Subsidiary Books and Cash Book
Why subsidiary books exist
As transactions multiply, the journal is subdivided: purchases book (credit purchases of goods only), sales book (credit sales of goods only), purchase return book (returns outward), sales return book (returns inward), bills receivable and bills payable books, and the cash book. Cash transactions of every kind go to the cash book and never to the purchases or sales book; credit purchases of assets or of anything other than goods go to the journal.
Cash book
- Simple cash book: one cash column.
- Two-column cash book: cash and bank columns; it acts as both journal and ledger, so no separate cash account is needed.
- Three-column cash book: cash, bank and discount columns. The discount columns are memorandum columns, are not balanced, and their totals are posted to Discount Allowed and Discount Received accounts.
- Contra entries arise when cash is deposited into or withdrawn from the bank for office use; both columns are affected and "C" is written in the L.F. column.
- Petty cash book works on the imprest system: a fixed float is given to the petty cashier, who is reimbursed for what he spends.
Worked example
A firm holds ₹30,000 cash and a bank balance of ₹1,20,000 and deposits ₹20,000 into the bank. Enter ₹20,000 on the credit side of the cash column and on the debit side of the bank column, marked "C". Cash becomes ₹10,000 and bank ₹1,40,000; total funds are unchanged, which confirms the entry is correctly a contra.
Traps
Recording a credit sale of an old machine in the sales book; entering a credit purchase of furniture in the purchases book; trying to balance the discount column; omitting the "C" mark; treating bank charges debited by the bank as a contra entry.