Cash Book: Meaning and necessity MCQs Quiz | Class 9
This is an online MCQ quiz for Class IX Elements of Book-Keeping & Accountancy (Code 254), Unit 6: Recording and Posting of Cash Transactions. This quiz focuses on the topic of the Cash Book’s meaning and necessity. It covers key concepts such as why a cash book is maintained, the recording of cash transactions, and the concept of the bank column. Attempt all questions and click ‘Submit Quiz’ to see your score and download a PDF of your answers.
Understanding the Cash Book
The Cash Book is a fundamental book of accounts that records all transactions involving cash and bank. It is a special type of journal where cash and bank transactions are recorded chronologically. A unique feature of the Cash Book is that it serves a dual purpose: it is both a book of original entry (a journal) and a book of final entry (a ledger). This means that when a Cash Book is maintained, separate Cash and Bank accounts are not required in the general ledger.
Why is a Cash Book Maintained?
Maintaining a Cash Book is a necessity for almost every business for several key reasons:
- Real-time Balances: It provides the exact cash-in-hand and balance-at-bank at any point in time, which is crucial for managing day-to-day operations.
- Saves Time and Effort: By combining the functions of a journal and a ledger for cash/bank transactions, it reduces the workload of an accountant.
- Control Over Cash: It acts as an effective tool for controlling cash. Regular verification of the cash balance with the Cash Book balance helps detect errors or misappropriation of cash.
- Reduces Ledger Volume: It consolidates numerous cash transactions into one place, preventing the general ledger from becoming overly bulky.
Recording Cash and Bank Transactions
The Cash Book is structured like a T-account with two sides: the Debit (Dr.) side on the left and the Credit (Cr.) side on the right.
- Debit Side (Receipts): All cash and cheques received are recorded on the debit side. This follows the accounting rule: “Debit what comes in.”
- Credit Side (Payments): All cash and cheque payments are recorded on the credit side. This follows the rule: “Credit what goes out.”
The Bank Column Concept
A two-column or double-column Cash Book includes separate amount columns for ‘Cash’ and ‘Bank’ on both the debit and credit sides. The bank column functions exactly like a Bank Account.
- Deposits: When cash or cheques are deposited into the bank, the bank column is debited, as the bank balance increases.
- Withdrawals/Payments: When payments are made by cheque or cash is withdrawn from the bank, the bank column is credited, as the bank balance decreases.
Contra Entries: A contra entry is a transaction that affects both the cash and bank accounts simultaneously. For example, depositing cash into the bank increases the bank balance (Debit Bank column) and decreases the cash balance (Credit Cash column). Such entries are recorded on both sides of the Cash Book and are indicated by the letter ‘C’ in the Ledger Folio (L.F.) column. This signifies that no further posting is needed in the ledger.
Example Format of a Two-Column Cash Book
| Dr. (Receipts) | Cr. (Payments) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Date | Particulars | L.F. | Cash | Bank | Date | Particulars | L.F. | Cash | Bank |
Quick Revision Points
- Cash Book: A primary book for recording all cash and bank transactions.
- Dual Role: Acts as both a journal and a ledger.
- Debit Side: Records all receipts (inflows) of cash and cheques.
- Credit Side: Records all payments (outflows) of cash and cheques.
- Bank Column: Represents the business’s bank account. Debited for deposits, credited for payments.
- Contra Entry: A transaction involving both cash and bank accounts, recorded on both sides of the Cash Book.
- Balancing: The process of totaling both sides and finding the closing balance of cash and bank. The cash column can never have a credit balance.
Extra Practice Questions
- If a business owner withdraws cash from the bank for personal use (drawings), what account is credited in the Cash Book?
- What does a credit balance in the bank column of a Cash Book indicate?
- The entry for receiving a cheque from a customer and depositing it on the same day is a contra entry. True or False?
- Where would the transaction ‘Purchase of furniture for cash’ be recorded in the Cash Book?
- A cash discount received is recorded on which side of the three-column Cash Book?
