Prepare bank column cash book from the following transactions of M/s Laser Zone for the month of January 2014 and post them to the related ledger accounts.
Understand the Problem
The question is asking to prepare a bank column cash book from the given transactions for a specific month and to post these transactions to the related ledger accounts. This involves organizing the financial data into a structured format appropriate for accounting purposes.
Answer
Cash balance: $4,100$ Rs.; Bank balance: $-3,200$ Rs.
Answer for screen readers
Cash balance at the end of January: $4,100$ Rs.
Bank balance (overdraft): $-3,200$ Rs.
Steps to Solve
- Create a Cash Book Structure
Set up a cash book with the headings for dates, details, cash column, bank column, and total. There are two main sections: one for cash transactions and one for bank transactions.
- Enter Transactions in the Cash Column
For cash-related transactions:
- Jan. 01: Cash in hand: Add 4,000 Rs.
- Jan. 05: Wage paid: Subtract 400 Rs.
- Jan. 09: Purchased furniture for cash: Subtract 2,000 Rs.
- Jan. 11: Cash paid to Rohit: Subtract 2,000 Rs.
- Jan. 13: Cash sales: Add 4,500 Rs.
Sum the cash column: $$ 4000 - 400 - 2000 - 2000 + 4500 = 4100 Rs. $$
- Enter Transactions in the Bank Column
For bank-related transactions:
- Jan. 04: Bank overdraft: Subtract 3,200 Rs.
- Jan. 07: Purchased goods by cheque: Subtract 7,000 Rs.
- Jan. 14: Deposited into bank: Add 7,000 Rs.
- Jan. 16: Bank charged interest on overdraft: Subtract 200 Rs.
Sum the bank column: $$ -3200 - 7000 + 7000 - 200 = -3200 Rs. $$
- Total Both Columns
The total cash at the end of the month is 4,100 Rs. The balance in the bank is -3,200 Rs. which indicates an overdraft.
- Post Transactions to Ledger Accounts
Create ledger accounts for Cash, Bank, and any other accounts involved (such as Purchases, Sales, and Wages). Record each transaction as follows:
- Debit or Credit for cash transactions based on the cash book.
- Debit or Credit for bank transactions based on the bank column's effect.
Cash balance at the end of January: $4,100$ Rs.
Bank balance (overdraft): $-3,200$ Rs.
More Information
In preparing a cash book, all cash inflows are recorded as debits, and cash outflows are recorded as credits. A bank overdraft indicates that more has been withdrawn than is available in the bank account.
Tips
- Failing to differentiate between cash and bank transactions can lead to confusion.
- Not totaling the cash and bank columns correctly.
- Incorrectly recording debits and credits in the ledger accounts.
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