Page 98 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes posting. The amount column is meant for recording the amount received. Similarly, whenever
cash is paid, it is recorded on the credit side. Here, in particulars column we write the name of
the party to whom payment is made, and complete the other columns in the same manner as on
the debit side.

Posting the Single Column Cash Book

As said earlier, Cash Book also serves the purpose of a Cash Account, so there is no need to open
a Cash Account in the ledger. When a cash transaction is recorded in the cash book, posting of the
cash aspect of the transaction in Cash Account stands fully covered. What remains to be posted
is the other aspect of the transaction. The posting of this aspect will complete the double entry.
The rules of posting therefore are:
1. For all transactions entered on the debit side of the cash book, credit the concerned
Subsidiary Books: C accounts in the ledger individually by writing ‘By Cash Account’;
2. For all transactions entered on the credit side, debit the concerned accounts in the ledger
individually by writing To Cash Account’.
Thus, the posting into the ledger accounts is completed.

Notes The transactions entered on the debit side of the cash book are to be posted on the
credit side of the accounts in the ledger and vice versa.

Balancing of Single Column Cash Book

You have already learnt how to balance a ledger account. The cash book is balanced just like any
other ledger account. The cash book will always show a debit balance. This is because the cash
payments can never exceed the amount of cash available. For example, if you have 10 in your
pocket, can you pay 15? You cannot. So the total of the debit side in the cash book will always
be more than the total of the credit side his difference indicates the cash in hand. It shall be
entered on the credit side by writing ‘By Balance c/d’ in particulars column and showing the
amount in the amount column. Now total the amount columns and you will find that the two
sides are equal.
After closing the cash book, the balance is shown on the debit side by writing ‘To Balance b/d’.
It becomes the opening balance of cash for the next period. Note that the cash book shall
generally show a debit balance and occasionally a nil balance. Look at example it shows the
recording, posting and balancing of a Single Column Cash Book.

Example: Prepare a cash book from the following:
2010 ( )
June 1 Cash in hand 7,850
June 2 Cash Purchases 2300
June 3 Cash Sales 6,250
June 4 Wages paid in cash 25
June 6 Cash paid to Ram 1,220
June 7 Cash Received from Mohan Contd...
2260
June 8 Paid to a creditor in full Settlement of his account Amounting to 4500 4,410
June 9 Paid cartage 15
June 10 Issued a cheque to a creditor 11,500
92 LOVELY PROFESSIONAL UNIVERSITY
June 11 Goods purchased from Arun on credit 2,750
June 14 Cash Sales 2,670
June 15 Goods sold to Amit on credit 6,500
June 17 Cash Sales of 7500 of which 5700 were deposited in bank
June 18 Received a cheque from Amit and deposited in a bank 2,500
June 24 Rent paid 500
June 29 Electricity paid 1,210
June 30 Cash purchases 2,450