Maharashtra State Board Class 12 Political Science Notes

Maharashtra State Board 12th Political Science Notes

Political Science Notes for Class 12 Maharashtra Board

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Maharashtra State Board Class 12 Geography Notes

Maharashtra State Board 12th Geography Notes

Geography Notes for Class 12 Maharashtra Board

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Maharashtra State Board Class 12 Economics Notes

Maharashtra State Board 12th Economics Notes

Economics Notes for Class 12 Maharashtra Board

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Maharashtra State Board 12th History Notes

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Maharashtra State Board Class 12 Notes

Maharashtra State Board Class 12th Biology Notes | 12th HSC Biology Notes

12th Science Biology Notes Maharashtra State Board | 12th Std HSC Biology Notes

12th Biology Notes State Board | 12th Science Biology Notes Maharashtra Board

Maharashtra State Board Class 12 Notes

Maharashtra State Board Class 12th Chemistry Notes | 12th HSC Chemistry Notes

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Maharashtra State Board Class 12th Physics Notes | 12th HSC Physics Notes

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12th Physics Notes for State Board | 12th Science Physics Notes Maharashtra Board

  • Chapter 1 Rotational Dynamics Notes
  • Chapter 2 Mechanical Properties of Fluids Notes
  • Chapter 3 Kinetic Theory of Gases and Radiation Notes
  • Chapter 4 Thermodynamics Notes
  • Chapter 5 Oscillations Notes
  • Chapter 6 Superposition of Waves Notes
  • Chapter 7 Wave Optics Notes
  • Chapter 8 Electrostatics Notes
  • Chapter 9 Current Electricity Notes
  • Chapter 10 Magnetic Fields due to Electric Current Notes
  • Chapter 11 Magnetic Materials Notes
  • Chapter 12 Electromagnetic Induction Notes
  • Chapter 13 AC Circuits Notes
  • Chapter 14 Dual Nature of Radiation and Matter Notes
  • Chapter 15 Structure of Atoms and Nuclei Notes
  • Chapter 16 Semiconductor Devices Notes

Maharashtra State Board Class 12 Notes

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement

By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement students can recall all the concepts quickly.

Maharashtra State Board 11th Accounts Notes Chapter 6 Bank Reconciliation Statement

Meaning, Importance, And Utilities of Accounting Documents-
The documents which explain all the basic facts (information) of cash and banking transactions such as the date, amount, parties, and purposes of transactions are called Accounting documents. Accounting documents also provide evidence of financial transactions on account of the introduction and increasing use of the Internet and mobile banking, the functioning of the modern bank has undergone a drastic change. Payments and receipts of cash through the internet and mobiles generate instant and automatic evidence useful for concerned parties. Even today payments and receipts are made through cheques and drafts. Similarly a large number of banking transactions are completed by the account holders through visiting the banks.

Types of Bank Documents-
1. PAY-IN-SLIP: Pay-in-slip is an important source document used by the account holder for depositing cash as well as cheques into the bank account. A pay-in-slip book consists of 10 slips or 100 slips. Each slip is divided into two parts, each of which can be separated easily from the other. The longer part of the slip is called foil and the smaller part is called counterfoil.

Before depositing cash or cheque into the bank, account holder is required to fill up both the parts of pay-in-slip. Information regarding name of the account holder, his account number, amount in figures and words, signature, etc is required to be filled up on both the parts of the pay-in-slip. The cashier of the bank accepts cash or cheque along with the duly filled up pay-in-slip. The foil of pay-in-slip remains with the bank for making records in the books of the bank and the counter foil after stamping and signature of the cashier is given back to the account holder for his own reference. Separate pay-in-slips are used for depositing cash and cheque.

The pay-in-slip is a bank printed form provided by the bank free of charge to the account holders to facilitate them to deposit cash or cheque into the bank. On the basis of slip entries are made in the cash book as well as in the bank passbook.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement

Contents: The pay-in-slip contains the following details:

  • Name of the bank and its branch. Usually, they are printed.
  • Date of banking transaction.
  • Name of the account holder.
  • Account No.
  • Types of Account.
  • Amount deposited in words as well as in figures.
  • Form of amount deposited i.e. cheque/cash.
  • Signature of the depositor.
  • Signature of officer in charge and stamp of bank.
  • On the backside of the pay-in-slip, the details of cash or cheque deposited are given.

(a) Specimen form of pay-in-slip is given below: From side.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 1

(b) Reverse (Back-side) of Pay-in-Jip :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 2

Withdrawal Slip:
A source document which is used by the account holder for withdrawing cash from the bank is called withdrawal slip. It is used to withdraw the amount from Savings Account. Before withdrawing cash from the bank, an account holder is required to fill up a withdrawal slip. Information regarding the name of the account holder, his account number, amount in figures and in words, date, signature, etc. are required to be filled up. The account holder is also required to sign on the back of the withdrawal slip. Both the signatures made on withdrawal slip must be matched with the specimen signature recorded in the computer. This is to avoid malpractices.

A person other than an account holder can also withdraw money with the help of a withdrawal slip. In such case, a person appointed to withdraw the money is required to sign on the reverse of the withdrawal slip below the signature of the account holder. While withdrawing the money from the bank, the withdrawal slip must be accompanied by the bank passbook. An account holder is not allowed to carry withdrawal slips outside the bank premises. It is a bearer document. This is because the person holding duly filled in and signed by the account holder can easily withdraw the amount from the bank by signing on the backside. In the case of use of withdrawal slip, account holder gets no document from the bank on such withdrawal.

Contents: Withdrawal slip contains the following details:

  • Name of the Bank and its branch. They are generally printed.
  • Date of withdrawal of cash.
  • Name of the account holder.
  • Account Number.
  • Amount in words as well as in figures.
  • Signature of account holder.

Specimen form of a withdrawal slip is given below.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 3

Bank Pass Book:
A bank passbook is a small booklet given by the bank to the account holder free of charge. In the passbook, an account holder’s transactions with the bank are recorded by the banker chronologically. A passbook is a copy of ledger account appearing in the books of bank. The entries in the passbook are made by the banker.

Nowadays printed entries in the passbook are made through computer. This book has a number of pages and on each page, there are several columns like Sr. No., date, particulars, cheque or withdrawal slip nos., amount deposited, amount withdrawn, balance amount and initials of bank clerk, etc. An account holder is required to carry a bank pass book whenever he goes to bank for a transaction. The bank passbook serves as an identity of the account holder. Account holder cannot pass any entry or make any changes on the Bank passbook.

Importance:

  • Bank passbook shows the balance of amount i.e. standing position of account holder with the bank on a particular date.
  • It is a documentary proof accepted as an evidence of banking transactions in the court of law.
  • It gives confirmation by the bank that all the transactions are made through the bank.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement

Contents:

  • Date of transaction.
  • Particulars regarding banking transactions.
  • Cheque No.
  • Amount withdrawn from the bank.
  • Amount deposited into the bank.
  • Balance amount.
  • Signature of Bank clerk or officer.

Specimen form of the Bank Pass Book is given below:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 4
Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 5

Bank Statement:
A statement which shows the details of the banking transactions of the account holder during a specific period of time is called a bank statement. It is issued by the banker to its current account holders every month or after a fixed interval of time. It is usually issued by the bank at the end of every month. It may be issued by the bank whenever demanded by the current account holders. It substitutes to the bank passbook.

The current account holder gets a bank statement in place of the bank passbook. Nowadays, many schedule bank instead of issuing the bank passbook, issues a bank statement to its current account holders as well as savings account holders. Periodical information about the deposits of money and cheques in the bank account, withdrawals, issue of cheques opening balance and closing balance, etc., are recorded in the bank statement. Information provided in the bank statement is useful to the account holder to prepare his business plans.

Under computerised accounting system, the printouts of the bank statement are issued to Current Account holders.

Importance:

  • The Bank statement provides the information to current account holder about his banking transactions and balance position with the bank.
  • By referring bank statement businessman makes arrangement for payments.
  • By referring bank statement, the businessmen can try to arrange for overdraft facility from the bank.
  • Businessman knows about the clearing of the cheque deposited and issued.

Contents:

  • Date of banking transactions.
  • Particulars of banking transactions entered.
  • Cheque numbers.
  • Withdrawal slip nos.
  • Amount deposited into the bank.
  • Amount withdrawn from the bank.
  • Balance amount.

Specimen of Bank Statement is given below:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 6

Bank Advice: Bank advice is a statement or source document prepared and issued by the bank to inform the account holder that his account has been debited or credited for the amount specified therein. If an account holder gives instructions in writing to the bank to pay certain business expenses like insurance premium, share call money, electricity bill, telephone charges, etc., the bank accordingly makes payments and debits the account of the account holder. Similarly, the bank also collects the earnings as well as incomes like salaries, rent, commission, dividend, discount, etc., of the account holders as per their instructions on their behalf and credit their accounts for the amount so collected.

When a bank makes payments to account holders, it issues debit advice to the concerned account holder to inform that his account has been debited for the payments so made by the bank. A Debit advice is also issued by the bank whenever the bank deducts certain charges or commission from the balance amount of the account holder with the bank for the services rendered. Similarly, when a bank collects the fund as per instructions of the account holder from various parties, it issues a credit advice to the concerned account holder to inform that his account has been credited for the account so collected.

Importance:

  1. After receiving debit advice and credit advice, the businessman can update his records from time to time.
  2. Bank advice serves as an evidence of the transaction made through bank.

Specimen of a bank advice is given below:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 7

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement

Bank Reconciliation Statement-
1. Introduction: When a businessman opens and operates a current account in a bank, he gets a bank passbook, cheque book and a pay-in-slip book free of charge from the bank to operate his bank account. The bank opens the account holder’s account in its ledger and enters therein all the banking transactions carried on with the account holder. The bank passbook is a small booklet in which banking transactions of account holder are recorded by the bank in chronological order.

Thus, the account holder’s banking transactions are recorded in two different books viz. first they are recorded by businessman (i.e. by account holder) in his three column cash book under bank column and secondly they are recorded in the bank passbook by the bank from the bank ledger. For instance, if an account holder has issued a cheque of ₹ 500 in favour of Mr. Sachin S. Shetty, it is first recorded in the three column cash book on credit side under bank column by account holder and then it is recorded on the debit side of bank passbook by the bank soon after it is paid by the bank. When all the banking transactions of account holder are systematically recorded in the cash book and in the passbook, then balance shown by cash book and balance shown by bank passbook as on particular date must agree with each other.

Many a times bank balance shown by passbook and bank balance shown by cash book do not tally with each other. The account holder prepares a statement showing causes of disagreement between two balances usually at the end of every month.

2. Meaning: Bank Reconciliation Statement is a statement which attempts to explain causes of disagreement of balance shown in cash book and balance shown in Bank passbook. In short a Bank Reconciliation Statement is a statement prepared to disclose causes of difference between the balances shown by cash book and passbook. Importance of Bank Reconciliation Statement lies in the fact that it ensures that the bank balance shown. by cash book is reconciled with that of the bank passbook.

Definition: “A statement which is prepared to reconcile the difference between the balance shown by bank column of cash book and balance shown by bank passbook and also showing causes of disagreement of these two balances is called Bank Reconciliation Statement.”

3. Need And Importance of Bank Reconciliation Statement-

  • Proper Records: Bank Reconciliation Statement serves a check or follow up on the banker whether the bank is making proper entries in the passbook for cheque or money deposited into the bank and amount withdrawn or cheques issued from the bank.
  • Explanation of Causes of Disagreement: Bank Reconciliation Statement, explains and clarifies the causes of disagreement between the balance shown in the cash book under bank column and the balance shown in the passbook.
  • Rectification of Errors or Omissions: Bank Reconciliation Statement helps to rectify the mistakes or omissions that take place in the books maintained by the banker as well as the customer.
  • Confidence in Bank: In the absence of a Bank Reconciliation Statement, a customer will lose confidence in the bank, because the customer cannot be sure of the correctness of the bank balance depicted in the bank passbook.
  • Reduction in the chances of frauds: The Bank Reconciliation Statement helps to reduce the chances of frauds committed by the staff handling the cash.
  • Delay in collection of cheques: The Bank Reconciliation Statement explains any delay in the collection of cheques.

Reasons For Differences in Balances-

Reasons or causes responsible for difference in balance shown by passbook and balance shown by cash book are explained below:
1. Some of the banking transactions are entered in the cash book and pass book on different dates, e.g. as soon as cheques are sent to the bank, entries are made in the cash book. But the bank records the same in the passbook only when the cheques are realised, (cheques are deposited but not cleared), then on the date of deposit of the cheques, bank balance in cash book will go up. But passbook balance will not go up, and balance in passbook appears as it is.

2. If some mistakes or omissions are committed by the bank clerk in the pass book or if mistakes or omissions are committed by the businessman in recording business transactions in the three column cash book, then there will be a difference in the balance shown by the passbook and the balance shown by cash book.

3. If banking transactions are entered twice by the bank clerk in the passbook or if they are entered twice by businessman in his cash book, then difference in bank balance in cash book and balance in bank passbook are bound to occur.

4. If banking transactions are recorded by a businessman on the wrong side or in the wrong column of the three-column cash book, difference between balance shown by pass book and cash book are bound to occur.

5. The difference between the balance shown by the Cashbook under Bank column and the balance shown by the passbook also occurs on account of the following reasons:

  • When cheques are issued but not presented for payment.
  • When direct deposit is made into the bank by the client. .
  • Dividend/Interest/Commission collected by the bank but not shown in the cash book.
  • Bank charges/direct payment to clients made by the Bank, but not shown in the cash book.
  • Dishonour of cheque intimation not received from the bank to record in the cash book.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement

Specimen Form of Bank Reconciliation Statement-

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 8 Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 9

Bank Reconciliation Statement as on 31st March, 2004-

Formulae of Bank Reconciliation Statement:

(A) When bank balance as per Cash Book is given:

  • Cheque issued but not presented for payment.
  • Interest and dividend collected by the bank and credited in the passbook, but are not recorded in the cash book
  • Direct deposit made by the customer into the bank and credited in the passbook.
  • Interest on deposit allowed by the bank and credited in the passbook, but not recorded in the cash book.

Less:

  • Cheque deposited into the bank but not realised.
  • Commission and bank charges debited by the bank in the passbook but same are not recorded in the cash book.
  • Insurance premium or any other expenses paid by the bank recorded in the passbook but is not recorded in the cash book.
  • Dishonour of a bill or cheque, recorded in the bank passbook, but not entered in the cash book.

(B) When Overdraft as per Cash Book is given :

Add:

  • Cheque deposited into the bank but not realised.
  • Commission and bank charges debited by the bank in the passbook but same are not recorded in the cash book.
  • Insurance premium or any other expenses paid by the bank and debited in the passbook but is not recorded in the cash book.
  • Dishonour of a bill or cheque, recorded in the bank passbook, but not entered in the cash book.
  • Interest on Bank overdraft debited in passbook only.

Less:

  • Cheque issued but not presented for payment.
  • Interest and dividend collected by the bank and credited in the passbook but not recorded in the cash book.
  • Direct deposit made by the customer into the bank and credited in the passbook but not entered in the cash book.
  • Interest on deposit allowed by the bank and credited in the passbook, but not recorded in the cash book.

(C) When Bank balance as per pass book is given:

Add:

  • Cheque deposited into the bank but not realised.
  • Commission and bank charges debited in the passbook by the bank, but same are not recorded in the cash book.
  • Insurance premium or any other expenses paid by the bank and debited in the passbook but same is not recorded in the cash book.
  • Dishonour of cheque or bill of exchange recorded by the bank in passbook but not entered in the cash book.

Less:

  • Cheque issued but not presented for payment.
  • Interest and dividend collected by the bank and credited in the passbook but not recorded in the cash book.
  • Direct deposit made by customer into the bank and credited in the passbook but not entered in the cash book.
  • Interest on deposit allowed by the bank and credited in the passbook, but not recorded in the cash book.

(D) When Overdraft as per pass book is given:

Add:

  • Cheque issued but not presented for payment.
  • Interest and dividend collected by the bank and credited in the passbook but not recorded in the cash book.
  • Direct deposit made by customer into the bank and credited in passbook but not entered in the cash  book.
  • Interest on deposit allowed by the bank and credited in the passbook but not recorded in the cash book.

Less:

  • Cheque deposited into the bank but not realised.
  • Commission and bank charges debited in the passbook by the bank but same are not recorded in the cash book.
  • Insurance premium or any other expenses paid by the bank and debited only in the passbook.
  • Dishonour of cheque or bill of exchange recorded by the bank in the passbook but not entered in the cash book.
  • Interest on Bank overdraft debited in passbook only.

Position in Cash Book

  • Bank balance as per cash book means debit balance as per cash book.
  • Overdraft as per cash book means credit balance as per the cash book.

Position in Pass Book

  • Bank balance as per pass book means credit balance as per passbook
  • Overdraft, as per pass book means debit balance as per pass book,

(B) Method to ascertain items to be added to and deducted from balance.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 10
Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 6 Bank Reconciliation Statement 11

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books

By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 5 Subsidiary Books students can recall all the concepts quickly.

Maharashtra State Board 11th Accounts Notes Chapter 5 Subsidiary Books

Introduction-
Journal is the main accounts book in which all types of day to day business transactions are recorded systematically and in chronological order. As in the past, business was small in size and transactions carried on by businessman were less in numbers, the journal as a book of accounts was adequate and convenient to record all transactions. Today, the journal is useful for traders whose business is small and limited in size. Journal as a single book of account is not convenient to those traders whose business is large in size and who carries on unlimited business transactions every day.

If a single journal is kept for an entire large scale business, it will be bulky and difficult to operate and handle and carry from one place to another in the same organisation. Similarly, many clerks simultaneously cannot do office work based on information written in the journal. Similarly, if all transactions are recorded in one journal, it will be time consuming to obtain necessary information. Due to this, need was felt to have subsidiary books.

Meaning: When journal is divided into a number of parts, each of those parts is individually called subsidiary book. Thus, subsidiary book is sub-division of journal. In other words sub-division of journal on the basis of ‘
nature of transactions such as purchases, sales, cash expenses, cash receipts, return of goods, etc. is called subsidiary books. When subsidiary books are prepared and maintained, transactions are first recorded in
the subsidiary books and then conveniently posted to the respective ledger accounts. That is why subsidiary  books are also called books of original entry or prime entry. They are also called as special journals or day books.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books

Need For Subsidiary Books-
The need for subsidiary books is explained below:

  • Division of work: When journal is divided into a number of books, it facilitates division of work among the  staff of the businessman. Many clerks work simultaneously in the office.
  • Specialisation: When employees are assigned with same type of work everyday, it will lead to specialisation. Specialisation increases efficiency.
  • Time Savings: Due to division of work various accounting processes can be undertaken simultaneously by the employees which in turn helps in saving of time.
  • Information available readily: Maintaining separate books for each type of transaction, the information relating to each transactions is easily and readily available to the traders from the books of accounts.
  • Facilitates easy internal audit: Division of journal into different sub parts helps in conducting effective internal audit of accounts prepared by the organisation.
  • Verification of correctness: Division of journal into different sub parts facilitates the verification of correctness of the books of accounts.
  • Helps in preventing frauds: Since entries are passed in the subsidiary books in chronological order, they  help in preventing fraudulent entries in an account.

Types of Subsidiary Books-
The different types of subsidiary books are:

  1. Purchase Book or Bought Day Book,
  2. Sales Book or Sales Day Book,
  3. Purchase Return Book or Return Outward Book,
  4. Sales Return Book or Return Inward Book,
  5. Cash Book,
  6. Bills Receivable Book,
  7. Bills Payable Book and
  8. Journal Proper.

Types of subsidiary books on the basis of transactions.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 1

The different types of subsidiary books are explained as follows:

(1) Cash Book :
Cashbook is an important subsidiary book of accounts, which is used by a businessman for recording cash and banking transactions of the business. Credit and barter transactions do not find any place in this book. Purchase of goods and assets on cash, sale of goods and assets on cash, payment of expenses in cash, receipt of income in cash, deposits and issues of cheques etc. are recorded in the cash book. In this book all receipts in cash and deposit of cheques are debited and all payments in cash and issue of cheques are credited. Cashbook is similar to a Cash A/c and hence no separate Cash A/c is opened and maintained in the ledger when the Cash Book is operated by the businessman.

Cash in hand is an asset of the business. Unless a business has cash, it cannot be spent and hence cash book always shows a debit balance. Cashbook is written on the basis of cash receipts and cash vouchers. Like a Ledger A/c, a cash book has two main sides namely receipt side and payment side. On the left-hand side i.e. on the debit side all cash receipts are recorded and on the right-hand side i.e. on the credit side, all cash payments are recorded. The cash book is totalled and balanced periodically. By balancing a cash book, a trader can ascertain the balance of cash and can plan the business activities. When the cash book is operated, no journal entries and ledger posting of cash transactions are required to be passed, in the journal and ledger. It results in saving of labour, time, stationery, and business cost.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books

Types of Cash Book :

Cash Book is classified under the following heads :

  • Simple or Single Column Cash Book.
  • Cashbook with cash and bank columns – Two-column cash book.
  • Petty Cash Book.
    The types of cash books are explained in detail:

(1) Single Column Cash Book :
(A) Meaning: This cash book is also called simple cash book. It has two sides viz. receipt side and payment side. The debit side of cash book is meant for recording all receipts and the credit side of the cash book is meant for recording all payments. This book is written on the basis of cash receipts received, cash receipts issued, cash memos received, cash memos issued and cash vouchers. The cash book is balanced from time to time and the balance is carried forward. The cash book always shows a debit balance. In this book discount earned or allowed and banking transactions are not recorded.

Specimen of single column cash book :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 2

(B) Explanation of columns of Simple Cash Book: The columns drawn on receipt side (Debit side) are explained below:

  • Date: In this column the date on which cash received is recorded. The date of transactions is written in order of year, month and date. In the beginning of each page year, month and date are written and then for each subsequent transactions on the same page only date is written.
  • Particulars: In this column name of the other accounts credited is written. The name of the account begins with the word ‘To’.
  • Receipt Number: In this column of cash book, the serial number of the receipt and cash memos is recorded.
  • Ledger Folio Number: In this column of cash book the page number of the ledger on which concerned account opened is recorded.
  • Amount: This column of cash book shows amount received. The amount is written in figures.

The columns drawn on payment (credit) side are explained below:

  • Date: In this column, the date on which cash paid is recorded.
  • Particulars: In this column name of the other account debited is written. The name of the account begins with the word ‘By’.
  • Voucher Number: In this column, the serial number of voucher and cash memo is recorded.
  • Ledger Folio: In this column page number of ledger on which concerned account opened is recorded.
  • Amount: In this column actual amount paid is recorded in figures.

(C) Recording in Simple Cash Book: The procedure of recording entries for cash transactions in simple cash book is explained as follows:

  • Opening balance: Previous month’s balance if any, appears on the debit side (Receipts side) as “To Balance b/d”. Here b/d stands for “brought down”.
  • Opening Capital: In the case of new business, capital contributed by the proprietor appears on the Receipts side as “To Capital A/c”.
  • Receipts of Cash: When cash is received on any account, it is recorded on the receipts side under the “Particulars” column.
  • Cash Payments: When ’cash is paid on any account, it is recorded on the payments side under
    “Particulars” column. ,
  • Chronological order: Transactions are always recorded in the cash book in chronological (datewise) order only.

(D) Balancing of Simple Cashbook: Generally, at the end of the month, cash book is balanced to find out balance of cash in hand. First ‘Amount’ column on the debit side of cash book is totalled. Thereafter ‘Amount’ column on the credit side of cash book is totalled in rough. The difference is ascertained by deducting the total of the amount appearing on credit side from the total of the amount appearing on debit side. This difference is recorded on the credit side under “Particular” column as “By Balance c/d”. Here c/d stands for carried down.

Cashbook always shows debit balance. This is because one cannot spend more than what one has. This balance is then recorded on the receipt side as “To Balance b/d” to start next period, as cashbook records only cash transactions and will always have excess of receipts overpayments.

(2) Cash Book with Cash and Bank Columns :

(A) Meaning: This cash book is also called as cash book with cash and bank columns. A businessman who does business transactions through a bank, records his banking transactions along with cash transactions in double column cash book. Banking transactions like receipts and deposit of cheques, issue of cheques, deposit and withdrawal of cash from bank, etc. are recorded in the double column cash book.

By maintaining double column cash book, a businessman gets information of inflow and outflow of cash and details of banking transactions. Exact position of cash in hand and balance of cash at bank can be ascertained quickly by referring to the double column cash book. Double column cash book is useful for a businessman to take quick decisions on the business matters.

This cash book has two columns on receipts side and the payment side viz. Cash column and Bank column. Bank column appearing in two-column cash book represents bank current account.

(B) Specimen of Two Column cash book:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 3

(C) Types of Bank Accounts :
On the basis of nature, characteristics and advantages, bank accounts are classified into the following four types, viz. (i) Current account, (ii) Savings account, (iii) Fixed deposit account and (iv) Recurring deposit account.

The above types of bank accounts are explained in detail as follows:
(i) Current Account: This type of bank account is more useful to businessmen. It is a type of bank account in which there is no restriction on deposits of money into the bank and on withdrawals of money from the bank. The account holder is permitted to deposit money into his account any number of times in a day. Similarly, the account holder is at liberty to withdraw money or issue cheques from the bank any number of times provided he has sufficient balance in his account to honour withdrawals and cheques issued.

The bank pays interest at the lowest rate ranging from 0.5% to 1% p.a. on balance amount remaining in this account, and also gives overdraft facility to account holders. Current account is a running account, as it is operated daily and continuously by the account holder. It should be noted that the bank columns in the cash book implies Current Bank Account.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books

(ii) Savings Account: This is a type of bank account in which the bank keeps no restrictions on deposits, but imposes restrictions on withdrawals of money from the bank. In this type of account maximum of 2 withdrawals per week and maximum 25 withdrawals per every 3 months, are permitted by the bank. The main intention of savings account is to increase the savings of account holders and to channelise them into investment and thus capital formation of the nation. This account is more useful to non-business community. Bank allows interest at the prescribed rate on balance remaining in the savings account.

(iii) Fixed Deposit Account: Fixed deposit account is a blocked account as money once deposited into the bank by account holders, cannot be withdrawn by them until the period for which it is deposited, is over. It is a type of bank account in which money is deposited for specific period of time.

This account is more useful to retired people or non-business community who are interested in earning regular fixed income. On fixed deposits, a bank pays a higher rate of interest to deposit holders. Payment of interest is made half-yearly or yearly. If interest is not paid periodically, then accumulated interest is paid to deposit holders at the time of maturity along with the principal amount deposited. The minimum period for which deposit is accepted by the bank is upto 30 days and maximum period is 6 years or even more than 6 years. The rate at which interest is paid on deposits is not fixed, but fluctuates with the length of period for which deposits are kept.

The longer the period, higher is the rate of interest payable on deposit by the bank. The rate of interest also depends on the monetary policy of the government. In case of need, an account holder can borrow from the same bank the amount equivalent to 70% of the fixed deposit against the security of the deposit. In such a case, the bank charges 2% interest more than the rate of interest paid on the fixed deposit by the bank.

(iv) Recurring Deposit Account: A bank account in which an account holder is required to deposit a fixed sum of money after every fixed interval for a specific period of time is called a recurring deposit account. In this type of account, the bank accepts the fixed amount daily or once in a month on fixed date upto the maturity date. The deposit holder is not permitted to withdraw money from this account, but in case of need, the bank gives loan to the account holder on the credit balance standing in his account.

On maturity, the bank pays the total amount deposited and interest accrued on that amount in lump sum to the account holder. The main purpose of this account is to increase savings and thereby helps lower-income groups to purchase costly articles with accumulated savings. This account is more useful to the non-business community, specially lower-income groups.

(D) Documents used by the Account Holder:
The following documents are provided by bank, free of charge to account holders. These documents are used by account holders while doing transactions with the bank. These documents are: (i) Bank Pass Book,
(ii) Pay-in-slip Book, (iii) Cheque Book, (iv) Withdrawal Slip.

The documents are explained in detailed:
(i) Bank Pass Book: The bank passbook is a small booklet, given to account holders free of charge to record their transactions with bank. Banking transactions are recorded in the passbook by bankers only. In other words, passbook is a small booklet having a number of pages, used for recording banking transactions. It provides identity giving document of account holder. By referring to the passbook, an account holder comes to know his financial position with the bank. Current account holder is not given the passbook, instead, they are provided with the monthly statement of the transactions with the bank.

(ii) Pay-in-Slip Book: Pay-in-slip book is another document used by account holder for depositing cash and cheque into the bank. Pay-in-slip book consists of either ten slips or hundred slips. Each slip is divided into two parts which can be separated easily from the other.

The longer part of the slip is called foil and smaller part is called the counterfoil. Before depositing cash or cheque into the bank, an account holder is required to fill up both parts of the pay-in-slip. Information regarding name of account holder, his account number, amount in figures and words, signature etc are required to be filled up on both the parts of the pay-in-slip. The Cashier of the bank accepts cash or cheque along with duly filled in pay-in-slip. The foil of the pay-in-slip remains with the bank for making records in the books of the bank and the counterfoil after stamping and signature of cashier is given back to the account holder.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books

(iii) Cheque Book: A cheque is a document used by the account holder for withdrawing cash from the bank or for making payments to other persons through the bank. A book which consists of 10 or 20 blank cheques is called a cheque book. A Cheque book is provided by the bank to account holders free of charge, if an account holder agrees to keep minimum balance of? 500/- or more in his account.

In legal language, “a cheque is a written unconditional order of the account holder to his banker to pay a certain sum of money only to himself or to the bearer or to the person named therein.” There are three parties to a cheque i.e. Drawer, Drawee and Payee. The person to whom the amount of cheque is payable is called payee and the bank on whom the cheque is drawn is called drawee bank, and the account holder who issues the cheque is called drawer.

Specimen of cheque is given below:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 4

Types of Cheques-
Cheques used by the account holder are classified into the following three categories viz.

  1. Bearer cheque,
  2. Order cheque and
  3. Cross cheque.

The above types of cheques are explained as below:
1.  Bearer Cheque: Bearer means possessor. In case of bearer cheques, the bank makes immediate cash payment to the possessor of the bearer cheque on its presentation. For immediate withdrawal of cash, a bearer cheque is used by the account holder. A cheque on which instead of writing the name of the payee, the word ‘self ’ is written, is called a bearer cheque.

Bearer of the cheque has to sign on the reverse of the bearer cheque before withdrawing money from the bank. While making cash payment against bearer cheque, the bank never makes inquiry whether payee is a wrong doer or right person. Bearer cheque is dangerous because in case if it is lost the wrong doer who possesses the cheque, can easily obtain cash from the bank. Bearer cheque is as good as cash, because it can be encashed by any one at any time during banking hours.

Specimen of bearer cheque :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 5

2. Order Cheque: A cheque in which an account holder orders the bank to make payment to the person whose name appears on the cheque, is called an order cheque. In this type of cheque, the word ‘bearer’ after the name of payee is struck off and the word ‘order’ is retained. Order cheque is safer than bearer cheque. While making cash payment against order cheques, if bank suspects, it makes inquiry whether possessor of order cheque is the right person or not.

Specimen of order cheque :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 6

3. Crossed Cheque: A crossed cheque is a cheque on which two parallel transverse lines are drawn on the face of the cheque at the left-hand top corner with some words or without any words written between them. When the crossed cheque is presented for payment it is not paid in cash to payee or possessor, but it will be credited to payee’s account in the bank and after three days, the payee i.e. the account holder is permitted to withdraw the amount from the bank, if it is cleared and not dishonoured.

This type of cheque is more safer than any other type of cheque. If a crossed cheque is lost, a wrongdoer cannot obtain payment from the bank. The bank never makes immediate cash payment on counter on presentation of crossed cheque. Crossed cheques are sent to distant place by ordinary post safely.

Specimen of crosscd cheque:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 7

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books

Dealings of Cheque-

The different types of dealings of the cheque are explained below :
1. Honour of cheque,
2. Dishonour of cheque, and
3. Endorsement of cheque.

The dealings of cheque is explained :
1. Honour of Cheque: A cheque is said to be honoured if the drawee bank pays the entire amount of cheque to its holder on presentation of cheque before the bank. The bank always honours a cheque if there is sufficient fund in the account of the drawer.

2. Dishonour of Cheque: A cheque is said to be dishonoured if the drawee bank refuses to make payment to the holder of a cheque on its presentation. The drawee bank never dishonours a cheque but under the following circumstances, the drawee bank is compelled to dishonour the cheque.

  • If signature on cheque does not tally with the specimen signature of drawer (i.e. account holder.)
  • If amount mentioned on cheque in figures and in words does not agree with each other.
  • If funds in the account of the drawer in drawee bank is not sufficient to honour the cheque.
  • If a cheque is a stale cheque or post dated cheque. A cheque is valid for a period of three months from the date of its issue.
  • A cheque is said to be stale if a period of three months is over from the date of its issue. A stale cheque is always dishonoured by the bank. Post dated cheque is a cheque which bears a future date. Post-dated cheque is always dishonoured by the bank if it is presented before its date of presentation.
  • If a cheque is overwritten and if overwriting is not supported by the signature of its drawer.
  • If a cheque is torn from anywhere.

(3) Endorsement of Cheque: Endorsement of cheque refers to an act of signing on the reverse of a cheque by its holder to transfer it to another person. Cheque may be endorsed in favour of a creditor to settle his debts or it may be endorsed in favour of debtor to give further loan. A person who endorses a cheque is called endorser and a person in whose favour a cheque is endorsed is called the endorsee. Endorsement is necessary in case of transfer of order and crossed cheque. Endorsement is not necessary for transfer of bearer cheque.

Contra Entry-
The accounting entries which appear on both the sides of the cash book with cash and bank column is called contra entries. Contra entry appears only in cash book with cash and bank column and not in single column cash book. An accounting entry for an amount withdrawn from bank which is posted on the debit side of a two column cash book in the cash column and on the credit side in the bank column or an accounting entry for an amount deposited with the bank which is posted on the debit side of two column cash book in the bank column and on credit side in cash column is called contra entry. Letter ‘C’ which stands for contra is written in“L.F. No.” column to identify, contra entry.

Contra entry is passed in three column cash book under the following circumstances :
1. Cheque received on earlier day and deposited today: Journal entry for this transaction is:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 8

2. Cash deposited into the bank: Journal entry for this transaction is:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 9

(The above entries appear in the bank column on the debit side of the three-column cash book and in the cash column on the credit side).

3. Cash withdrawn from the bank for office use: Journal entry for this transaction is:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 10

(This entry appears in cash column on debit side of the three-column cash book and in bank column on the credit side.)

(A) Journal Entries For Cash And Banking Transactions :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 11 Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 12 Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 13 Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 14

(B) Journal Entries For Dishonour of Cheque-
Dishonour of Cheque: When a bank refuses to make payment on cheque on any justifiable ground, cheque is said to be dishonoured. When a cheque is dishonoured, the value of cheque reduces to zero. On dishonour of cheque, earlier accounting effects given to cheque are required to be cancelled. Accounting effects of cheque are cancelled by passing reverse entry of earlier entry. For example:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 15
Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 16 Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 17

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books

Petty Cash Book-
When business develops, a businessman prefers to meet his business payments and receipts through the bank. Due to fast development in banking sectors, most of the businessmen carry on their day to day business activities through the bank. Generally, bank cheques are used for payments and receipts of higher amount. But generally a cheque is not used for payments and receipts of small or minor amount whose payments and receipts are inevitable in the business. For example cheque is not used for payment of taxi fare, coolie charges, sweeping charges, payment of postage etc. and receipt of sale proceeds of old newspapers etc.

In big business house or in industry to manage and pay minor expenses in cash, a separate clerk or cashier is appointed. The cashier or clerk who manages, looks after and makes payment of petty i.e. minor expenses in the organisations is called petty cashier. An account book in which the petty cashier records payments of petty expenses and receipts is called petty cash book.

In other words, a petty cash book is a separate account book in which a businessman keeps records of daily transactions which are minor in nature and whose payments and receipts are made in cash only. The Petty cashier is given lump sum amount of cash at the beginning of every month by the head cashier and he is also permitted to spend that amount on various minor expenses and also permitted to receive minor receipts during a specific period. At the end of the month the petty cashier is required to return the balance amount to the head cashier. This procedure is followed every month.

Types of Petty Cash Book-
Petty cash book is classified into the following three categories viz.
1. Simple petty cash book,
2. Columnar petty cash book,
3. Petty cash book kept on imprest system.

They are explained below.
1. Simple Petty Cash Book: A Simple petty cash book is similar to simple or single column cash book. To record receipts and payments made in cash, this cash book has two main sides viz. receipts side and payments side. In this cash book, columns like date and particulars are common for both receipt and payment side. This cash book is not extensively used in business field.

Specimen of Simple Petty Cash Book :
Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 19

Importance of Columns:

  • Amount received column: In this column the petty cashier records the amount received from head cashier and proceeds received on sale, etc.
  • Cash book folio column: In this column the page number of cash book on which entry for payment of lump-sum amount of cash made by head cashier to petty cashier is mentioned for future reference.
  • Date column: In this column, the date of transaction is recorded.
  • Particulars column: In particulars column, the name of expenses on which the amount is spent and name of receipts from which amount is received are recorded. After entry narration is not written in this column. Entry for receipt is written with word ‘To’ and entry for payment is written with word ‘By’.
  • V. No. Column: Voucher number of various minor payments are recorded in V. No. column for future reference.
  • L.F. No.: Page number of ledger where entry of expenses and receipts are posted, is recorded in L.F. No. column.
  • Amount paid column: In this column, amount paid on various minor expenses is recorded.

2. Columnar Petty Cash Book: As the name indicates, this petty cash book has many sub-columns on payment side to record minor expenses individually. This cash book has two main sides viz. receipts.side and payment side. In comparison to receipt side, the payments side is much longer. The payment side of this cash book has many sub-columns which are not fixed in number.

On. the payment side of this cash book, one sub-column is provided for one similar nature of expenditures. In short, the payment side has as many columns as expenditures on which the business has spent money. In addition to these columns, at the end, two more columns are provided for L.F. No. and ledger account. In ledger account column, entries of personal account and real account are posted. This cash book is more popular and extensively used in the business field.

Specimen of columnar petty cash book :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 20

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books

3. Petty Cash Book kept on Imprest System: In many business houses, Petty Cashbook kept on imprest system is more popular. In this system, at the beginning of every month, the head cashier gives to the petty cashier that much amount of cash or cheque which is equivalent to amount spent in the last month. This makes the opening cash in hand with petty cashier equal in the beginning of every month. In other words, in imprest system, a definite amount of cash is given to the petty cashier at the beginning of a certain period.

This amount is known as imprest money. The petty cashier is then allowed to spend money on various petty expenses and when he has spent substantial amount of his imprest amount, he gets reimbursement of the amount he has spent from the head cashier. Thus, he again has the same amount of imprest cash. The reimbursement may be made on a weekly, fortnightly, or monthly basis, depending on the frequency of small payments.

This system renders the following advantages:

  • No excess cash is issued to petty cashier than actually required.
  • Petty cashier will not have excess or idle cash.
  • Misuse of cash is avoided as far as possible.
  • Records of petty expenses can be easily checked and compared.

Purchase Book-
A subsidiary book in which only credit purchases of goods are recorded is known as the purchase book. This book is used to record credit purchase of goods in which a trader regularly deals. In this book, cash purchases of goods and assets are not recorded. Similarly, the purchase of asset on credit is also not recorded in this book. The purchase book is written on the basis of inward invoice i.e. a statement received from the supplier.

Trade discount is never recorded in this book. Trade discount is calculated and deducted from invoice price and net price is recorded in the purchase book. If a bookseller purchases books on credit, same will be recorded in his purchase book. Purchase of furniture by the bookseller on credit, will not be recorded in his purchase book. At the end of each month the purchase book is totalled and this total shows the total amount of goods purchased on credit. Purchase Book is also known as Purchase Journal, Purchase Register and Bought Book.

Specimen of Purchase book is given below :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 21

Explanation of Columns :

  • Date: This column meant for recording the date of credit purchase of goods.
  • Particulars: In this column, the name of the supplier from whom the goods are purchased on credit is recorded. Along with the name of the supplier, his address and description of goods is also written in this column.
  • L.F. No. : In this column, the page number of the ledger on which the supplier’s account is prepared is recorded for ready reference.
  • Inward Invoice No.: Statement received from supplier along with goods purchased is called inward invoice. In this column, the number of inward invoice is mentioned.
  • Amount: This column shows the net amount of credit purchases of goods.

Sales Book-

A subsidiary book in which only credit sales of goods are recorded, is known as sales book. This book is meant for recording credit sales of goods in which the trader regularly deals. In this book sale of goods as well as assets on cash basis are not recorded. Similarly, sale of assets on credit is also not recorded in this book. This book is written on the basis of the outward invoice. Trade discount never appears in this book. Trade discount is simply calculated and deducted from the invoice price and net price is recorded in this book.

If a grocer sells different types of grains to his customers on credit, it will be recorded in his sales book. Cash sales made by the grocer will not be recorded in his sales book. Sales book is also known as sales day book. At the end of each month the sales book is totalled and this total shows the total amount of goods sold on credit, and the net amount receivable from customers. Sales book is also known as Sales Day Book, Sales Journal, Sales Register and Sold Book.

Specimen .of Sales Book is given below :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 22

Explanation of Columns :

  • Date: In this column date of credit sale is recorded.
  • Particulars: In this column, name of customers to whom the goods has been sold on credit is recorded. Along with name, address of customers and description of goods are also written.
  • L.F. No.: In this column, page number of ledger on which the customer’s account is prepared, is mentioned for ready reference.
  • Outward Invoice No.: The statement sent along with goods sold is called outward invoice. In this column the outward invoice number is recorded.
  • Amount: This column shows net amount receivable from the customers, i.e. net amount of credit.

Purchase Return Book :

A subsidiary book in which return of goods purchased on credit is recorded, is known as the purchase return book. The purchase return book is also known as return outward book or debit note book or purchase return journal. This book is used by the trader for recording the returns of goods purchased on credit to the suppliers. Goods may be returned by trader to supplier on one of the following reasons, viz.
(a) defective goods,
(b) damaged goods,
(c) delayed goods,
(d) inferior goods,
(e) goods which are not as per design, colour or sample sent
(f) excess goods received, etc. This book is written on the basis of debit. Purchase return book is totalled at the end of each month. This total shows value of goods returned to suppliers.

Specimen of Purchase Return Book is given below :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 23

Sales Return Book-
A subsidiary book in which transactions relating to return of goods sold on credit are recorded, is called
the sales return book. This book is used by the trader for recording the goods returned by customers which  were purchased by them on credit. Goods sold to customers on credit, may be returned by them for one of the following reasons, viz. (a) defective goods, (b) damaged goods, (c) delayed goods, (d) inferior quality goods, (e) goods not in accordance with sample, specification, colour, design, (f) over supply of goods, etc. Sales return book is written on the basis of a credit note. This book is also called credit note book or return ’ inward book or sales return journal. At the end of each month sales return book is totalled.

Specimen of Sales Return Book is given below :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 24

Bank Book-
When businessman operates more than one bank account, it is convenient for him to maintain separate account book to record only hanking transactions entered with various banks. The account book in which only banking transactions are recorded is called Bank Book. The bank book is combined with discount columns for recording discount allowed and earned in banking transactions.

This book has two main sides viz left hand side (i.e. Debit / Receipt side) and Right hand side (i.e. Credit
/ Payment side). Cheque received and deposited into the bank, direct deposit received by bank, dividend,
interest and commission collected by the bank, etc. are recorded on the receipt side and cheques issued, bank charges paid, interest on overdraft, payments made by cheques, etc. are recorded on the payments side of Bank Pass Book.

Advantages: Maintaining Bank book is benefited the businessman in different ways such as:

  • He get easy reference of banking transactions.
  • It saves labour and time of businessman as he is not required to pass entries in subsidiary books and
    ledger.
  • It facilitates preparation of Bank Reconciliation Statement.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 25

Journal Proper-
A subsidiary book which is used to record all those business transactions which do not find any place in the purchase book, sales book, return books, cash book, bills receivable book, bills payable book, etc. is called journal proper.

This book is used for recording the following types of the transactions viz.
(1) Purchase and sale of assets on credit.
(2) Opening entries
(3) Transfer entries
(4) Rectification entries
(5) Adjustment entries
(6) Closing entries
(7) Other transactions like bad debts written off, dishonour of the bill, depreciation, interest on capital, loss of goods by fire or theft or goods damaged in transit, distribution of goods as free samples, withdrawal of goods by proprietor, discount received and allowed on cash transactions, etc.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 5 Subsidiary Books 26

General Information-

The following points should be considered while recording entries in the subsidiary books:

  • Cash sale of goods should not be recorded in sales book and cash purchases of goods should not be recorded in purchase book.
  • Sale of assets on cash and credit should not be recorded in sales book, and purchase of assets on cash and credit should not be recorded in purchase book.
  • Only credit sale of goods should be recorded in sales book and credit purchase of goods should be recorded in purchase hook.
  • Cash transactions should be recorded in cash book and non-cash transactions should be recorded in subsidiary books.
  • Assets purchased on credit and assets sold on credit should be recorded in journal proper.
  • Trade discount is to he calculated and simply deducted from invoice price and net sales or net purchases should be entered in related subsidiary books.

Debit Note And Credit Note-
Sometimes some corrections become necessary in the original documents prepared for business transactions. Such correction cannot be made by cancelling the entry on the original documents or adding new entry in the original documents. Such correction can be done by preparing another new document for the amount of difference in the original document. Such a new document is called as debit note or credit note. Debit note is prepared for debiting the account of the counterpart with the amount by specifying reasons thereon. It is issued:

  • When less debit is formerly given.
  • When additional debit is to be given and
  • When extra credit or wrong credit is to be cancelled.

Credit note is prepared for crediting the account of the counterpart with amount by specifying reasons thereon. It is issued:

  • When less credit is formerly given.
  • When additional credit is to be given and
  • When extra debit or wrong debit is to be cancelled.

In order to avoid the handling of original documents again and again such are prepared.
When a businessman issues debit note to a party, the party receiving debit note should issue a corresponding credit note to give acknowledgement of acceptance and vice versa. The entry of such debit and credit should be passed in the journal proper. If they are recurrent and large in numbers, the separate register called Debit Note Register and Credit Note Register should he maintained.

Usually these are printed and are serially numbered by machine. These are prepared in duplicate. The original copy is issued to the opposite party and second copy is retained by the businessman for office record. These are kept serially and in chronological order in the bound book.

Circumstances under which are issued:

  • Difference in the quantity mentioned in the bill and the quantity actually delivered.
  • Either higher or lower rates are charged in the bill.
  • Wrong calculations made on the bill.
  • Goods are rejected and returned.
  • Wrong rate of tax, packing, forwarding, transportation, etc. are charged.
  • Adjustments in discount and commission are done.
  • Difference in the quality descriptions of goods ordered or delivered.
  • Dishonour of cheque or bill of exchange.
  • Interest is charged on outstanding amount due.

Importance of Notes-

  • On the basis of debit note and credit accounting entries are passed in the journal proper.
  • On the basis of debit, buyer makes entries in the Purchase Return Book and on the basis of credit seller records entries in the Sale Return Book.
  • If due to mistakes invoice is undercharged by the seller, the seller prepares a credit note and the buyer prepares debit note and the parties sent these to each other.
  • On the basis of these entries are passed to rectify the mistakes made earlier.
  • As these are signed by the responsible authority, they became authentic proofs of goods returned by the buyer or seller.

Contents of: The debit note and credit note contains the following details:

  • Name and address of the party or organisation issuing the note.
  • Number of the note (Debit/ Credit Note).
  • Date of transaction.
  • Reasons for debiting or crediting the account.
  • Amount in words as well as in figures. .
  • Signature of the person preparing note and the person verifying the note.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger

By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 4 Ledger students can recall all the concepts quickly.

Maharashtra State Board 11th Accounts Notes Chapter 4 Ledger

Meaning And Definition of Ledger-

(i) Meaning : Ledger is another important and principal book of accounts in which a businessman keeps individual records of persons, properties, expenses, incomes, gains and losses. It is the end point of entries made in the journal, or subsidiary books. Ledger may be in the form of a bound register or cards or separate sheets may be attached and maintained in a loose leaf binder. For every person with whom the business keep dealings, a separate account is prepared in the ledger. Similarly, a separate account is maintained in the ledger for each kind of assets, expenses, losses and gains.

As and when business transactions occur, they are first recorded in the journal and subsequently those recorded entries from journal are transferred and posted to the respective account in the ledger. Each ledger account is totalled at the end of the accounting period. This book contains many pages and each page is called ledger folio. The relationship between the business and a particular account on given date can be ascertained only from the ledger. For example, if a businessman wants to know on a particular date the amount due from a certain customer or debtor, it can be known easily only from the ledger. Various transactions pertaining to different dates of a particular account may be spreaded over in the journal on various pages but in the ledger they are found on one page.

Ledger is also called as book of final entry. The word ‘Ledger’ is originated from the Latin word ‘Ledger’ which means ‘to contain.’ Ledger is the collection of all the account. Ledger contains all the account opened and operated.

(ii) Definition: According to S.P. Jain’s and K.L. Narang’s Advanced Accountancy,
“A Ledger Account may be defined as a summary statement of all the transactions relating to persons, assets, expenses and revenues, which have to be taken place during a given period of time and show their net effect.” According to the Oxford Dictionary, ledger is the main record of the accounts of a business, traditionally, a ledger was a large book with separate pages for each account. In modern systems ledger may consist of separate cards or computer records.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger

Importance of Ledger-

Importance of Ledger is explained as follows :

  • Ledger is useful for maintaining individual records of person with whom the business keep dealings.
  • It keeps records of every item of properties, expenses, incomes, gains and losses.
  • Amount due from various debtors can be known easily and quickly from the ledger. This will help the businessman to send reminders to recover the outstanding amount due from the debtors.
  • Amount due to suppliers or creditors can be known easily and quickly to make timely payments to gain their confidence.
  • Trial balance can be prepared easily on the basis of balances ascertained from the ledger accounts. Therefore ledger is necessary for preparation of trial balance.
  • It is easier to prepare business planning and strategies on the basis of balances shown by the ledger accounts.
  • The financial position of the business can be easily known by referring to balances of various assets and liabilities.
  • Various income statements can be prepared on the basis of the balances shown by the ledger accounts.
  • Ledger is useful tool to control various expenses because ledger shows accounts of various expenses with total amount spent on them.
  • Ledger facilitates the management to get classified information of various accounts such assets, liabilities, capital etc. They can easily prepare plans for various business activities.
    Ledger also facilitates decision making process.

Contents of A Ledger-

The contents of a ledger are explained as below:
A ledger contains many pages and each page is called ledger folio. Each page of a ledger is serially numbered. Each ledger account has two main sides viz. left hand side which is called the debit side and right hand side which is called the credit side. A list of ledger account in alphabetically order is given on the first page of a ledger which is called as an ‘Index’. Each side has four sub-columns. These sub-columns are:

  • Date Column: In this column, the date of transaction is written. Date of transaction is written in order of year, month and date. In the beginning of each page the year, month and date are written. For subsequent transactions on the same page only dates are written for the same month and year.
  • Particulars Column: In the particulars column the name of the account is written. In the particulars column on the debit side of the account, the name of the account to be credited is written and on the credit side in the particulars column, the name of the account to be debited is written.
  • Journal Folio No. Column: In Journal Folio No. (J.F. No.) column of the ledger, the page number of the journal from which the entry is posted is recorded in red ink for cross reference. By referring to the journal page as shown in the ledger, a businessman can understand the nature of transaction by
  • reading the journal entry and narration.
  • Amount Column: In this column the amount of the transaction is entered in figures.

Specimen of The Ledger :

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger 1

Steps to be Taken For Preparation of Ledger Account:
(1) At the top of ledger, in the middle, the name of the account should be written.

(2) The date of transaction should be written in date column in the same order as we record in the journal.

(3) In the particulars column on the debit side of the ledger account the name of account credited is written and in the particulars column on the credit side of ledger account, the name of account debited is written. For example the following journal entries are posted in the cash account as follows:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger 2

(4) Opening balance of ledger account should be shown as Balance (b/d). Real account like Cash A/c, Furniture A/c, Goods A/c, Machinery A/c. etc. always show debit balances, and liabilities like Capital A/c, Sundry Creditor’s A/c. Bank Loan A/c, etc. always show credit balances.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger

Posting of Entries From Journal And Subsidiary Books to Ledger-

(i) Posting of entries from journal to ledger :
Transferring or recording journal entries from journal to the respective ledger account is called ledger posting. Ledger posting implies entering the information in the ledger from journal for individual records. Ledger posting is done from time to time by the accountant. The account credited is posted on the credit side of that account and account debited is posted on the debit side of the same account. Process of ledger posting is continued throughout the year. At the end of the financial year all ledger accounts are closed and thereafter they are totalled and balanced.

(ii) Posting” of entries from subsidiary books to ledger:

(1) Single column and double column cash book: While posting the entries from single column and double columns Cash book, Cash Account and Bank Account are not opened. Cash column and Bank column are served as Journal as well as Ledger. Each Person’s Asset’s Account is opened and entries passed on the debit side of cash book are posted to credit side of Person’s A/c or Asset’s A/c. Similarly entries appeared on the credit side of cash book are posted to debit side of related Person’s A/c or Asset’s Account.

(2) Purchase Book: The total of posted to Purchases at the end of the month or year is posted to Purchases Account on the debit side as ‘To Sundries as per Purchases book”. Each Supplier’s Account is opened and related entries are recorded on the credit side as “By Purchases A/c.”

(3) Purchase Return Book / Return Outward Book: The total of Purchase Return Book is posted to Purchase Return A/c as “Sundries as per Purchase Return Book”. Each Supplier’s account is debited with the account of goods returned as ‘To Purchase Return A/c.”

(4) Sales Book: The total of Sales book at the end of month or year is posted to Sales A/c on the credit side as “By Sundries as per Sales Book”. Each Customer’s Account is opened and related entries are recorded on the debit side as ‘To Sales A/c”.

(5) Sales Return Book: The total of Sales Return Book is posted, to debit side of Sales Return Account as ‘To Sundries as per Sales Return Book”. Each Customer’s A/c is credited with the amount of goods returned as “By Sales Return A/c”.

(6) Journal Proper: Each entry from journal is posted to respective Account in the ledger.

Balancing of Ledger account-
Balancing of ledger account means finding the difference between the heavier total, and lighter total of ledger account and recording that difference on lighter total side.
At the end of the accounting year all accounts operated in the ledger are totalled and balanced.
Steps required for balancing of ledger account are given below:

  • First do totalling of debit side and credit side of ledger account separately on rough sheet.
  • Find out difference by subtracting lighter total from heavier total. Such difference is called balance.
  • Draw a single line before making the totals.
  • Draw double lines across the amount column after the totals are made.
  • If total of debit side of ledger account is heavier than total of credit side of that account, the balance is called debit balance and is written on credit side (i.e. on the side where total is lighter) as “By Balance (c/fd.) or (c/d)”.
  • If total of credit side of ledger account is heavier than total of debit side of that account, the balance is called credit balance, and is written on debit side (i.e. on the side where total is lighter) as “To Balance (c/fd) or (c/d),”
  • Last year’s closing balance, becomes opening balance of current year. If there is debit balance it should be shown on debit side of concerned account as “To Balance (b/d) or (b/fd)” and vice versa.

Preparation of Trial Balance-
(i) Introduction: As and when business transactions take place, the same are first recorded in the journal in the summarised form and subsequently they are posted to respective ledger accounts. This in short is known as journalisation and ledger posting respectively. This process of normalisation and ledger posting are continuously done throughout the accounting year and then at the end of the accounting year all ledger accounts are closed, totalled and balanced.

On totalling and balancing, some ledger accounts show debit balances and some ledger accounts show credit balances. In rare cases some ledger account do not show any balance. After this process, a statement is prepared by businessman or accountant wherein total of debit side and credit side of every ledger account or net balance shown by every ledger account is systematically recorded to ascertain arithmetical accuracy and to detect errors or frauds committed in the business. This statement is called the trial balance.

(ii) Meaning: Trial balance is an abstract or list of all the ledger accounts as on a specified date showing debit total and credit total of all the accounts or their balances. A trial balance may be prepared on any date, but it must be prepared by a businessman at the close of the accounting year.

(iii) Definitions: (1) “It is the final list of balances, totalled and combined.” – Rolland
(2) “It is a list of abstract of the balances or of total debits and total credits of accounts in a ledger, with the purpose being to determine the equality of posted debits and credits and to establish a basic summary for financial statements.” – Eric Kohler.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger

(iv) Types of Trial Balance: A trial balance can be prepared in one of the following two forms, viz.
(i) Gross trial balance, and
(ii) Net trial balance. Each of them is discussed below:

(i) Gross Trial Balance: Gross Trial Balance is a type of trial balance in which total of debit column and total of credit column of all ledgers are recorded and posted in respective columns of trial balance. Gross trial balance is prepared by transferring the total of debit column and total of credit column from each ledger account and posted and entered in the respective columns of the trial balance. Gross Trial Balance is not so popular or common in the business world.

(ii) Net Trial Balance: Net trial balance is a type of trial balance in which net balance shown by each ledger account is systematically transferred and recorded. Net trial balance is prepared by transferring net balance shown by ledger accounts in respective columns, i.e. debit balance in debit column and credit balance in credit column of the trial balance. Ledger account which does not show balance is not transferred to trial balance. Net trial balance is more common and popular in the business world. It is extensively used by the business people.

The following illustration will explain the difference between Gross trial balance and Net trial balance.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger 3

(v) Methods of preparing trial balance :
Trial balance can be prepared in any one of the following 2 forms : (i) Vertical or Journal form of Trial Balance and (2) Horizontal or Ledger form of Trial Balance.

(1) Vertical or Journal Form of Trial Balance

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger 4

Explanation of columns:

  • Particulars Column: In this column name of account is written.
  • Ledger Folio (L.F.): In this column page number of ledger from where balance is extracted and transferred to trial balance is written.
  • Debit balance: In this column accounts having debit balances are written in figures.
  • Credit balance: In this column accounts having credit balances are written in figures.
  • After writing all the balances in debit column and credit column, amounts written in debit column and amounts written in credit column are totalled separately. If the total of debit column agrees with the total of credit column, it is said that trial balance is tallied.

(2) Horizontal or Ledger Form of Trial Balance:

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger 5

This trial balance has two main sides viz left-hand side and right-hand side. On the left-hand side debit balances are written down and on the right-hand side, credit balances are noted down.
Each side has three columns viz. name of the accounts, L.F. No. and Amount.

Explanation of columns:
(1) Left-hand side: In the first column names of the accounts having debit balances are written.
In the second column i.e. L.F. column Page No. of Ledger from where balance is extracted and transferred to Trial balance is written. In the third column balance amount of the account is written in figures.

(2) Right-hand side: In the first column names of the accounts having credit balances are written.
In the second column i.e. L.F. column Page No. of Ledger from where balance is transferred is written.
In the third column balance amount of Account is written in figures.

Maharashtra Board Book Keeping and Accountancy 11th Notes Chapter 4 Ledger

(vi) Utility of Trial Balance :
(1) Trial balance is prepared to know the final balance of every account.

(2) Trial balance is prepared to ascertain arithmetical accuracy of ledger accounts. If total of debit column and total of credit column of the trial balance tallies with each other, then it is proved that, no mistakes of whatsoever nature, has been committed in writing accounts. It is also confirmed that the posting to ledger account in terms of debit and credit amount, carry forward, etc. are accurate.

(3) Trial balance is also useful for preparation of final accounts like Trading Account, Profit and Loss Account and Balance Sheet. It is also useful to prepare other important financial statements.

(4) To locate accounting errors committed in writing accounts, a trial balance is used. Trial balance will not tally if mistakes or omissions in writing accounts carry forward, etc. are committed.

(5) Trial balance provides a condensed picture of each account opened and operated in the ledger. With the help of trial balance, the position of any account prepared in the ledger can be easily known or found without referring to the ledger.