Unit 14 Solutions: Subsidiary Books & Cash Book

Answers to the Unit 14 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and full working for each numerical problem.

A. Very Short Answer Questions (1 Mark Each)

1. Define Subsidiary Books and list any four types.

Subsidiary Books (also called Special Journals or Day Books) are the specialized books into which the Journal is divided, each recording only one class of transactions. Four types are the Purchase Book, Sales Book, Purchase Return Book and Sales Return Book (the Cash Book, Bills Books and Journal Proper are others).

2. What is a Debit Note and a Credit Note?

A Debit Note is the document issued to a supplier when goods are returned to him, showing that his account has been debited; it is the source of the Purchase Return Book. A Credit Note is the document issued to a customer when he returns goods, showing that his account has been credited; it is the source of the Sales Return Book.

3. Define a Contra Entry and state the two transactions in which it occurs.

A Contra Entry is a transaction that affects both the Cash Account and the Bank Account, so it is recorded on both sides of the Cash Book and marked C in the L.F. column. It occurs only when (1) cash is deposited into the bank, and (2) cash is withdrawn from the bank for office use.

4. Why are the Discount columns in a Cash Book not balanced?

The Discount Allowed column (an expense) and the Discount Received column (an income) belong to two separate, unrelated accounts, so each is only totalled and posted to its own account in the Ledger.

B. Numerical Problems for Practice (8 Marks Each)

Problem 14.1 (Purchase & Sales Books): From the following transactions of Janakpur Book House, prepare (a) Purchase Book and (b) Sales Book:

• Ashwin 2: Purchased from Ekta Publication, Kathmandu: 50 copies Grade 9 Account Book @ Rs. 400 each and 40 copies Science Book @ Rs. 500 each, less 15% trade discount.
• Ashwin 6: Sold to Mithila Boarding School on credit: 30 copies Grade 9 Account Book @ Rs. 450 each and 20 dozen Exercise Copies @ Rs. 600 per dozen.
• Ashwin 11: Purchased a revolving chair from Janaki Furniture on credit for Rs. 6,500.
• Ashwin 18: Purchased from Buddha Publication: 60 copies Economics Book @ Rs. 350 each, less 10% trade discount.
• Ashwin 24: Sold to Dhanusha Stationery on credit: 40 copies Science Book @ Rs. 550 each, less 10% trade discount.
• Ashwin 28: Sold old newspapers and books for cash Rs. 4,500.

(a) Purchase Book of Janakpur Book House

(b) Sales Book of Janakpur Book House

Answer: Total of the Purchase Book = Rs. 52,900; Total of the Sales Book = Rs. 45,300.

Notes on Excluded Transactions:

1. Ashwin 11: The revolving chair from Janaki Furniture is excluded from the Purchase Book because it is a fixed asset for the shop’s own use, not goods for resale (a credit purchase of an asset goes to the Journal Proper).
2. Ashwin 28: The sale of old newspapers and books for Rs. 4,500 is excluded from the Sales Book because it is a cash sale (recorded in the Cash Book).

Working notes:

• Credit purchases: The Ashwin 2 and Ashwin 18 purchases name the supplier and do not say “for cash”, so they are credit purchases and belong in the Purchase Book.
• Trade discount: It is deducted on the face of the invoice, so only the net amounts (Rs. 34,000, Rs. 18,900 and Rs. 19,800) are carried to the Total column.

Problem 14.2 (Triple Column Cash Book): Prepare a Triple Column Cash Book from the following transactions for Kartik 2082:

• Kartik 1: Cash in hand Rs. 30,000; Cash at bank Rs. 50,000.
• Kartik 5: Cash deposited into bank Rs. 15,000.
• Kartik 9: Goods sold for Rs. 25,000; received Rs. 10,000 in cash and Rs. 15,000 by cheque.
• Kartik 14: Paid to Suman by cheque Rs. 11,600 in full settlement of Rs. 12,000.
• Kartik 19: Received cash from Pratima Rs. 8,700 in full settlement of Rs. 9,000.
• Kartik 24: Withdrew cash from bank for office use Rs. 8,000 and for domestic use Rs. 3,000.
• Kartik 29: Paid rent in cash Rs. 6,000 and salary by cheque Rs. 12,000.

Dr. ………………………………… Triple Column Cash Book ………………………………… Cr.

Answer: Closing Cash Balance = Rs. 35,700; Closing Bank Balance = Rs. 45,400; Discount Allowed = Rs. 300; Discount Received = Rs. 400.

Working notes:

• Contra entries (C): The Kartik 5 deposit (Rs. 15,000) and the Kartik 24 withdrawal for office use (Rs. 8,000) affect both cash and bank, so each is entered on both sides.
• Kartik 9: The cheque of Rs. 15,000 is treated as deposited into the bank the same day, so it goes in the Bank column.
• Kartik 14: Discount received from Suman is 12,000 - 11,600 = 400.
• Kartik 19: Discount allowed to Pratima is 9,000 - 8,700 = 300.
• Kartik 24: The Rs. 3,000 withdrawn for domestic use is Drawings from the Bank column, not a contra entry.
• Balances: Cash 56,700 - 21,000 = 35,700; Bank 80,000 - 34,600 = 45,400. The Discount columns are only totalled, never balanced.