25 Drew from bank for personal use Rs 400
30 Salary paid Rs 1,000
Answer:

In simple words: A bank overdraft means the account has a negative balance, so it begins as a credit entry on the right side. If the payments from the bank remain higher than the deposits at the end of the month, we still have an overdraft balance.
Exam Tip: Remember that an overdraft is a liability, so its opening balance (Balance b/d) must be written on the credit side of the bank column. Do not mix it up with the cash debit balance.

 

Question 8. Enter the following transaction in a double column cash book of M/s Mohit Traders for January 2005:
01 Cash in hand Rs 3,500
Bank overdraft Rs 2,300
03 Goods purchased for cash Rs 1,200
05 Paid wages Rs 200
10 Cash sales Rs 8,000
15 Deposited into bank Rs 6,000
22 Sold goods for cheque which was deposited into bank same day Rs 2,000
25 Paid rent by cheque Rs 1,200
28 Drew from bank for personal use Rs 1,000
31 Bought goods by cheque Rs 1,000
Answer:

In simple words: Selling goods and receiving a cheque that is deposited on the same day means the money goes straight into the bank column on the receipt side, without passing through the cash column first.
Exam Tip: When a cheque is received and deposited on the same day, record it directly in the debit bank column. Only use a contra entry if the cheque is deposited on a later date.

 

Question 9. Prepare double column cash book from the following transactions for the year December 2005:
01 Cash in hand Rs 17,500
Cash at bank Rs 5,000
03 Purchased goods for cash Rs 3,000
05 Received cheque from Jasmeet Rs 10,000
08 Sold goods for cash Rs 7,000
10 Jasmeet's cheque deposited into bank
12 Purchased goods and paid by cheque Rs 20,000
15 Paid establishment expenses through bank Rs 1,000
18 Cash sales Rs 7,000
20 Deposited into bank Rs 10,000
24 Paid trade expenses Rs 500
27 Received commission by cheque Rs 6,000
29 Paid Rent Rs 2,000
30 Withdrew cash for personal use Rs 1,200
31 Salary paid Rs 6,000
Answer:

In simple words: Both physical cash in hand and cash stored in bank accounts are assets, so they start with positive balances on the debit side. Any receipts increase these balances, while any payments decrease them.
Exam Tip: When dealing with various types of business expenses like establishment expenses or trade expenses, ensure they are recorded under the correct cash or bank column based on how they were paid.

 

Question 10. M/s Ruchi trader started their cash book with the following balances on Dec. 01 2005 : cash in hand Rs 1,354 and balance in bank current account Rs 7,560. He had the following transaction in the month of December, 2005:
03 Cash sales Rs 2,300
05 Purchased goods, paid by cheque Rs 6,000
08 Cash sales Rs 10,000
12 Paid trade expenses Rs 700
15 Sales goods, received cheque (deposited same day) Rs 20,000
18 Purchased motor car paid by cheque Rs 15,000
20 Cheque received from Manisha (deposited same day) Rs 10,000
22 Cash Sales Rs 7,000
25 Manisha's cheque returned dishonoured
28 Paid Rent Rs 2,000
29 Paid telephone expenses by cheque Rs 500
31 Cash withdrawn for personal use Rs 2,000
Answer:

In simple words: When a previously deposited customer cheque is dishonoured by the bank, we reverse the entry by recording the same amount on the credit side of the bank column, as if we are paying back the money.
Exam Tip: A cheque dishonour is a common adjustment. Remember to write the customer's name on the credit side of the bank column to represent the dishonoured amount, which reduces our bank balance.