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Cash book is the book of original record. All cash receipts and cash payments are recorded in the cash book. Cash account need not be prepared when cash book is maintained but all the other accounts from whom payment has been received or those accounts that payment has been made will be prepared with the help of cash book. Posting in all the accounts appearing in the cash book is made through cash book. The procedure of posting is explained with the following illustration.

Illustration 2. Prepare a cash book from the following transactions and post them into concerned ledger accounts. Also explain the rule and procedure of preparing ledger accounts with the help of cash book. 

2006                                                                                                                $

 

Nov. 1  Cash in hand ……………………………………………………………………. 10,000 

Nov. 3 Cash purchases…………………………………………………………………… 5,000 

Nov. 6 Cash sales………………………………………………………………………….. 4,000 

Nov. 9 Payment of wages……………………………………………………………….. 2,000 

Nov. 15 Rent received………………………………………………………………………. 700 

Nov. 20 Furniture purchased …………………………………………………………….1,000 

Nov. 25 Goods sold to David ……………………………. ……………………………… 800 

Nov. 28 Payment received from David …………………………………………………800 

Nov. 29 Goods purchased from John ………………………………………………..3,000 

Nov. 30 Payment made to John ………………………………………………………..3,000

Solution.                                                         Cash Book

                                                   Dr.                                                                                                                                           Cr.

Notes (i) Sales of goods to David has not been shown in the cash book, because it is credit sales and credit transactions are not recorded in the cash book.

(ii) Purchases of goods from John is a credit purchases, so it will also not be shown in the cash book. It should be once more noted that cash book records only cash transactions.

 

l. Ledger Posting from the Debit Side of the Cash Book

The debit side of the cash book records all cash receipts. The posting will be made in all the ledger accounts appearing at the debit side of the cash book. Cash has been received through these accounts; therefore cash account must have been debited. The debit side of cash book shows that cash account has been debited for all these receipts, so the accounts appearing at the debit side of the cash book must have been credited at the time of receiving cash. It is, therefore, suggested that posting in the accounts appearing at the debit side will be made at the credit side of the accounts as ‘By Cash A/c’. This is due to the fact that we cannot use the name of the same account in its own ledger account. In the previous cash book sales account, rent account and David’s account have been posted at the debit side of the cash book, so we shall be preparing these accounts through cash book and the posting will be made as under:

Sales Account

                                                          Dr.                                                                                                                                           Cr.

Rent Account

                                                                 Dr.                                                                                                                                           Cr.

David’s Account

                                                                       Dr.                                                                                                                                           Cr.

 

2. Ledger Posting from the Credit Side of the Cash Book

All accounts appearing at the credit side of cash book will be separately prepared. Posting will be made to the debit side of these accounts to complete double entry record. Credit side of the cash book shows cash payment to the accounts appearing at the credit side of the cash book. Purchases account, wages account, furniture account and John ‘s account must have been debited when payment would have been made to them, so the posting will be made at the debit side of these accounts. While making posting from cash book, it should be seen, whether the particular account has been posted at the debit side or the credit side of cash book. If it is posted at the debit side of the cash book, posting will be made at credit side of the account appearing there and vice versa.

Purchases Account

Dr.                                                                                                                                           Cr.

Wages Account

                                                          Dr.                                                                                                                                           Cr.

Furniture Account

                                                               Dr.                                                                                                                                           Cr.

 John’s Account

                                                                  Dr.                                                                                                                                           Cr.