Types of Petty Cash Book

Simple Petty Cash Book
Simple petty cash book is same as single cash book where only one amount column is maintained in each side of such cash book. Amount received from head cashier is entered on the debit side of cash book and all the petty payments made by petty cashier are recorded in  credit side. Finally, the balance amount is found out.

Analytical Petty Cash Book
Under this system of cash book, a separate column is provided for each type of petty expense in the credit side of cash book. However debit side columns are same as simple column cash book. Number of columns of such petty expenses depends upon the volume of petty transactions. When there is large number of transactions, only most common petty expenses are assembled in the 'miscellaneous expenses' column.

Petty Cash Book

In an organization, there are many petty expenses to be paid in small amount. Taxi fare, cartage, postage and stamps, stationery etc. are some petty expenses for which it is not practicable to issue cheques. On the other hand, it will become very bulky if all these payments are entered in the cash book. Therefore, a petty cashier is given a certain sum of money to make such small payments and s/he enters them in a petty cash book.

Advantages of Petty Cash Book:

1. Main cashier can utilize his/her time to important work since the petty expenses are recorded by petty cashier.
2. It reduces the use of cheques and also avoids the inconvenience of issuing cheques for small payments.
3. There are lesser chances of frauds and errors of all petty expenses due to the regular checking of petty cash book by head cashier.

Imprest System of Petty Cash Book

The work 'imprest' means 'advance amount' given to certain person to make petty payments. It is a system of petty cash book where a person (petty cashier) is given a fixed amount in the beginning of the month or week. He is supposed to make all small payments of petty expenses. At the end of the period say month or week, the vouchers are checked by head cashier and petty cashier is paid as much as he has spent during the period so that he will have the same amount as he had at the beginning of the first period.

Usual Terms Relating to Purchase Book

1. Invoice: Purchase book is prepared on the basis of a statement which is called as an invoice. It consists the details of quantities and prices of materials or goods purchased. It also shows the discount allowed and the terms and conditions of payment. An invoice is written or printed document sent by seller to buyer which contains the following components.

• Quantity of goods.
• Rate per unit and the total amount of goods.
• Quality, brand and size of goods.
• Amount of discount allowed.
• Means and mode of transport etc.

2. Trade Discount: Trade discount is a deduction allowed from the invoice or list price of the goods. It is deducted from the invoice and allowed by the supplier to the retailers if they purchase goods more than a certain quantity or certain amount. A certain percentage of gross amount of purchases is considered as trade discount.

Purchase Book

Purchase book is also known as Purchase Journal or Bought Book or Purchase Day Book or Invoice Book. It is used for recording all credit purchases of goods, meant for resale. Cash purchases are not recorded in this book. Cash purchases are entered in the cash book. Moreover, credit purchase of assets for the business are also not entered in this book. For instance, purchase of a motorbike on credit by a cloth-seller is not recorded in the purchase book whereas the same credit purchase by a motorbike dealer must be recorded in his purchase book.

Features of Purchase Book:

1. Only credit purchase of goods are recorded.
2. Those goods purchased on credit must be for re-sale.
3. Cash purchases are not recorded.
4. Asset purchases are also not recorded.

Importance of Purchase Book:

1. To know the total credit purchase of goods.
2. To know goods purchased from various supplier and the amount due to them.
3. To make easier for the preparation of trading account.
4. To save time and money for recording it.

Importance or Objectives or Advantages of Subsidiary Books

1. Saving of Time and Labor: If all the transactions of similar nature are recorded together in a separate book, a considerable amount of labor and time can be saved. There is no need of preparing journal for each transaction with its narration. In other hands, different subsidiary books may be prepared by different clerks so that all the transactions are entered in subsidiary immediately as they occur. For example, many credit purchases of all the day can be recorded in purchase book as a single entry.
2. Divisions of Works: Recording of transaction in subsidiary books can be performed by different clerk as per nature of subsidiary books. It means a person may be employed to record the purchase on credit whereas another may be for credit sales. Thus, it introduces the division of labor. Division of labor increases the work efficiency of labors. The working labors have the specialization on their job.
3. Quick Access to Information: Since the transactions relating to one particular head are recorded in a separate book, it is easy to get any type of information in detail.
4. Possibility of Internal Check: Different subsidiary books may be maintained by different clerks and the balance of a subsidiary book determined by a clerk also may be recorded by another clerks while posting into ledgers and preparing trial balance. Thus, error or fraud committed by one may be checked by another.

Subsidiary Book

Some transactions like credit purchase, credit sales, return of goods purchased, return of goods sold, bills receivable, bills payable, cash paid and received etc are occurred so many times in a day. To enter such repetitive transactions in a journal consumes more labor, time and money. When the business transactions are numerous, one person may not be able to maintain all the books of accounts himself. Recording of all the books of accounts himself. Recording of all transactions in a journal can not avail the classified information of a particular transaction, say information about purchase, information about sale etc. Thus, transactions relating to one particular head are recorded in a separate book. In other words, a separate book is maintained to record the similar transactions which are called "Subsidiary Books". It is also called as "Special Journals" or "Sub-Division of Journal" or "Day Book".

In the modern book-keeping, the repetitive or routine transactions are recorded in subsidiary books and the occasional transactions which occur in a long time interval are recorded in a general journal. Purchase Book, Sales Book, Sales Return Book, Purchase Return Book etc are some subsidiary books.

Kinds of Accounting System Used in Nepal

1. Shyaha: Shyaha is like as original records of the transactions. It can be compared with journal voucher of double entry system. Shyaha was useful to record government expenditures and incomes. Shyaha is prepared in English alphabet "T". A leaf was folded in 16, 24, 32 or 36 creases as per requirement of the office to record the different heads of expenses and revenues. On the right hand side of a Shyaha, all the expenses were recorded and all revenues on the left-hand side. At the close of the day, both sides of Shyaha are totaled and underlined which is called 'Terij'. Again, the grand total is found by adding to the total amount up to the previous day with current day's amount. It is called 'Berij'. A Shyaha was either closed at the end of each month or at the end of the fiscal year. Shyaha could be divided into following further three types;

• Nagadi Shyaha - prepared for cash transaction.
• Jinsi Shyaha - prepared for properties.
• Dharauti Shyaha - prepared to record the amount deposited by public.

2. Awarje: Awarje was another important book maintained under Shyaha Srestha Pranali. It was like ledger kept under double entry system. In this book, all the transactions were classified under different heads of revenues and expenditures. It was prepared on the basis of Shyaha. Awarje had the following categories:

• Income Awarje: It was prepared to record and classify the government revenues. Income Awarje were further classified into Regular Income Awarje and Irregular Income Awarje.
• Binjalik Awarje: It recorded and classified the government expenditures.

3. Dhapot: Dhapot can be compared with modern balance sheet. It presented summary of government financial position of a certain period. There were the following three types of Dhapot used in the Shyaha Srestha Pranali.

• Job End Dhapot: It was that kind of Dhapot which was prepared at the end of job or after the completion of project work.
• Month End Dhapot: It was prepared at the end of each month.
• Year End Dhapot: If the Dhapot was prepared at end of each fiscal year, it was called Year End Dhapot.
  

Kinds of Accounting System Used in Nepal

1. Wasil Banki Srestha Pranali: This is a simple book or statement of recording of government revenue and expenditure. It was suitable to those offices which were established for short period or which had a small number of financial transactions. It was based on single entry system where the revenues were recorded on one side of the page and expenditures on the other side. Therefore, it was easy to find the total amount of expenditures and incomes. Under this system, books are closed either at the end of the fiscal year or at the completion of work. This system was failed to analyze the transactions into a number of heads.
2. Shyaha Srestha Pranali: In the historical development of accounting in Nepal, Shyaha Sresta Pranali is an important system, which was found by Kharidar Gunawanta in about 1936 B.S. It was more systematic than Wasil Banki System. Under this system, both expenditures and revenues could be recorded on the same leaf and their total and balances also could be shown on the same leaf when required.
   

Single Entry System

As we have already mentioned the concept of double entry system which includes two aspects i.e. debit and credit. But under single entry system, only records of cash and of personal account are maintained.It records only one aspect of every transaction, therefore, it is often called as an incomplete system of recording transactions. In single entry system, accounts relating debtors, creditor and cash are prepared. However, it ignores all impersonal accounts like salaries, wages, sale, purchases etc. In other words, it maintains a cash book and personal account but does not record nominal and real accounts. For example, if goods are purchased from a supplier on credit, his personal account is credited but no entry is made on the debit side of the goods account.

Features of single entry system

1. It is maintains only accounts relating to person but ignores the real and nominal accounts.
2. It also prepares the cash book but both personal or business cash transactions are recorded in same book.
3. It is suitable to small traders having lesser number of transactions.
4. It lacks the specific rules of maintaining books of accounts, as a result there is no uniformity in accounts of different firms.
5. Trial balance cannot be prepared under this system.
   

Preparation of Balance Sheet

balance sheet of a non-trading organization is prepared in the same manner as the balance sheet of a business concern by showing assets on the right hand side and liabilities on the left hand side. It is prepared on the basis of last year's balance sheet, receipts and payment account, stock register kept for assets and the income and expenditure account. The following points should be noted while preparing balance sheet.

• Capital Fund: The capital fund represent the excess amount of assets over the liabilities. It is determined by preparing opening balance sheet at the beginning of the year.
• Surplus or Deficit: The surplus amount taken from income and expenditure account is added to the capital fund while preparing balance sheet at the end of yea. On the other hand, the amount of deficit is deducted from capital fund.
• Cash and Bank Balance: The closing balances of cash and bank are shown on the assets side of balance sheet. However, opening balances are ignored.
• Assets: Assets of opening balance sheet or last year are shown on the assets side of closing balance sheet. If there is any addition in current yea, it must be added and in case of sale, it is deducted. The depreciation made during the year is also adjusted in fixed assets.
• New Assets: In case of purchase of any new assets, it is required to show on the assets side of balance sheet.
• Liabilities: Outstanding expenses, advance income etc. are shown on the liability side of balance sheet. Previous year's liability should be adjusted for payments made.
• Special Receipts: Special receipts are shown in balance sheet after making necessary adjustments.
  

Preparation of Income and Expenditure Account

Income and expenditure account is prepared on the basis of receipt and payments account or trial balance. The following steps are followed to prepare an income and expenditure account from a receipts and payments account.

1. Ignore the opening and closing balance of cash in hand and at bank available in the receipts and payments account. The closing balance of cash and bank will be shown in the balance sheet.
2. Take only the revenue receipts and revenue payments and do not include the portions to previous and subsequent years.
3. Ignore all the capital receipts and capital expenditures.
4. Add the amount of incomes pre-received in the previous year on account of current year.
5. Add the amount of incomes of the current year but due to receive.
6. Add the amount of expenses prepaid in the previous year on account of current year.
7. Add the amount of expenses of current year but still outstanding to pay.
8. Make necessary adjustments as per the need of additional information given in question like depreciation on fixed assets, reserve for doubtful debts, loss or profit on sale of fixed assets etc.
9. Determine the amount of surplus or deficit. 'Surplus' arises when credit side of income and expenditure account is bigger. On the other hand, 'Deficit' arises in case of excess of expenses over incomes.
   

Usual Terminology of Non-Trading Concern

8. Endowment Fund
Endowment fund is a fund that arises from a gift. It is relatively large amount of money advanced to the concern and now placed in fixed deposits or invested in securities. The endowment fund is a capital receipts and shown on the liability side of the balance sheet. However, the income from the investment is a revenue receipts and appears on the credit side of income and expenditure account.

9. Sale of old Assets
The profit and loss on sale of old assets must be shown in income and expenditure account. The amount received from sale of an asset is not included in income and expenditure account. The book value of the assets sold is deducted from the relevant assets in the balance sheet.

10. Sale of Newspaper and Magazines
Amount received from the sale of newspapers and magazines is a revenue item i.e. they are sold every year or month or many times within a year. It is shown on the credit side of income and expenditure account.

11. Sale of Sport Materials
Sale of sport materials is also treated as a revenue income and shown on the credit side of income and expenditure account.

12. Special Fund
Specific fund like prize distribution fund, tournament fund etc are known as special fund and shown on the liability side of balance sheet.

Usual Terminology of Non-Trading Concern

5. Entrance Fees/ Admission Fees
Entrance fees/ admission fees refers to the amount paid by a member for his admission. These are the fees collected from new members are the time of his admission into membership which is usually charged by a club or society or by any non-profit making organization. It is treated as revenue receipt since it is collected every year and shown on the credit side of income and expenditure account. However, the students are advised to treat as capital receipts in the presence of specific instructions given in problem.

6. Honorarium
Honorarium denotes the remuneration to be paid to the outsider (not an employee) for their specific services like delivering speech, lectures, showing stage performance and concert etc. It is accounted as revenue expenditure and shown on the debit side of income and expenditure account.

7. Grants
Grants are the financial assistance received from public, government, other organizations and countries. It may be received for specific or general purposes. Therefore, general grants are treated as revenue receipts and shown on the credit side of income and expenditure account. However, specific grants must be treated as capital receipts which is shown on the liability side of balance sheet.

Usual Terminology of Non-Trading Concern

1. Subscription:
Subscription is a periodic fee paid by a member for his membership to the organization.It is a main source of income of a club annually paid by the members. However, it is also paid monthly, quarterly and half-yearly. Subscription may be paid periodically or as a lump sum for life-time membership. Periodical subscription are treated as revenue receipts and shown in Income and Expenditure Account as an income. Life membership subscriptions are treated as capital receipts and transferred to the capital fund.

2. Donations:
Donations refers to the amount received form any member or outsider to the organization for general or specific purpose. It is received by the way of gift. It appears on the receipt side of the receipts and payments account. It can be classified as general and specific.

• General Donation: This is such donation, which is received not for a specific purpose. It can be used for any purpose. It is taken to the credit side of Income and Expenditure Account if the amount of such donation is small. However, in case of large amounted general donation, it is to be treated as a capital receipt and shown on the liability side of the Balance Sheet. The nature and size of the firm decides the size of general donations whether it is small or large.
• Specific Donation: Specific donation is received for specific purpose. Donation for library building, donation for the purchase of ambulance, donation for medical supplies and laboratory etc. are some examples of specific donation. Specific donations are often treated as capital receipts and shown in the liability side of balance sheet.

3. Legacy:
Legacy is a specific donation, which is the amount left to the organization by the will f deceased person. In other words, it refers to the amount that is donated under a will on the death of donor. Legacies are generally treated as capital receipts and shown on the liability side of a balance sheet.

4. Life Membership Fees:
It represents the amount (fees) paid by a member for a life in one lump sum. It enables the payer to become the member of the organization for whole of the life if he/she pays fees only once often large amount. In the absence of any specific instruction, it is treated as a capital receipt and shown on the liability side of balance sheet.

Income and Expenditure Account

Non-trading concerns do not prepare profit and loss account. They prepare income and expenditure account in stead of profit and loss account. It is prepared to see whether annual revenue income is sufficient to meet the annual revenue expenditure. It shows the classified summary of income and expenditures which are of revenue nature and which relate to the current accounting period. It helps to ascertain the amount of surplus or deficit occurred in a non-profit making organization.

According to F.G. William,"An income and expenditure account prepare to show all the revenue incomes for the period whether actually received or accrued and all the revenue expenditures for the period whether actually paid or accrued and not yet paid." In other words, all the expenditures which related to the year whether it has actually been paid or not, are debited to income and expenditure account whereas all incomes are credited. If the credit total is greater than the debit, the difference is known as 'surplus' or 'excess of income over expenditure' but when debit total is higher, there is 'deficit' i.e. excess of expenditure over incomes'.

The way of preparing the income and expenditure account is similar as trading and profit and loss account. The accounts heads and adjustments to them and the sides on which they appear are also the same.

Features of Income and Expenditure Account:

1. It records only those incomes and expenses which are of revenue nature. Purchase of furniture is not recorded since it is a capital item.
2. It records incomes, expenses and losses, which relate to current accounting year. It excludes all the items of previous and coming year. In other words, it is prepared on accrual basis.
3. It records all the expenses and losses on the debit side and all the incomes on the credit side.
4. It does not record opening or closing balance of cash or bank.
5. The difference between two sides of the income and expenditure account is either surplus or deficit.
   

Receipts and Payments Account

According to J. R. Batliboi, "A Receipt and Payment Account is summary of actual cash receipts and payments extracted form the cash book covering a particular period."

From the above definition, it can be concluded that receipts and payments account is summary of cash transactions. It is prepared on the basis of cash book. It also records the banking transactions. It starts with opening balance of cash and bank. All the cash or cheque receipts are entered on the debit side where as all incomes through cash or cheques are credited. It ends with closing balance. It records all the cash transactions whether they relate to current, past or coming year and whether they are of capital or revenue nature. However, it fails to record the outstanding amount of incomes and expenditure. It is generally prepared to find out the closing balance of cash. Receipts and Payments is the basis of preparing Income and Expenditure Account.

Features of Receipts and Payments Accounts:

1. It is a summary of cash book where the cash and bank transactions are grouped, classified and analyzed under suitable heading.
2. It begins with opening balance and ends with closing balance of cash and bank.
3. All the cash and cheque receipts are recorded on the debit side where all cash and cheques payments are recorded on the credit side.
4. It does not records non-cash items like depreciation, outstanding expenses and incomes, prepaid expenses etc. Only actual receipts and payments are entered.
5. All the cash receipts and payments relating to current, past and coming years are entered in it.
6. All the cash receipts and payments whether they are capital or revenue nature, are recorded in it.

Limitations of Receipts and Payments Account:

1. It does not show profit and loss of the organization.
2. It does not disclose the positions of assets and liabilities other than cash and bank.
3. It fails to distinguish between capital and revenue payment and receipts.
4. It does not follow "accrual concept" of accounting as a result it does not show the outstanding incomes and expenses, prepaid expenses, depreciation or appreciation of fixed assets etc.

Accounting Procedures of Non-Trading concern

Like trading organization, non-trading concerns also maintain some usual books of account like, journal, ledger cash books, trial balance etc. However, it is difficult to keep full set of books by a small organization. Therefore, most of the non-trading organization, prepare cash book only before the preparations of final accounts. These organizations have to prepare the final accounts more or less similar to that of trading organization by following double entry book keeping systems to answer on the following three points.

1. What is the summary of the cash transactions of particulars period?
2. Is the income of the year sufficient to meet the expenditures?
3. What is the financial position of the organization?
   

The final accounts of non-trading concerns are as follows:

• Receipts and Payments Account.
• Income and Expenditure Account.
• Balance Sheet.

Non-Trading Concern

Non-trading concerns are also called as non-trading institutions or organizations which are established for rendering services to the society or its members. Their aim is not to earn profit but to promote and to provide the recreational facilities in the field of sports, are and culture, education, health etc.

Examples of non-trading concerns are:

• Educational institutions as colleges, schools.
• Clubs as Lion Club.
• Societies as Red Cross Society.
• Charitable hospitals.
• Unions as trade union, labour unions.
• Libraries, hostels.
• Associations etc.

Features of Non-trading organization;

1. The main aim of such organization is not to earn profit but to render services to the society or its members.
2. Non-trading organization may have excess of income over expenditures (surplus) but they are not distributable among the members; the surplus (profit) is used for the strengthening the organizational goal.
3. Most of the transactions are dealt with cash rather than credit.
4. The main sources of income of such organizations may be subscription from members, donation from general public, grants from other government etc.
5. They do not prepare Trading and Profit and Loss Account.

Provision for Discount on Debtors

Discount is allowed to debtors if they make quick and prompt payment. At the end of the accounting year, there may be certain debtors to be allowed discount which is an expected loss. to meet such discount, a provision is created form the profit of current year which is called provision for discount on debtors.

Note: New provisions for discount on debtor is to be calculated on the good debtors because discount is allowed to good debtor but not to bad and doubtful debts.

Provision for Bad and Doubtful Debts

Doubtful debt denotes the amount of debtors which may not be recoverable. It is an expected loss. To meet such loss, some amount set aside as provisions which is called provision for doubtful debts. It is calculated a fixed percentage of sundry debtors. While posting it, provision for bad or doubtful debt is shown on the debit of profit and loss account and also shown as a deduction from debtor on the assets side of the balance sheet.