The Books a Lawyer Keeps: Cash Book, Ledger, Journal and Trial Balance
Chapter Sixty
Syllabus topic 4.3 iv. Basic principles of accounting
Pages 325 to 330 of 355
In one line
Four books: the journal records everything, the cash book records money, the ledger sorts it by account, and the trial balance proves the arithmetic.
In exam wording: the books of account maintained by a legal practitioner comprise the journal, the cash book, the ledger and the client's ledger, from which a trial balance is extracted to verify the arithmetical accuracy of the double entry.
The four books, and what each is for
| Book | What it holds | Why |
|---|---|---|
| Journal | every transaction, in date order, with both sides and a narration | the first record, so nothing is lost |
| Cash book | all receipts and payments of cash and bank | money moves most often, so it gets its own book |
| Ledger | one account per page, with all entries affecting it | to answer "what is the balance of this account?" |
| Client's ledger | one account per client for client money | to answer "how much of this is his?", which rules 25 to 30 require |
| Trial balance | a list of all ledger balances, debits and credits | to prove the arithmetic |
The order of work is: journal, then ledger, then trial balance, then the statements in chapter [Financial Statements: The Income Statement and the Balance Sheet]. The cash book is a specialised part of both the journal and the ledger, which is why it is described as having a dual character.
The cash book
A cash book records all receipts on the debit side and all payments on the credit side.
That follows from chapter [Basic Principles of Accounting: The Double Entry, and What an Account Is]: cash is an asset, and an asset increases on the debit.
A practice usually keeps a double column cash book, with a column for cash and a column for bank on each side, so that both are recorded in one book.
Its dual character, which examiners like: it is a book of original entry, because receipts and payments are written straight into it rather than being journalised first; and it is also a ledger account, because it shows the balance of cash and bank at any time. So a separate cash account in the ledger is unnecessary.
Contra entries arise where money moves between cash and bank, for example cash deposited into the bank. Both sides of that transaction are inside the cash book, so it is marked with the letter C and is not posted to the ledger again.
The ledger
A ledger is the book of accounts. Each account has its own page: Bank, Rent, Professional Fees, Salaries, Library, and one for each client.
Posting is the act of copying entries from the journal and cash book into the ledger accounts.
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