Purpose of maintaining a cash book MCQs Quiz | Class 9
This is a multiple-choice quiz for Class IX students studying Elements of Book-Keeping & Accountancy (Code 254). This quiz is from Unit 6: Recording and Posting of Cash Transactions and covers topics like control of cash, maintaining a daily record, and the cash book’s role as a basis for ledger posting. Answer all 10 questions and click submit to see your score and download a PDF of your answers.
Understanding the Cash Book
The Cash Book is a fundamental book of accounts in any business. It serves a dual purpose: it’s both a book of original entry (a subsidiary book) and a book of final entry (a part of the ledger). Its primary function is to record all transactions involving cash receipts and cash payments. Maintaining it accurately is crucial for financial control and reporting.
Key Purposes of Maintaining a Cash Book
1. Effective Control of Cash
One of the most important reasons for maintaining a cash book is to establish strong control over cash. By recording every single cash transaction, a business can:
- Prevent Misappropriation: A detailed record makes it difficult for cash to be stolen or used for unauthorized purposes, as any discrepancy can be easily identified.
- Minimize Errors: Regular recording and balancing of the cash book help in the early detection of errors in receiving or paying cash.
- Verify Cash Balance: The balance as per the cash book can be physically verified with the actual cash in hand at any point in time, ensuring accountability.
2. Provides a Daily Record of Transactions
The cash book maintains a chronological (day-to-day) record of all cash inflows and outflows. This daily record is vital for several reasons:
- Up-to-date Information: It provides management with current information about the cash position of the business.
- Decision Making: Knowing the daily cash balance helps in making informed decisions about payments, purchases, and managing short-term funds.
- Traceability: It’s easy to trace any particular cash transaction back to its source on a specific date.
3. Acts as a Basis for Ledger Posting
The cash book simplifies the ledger-keeping process. Since it functions as a subsidiary book, individual cash transactions are not posted to the Cash Account in the general ledger. Instead, only the periodic totals are used, which serves two main functions:
- Reduces Ledger Work: It eliminates the need to open a separate Cash Account in the ledger, as the cash book itself serves this purpose.
- Simplifies Posting: For transactions recorded in the cash book, only the other aspect (e.g., Sales A/c, Purchases A/c, Ram’s A/c) needs to be posted to the respective ledger accounts. This saves time and reduces the chances of posting errors.
| Feature | Benefit | Related Purpose |
|---|---|---|
| Chronological Recording | Provides a complete history of cash flow | Daily Record |
| Debit (Receipts) & Credit (Payments) columns | Separates cash inflows and outflows clearly | Control of Cash |
| Regular Balancing | Allows for physical verification of cash | Control of Cash |
| Acts as a journal and ledger | Saves time and effort in the accounting process | Basis for Ledger Posting |
Quick Revision Points
- A cash book records only cash transactions. Credit transactions are recorded in other subsidiary books.
- It is a ‘book of original entry’ because transactions are first recorded here.
- It is also part of the ‘ledger’ as it serves the function of the Cash Account.
- The process of recording transactions in the cash book is called ‘casting’.
- Balancing the cash book involves finding the difference between total cash receipts and total cash payments.
Practice Questions
- What is a ‘contra entry’ and in which type of cash book does it appear?
- Explain why the cash book is often called a ‘Journalised Ledger’.
- If a business owner takes cash for personal use, how is it recorded in the cash book?
- Does a cheque received and deposited on the same day get recorded in the cash column or bank column of a two-column cash book?
- What is the primary difference between a Cash Book and a Cash Account?
