21/06/2006                                                                                    Page: 2

ACCOUNTS BASICS

Sub-Division of Journal:

1. CASH BOOK and BANK BOOK:  Cash Book consists of Cash Column, Bank Column, Discount Column and has a Debit side and a Credit side to record both the incoming and outgoing of Cash, Cheques. There is one more column known as CONTRA which is for contra entry i.e. it describes the transaction affecting only CASH and BANK accounts.

2. IMPREST SYSTEM OR PETTY CASH:  A certain sum of money is kept with the petty cashier at the beginning of a period and reimbursed for payments made by him at the end of the period. Thus he will have a fixed amount in the beginning of new period. This book will have one column to record receipt of cash and other columns to record payments of various types of expenses. The totals of the various columns referring to different expense heads will be recorded and debited to the relevant account heads.

3. SALES BOOK:  A register kept specifically to record Credit Sales of goods dealt in by the firm. Cash Sales are accounted for in the Cash Book only. Credit Sales of things other than the goods dealt in by the firm are not recorded in the Sales Book i.e. sale of old equipment, furniture etc. Each Customer who has received goods from the firm is recorded separately in the Sales Book showing the amount owed by him.  The total of Sales Book shows the Credit Sales made during a period and the amount is credited to the Sales Account in the General Ledger.

4. SALES RETURNS OR RETURNS INWARD BOOK:  This book records any return of the goods sold to a customer. This book gives the total of the returns made by customers for the period. The total of the sales returns is debited to the Sales Account.

5. PURCHASES BOOK:  A register kept to record Credit Purchases of goods dealt in or of materials and stores used in the factory. Cash Purchases are recorded in the Cash Book only. Credit Purchases of things other than goods or materials are not recorded in the Purchases Book for e.g. Office Furniture, Typewriters, Machinery.

6. PURCHASE RETURNS OR RETURNS OUTWARD BOOK: This book records any return of the goods purchased to the supplier. This book gives the total of returns made during the period and the total of the purchase returns is credited to the Purchases Account.

7. TRADE DISCOUNT:  Discount which is allowed if the customer purchases goods above a certain quantity or above a certain amount.  The amount of purchase is always arrived after deducting the trade discount. No entry is made in the ledger accounts. The amount of trade discount is deducted from the Invoice.

8. CASH DISCOUNT:  Discount allowed on payment being made on or before a certain date.  An entry is made by opening a Discount Allowed or Discount Received ledger to record the cash discount. It is not deducted from the Invoice.

9. BILLS RECEIVABLE AND BILLS PAYABLE BOOK:  In cases where the firm receives a number of promissory notes then it will be convenient to record the transaction in a separate book - the bills receivable book and the same applies to promissory notes issued  and it is recorded in the bills payable book.

10. JOURNAL PROPER:  Records non cash,  non bank entries such as purchase of Fixed Assets, Drawing by proprietors, partners, Depreciation, Provision entries, Opening, Closing entries, Adjustment entries, and any other rectification entry.