Lesson No. 07: Accountancy: October’s Cash Trail: Preparing Srimath’s Cash Book

Srimath begins October with ₹21,000 in cash. During the month, goods are purchased, commission is received, payments are made, and office expenses are settled. By 31 October, the task is to determine how much cash remains.

The key is to follow every cash movement carefully. Cash received is recorded on the debit side; cash paid is recorded on the credit side.

Step 1: Examine the transactions

Some entries need careful attention:

  • Opening cash balance: ₹21,000, recorded on the debit side.
  • Goods purchased for cash: ₹3,200, recorded on the credit side.
  • Goods sold to Y: ₹4,800 is described as a credit sale because the wording says “sold goods to Y.” Unless the question confirms that cash was received immediately, this is not entered in a Simple Cash Book.
  • Commission received: ₹650, recorded on the debit side.
  • Commission paid: ₹350, recorded on the credit side.
  • Payment to Suresh: ₹7,150, recorded on the credit side, assuming it was paid in cash.
  • Salary and office rent: ₹1,000 and ₹600, respectively, recorded on the credit side.

Step 2: Prepare Srimath’s Simple Cash Book

For October

DateParticulars — Debit side (Receipts)Amount (₹)
Oct. 01To Balance b/d21,000
Oct. 20To Commission A/c650
Total receipts21,650
DateParticulars — Credit side (Payments)Amount (₹)
Oct. 08By Purchases A/c3,200
Oct. 20By Commission A/c350
Oct. 28By Suresh A/c7,150
Oct. 31By Salary A/c1,000
Oct. 31By Rent A/c600
Oct. 31By Balance c/d9,350
Total payments21,650

Note: The sale of ₹4,800 to Y is excluded because the question does not state that it was a cash sale. A credit sale is recorded in the appropriate account, not in the Simple Cash Book. If the original question intended a cash sale, the closing balance would instead be ₹14,150.

Step 3: Calculate the closing balance

Total cash available, including commission received:

\[ ₹21,000+₹650=₹21,650 \]

Total cash payments:

\[ \begin{aligned} ₹3,200+₹350+₹7,150+₹1,000+₹600 =₹12,300 \end{aligned} \]

Therefore,

\[ \begin{aligned} \text{Closing cash balance} &=₹21,650-₹12,300\\ &=\boxed{₹9,350} \end{aligned} \]

The final takeaway

On the stated assumption that the sale to Y was a credit sale, Srimath’s closing cash balance on 31 October is ₹9,350.

Exam memory cue: Record only actual cash receipts and payments in the Simple Cash Book. A transaction involving a customer does not automatically mean cash has changed hands.

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