THE CASH BOOK In connection with the study of the elementary principles of double entry bookkeeping up to this point, practice has been given in the use and function of only the two elementary books of record, the journal and the ledger. Other books of original entry by means of which the classification of transactions into books kept for a special purpose may be effected will now be studied and adopted for use. In other words, we are now ready to leave the field of the theory of bookkeeping and begin to apply the principles learned to systems and methods of bookkeeping which correspond more nearly to those found in practice. The first book to be studied in this connection is the cash book. This is a book in which all cash receipts and payments are recorded, thereby providing a complete record of all transactions involving cash, entirely separated from transactions of other types. When a cash book is used, no entries are made in the journal for cash transactions, although the same principles of debit and credit apply to an entry made in the cash book as would apply to a journal entry for the same transaction. In practice, the cash book is usually the most important book of original entry and is in many cases the only book of account. This is true of many single entry systems where the only reason for keeping books is the necessity of having a record of all cash receipts and disbursements. The cash book in its simplest form is a double-page book, with ruling quite similar to that of the journal, all cash receipts being recorded on the left-hand, or debit, side of the book, and all payments on the right-hand, or credit, side. Thus when cash is received, let us say, from a customer, to apply on account, cash is automatically debited by making the entry on the debit side, and therefore the only part of the entry which needs to be written is the name of the customer who is entitled to credit. The same reasoning applies to an entry made on the credit side of the cash book. At any time, the difference between the totals of the debit and credit sides of the book shows the cash balance. The proof of accuracy is that this balance should exactly equal the cash on hand both in the bank and in the drawer or safe. The cashier or bookkeeper proves his cash at least once a day, and if the volume of cash handled is sufficiently large, it may be advisable to do so several times during the day. It is generally desirable to make a permanent record of the final daily proof of cash, many cashiers having regular books in which such a proof is recorded. The following gives the form which such a proof may take: It is customary to balance the cash book at the close of each month. At this time, the total receipts for the month are posted in one amount to the debit side of the Cash account; the total disbursements are likewise posted in one amount to the credit side of the Cash account. The items in the "Account Credited" column on the debit side are posted to the credit of the proper accounts, and the items in the "Account Debited " column are posted to the debit of the accounts. In closing the book the balance of cash is entered on the credit side on the first blank line, in red ink, the book is ruled, both pages being ruled on a level, and the balance is carried down below the ruling and entered, in black ink, in the "Total" column under the first day of the succeeding month. A model of a simple form of cash book is given on pages 78 and 79, showing the headings of the columns on both sides, the arrangement of the entries, explanations, and amounts, and the balancing of the book. Exercise Design a cash book and record in it entries for all cash transactions of the preceding work in the months of February and March. In preparing the exercise, select from the February and March journal all entries in which cash has been debited and credited, making the proper cash book entries therefor, with appropriate explanations. Use a single sheet of journal paper, following the model on pages 78 and 79. The headings of the columns should be lettered. Close the cash book at the end of each month and bring down the balance. In PURCHASES AND SALES RECORDS THE PURCHASES JOURNAL any business in which goods are being purchased regularly and in fairly large amounts, a purchases journal or purchases book is necessary in order to provide a further classification of the transactions and to insure a better system of accounts. There are various ways of recording purchases, ranging all the way from the old-type invoice book to a voucher register. The old-style invoice book was a book in which the incoming invoices were pasted in the order in which they were received and from which postings were made. While such a method would do very well in case but few invoices are received, under any other conditions it has numerous disadvantages. The voucher register for recording purchases and expenses is the principal book of record used in connection with a voucher system of accounts, and its workings will be explained in one of the sets in the advanced course. A simple form of purchases book, but one which is thoroughly practical and entirely satisfactory in a trading business of moderate size, is presented at this time. The following illus trates the form of such a book with a series of entries recorded therein, and shows the closing of the book at the end of the month: 19 May ADDRESS TERMS J. A. Lewisklo. 18 37 North St, City 1/30, 1/60 May 31 May 30 1/10, 1/30 1157 500 15 27560 7/30 June 27 41850 When the invoice is received, it is entered as shown above. The date on which the invoice should be paid is entered in the "When Due" column; in case the terms give the purchaser a choice of payment, the date entered is the one on which the bill should be paid to get the benefit of the best term offered. At the end of the month the amount column is footed and the total posted to the debit of the Purchases account. At the same time, or from time to time during the month, if desired, the individual items are posted to the credit of the firm from whom the goods were bought. The double entry feature of the book is thus clearly brought out; the total purchases for the month posted to the debit of Purchases is exactly balanced by posting the individual purchases to the credit of the individual accounts. SALES JOURNAL The sales journal or sales book is the counterpart of the purchases journal and, as its name indicates, is a special book of original entry in which sales are recorded. Originally bills were made out in longhand and then copied into the sales journal, but this method has been almost entirely given up because of the needless duplication of work, and the increasing possibility of error. The common practice is to make out the bills in duplicate, either on the typewriter or on a billing machine, the original being sent to the customer and the duplicate being filed in some suitable binder. As the duplicate bill contains all details regarding the sale, including items, selling prices, etc., the sale does not need to be itemized when entered in the sales journal, but instead only an abstract of the bill is entered, similar to the entry made in the purchases journal for an invoice of goods purchased. In a wholesale business, a separate bill is usually rendered at the time of sale, covering each sale, the entry in the sales journal being made at the same time. In a retail business, the usual practice is to issue a sales ticket or sales memorandum covering daily sales, rendering a monthly bill covering all sales for the month. The following illustrates a form of sales journal suitable for a wholesale business which renders a bill covering each sale, the billing being done in duplicate on the typewriter. At the close of the month, the sales journal is closed, as shown above; the total sales are posted to the credit of Sales, and the individual items are posted to the debit of their respective accounts. In practice, the postings to the customers' accounts would in all probability be made from day to day. Exercises 1 Design a purchases journal on a sheet of journal paper according to the model given on page 80, and record in it the invoices of goods bought during March, pages 48-50. Close the book at the end of the month. 2 Design a sales journal on a sheet of journal paper according to the model given on page 81, and record in it the sales for the month of March. Close the book at the end of the month. 3 If other preliminary practice is needed in purchases and sales journals, design such books and enter therein the purchases and sales in Exercises, pages 132-136. CASH BOOK WITH SPECIAL COLUMNS NOTE. The study of this book may be deferred, at the discretion of the instructor, until after the April work has been completed. The simple form of cash book illustrated and explained on pages 77, 78, and 79 is one which is readily learned and which would be satisfactory in a small business or institution. In practice, however, where the cash transactions are numerous and admit of classification, the cash book is provided with one or more special columns to accommodate certain types of transaction to be recorded in it. In mercantile bookkeeping, where cash discounts are allowed by creditors and to customers, and where notes are discounted at the bank, the elementary cash book has certain disadvantages, due to the fact that it is necessary to show the full amount of the bill or invoice or |