Journal, Ledger and Special Purpose Books
Journal to Ledger
The journal records transactions chronologically; the ledger groups transactions account-wise. Posting transfers the relevant debit and credit information from the journal or subsidiary books into individual ledger accounts.
Cash Book
A simple cash book records cash receipts and cash payments. A double-column cash book can include cash and bank columns. The petty cash book records small recurring payments such as postage, stationery and local conveyance.
Subsidiary Books
Purchases Book records credit purchases of goods. Sales Book records credit sales of goods. Purchases Return Book records returns to suppliers, while Sales Return Book records goods returned by customers. Journal Proper is used for transactions that do not belong in the specialised books.
Trade Discount vs Cash Discount
Trade discount is generally deducted from the list price before recording the transaction and is not separately recorded in the books. Cash discount is allowed for prompt payment and is recorded because it arises at the time of settlement.
Explained MCQs
- Where is a credit purchase of goods normally recorded?
Answer: Purchases Book.
Explanation: The Purchases Book is a special-purpose book for credit purchases of goods dealt in by the business. - Why is a ledger necessary when a journal already exists?
Answer: The ledger organises information account-wise and helps determine individual account balances.
Explanation: A journal tells the chronological story; the ledger shows the position of each account.
Practice
Prepare entries/books for: credit purchase of goods, credit sale of goods, return to supplier, return from customer, cash received and a small stationery payment. Identify the correct book for each transaction.