The accounting procedure, for the recording of information, consists of two steps, namely journaling and posting. It follows that every company must keep a journal (original or main entry books) and a general ledger (main book). Thus, the bookkeeping system originally provided that all transactions must first be recorded in the original ledger, i.e., the journal, and then each transaction so recorded in the journal must be posted in the main ledger, i.e., the ledger. elderly. Later it was found that the work of recording each transaction with a journal entry and then posting each entry to two different accounts in the general ledger was enormous. The procedure required more time and resulted in a higher cost of establishment.
It is natural that in all businesses the majority of transactions are related to receipts and payments of cash; purchases of goods; sales of goods, etc. It was found convenient and economical to keep separate books to record each particular class of transactions. Each separate book intended to record transactions of a particular class is the original or main entry book. It is also known as a sub journal or subsidiary book. The system under which transactions of a similar nature are recorded in the corresponding subsidiary ledger and on the basis of which the general ledger is written is known as the ‘practical bookkeeping system’. This system reduces the work and time of recording the transactions since the impersonal accounts, that is, the sales account, the purchase account, etc., receive the posting of the totals and not of the individual transactions. However, this system also conforms to the basic rules of the double entry system.
In general, the following subsidiary ledgers are used in business:
(1) Cash Book: Records cash receipts and payments, including bank-related transactions;
(2) Purchase book: registers credit purchases of goods intended for sale or conversion into finished products;
(3) Book of returns abroad: records the return of merchandise to suppliers for various reasons;
(4) Sales book: registers credit sales of the goods that the company negotiates;
(5) Returns book: records the return of merchandise by customers to the company; (vi) Notes receivable book: registers the receipts of bills of exchange, promissory notes and hundies of various parties;
(6) Book of bills payable: records the issuance of bills of exchange, promissory notes and hundies to the different parties:
Advantages of sub-journals
(1) It results in time savings by (a) allowing the recording procedure to be carried out simultaneously in different subsidiary ledgers and (b) by posting the periodic totals in the impersonal accounts.
(2) Makes available information about each particular class of transactions.
(3) When preparing the trial balance, verification is easier because, as there are many books, different people can do the work.
payment book
In any business, perhaps, the largest number of transactions of a nature must be related to cash and the bank. This is so because every transaction must ultimately result in a cash transaction. Now, if every cash transaction must be recorded in a journal, it will involve a tremendous amount of work to debit or credit cash or bank account to the ledger for each transaction. Therefore, it is convenient to have a separate book, the cash book, to record such transactions. Cash book maintenance eliminates the need to keep cash and bank accounts in the general ledger. This book allows us to know the balance of cash in cash and in the bank at any time.
The cash book consists of the cash and bank accounts taken out of the general ledger and kept separately; therefore, it is a general ledger substitute for cash and bank accounts. It is also an original journal entry book because cash and bank transactions are not recorded in any other subsidiary books.
types of cash books
The type of cash book that any business will use will depend on its nature and requirements. It can be any of the following:
(1) Single column cash book (cash column).
(2) Double column cash book (cash and discount columns).
(3) Triple column cash book (cash, discount and bank column).
(4) Bank cash book (bank and discount columns).
In general, every business will use any of the above types of cash book along with the “petty cash book” which is kept in memorandum form.
Distinction between cash A/c and cash book
Actually, the cash book is a perfect substitute for the cash account. In both, cash transactions are recorded by date in order of occurrence. The cash balance on any date can be determined by balancing the two on any desired day. However, there are some differences between the two as listed below:
cash account
1. It is an account in the general ledger.
2. The cash account is part of the general ledger. The cash account is opened in the general ledger in which the posting of some original entry book is made, i.e. journal
3. In the posting of the cash account is not followed by narration.
4. It only records one aspect of the transaction involving cash and bank.
payment book
1. It is a separate book of accounts that is part of the accounting system.
2. The cash book records entries directly from transactions and a main entry book is not necessary.
3. In the cash book, entries are also followed by a narrative.
4. Record both aspects of this transaction in cash and in bank columns to complete double entry.