Subdivision of Journal:

Learning Objectives:

1. What is subdivision of journal?

2. Define and explain cash book and bank reconciliation statement

3. What are the different types of cash book?

4. Write single, double, and three column cash book.

5. Prepare a bank reconciliation statement.

Though the principle of journalising all transactions, known as continental system of bookkeeping is quite perfect in actual business but in a large business it is found inconvenient to Journalise every transaction and sometime it becomes rather impossible for one man to Journalise numerous transactions on a business in one journal. Therefore, the journal is sub-divided into different journals known as the subsidiary books or books of prime entry or books of original entry. These are the books in which are recorded the details of transactions as they take place from day to day, in a classified manner.

In every trading concern, the transactions, however numerous they may be, can be grouped into small number of classes. They consist chiefly of receipts and payments of cash, purchases and sales of goods, returns of goods purchased and sold, bills receivable and bills payable. The journal is divided in such a way that a separate book is used for each class of transactions.

The important subsidiary books used in modern business world are the following:-

1. Cash Book: It is used to record all cash receipts and payments.

2. Purchases Book: It is used to record all credit purchases.

3. Sales Book: It is used to record all credit sales

4. Purchases returns book: It is used to record all goods returned by us to our suppliers.

5. Sales Returns Book: It is used to record all goods returned to us by our customers.

6. Bills Receivable Book: It is used to record all accepted bills received by us.

7. Bills payable Book: It is used to record all bill accepted by us to our creditors.

8. Journal Proper: It is used for recording those transactions for which there is no separate book.

All these subsidiary books are called books of original entry, as transactions in their original form are entered therein.

Advantages of Different Journals: The advantages of having several books of original entry in place of one journal may be stated to as follows:

1. It may be impossible to record each transaction into the ledger as it occurs. Subsidiary books record the details of the transactions and therefore, helps the ledger to become brief.

2. As similar transactions are recorded together in the same book, future reference to any of them becomes easy.

3. The chance of fraudulent alteration in an account is reduced as the book of original entry keeps records of the transactions in a chronological order.

4. The work of posting can be entrusted to several clerks at the same time and thus the ledger of a large business can be written up much more quickly.

5. As each journal contains separately transactions of similar nature any desired analysis can be made conveniently.

Definition and Explanation of Cash Book:

Cash book is a book of original entry in which transactions relating only to cash receipts and payments are recorded in detail. When cash is received it is entered on the debit or left hand side. Similarly, when cash is paid out the same is recorded on the credit or right hand side of the cash book. Click here to read full article.

Single Column Cash Book:

Single column cash book records only cash receipts and payments. It has only one money column on each of the debit and credit sides of the cash book. All the cash receipts are entered on the debit side and the cash payments on the credit side. Click here to read full article.

Two Column Cash Book/Double Column Cash Book:

A double column cash book or two column cash book is one which consists of two separate columns on the debit side as well as credit side for recording cash and discount. In many concerns it is customary for the trader to allow or to receive small allowance off or against the dues. Click here to read full article.

Three Column Cash Book:

A three column cash book or treble column cash book is one in which there are three columns on each side - debit and credit side. One is used to record cash transactions, the second is used to record bank transactions and third is used to record discount received and paid. Click here to read full article.

Bank Reconciliation Statement:

From time to time the balance shown by the bank and cash column of the cash book required to be checked. The balance shown by the cash column of the cash book must agree with amount of cash in hand on that date. Thus reconciliation of the cash column is simple matter. If it does not agree it means that either some cash transactions have been omitted from the cash book or an amount of cash has been stolen or lost. The reason for the difference is ascertained and cash book can be corrected. So for as bank balance is concerned, its reconciliation is not so simple. The balance shown by the bank column of the cash book should always agree with the balance shown by the bank statement, because the bank statement is a copy of the customer's account in the banks ledger. But the bank balance as shown by the cash book and bank balance as shown by the bank statement seldom agree. Periodically, therefore, a statement is prepared called bank reconciliation statement to find out the reasons for disagreement between the bank statement balance and the cash book balance of the bank, and to test whether the apparently conflicting balance do really agree. Click here to read full article.

Petty Cash Book:

In almost all businesses, it is found necessary to keep small sums of ready money with the cashier or petty cashier for the purpose of meeting small expenses such as postage, telegrams, stationary and office sundries etc. The sum of money so kept in hand generally termed as petty cash and book in which the petty cash expenditures are recorded is termed as petty cash book. Click here to read full article.

Purchases Day Book:

Purchases book or purchases day book is a book of original entry maintained to record credit purchases. You must note that cash purchases will not be entered in purchases day book because entries in respect of cash purchases must have been entered in the cash book. Click here to read full article

Purchases Returns Book:

Purchases returns book is a book in which the goods returned to suppliers are recorded. It is also called returns outward book or purchases returns day book. Goods may be returned because they are of the wrong kind or not up to sample or because they are damaged etc. Click here to read full article.

Sales Day Book:

Sales returns book is also called returns inwards book. It is used for recording goods returned to us by our customers. The ruling of this books is exactly as for sales day book. Click here to read full article.

Sales Returns Book:

Sales returns book is also called returns inwards book. It is used for recording goods returned to us by our customers. The ruling of this books is exactly as for sales day book. Click here to read full article.

Bills Receivable Book:

Bills receivable book is used to record the bills received from debtors. When a bill is received, details of it are recorded in the bills receivable book. Click here to read full article.

Bills Payable Book:

Bills payable book is used to record bill accepted by us. When a bill drawn by our creditor is accepted particulars of the same are recorded in this book. Click here to read full article.

Journal Proper:

Journal proper is book of original entry (simple journal) in which miscellaneous credit transactions which do not fit in any other books are recorded. It is also called miscellaneous journal. The form and procedure for maintaining this journal is the same that of simple journal. Click here to read full article.

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