Accountancy [Class 11 Semester II] Chapter 2: Cash Book
Q.1. What is a Cash Book? Write its characteristics.
Answer: A cash book is an accounting book in which all cash transactions of a business are recorded primarily in chronological order, with brief descriptions, and arranged on the debit and credit sides simultaneously.
Characteristics of a Cash Book:
(a) Since all cash transactions are recorded primarily in this book, it is called a book of original entry.
(b) It is a permanent book of accounts because cash transactions are permanently recorded in it.
(c) The cash book has two sides — the left side or debit side (showing cash receipts) and the right side or credit side (showing cash payments).
(d) The opening cash balance is shown on the left-hand side at the beginning.
(e) At the end of a specific period, the difference between the debit and credit sides is calculated to find the closing balance, which represents the cash in hand at that time.
(f) Cash payments can never exceed cash receipts; therefore, the balance of cash in the cash book is always a debit balance or nil balance.
Q.2. Discuss the functions of the Cash Book.
Answer:
(a) All cash transactions are recorded in chronological order as soon as they occur, making it a part of the Journal or Day Book.
(b) Since all cash transactions are permanently recorded here, a separate cash account in the ledger is not needed. Hence, it is also a part of the Ledger.
(c) It helps verify the cash balance at the end of each day or at any time by comparing with the actual cash on hand.
(d) It records voucher numbers of all receipts and payments, aiding future verification.
Q.3. Discuss the advantages and usefulness of the Cash Book.
Answer:
(a) It provides information about the total cash receipts and payments of a business each day.
(b) The cash balance in the book can be verified with the actual cash in hand daily.
(c) As cash transactions are recorded both primarily and permanently here, no separate cash account in the ledger is needed, saving time and labor.
(d) Proper maintenance of the cash book helps detect accounting errors or misappropriation of funds through reconciliation.
(e) It helps maintain control over cash expenditure by knowing the amount of available cash balance.
Q.4. Is the Cash Book a Journal or a Ledger? Explain.
Or, Why is the Cash Book called a Journalized Ledger?
Answer: The cash book is both a journal and a ledger account. Hence, it is called a journalized ledger or ledger with journal features.
Similarities between Cash Book and Journal:
(a) Like the journal, it is a book of original entry.
(b) Transactions are recorded in chronological order.
(c) Each transaction is accompanied by a brief narration.
(d) Transactions recorded in the cash book are later posted to the relevant ledger accounts.
(e) Ledger folio numbers are entered for posting reference.
Q.5. Differences between Cash Book and Ledger.
Answer:
(a)
Only cash transactions are recorded.
Both cash and non-cash transactions are recorded.
(b)
It is both a primary and final book.
It is only a final book, not a primary one.
(c)
A brief narration is given for each transaction.
No narration is provided.
(d)
Ledger page number is written for each entry.
Journal page number is written for each entry.
Q.6. Differences between Cash Book and Journal.
Answer:
(a)
Only cash transactions are recorded.
Non-cash transactions are recorded; cash ones are included only if there is no cash book.
(b)
Only one side of each entry is recorded (half of double entry).
Both sides of transactions are recorded.
(c)
Each transaction is posted to only one ledger account.
Each transaction is posted to two ledger accounts.
(d)
Balances are drawn periodically.
No balance is drawn.
(e)
Voucher numbers are mentioned.
No voucher numbers are recorded.
Q.7. Differences between Cash Book and Cash Account.
Answer:
(a)
It is both a primary and daily book, though it substitutes the cash account in the ledger.
It is one of the ledger accounts.
(b)
Transactions are recorded primarily here; no need to post again.
Transactions are first recorded in the journal before being posted.
(c)
Each entry has a short narration.
Narrations are not written.
(d)
Ledger folio number is written.
Journal folio number is written.
(e)
Voucher numbers are written.
Voucher numbers are not written.
Q.8. What is Cash Balance Verification?
Answer: Comparing the closing balance in the cash book with the actual cash in hand on a given day is called Cash Balance Verification.
Q.9. What is Cash Surplus?
Answer: If the actual cash in hand is greater than the balance shown in the cash book, the excess amount is called Cash Surplus.
Q.10. What is Cash Shortage?
Answer: If the actual cash in hand is less than the balance shown in the cash book, the deficit amount is called Cash Shortage.
Q.11. What is a Single Column Cash Book? Answer: A cash book that contains only one column each on the debit and credit sides for recording cash transactions is called a Single Column Cash Book.
Q.12. What is a Double Column Cash Book? Answer: A cash book that has two columns on each side to record both cash and bank transactions is called a Double Column Cash Book.
Q.13. Advantages of Double Column Cash Book:
(a) Both cash and bank transactions can be recorded in one book.
(b) Saves time and effort since both types of transactions are in the same book.
(c) It shows both cash and bank balances simultaneously.
(d) It is especially useful for businesses that deal mostly through cheques.
Q.14. What is Contra Entry?
Answer: An entry in which both debit and credit aspects of a transaction are recorded in the same book (cash book) is called a Contra Entry.
Q.15. What is Bank Overdraft?
Answer: When a bank allows a depositor to withdraw more money than is available in their account, the excess withdrawn is called a Bank Overdraft.
Q.16. What is a Petty Cash Book?
Answer: A petty cash book is a record where all small or petty cash payments are entered in chronological order with brief details and voucher numbers.
Q.17. Characteristics of Petty Cash Book:
(a) Small payments are recorded chronologically.
(b) Minor cash receipts are not recorded.
(c) Maintained by a Petty Cashier.
(d) Entries are made permanently; hence no separate petty cash account is needed in the ledger.
Q.18. Advantages or Usefulness of Petty Cash Book:
(a) Reduces the workload of the chief cashier, allowing focus on important tasks.
(b) Helps identify total petty expenses and their respective heads.
(c) Since small cash is handled, chances of misuse are low.
(d) Chief cashier can verify and correct errors immediately.
(e) Control over petty cash reduces the risk of embezzlement.
Q.19. Difference between Petty Cash Book and Main Cash Book.
Answer:
(a)
Used in large organizations with many petty payments.
Used in all types of businesses.
(b)
Maintained by petty cashier.
Maintained by chief cashier.
(c)
Records only petty payments.
Records both receipts and payments.
(d)
Few entries on the receipts side.
Many entries on the receipts side.
Q.20. What is Imprest Cash / Imprest Fund / Imprest Amount?
Answer: A fixed amount of cash given to the petty cashier by the chief cashier at the beginning of a period to meet expected petty expenses is called Imprest Cash or Imprest Fund or Imprest Amount.
Q.21. What is Statement of Imprest Petty Expenses?
Answer: At the end of a period, the petty cashier prepares a statement of all petty expenses incurred and submits it to the chief cashier, who, after verification, reimburses the exact amount spent.
Q.22. What is the Imprest System? Write its advantages.
Answer: Under this system, an estimated amount for petty expenses of a given period is handed to the petty cashier at the start, and after submission of the expense statement, the amount spent is reimbursed to restore the fund.
Advantages of Imprest System:
(a) The petty cashier never holds more than the imprest amount, minimizing fraud risk.
(b) Errors in the petty cash book can be detected and corrected immediately.
(c) Small fund size reduces misuse chances.
(d) Working capital is not unnecessarily blocked in petty cash.
Q.23. What is an Analytical or Multicolumnar Petty Cash Book? Write two advantages.
Answer: A petty cash book that records various petty expenses in separate analysis columns (besides the total column) according to their nature and in chronological order is called an Analytical or Multicolumnar Petty Cash Book.
Advantages:
(a) No need to post petty expenses repeatedly in the ledger.
(b) Saves time and labor during ledger posting.
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