CBSE Class 11 Financial Accounting Chapter 4: Recording of Transactions-II NCERT Solutions

Solution: The cash book serves a dual role in accounting. Firstly, it functions as a journal because all cash and bank transactions are recorded directly into it from source documents, eliminating the need for a separate journal entry for these specific transactions. Secondly, it acts as a ledger because it provides a consolidated record of all cash receipts and payments, allowing for the direct determination of the cash and bank balances at any point in time, thus eliminating the need for a separate cash account in the ledger.

Solution: A contra entry is a special type of entry used in a two-column cash book (which includes columns for cash and bank) to record transactions that affect both the cash and bank accounts simultaneously. The primary purpose of a contra entry is to show that cash has been either deposited into the bank or withdrawn from the bank. For example, when cash is deposited into the bank, it is credited in the cash column and debited in the bank column. Conversely, when cash is withdrawn from the bank for office use, it is credited in the bank column and debited in the cash column. These entries are typically marked with the letter 'C' in the ledger folio column to indicate that they have been posted on both sides of the cash book, and they do not require separate posting in the ledger accounts.

Solution: Special purpose books, also known as subsidiary books, are specialized journals created to record specific types of routine and repetitive business transactions efficiently. As the volume of transactions in a growing business increases, it becomes impractical to record every entry in a general journal. Therefore, transactions like credit sales, credit purchases, sales returns, and purchases returns are recorded in their respective special purpose books (e.g., Sales Book, Purchases Book, Sales Returns Book, Purchases Returns Book). This subdivision of the journal allows for a division of labor among accountants, enhances efficiency, accuracy, and makes information more accessible.

Solution: A petty cash book is a subsidiary book used to record small, miscellaneous expenses, often referred to as petty expenses. These typically include payments for postage, stationery, local travel, refreshments, and other minor expenditures. The person responsible for managing these small payments is called the petty cashier.

The petty cash book is primarily prepared using two systems:

1. Ordinary System: Under this method, the petty cashier is given a fixed amount of money to cover petty expenses for a specific period. At the end of the period, the petty cashier submits the account of all expenses incurred to the main cashier, who then reimburses the amount spent, replenishing the petty cash fund.
2. Imprest System: This is the more common and recommended system. At the beginning of a period (e.g., a week or a month), the petty cashier receives a fixed sum of money (the imprest amount). Throughout the period, the petty cashier makes payments for petty expenses from this fund. At the end of the period, the petty cashier submits a summary of expenses to the main cashier. The main cashier then reimburses the petty cashier for the exact amount spent, restoring the fund to its original imprest level for the next period. This ensures the petty cashier always has a fixed amount available.

Solution: Posting is the systematic process of transferring the debit and credit amounts from the journal (or subsidiary journals) to their respective accounts in the ledger. After a transaction is recorded chronologically in the journal, the next step is to classify these transactions by posting them to the appropriate ledger accounts. For example, if a sale of goods on credit to Mr. X is recorded in the journal, the amount would be debited to Mr. X's account and credited to the Sales Account in the ledger. The ledger provides a summarized view of all transactions related to a particular account, making it easier to ascertain balances and prepare financial statements.

Solution: The accounting process begins with identifying financial transactions. While a general journal can record all financial events, it becomes cumbersome and inefficient for businesses with a high volume of transactions. Subsidiary journals are created to address this by subdividing the general journal. The main purposes of maintaining subsidiary journals are:

1. Efficiency and Time Saving: They allow for the quick and organized recording of routine and repetitive transactions (like credit sales, purchases, etc.) in dedicated books, saving significant time and effort.
2. Division of Work: Different subsidiary journals can be managed by different accountants, allowing for specialization and improving overall efficiency.
3. Accountability: Assigning specific subsidiary journals to individual accountants enhances their responsibility and accountability for the accuracy of records within those books.
4. Easy Accessibility of Information: Transactions of a similar nature are grouped together, making it easier to locate specific information quickly.
5. Reduced Errors: By focusing on specific transaction types, the likelihood of errors in recording and posting is reduced.

Solution: The differences between return inwards and return outwards are as follows:

Basis of Difference	Return Inwards (Sales Returns)	Return Outwards (Purchases Returns)
Meaning	Goods sold to customers that are returned by them to the seller.	Goods purchased from suppliers that are returned by the business to the suppliers.
Balance	It has a debit balance.	It has a credit balance.
Treatment in Trading Account	It is deducted from Sales.	It is deducted from Purchases.
Document Issued	The seller issues a Debit Note to the customer.	The buyer issues a Credit Note to the supplier.
Effect on Debtors/Creditors	It reduces the amount receivable from debtors.	It reduces the amount payable to creditors.
Alternative Term	Also known as Sales Returns.	Also known as Purchases Returns.

Solution: Ledger Folio (L.F.) is a reference column found in the journal and subsidiary books. It indicates the page number of the ledger where the corresponding debit or credit entry has been posted. When an entry is transferred from the journal to its respective account in the ledger, the page number of that ledger account is written in the L.F. column of the journal. This facilitates easy location and cross-referencing of entries between the journal and the ledger, thereby speeding up the process of auditing and verification.

Solution: The key differences between trade discount and cash discount are:

• Nature: Trade discount is a reduction in the list price of goods offered by the seller to the buyer, usually for purchasing in bulk or as a standard trade practice. Cash discount is an incentive offered by the seller to the buyer for making prompt payment of the amount due.
• Timing of Allowance: Trade discount is allowed at the time of sale, before the invoice is prepared. The invoice is made out at the net amount after deducting the trade discount. Cash discount is allowed after the invoice has been prepared, for payment within a specified period.
• Purpose: The purpose of trade discount is to encourage larger purchases and to make the goods competitive. The purpose of cash discount is to expedite the collection of payments from customers.
• Recording in Books: Trade discount is not recorded in the books of accounts; the sales and purchases are recorded at their net invoice value. Cash discount, however, is recorded in the books of accounts as it affects the actual amount paid or received. It is debited to the Cash Discount A/c (an expense) for the buyer and credited to the Cash Discount A/c (income) for the seller.
• Balance: Trade discount does not have a balance. Cash discount, when recorded, affects the profit and loss of the business.