Book of original Subsidiary Books

Subsidiary Books are those books of original entry in which transactions of similar nature are recorded at one place and in chronological order. In a big concern, recording of all transactions in one Journal and posting them into various ledger accounts will be very difficult and involve a lot of clerical work.

This is avoided by sub-dividing the journal into various subsidiary journals or books. The subdivisions of journal into various subsidiary journals for recording transactions of similar nature are called as ‘Subsidiary Books.’

The different subsidiary books and their purpose are shown below:

1. Purchases Day Book: for recording credit purchase of goods only. Cash purchase or assets purchased on credit are not entered in this book.
2. Sales Day Book: for recording credit sales of goods only. Assets sold or cash sales are not recorded in this book.
3. Purchases Returns Book: for recording the goods returned to the suppliers when purchased on credit.
4. Sales Returns Books: for recording goods returned by the customers when sold on credit.
5. Bills Receivable Book: for recording the bills received [Bills Receivables] from customers for credit sales.
6. Bills Payables Book: for recording the acceptances [Bills Payables] given to the suppliers for credit purchases.
7. Cash Book: for all receipts and payments of cash.
8. Journal Proper: for recording any transaction which could not be recorded in the above-mentioned subsidiary books. For example, assets purchased or sold on credit and opening entry etc., are entered in this book.

Advantages / Significance of Subsidiary Books:

1. Saving of Clerical Labour:

Subsidiary books effect considerable saving of clerical labour in postings and narration. Transactions of any one class such as credit purchases, credit sales, cash transactions etc., are recorded through separate subsidiary journals and there is no need for giving narration.

For example, by recording the transactions in the Purchase Day book 50% of the labour in postings is saved. The periodical total of this book is to be debited to the Purchases a/c. Only the personal accounts of the suppliers are to be credited.

2. Division of Clerical Work:

As separate journals are used for recording the transactions of each particular type, the division of clerical labour amongst several office clerks becomes possible. This makes speedy record of day-to-day transactions practicable.

3. Minimizes Frauds:

These books make possible the introduction of internal check system under which the system of rotation of writing up books can be adopted. This helps minimizing errors and detecting frauds.

4. Facilitates Further Reference:

As transactions of similar nature are grouped together in a separate book, the further reference to any particular item is considerably facilitated.

Subsidiary Books Types

1. Purchase Book or Purchase Journal:

Purchase book is a book of original entry in which only credit purchases of goods are recorded. Cash purchases of goods are recorded in the cash book. Credit purchases of other assets are also not recorded in the purchase book; they are recorded in the journal proper.

Goods here mean the items or articles in which business enterprise is dealing with or we can say that goods are the items which are used by the business enterprise for regular sale. For example, purchase of computer by a business enterprise which is dealing in cloth shall not be treated as its goods and items related to computers shall be regarded as its assets. Similarly, purchase of cloth by a business enterprise which is dealing in computers shall not be treated as its goods since items relating to only computers are its goods.

Instead of recording transactions in the journal, the transactions relating to credit purchases of goods are directly recorded in the purchases book. However, the total of the purchases book shall be recorded on the debit side of the ‘Purchases Account’. The main intention for preparing the purchases book is to know the credit purchases at any particular period of time.

2. Sales Book or Sales Journal:

Sales book is a book of original entry in which only credit sales of goods are recorded. Cash sales of goods are recorded in the cash book. Credit sales of other assets are also not recorded in the sales book; they are recorded in the journal proper.

Goods here mean the items or articles in which business enterprise is dealing or we can say that goods are the items which are used by the business enterprise for regular sale. For example, sale of furniture by a business enterprise which is dealing in stationery shall not be treated as its goods and items related to stationery alone shall be regarded as its goods.

3. Purchases Return Book or Purchases Return Journal:

Purchases return book is a book of original entry in which transactions related to the return of purchases of goods are recorded.

There may be several reasons for returning the goods to the supplier; some of them are as under:

(a) On finding some defects in the goods.

(b) When goods sent are not as per the samples or specifications.

(c) If the quantity of goods supplied is more than the requirements.

(d) When there is a breach of agreement between the seller and the purchaser.

When the business enterprise returns the goods to the supplier, a debit note is sent to the party to whom this document is sent. Business enterprise may make a debit note against the supplier for an amount which is to be recovered from him when the business enterprise returns some goods which are defective in nature or not as per specifications.

In this document, all details about the date and amount of transaction, the name of the party whose account is debited along with reason for debiting his account shall be mentioned. It should be noted that the trade discount availed at the time of purchase shall also be adjusted at the time of returning the goods.

4. Sales Return Book or Sales Return Journal:

Sales return book is a book of original entry in which transactions related to the return of sales of goods are recorded. The sales return book does not record return of goods sold on cash basis. There may be several reasons for returning the goods by the customers.

Some of them are as under:

(a) On finding some defects in the goods.

(b) When there is delay in supply of goods to the customers.

(c) When goods sent are not as per the samples or specifications.

(d) If there is an oversupply of goods.

(e) When there is a breach of agreement between the seller and the purchaser.

When a business enterprise receives back the goods sold earlier, it makes a credit note in favour of the purchaser showing that his account has been credited in the books of business enterprise. In this document, all details about the date and amount of transaction, the name of the party whose account is credited along with reason for crediting his account shall be mentioned. It should be noted that the trade discount allowed at the time of credit sale shall also be adjusted at the time of receiving goods.

5. Bills Receivable Book:

In the case of credit sales, sometimes the business enterprise draws a bill on the purchaser (debtor) and after its acceptance from the debtor it becomes a bill of exchange. In practical life, there are large number of sellers and purchasers and there are numerous numbers of transactions among them for drawing, accepting and making the payment in respect of bills of exchange.

The bill is due for payment after adding 3 days to the period of the bill. Hence, it is very important to keep a close watch on all the bills due for payment. For this purpose, a separate book is to be kept in record which is known as Bills Receivable Book. All particulars of the bills viz. date of receipt, name of the party, period of the bill, due date of the bill, Ledger Folio (L.F.), amount of the bill etc. are to be recorded in this book.

The format of the bills receivable book is as under:

6. Bills Payable Book:

In the case of credit purchases, sometimes the business enterprise accepts a bill which is drawn by the seller (creditor) which is known as bills of exchange and for the business enterprise it is known as bills payable. The bill is due for payment after adding 3 days to the period of the bill. Thus, it is very important to keep a close watch on all the bills due for payment. For this purpose, a separate book is to be kept in record which is known as Bills Payable Book. All particulars of the bills viz. date of acceptance, name of the party to whom bill is given, period of the bill, due date of the bill, Ledger Folio (L.F.), amount of the bill etc. are to be recorded in this book.

7. Journal Proper or General Journal:

So far we have discussed that in the case of sub divisions of journal, transactions relating to the cash are recorded directly in the cash book and transactions relating to non-cash specialised items, are directly recorded in subsidiary books viz. sales book, purchase book, sales return, purchase return, bills receivable and bills payable book.

Now the question arises what will happen to those transactions which neither relate to cash nor relate to the other subsidiary books, like sale/purchase of an asset on credit? It cannot be recorded in the cash book as no cash flow is there and asset being not included in the terminology of goods; it cannot be recorded in the purchase book either. These are the residual transactions which cannot find place in any of the sub divisions of journal and are recorded in the journal known as journal proper or general journal.

Usually, the following types of transactions are recorded in the journal proper:

(i) Opening Entries:

Through opening entries, the balances in respect of various assets, liabilities and capital appearing at the end of previous accounting year are brought forward at the beginning of current accounting year.

(ii) Closing Entries:

Closing entries are the entries which are passed to transfer nominal accounts to respective income statements so that financial statements of the business enterprise can be prepared.

(iii) Transfer Entries:

Transfer entries are those entries which are passed to transfer an amount of an account or the balance of an account to another account. For example, transferring the balance of current account to capital account.

(iv) Adjusting Entries:

At the end of an accounting year, some adjustments are to be carried out which were revealed later on. For example, recording closing stock, depreciation and various outstanding expenses or incomes. These items are recorded through passing adjusting entries.

(v) Entries for rectification of errors:

To rectify any accounting errors, these entries are to be passed.

(vi) Other Entries:

The entries related to credit sale or purchase of assets etc. are recorded in the journal proper.