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Recording of Transactions – II – Class 11 Accountancy notes, important questions and MCQs

NCERT Class 11 Accountancy, chapter 4. Notes, key terms, important questions with answers and MCQs.

Chapter overview

When transactions are numerous, recording all of them in one journal is slow. So the journal is divided into special purpose books: the cash book and books for credit purchases, credit sales and returns. Transactions that do not fit any of these are recorded in the journal proper. This saves time, allows division of work and gives quick information.

Cash book

The cash book records all cash receipts on the debit side and cash payments on the credit side; it serves as both journal and ledger.
Types: simple (single column) cash book, double column cash book with cash and bank columns, and petty cash book.
A contra entry affects both cash and bank columns, such as cash deposited into the bank; it is marked 'C' in the folio column.
The petty cash book records small expenses; under the imprest system, the petty cashier is given a fixed amount, and the amount spent is reimbursed periodically.

Other special purpose books

Purchases book (purchases journal) records only credit purchases of goods.
Sales book (sales journal) records only credit sales of goods.
Purchases return book (return outwards) and sales return book (return inwards) record goods returned; debit notes and credit notes are their source documents.

Journal proper

Records entries such as opening entries, closing entries, adjustment entries, rectification entries and credit purchase or sale of assets.
Cash purchases of goods go to the cash book, not the purchases book; credit purchase of furniture goes to the journal proper.

Key terms

Cash book: a special book recording all cash receipts and payments, serving as journal and ledger
Contra entry: an entry affecting both cash and bank columns of the cash book
Imprest system: a system where the petty cashier gets a fixed sum and is reimbursed the amount spent
Purchases book: a book recording only credit purchases of goods
Journal proper: the book recording transactions that do not fit any special purpose book

Important questions with answers

What is a contra entry?2 marks

A contra entry is an entry in a double column cash book that affects both the cash and bank columns, such as cash deposited into the bank or cash withdrawn from the bank for office use. Both aspects are recorded in the cash book and marked 'C' in the folio column.

Explain the imprest system of petty cash.3 marks

Under the imprest system, the petty cashier is given a fixed amount, called the imprest, at the beginning of a period to pay small expenses. At the end of the period, the main cashier reimburses the amount actually spent, so the petty cashier again has the fixed amount. It controls small payments and reduces the work of the main cashier.

What are special purpose books? Explain their types and advantages.5 marks

Special purpose books are subdivisions of the journal in which transactions of a similar nature are recorded. The cash book records all cash receipts and payments; it may be a simple cash book, a double column cash book with cash and bank columns, or a petty cash book for small expenses kept under the imprest system. The purchases book records credit purchases of goods, while the sales book records credit sales of goods. The purchases return book records goods returned to suppliers, supported by debit notes, and the sales return book records goods returned by customers, supported by credit notes. Transactions that do not fit any of these books, such as opening and closing entries, adjustment and rectification entries, and credit purchase or sale of assets, are recorded in the journal proper. Special purpose books have many advantages. They save time because posting is done in totals; they allow division of work among several clerks; they make it easier to locate errors and check fraud; they give quick information, such as total credit sales; and the cash book serves as both a journal and a ledger.

Quick revision

Cash book: receipts debit, payments credit.
Contra entry marked C.
Purchases and sales books: credit goods only.
Journal proper for opening, closing, adjustment and rectification entries.

Exam tips

Ask two questions for each transaction: is it cash or credit, and is it goods or an asset; this tells you the right book.
Remember that debit notes go with returns outward and credit notes with returns inward.

Practice MCQs

The cash book records
1. only credit sales
2. all cash receipts and payments
3. only purchases of assets
4. only returns
Show answer
Answer: (b) all cash receipts and payments. It shows the cash balance.
The purchases book records
1. cash purchases of goods
2. all purchases
3. purchase of furniture on credit
4. credit purchases of goods
Show answer
Answer: (d) credit purchases of goods. Only credit goods.
Goods returned by customers are recorded in the
1. purchases return book
2. ledger only
3. cash book
4. sales return book
Show answer
Answer: (d) sales return book. It is also called return inwards.
Cash deposited into the bank is an example of
1. a compound entry
2. an opening entry
3. a contra entry
4. a closing entry
Show answer
Answer: (c) a contra entry. It affects both cash and bank columns.
Under the imprest system, the petty cashier is
1. given unlimited cash
2. never given cash
3. reimbursed the amount spent to restore a fixed sum
4. paid salary only
Show answer
Answer: (c) reimbursed the amount spent to restore a fixed sum. The float is kept fixed.
Purchase of machinery on credit is recorded in the
1. purchases book
2. cash book
3. journal proper
4. sales book
Show answer
Answer: (c) journal proper. It is not goods for resale.
A debit note is sent by the buyer when
1. goods are purchased on credit
2. goods are sold
3. goods are returned to the supplier
4. cash is paid
Show answer
Answer: (c) goods are returned to the supplier. It debits the supplier's account.
Why can the cash book never have a credit balance in its cash column
1. it is a liability
2. cash payments cannot exceed cash available
3. it is a nominal account
4. it records only credit
Show answer
Answer: (b) cash payments cannot exceed cash available. A bank column may show an overdraft.

All chapters of Class 11 Accountancy

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.