Cash & Subsidiary Books – Financial Books AFM FREE STUDY MATERIAL | JAIIB 2024

In this article, we are providing you some important notes on the concept of Financial Books from the IIBF-prescribed syllabus applicable for Junior Associate of the Indian Institute of Bankers (JAIIB) MAY 2024 Exams. We have tried to explain the JAIIB concepts using layman’s language that we could use. So, if you liked the notes, let us know in the comment section whether you liked the JAIIB AFM notes or not & if there is some other topic, you might want notes from the AFM Syllabus 2024?

Let’s start with the 2024 JAIIB AFM Notes:

Cash Book

Cashbook is a record of all the transactions related to cash. Examples include expenses paid in cash, revenue collected in cash, payments made to creditors, payments received from debtors, cash deposited in a bank, withdrawal of cash for office use, etc.

In the double-column cash book, a discount column is included on both the debit and credit sides to record the discount allowed to customers and the discount received from creditors respectively.

In triple column cash book, one more column of the bank is included to record all the transactions relating to the bank.

Note: In modern accounting, a simple cash book is the most popular way to record cash transactions. The double-column cash book or three-column cash book is practically for academic purposes. A separate bank book is used to record all the banking transactions as they are more than cash transactions. These days, cash is used just to meet petty and routine expenditures of an organization. In most of organizations, the salaries of employees are paid by bank transfer.

Note: Cash book always shows debit balance, cash in hand, and a part of current assets.

Single Column Cash Book

Cash book is just like a ledger account. There is no need to open a separate cash account in the ledger. The balance of the cash book is directly posted to the trial balance. Since a cash account is a real account, a ruling is followed, i.e. what comes in – debit, and what goes out – credit. All the received cash is posted in the debit side and all payments and expenses are posted in the credit side of the cash book.

Format

Double Column Cash Book

Here, we have an additional Discount column on each side of the cash book. The debit side column of discount represents the discount to debtors of the company and the credit side of discount column means the discount received from our suppliers or creditors while making payments.

The total of discount column of debit side of the cash book is posted in the ledger account of ‘Discount Allowed to Customers’ account as ‘To Total As Per Cash Book’. Similarly, credit column of cash book is posted in the ledger account of ‘Discount Received’ as ‘By total of cash book’.

Format

Related Links:

Triple Column Cash Book

When one more column of Bank is added on both sides of the double-column cash book to post all banking transactions, it is called triple column cash book. All banking transactions are routed through this cash book and there is no need to open a separate bank account in the ledger.

Petty Cash Book

In any organization, there may be many petty transactions incurring for which payments have to be done. Therefore, cash is kept with an employee, who deals with it and makes regular payments out of it. To make it simple and secure, mostly a constant balance is kept with that employee.

Suppose the cashier pays Rs 5,000 to Mr. A, who will pay day-to-day organization expenses out of it. Suppose Mr. A spends Rs 4,200 out of it in a day, the main cashier pays Rs 4,200, so his balance of petty cash book will be again Rs 5,000. It is a very useful system of accounting, as it saves the time of the main cashier and provides better control.

We will soon discuss ‘Analytical or Columnar Petty Cash Book’ which is most commonly used in most of the organizations.

Format

Purchase Book

Purchase book is prepared to record all the credit purchases of an organization. The purchase book is not a purchase ledger.

Format

Sale Book

The features of a sale book are the same as a purchase book, except for the fact that it records all the credit sales.

Format

Purchase Return Book

Sometimes goods are to be retuned back to the supplier, for various reasons. The most common reason being defective goods or poor quality goods. In this case, a debit note is issued.

Format

Sale Return Book

The reason of the Sale return is the same as for the purchase return. Sometimes customers return the goods if they don’t meet the quality standards promised. In such cases, a credit note is issued to the customer.

Format

Bills Receivables Book

Bills are raised by creditors to debtors. The debtors accept them and subsequently return them to the creditors. Bills accepted by debtors are called ‘Bills Receivables’ in the books of creditors, and ‘Bills Payable’ in the books of debtors. We keep them in our record called ‘Bills Receivable Books’ and ‘Bills Payable Book’.

Format

JAIIB SYLLABUS PRIORITY

Bills Payable Book

Bills payable issues to the supplier of goods or services for payment, and the record is maintained in this book.

Format

Key Features of Subsidiary Books

There is a difference between a purchase book and a purchase ledger. A purchase book records only credit purchases and a purchase ledger records all the cash purchases in chronicle order. The daily balance of the purchase book is transferred to the purchase ledger. Therefore, the purchase ledger is a comprehensive account of all purchases.

The same rule applies to sale book and sale ledgers.

• It is quite clear that maintaining a subsidiary book is facilitation to journal entries, practically it is not possible to post each and every transaction through journal entries, especially in big organizations because it makes the records bulky and unpractical.
• Maintenance of subsidiary books gives us more scientific, practical, specialized, controlled, and easy approach to work.
• It provides us the facility to divide the work among different departments like sale department, purchase department, cash department, bank department, etc. It makes each department more accountable and provides an easy way to audit and detect errors.
• In modern days, the latest computer technology has set its base all over the world. More and more competent accounts professionals are offering their services. Accuracy, quick results and compliance of law are the key factors of any organization. No one can ignore these factors in a competitive market.

Bank Reconciliation

On a particular date, reconciliation of our bank balance with the balance of bank passbook is called bank reconciliation. The bank reconciliation is a statement that consists of:

• Balance as per our cash book/bank book
• Balance as per passbook
• Reason for the difference in both of above

This statement may be prepared at any time as per the suitability and requirement of the firm, which depends upon the volume and number of transactions of the bank.

In these days, where most of banking transactions are done electronically, the customer gets alerts for every transaction. The time to reconcile the bank is reduced more.

Format

Trial Balance

Trial balance is a summary of all the debit and credit balances of ledger accounts. The total of debit side and credit side of the trial balance should be matched. The trial balance is prepared on the last day of the accounting cycle.

Trial balance provides us a comprehensive list of balances. With the help of that, we can draw financial reports of an organization. For example, the trading account can be analyzed to ascertain the gross profit, the profit and loss account is analyzed to ascertain the profit or Loss of that particular accounting year, and finally, the balance sheet of the concern is prepared to conclude the financial position of the firm.

Format

Financial Statements

Financial statements are prepared to ascertain the profit or loss of the business and to know the financial position of the company.

Trading, profit & Loss accounts ascertain the net profit for an accounting period and the balance sheet reflects the position of the business.

All the above has almost a fixed format, just put all the balances of ledger accounts into the format given below with the help of the trial balance. With that, we may derive desired results in the shape of financial equations.

Owner’s Equity

The equation of equity is as follows:

Owner Equity = Assets – liability

The owner or the sole proprietor of a business makes investments, earns some profit on it, and withdraws some money out of it for his personal use called drawings. We may write this transaction as follows:

Investment (capital) ± Profit or Loss – drawings = Owner’s Equity

Current Assets

Assets that are convertible into cash within the next accounting year are called current assets.

Cash in hand, cash in bank, fixed deposit receipts (FDRs), inventory, debtors, receivable bills, short-term investments, staff loan and advances; all these come under current assets. In addition, prepaid expenses are also a part of current assets.

Note: Prepaid expenses are not convertible into cash, but they save cash for the next financial or accounting year.

Current Liabilities

Like current assets, current liabilities are immediate liabilities of the firm that are to be paid within one year from the date of balance sheet.

Current liabilities primarily include sundry creditors, expenses payable, bills payable, short-term loans, advance from customers, etc.

You might also be interested in:

GET IN TOUCH WITH US

To get offers on the JAIIB, CAIIB or other IIBF Certification Exams or Bank Promotion Exams, you can talk to us on our Whatsapp No.: 8360944207

For regular banking-related updates & free updates you can join us on:

• Telegram Channel: IIBF Telegram Group
• YouTube Channel: Learning Sessions
• Instagram: Learning Sessions

Types of Accounts – Accounting and Finance for Banking Study Notes 2024

All the Best for your Exams!

Team: Learning Sessions