ICAI Notes 2.5, Cash Books- 2 - CA Foundation PDF Download

3. POSTING THE CASH BOOK ENTRIES

Students would have seen that the cash columns in the cash book is actually the cash account and the bank column is actually bank account. Also, the discount columns are memorandum columns, meant only to provide information about the total discount allowed and total discount received.
The debit side columns for cash and bank indicate receipts. Therefore, the amounts debited in the cash book should be put to the credit of the account in respect of which cash or cheque has been received. For instance, in the cash book given above we see that 175 have been received for sale of goods. For posting, the amount is credited to the Sales Account as “By Cash 175.” We also see M/s. Warsi have paid 450 and also they have been allowed  35 as discount; thus they have discharged a debt of 485. In the account of M/s. Warsi, the posting is on the credit side as

All payments are recorded on the credit side. The particulars columns show on what account payments have been made. In the ledger accounts concerned the amount in put on the debit side.  For  example,  the  cash  book  shows  that  a cheque for 330 has been issued to M/s. Ratan & Co. and also that they have allowed a discount of 20; thus an obligation of 350 has been met. In the account of M/s. Ratan & Co. the posting is :

The rule thus develops: From the debit side of the cash book credit the various accounts with their respective amounts (including any discount that may have been allowed); from the credit side of cash book the posting will be to the debit of the accounts mentioned in the particular column with their respective amounts (including the discount which may have been received).

As has been shown already, the total of the discount columns on the debit side is debited to the discount account; the total of the column on the credit side is credited to the discount account. From the cash book given on the previous page  35 is debited and 20 be credited to the discount account.

4. PETTY CASH BOOK

In a business house a number of small payments, such as for telegrams, taxi fare, cartage, etc., have to be made. If all these payments are recorded in the cash book, it will become unnecessarily heavy. Also, the main cashier will be overburdened with work. Therefore, it is usual for firms to appoint a person as ‘Petty Cashier’ and to entrust the task of making small payments say below 25, to him. Of course he will be reimbursed for the payments made. Later, on an analysis, the respective account may be debited.

4.1 IMPREST SYSTEM OF PETTY CASH

It is convenient to entrust a definite sum of money to the petty cashier in the beginning of a period and to reimburse him for payments made at the end of the period. Thus, he will have again the fixed amount in the beginning of the new period. Such a system is known as the imprest system of petty cash.
The system is very useful specially if an analytical Petty Cash Book is used. The book has one column to record receipt of cash (which is only from the main cashier) and other columns to record payments of various types. The total of the various columns show why payments have been made and then the relevant accounts can be debited.

(i) The amount fixed for petty cash should be sufficient for the likely small payments for a relatively short period, say for a week or a fortnight.

(ii) The reimbursement should be made only when petty cashier prepares a statement showing total payments supported by vouchers, i.e., documentary evidence and should be limited to the amount of actual disbursements.

(iii) The vouchers should be filed in order.

(iv) No payment should be made without proper authorization. Also, payments above a certain specified limit should be made only by the main cashier.

(v) The petty cashier should not be allowed to receive any cash except for reimbursement.

In the petty cash book the extreme left-hand column records receipts of cash. The money column towards the right hand shows total payments for various purposes; a column is usually provided for sundries to record infrequent payments. The sundries column is analysed. At the end of the week or the fortnight the petty cash book is balanced. The method of balancing is the same as for the simple cash book.

Illustration 4 Shri Ramaswamy maintains a Columnar Petty Cash Book on the Imprest System. The imprest amount is  500. From the following information, show how his Petty Cash Book would appear for the week ended 12th September, 2011:

Solution 

Illustration 5 Prepare a Petty Cash Book on the imprest System from the following:

Solution

4.2 ADVANTAGES OF PETTY CASH BOOK 

There are mainly three advantages:

(i) Saving of time of the chief cashier;
(ii) Saving in labour in writing up the cash book and posting into the ledger; and
(iii) Control over small payments.

4.3 POSTING THE PETTY CASH BOOK 

In the ledger, a petty cash account is maintained; when an amount is given to the petty cashier, the petty cash account is debited. Each week or forthnight, the total of the payments made is credited to this account. The petty cash account will then show the balance in the hand of the cashier; on demand he should be able to produce it for counting. At the end of the year, the balance is shown in the balance sheet as part of cash balance.

Of course, the payments must be debited to their respective amounts as shown by the petty cash book. For this two methods may be used:

(i) From the petty cash book the total of the various columns may be directly debited to the concerned accounts; or
(ii) A journal entry may first be prepared on the basis of the petty cash book, debiting the accounts shown by the various analysis columns, and crediting the total of the payment of the petty cash accounts.

For Illustration 5 the journal entry and relevant accounts are as follows:

Petty Cash Account

5. ENTRIES FOR SALE THROUGH CREDIT/DEBIT CARDS

Now-a-days sales through Credit/Debit Cards are issued by almost every Bank in India either directly or with collaboration of some other agencies. HSBC Card, SBI Card, BOB Card, ICICI Bank Card, HDFC Card and Andhra Bank Card are some of the popular Cards.
The procedure for issuing Credit/Debit Cards are as follows -

1. A small Plastic Card, called Credit Card is issued by bank to a prospective customer, after verifying his credibility, which is generally measured by his income sources. Debit Card is issued by bank to a customer who has an account with the bank, maintaining a minimum balance. Now a days ATM Card issued by the bank can also be used as Debit Card. This card would contain an embossed 16 digit number and also the name of the cardholder.

2. Generally Bank charges annual subscription fees from the credit card holder. No fee is charged in case of Debit Card, though some banks charge a nominal fee on Debit Card.

3. When the Card holder intends to buy some goods or services through Credit or Debit Card, the seller fills in a form, generally in triplicate, the details of the goods a with the amount of sales and uses the embossed card with the help of the Credit Card machine to print the data on that form. Also the customer has to countersign the form. One carbon copy of the form is given to the customer for the record.

4. The seller sums up the different amounts sold like this and submits, generally everyday, to his bank all the forms. The amount is credited by the bank to the seller’s account and debited to the account of the Bank or the company issuing the Credit/Debit Card.

5. The bank issuing the Card, charges commission for each such transaction, which varies between 1% to 4% and is immediately debited to seller’s bank account.

6. The bank sends a monthly statement to the card holder. In case of Debit Card the account is immediately debited to the card holder’s account, whereas in case of Credit Card, card holder has to pay the amount in full or part. However, if not paid in full, the interest is charged.

5.1 ACCOUNTING FOR CREDIT/DEBIT CARD SALE

From the seller’s point of view, this type of sale is equivalent to a cash sale. Commission charged by the bank will be treated as selling expenses. The following journal entries will be made in the seller’s books of accounts 

Illustration 7 Enter the following transaction in Cash Bank with Discount and Bank columns. Cheques are first treated as cash receipts -

Solution