Maintenance of Cash/Subsidiary Books and Ledger
(How to Actually Write in the Books — Journal, Ledger & Cash Book)
Chapter 2 taught you the RULES. Now Chapter 3 teaches you HOW to write. Think of it like this: Chapter 2 taught you traffic rules, and Chapter 3 teaches you how to actually DRIVE the car! This is the most PRACTICAL chapter — 3 golden rules, journal entries, ledger posting, cash books, and petty cash.
Banky Finally Opens the Account Books! 📖
Banky knows what accounting is (Ch 1) and what rules to follow (Ch 2). But when his manager says “Pass a journal entry for this deposit,” Banky freezes! Which account to debit? Which to credit? This chapter gives him the 3 GOLDEN RULES that unlock EVERY transaction!
Why is This Chapter So Important?
Because EVERY transaction you handle at the bank is a journal entry!
Exam Gold
5–8 questions! Golden rules, journal entries, cash book types, contra entry, petty cash. The MOST practical and most asked chapter!
Daily Work
Every voucher, every day-end cash balancing, every reconciliation — uses these fundamentals. Auditors will ask you these questions!
Life Skill
Even maintaining your household budget is like a cash book — money coming in on one side, money going out on the other!
Real Bank Scenario
What Will You Learn?
Key Words — Explained With Chai Stall Examples 🍵
| Type of Account | DEBIT this | CREDIT this |
|---|---|---|
| Personal (people/companies) | The person who RECEIVES | The person who GIVES |
| Real (things/assets) | What COMES IN | What GOES OUT |
| Nominal (expenses/incomes) | All EXPENSES & LOSSES | All INCOMES & GAINS |
How to use: For EVERY transaction, ask yourself 3 questions: (1) Which 2 accounts are involved? (2) What TYPE is each account — Personal, Real, or Nominal? (3) Apply the golden rule for that type. Done!
PERSONAL ACCOUNTS (People & Companies): Three sub-types: (a) Natural — real people like Mohan, Sita, your customer Rajesh. (b) Artificial — companies and organisations like SBI, Tata, LIC, your local club. (c) Representative — when one account REPRESENTS many people. Example: “Rent Outstanding A/c” = represents all landlords you owe rent to. “Salary Prepaid A/c” = represents employees you’ve already paid in advance.
REAL ACCOUNTS (Things/Assets): Two sub-types: (a) Tangible — things you can TOUCH: land, building, furniture, cash, stock. (b) Intangible — things you CAN’T touch but have value: goodwill, trademarks, patents.
NOMINAL ACCOUNTS (Expenses & Incomes): These don’t really “exist” as things — they explain WHY money was spent or earned. Examples: Salary, Rent, Wages, Commission, Interest Received, Discount Allowed.
In simple words: The journal is like your personal diary. Every day, you write what happened — in DATE order. “1st Jan: Bought goods from Ram ₹5,000. 6th Jan: Sold goods to Madhav ₹4,000.” Each entry has 5 parts: Date, Particulars (debit account first with “Dr.”, then “To” credit account + a short description called “narration”), LF (ledger page number), Debit amount, Credit amount.
The process of writing in a journal is called “Journalising.” Journal is the book of FIRST or ORIGINAL entry. It’s more reliable than the ledger because it’s the original record.
In simple words: The journal has everything mixed up in date order. The ledger ORGANISES it. All transactions with Mohan go to “Mohan’s Account.” All cash transactions go to “Cash Account.” Each account has two sides: LEFT = Debit side. RIGHT = Credit side. We use “To” on the debit side and “By” on the credit side.
Moving entries from journal to ledger is called “Posting.” The ledger is the book of SECOND entry (journal was first). At the end, you BALANCE each account — total both sides, find the difference, and carry it forward.
Balancing: Debit total > Credit total = Debit Balance (write “By Balance c/d” on credit side). Credit total > Debit total = Credit Balance (write “To Balance c/d” on debit side). Then bring it down to the next period: “To Balance b/d” or “By Balance b/d.” c/d = carried down (closing). b/d = brought down (opening).
In simple words: The cash book is special. It acts as BOTH a diary (journal) AND an organised account (ledger). All cash received goes on the LEFT (debit) side with “To.” All cash paid goes on the RIGHT (credit) side with “By.” Since it IS the cash account, you don’t need a separate cash account in the ledger.
Cash book ALWAYS has a DEBIT balance — because you can never pay out more cash than you have!
3 Types: (1) Single Column — just cash, simple. (2) Double Column — cash + discount. The discount column is just a MEMO column (not a real ledger account). Discount allowed (debit side) = discount you gave to customer. Discount received (credit side) = discount supplier gave you. (3) Triple Column — cash + discount + bank. Most complete. Bank column follows personal account rules.
In simple words: You take ₹10,000 from your cash drawer and deposit it in the bank. What happens? Cash goes OUT (credit cash column). Bank RECEIVES (debit bank column). Same cash book, opposite sides! This special entry is called a Contra Entry and we write “C” in the LF column (instead of a page number) to mark it. Similarly, withdrawing cash from bank: Debit cash column, Credit bank column. Contra entries exist ONLY in the triple-column cash book.
In simple words: Every office has small expenses — ₹10 for postage, ₹25 for auto, ₹30 for tea. Recording these in the main cash book would make it messy. So a Petty Cashier is given a small amount (say ₹200) to handle these. At the end of the week/month, he shows all receipts and gets EXACTLY what he spent back. So he starts the next period with ₹200 again. This is the Imprest System.
Example: Start with ₹200. Spend ₹167 on small items. Show vouchers. Chief cashier gives back ₹167. Balance = ₹200 again. Always starts fresh!
Two types of petty cash books: Simple (just one column for all payments) and Columnar (separate columns for postage, tea, conveyance, stationery — easier to track by category).
The Full Chapter — As Simple As Possible
📝 Part 1 — The 3-Step Accounting Cycle
Every business follows the same 3 steps:
Step 1 — RECORD (Journal): As soon as something happens, write it down in the journal. “Bought goods from Ram ₹5,000.” This is like taking attendance — note it immediately!
Step 2 — CLASSIFY (Ledger): Take each journal entry and POST it to the right ledger account. All Ram’s transactions go to Ram’s account. All cash transactions go to Cash account. This is like putting each student’s marks into their individual report card.
Step 3 — SUMMARISE (Trial Balance → P&L → Balance Sheet): At the end of the period, balance all accounts, check if total debits = total credits (Trial Balance), calculate profit/loss (P&L), and show assets vs liabilities (Balance Sheet). This is like the principal checking all report cards and preparing the school’s annual results.
⭐ Part 2 — The 3 Golden Rules in Real Life
Let’s see how these rules work with everyday examples:
🍵 Example 1 — Bought tea leaves from Sharma ji for ₹500 on credit: Two accounts: Purchases (Real — goods COME IN) + Sharma ji (Personal — he GIVES goods). Rules: Real = debit what comes in. Personal = credit the giver. Entry: Purchases A/c Dr. ₹500 | To Sharma ji A/c ₹500.
💰 Example 2 — Received ₹300 cash from customer Priya: Two accounts: Cash (Real — cash COMES IN) + Priya (Personal — she GIVES money). Rules: Real = debit what comes in. Personal = credit the giver. Entry: Cash A/c Dr. ₹300 | To Priya A/c ₹300.
🏠 Example 3 — Paid rent ₹2,000 in cash: Two accounts: Rent (Nominal — it’s an EXPENSE) + Cash (Real — cash GOES OUT). Rules: Nominal = debit expenses. Real = credit what goes out. Entry: Rent A/c Dr. ₹2,000 | To Cash A/c ₹2,000.
🎯 Quick Tips: If a person’s name is mentioned but “cash” is not mentioned → it’s a CREDIT transaction. If no person’s name and no “received/paid” → it’s a CASH transaction. The word “paid” or “received” = cash is involved.
📖 Part 3 — Journal to Ledger: The Connection
Journal is the DIARY. Ledger is the FOLDER SYSTEM. The journal writes everything in date order. The ledger organises the same information by ACCOUNT.
How to post from journal to ledger: If an account is DEBITED in the journal → post it to the DEBIT side of that account in the ledger. If CREDITED in journal → post to CREDIT side in ledger. On the debit side, write “To [other account].” On the credit side, write “By [other account].”
What does a balance MEAN? Debit balance in Personal account = that person OWES you (debtor). Credit balance in Personal account = you OWE that person (creditor). Debit balance in Real account = you HAVE that asset. Nominal accounts are NOT balanced — they’re transferred to P&L at year-end.
💰 Part 4 — Cash Book Types & Petty Cash
Single Column Cash Book: Like a basic notebook — just two columns: money received (left/debit) and money paid (right/credit). Simplest possible.
Double Column Cash Book: Adds a DISCOUNT column on each side. Left side discount = discount you ALLOWED to customers (they paid less). Right side discount = discount you RECEIVED from suppliers (you paid less). Important: discount columns are just MEMO columns — their totals are posted to the ledger separately.
Triple Column Cash Book: The full version! Cash + Discount + Bank. Bank column follows personal account rules (bank = artificial person). When you deposit cash into bank: DEBIT bank column (bank receives), CREDIT cash column (cash goes out). This is a Contra Entry marked with “C.” When you withdraw from bank: DEBIT cash, CREDIT bank.
Petty Cash Book: For tiny expenses. Simple type: just one payment column. Columnar type: separate columns for each type of expense (postage, tea, conveyance, stationery). Imprest System: Get a fixed amount → spend → show receipts → get back exactly what you spent → start fresh with the same amount.
5 Goods Accounts: Don’t write “Goods A/c.” Use specific names: (1) Purchases A/c, (2) Sales A/c, (3) Purchase Return A/c (or “Returns Outward”), (4) Sales Return A/c (or “Returns Inward”), (5) Stock A/c.
Exam-Ready Points
🎯 Remember These — Your Exam Depends On It!
- 3 Golden Rules: Personal → Debit receiver, Credit giver. Real → Debit what comes in, Credit what goes out. Nominal → Debit expenses & losses, Credit incomes & gains.
- Personal Accounts: Natural (real people), Artificial (companies/banks/clubs), Representative (outstanding/prepaid accounts)
- Real Accounts — Tangible: Land, building, furniture, cash, stock. Intangible: Goodwill, trademarks, patents
- Goodwill & Trademarks = REAL account (intangible). NOT nominal! (Very common exam trap!)
- Any company’s account = Artificial PERSONAL account
- Rent Outstanding = Representative PERSONAL account
- Journal = Book of FIRST entry. Chronological (date order). More reliable than ledger. 5 columns.
- Ledger = Book of SECOND entry. Analytical (by account). T-format. “To” on debit, “By” on credit.
- “Posting” = Transferring entries from journal to ledger
- “Journalising” = Writing entries in the journal
- Cash Book = Both journal AND ledger. Always DEBIT balance. No separate cash account needed in ledger.
- Discount column = Memorandum column only — NOT a ledger account. Totals posted to ledger at period-end.
- Contra Entry = Cash ↔ Bank transfer. Both sides of cash book. Marked “C” in LF. Only in triple-column cash book.
- Deposit to bank: Debit Bank column, Credit Cash column
- Withdraw from bank: Debit Cash column, Credit Bank column
- Imprest System = Fixed advance to petty cashier. Spent amount replenished. Starts fresh every period.
- c/d = Carried Down (closing balance). b/d = Brought Down (opening balance)
- Debit balance: Personal = debtor. Real = asset. Nominal = expense.
- Credit balance: Personal = creditor. Nominal = income.
- Nominal accounts: NOT balanced. Transferred to Trading/P&L at year-end.
- Opening Entry: Debit all assets, Credit all liabilities + capital (carry forward from last year)
- Compound Entry: Multiple debits OR credits in one entry. Total debits MUST = total credits.
- Credit transaction clue: Person’s name given + no mention of cash = credit. No name = cash transaction.
- Cash receipts: “To” in particulars column. Cash payments: “By” in particulars column.
- Returns Inward = Sales Return. Returns Outward = Purchase Return.
📝 Past Exam Questions
Memory Tricks — Stick Forever!
🧠 Trick 1 — 3 Golden Rules
Real = “WHAT comes? WHAT goes?”
Nominal = “EXPENSE or INCOME?”
🧠 Trick 2 — P-R-N Accounts
R = RESOURCES (things in your room 🏠)
N = NAMES for money flow (reasons 💸)
🧠 Trick 3 — Journal vs Ledger
Journal = Junior (First) 📓
Ledger = Later (Second) 📁
🧠 Trick 4 — Cash Book = 2-in-1
Citizen of Journal Land +
Citizen of Ledger Land!
Left = RECEIVE (To) | Right = PAY (By)
🧠 Trick 5 — Contra Entry
Same money, different pocket!
Deposit = Dr Bank, Cr Cash
Withdraw = Dr Cash, Cr Bank
Mark “C” in LF column!
🧠 Trick 6 — Imprest System
Start ₹200 → Spend ₹167 →
Mom gives back ₹167 →
Start again with ₹200!
ALWAYS same opening amount!
🧠 Trick 7 — Balancing (c/d & b/d)
b/d = “Brought Down” = GOOD MORNING! ☀️
Debit balance = Asset/Debtor
Credit balance = Liability/Creditor
🧠 Trick 8 — 5 Goods Accounts
P-S-PR-SR-St
Purchases | Sales | Purchase Return |
Sales Return | Stock
The Whole Chapter in One Picture
Last-Minute Flash Cards
Read these 10 minutes before exam and walk in confident!
⚡ Chapter 3 Done! Everything in 8 Lines:
- 3 Golden Rules: Personal (Receiver/Giver) | Real (In/Out) | Nominal (Expense/Income)
- 3 Account Types: Personal (Natural/Artificial/Representative) | Real (Tangible/Intangible) | Nominal (Exp/Inc)
- 3-Step Cycle: Record (Journal) → Classify (Ledger) → Summarise (TB → P&L → Balance Sheet)
- Journal = 1st entry (diary). Ledger = 2nd entry (folders). Posting = moving journal entries to ledger.
- Cash Book = 2-in-1 (journal + ledger). Always debit balance. 3 types: Single, Double, Triple.
- Contra Entry: Cash ↔ Bank. “C” in LF. Triple column only. Deposit = Dr Bank, Cr Cash.
- Imprest System: Fixed float → spend → show receipts → get refilled → start fresh. Like pocket money!
- Balancing: c/d = carried down (close) | b/d = brought down (open) | Nominal accounts → P&L, not balanced.
Banky says: “3 golden rules = I can now pass ANY entry at the bank! WHO gets/gives, WHAT comes/goes, WHY was money spent/earned. So simple!” 🎉📖
You’ve mastered the practical tools of accounting — journal, ledger, cash book, golden rules. Every voucher, every day-end, every reconciliation — you’re equipped! Next: Chapter 4 — Bank Reconciliation Statement! 💪