Recording of Transactions — II

The full picture

You already know that every transaction gets recorded in the journal. But imagine a busy textile shop in Surat that makes 200 cash transactions a day. Writing a full two-line journal entry for each one would be exhausting and error-prone. That is why accountants use subsidiary books — specialised journals where similar transactions are grouped together. Cash transactions go to the cash book, small routine payments go to the petty cash book, credit purchases go to the purchases book, and credit sales go to the sales book. At the end of the month, only the totals move to the ledger. The result: a cleaner ledger, fewer entries, and far less room for error.

The cash book is the most important subsidiary book. It records every cash receipt and cash payment the business makes. Think of it as a two-sided register: the left side (debit) captures money coming in — customers paying bills, fresh capital introduced — and the right side (credit) captures money going out — rent paid, salaries, goods purchased for cash. A single-column cash book has just one column on each side for cash. A double-column cash book adds a bank column so you can track cheque payments and deposits alongside cash. The triple-column cash book goes one step further and adds a discount column on each side — discount allowed (for customers who pay early) on the debit side, and discount received (from suppliers) on the credit side. Crucially, the cash book is both a subsidiary book and a ledger account — you never post the cash or bank columns separately.

The discount columns in a triple-column cash book deserve special attention because they work differently. They are called memorandum columns — they record useful information but do not represent actual cash movement. If your customer Ramesh owes ₹10,000 and you let him pay ₹9,500 because he settled early, the cash column shows ₹9,500 and the discount allowed column shows ₹500. No cash of ₹500 came in — it was simply waived. At the end of the month, you total all discount allowed entries and post that single total as: Dr Discount Allowed Account, Cr Debtors Account. Similarly, discount received totals are posted as: Dr Creditors Account, Cr Discount Received Account. One period-end entry covers all the individual discounts.

The petty cash book handles the small, everyday expenses that are too minor for the main cash book — a ₹30 envelope, a ₹150 printout, ₹80 for tea. Tracking each one in the main cash book would clutter it with trivial entries. Instead, a petty cashier is given a fixed amount of cash called the imprest — say ₹3,000 — at the start of the month. She pays for small items, collects receipts, and records each one under analysis columns (Postage, Stationery, Conveyance, Miscellaneous). When the balance runs low — say, down to ₹600 — she submits her receipts to the head cashier, who reimburses exactly ₹2,400 (the amount spent), restoring the float to ₹3,000. This imprest system keeps the float constant every period and prevents the main cash book from getting buried in small slips.

Purchases and sales books are used exclusively for credit transactions — deals where payment will happen later. When a pharmacy in Chennai buys medicines worth ₹80,000 from a wholesaler on 30-day credit, no cash changes hands on that day. This transaction belongs in the purchases book, not the cash book. Each entry in the purchases book records the date, supplier's name, invoice number, and amount. At month-end, the accountant totals all the entries and makes a single ledger posting: Dr Purchases Account, Cr Creditors Account. The sales book works identically for credit sales. Returns books (purchases returns book and sales returns book) record goods sent back, supported by debit notes and credit notes respectively.

Posting is the final step that connects subsidiary books to the ledger. Once a subsidiary book's totals are transferred to the relevant ledger accounts, the ledger holds a complete, organised record of every account — cash, debtors, creditors, purchases, expenses. From the ledger you can build a trial balance to verify arithmetic accuracy, and then a Profit and Loss Account and Balance Sheet. Understanding posting is not just an exam skill — it is the logic that makes all financial statements possible.

An Indian example

Priya runs a stationery and books shop in Kochi. On a typical Monday she collects ₹12,000 in cash from walk-in customers, deposits ₹8,000 into her bank account, pays ₹1,500 in cash to a courier company, and orders ₹25,000 worth of textbooks on credit from a Kochi distributor. She also buys ₹75 worth of tape and ₹120 of pens for the shop — tiny purchases she hands to her assistant Anu to manage. Priya records the ₹12,000 receipt and ₹1,500 courier payment in the cash book, the ₹8,000 deposit in the bank column of the same cash book, and the ₹25,000 textbook purchase in the purchases book (no cash left yet — the supplier will bill her at month-end). Anu logs the ₹75 and ₹120 in the petty cash book under Stationery. At month-end, Priya totals each book and posts only the totals to the ledger — one posting to Purchases Account, one to Creditors, one to Postage and Stationery. Her ledger stays neat, and when the CA asks for a trial balance, Priya can hand it over without scrambling through hundreds of loose receipts.

Key concepts covered

• Cash book (single/double/triple column)
• Petty cash book
• Purchases book, Sales book, Returns books
• Posting to ledger

Common misconceptions to watch for

• Students often think the petty cash book is just a smaller version of the main cash book. It is not — they serve completely different purposes. The main cash book records ALL cash and bank transactions of the business, big or small. The petty cash book records only minor day-to-day expenses below a threshold, managed by a separate petty cashier under the imprest system. Combining them would bury significant transactions in a sea of tea and postage receipts.
• Many students believe 'posting' means writing a transaction into a subsidiary book such as the purchases book. That is actually called recording an entry. Posting is the second, separate step: transferring the period-end total from the subsidiary book into the ledger account. For 40 credit purchases in a month, you record 40 times in the purchases book but post only once — a single total — to the ledger.
• Students often assume the discount columns in a triple-column cash book must be posted entry by entry because every discount affects profit. In fact, the discount columns are memorandum columns — they note information but hold no actual cash. Only the column total is posted to the ledger at period-end (Discount Allowed total debited; Discount Received total credited). There is no individual ledger entry per discount transaction.