Ch-4 Subsidiary Books

SUBSIDIARY BOOKS
Journal is a book of prime entry in which all transactions are to be recorded first. But, in
practice, the number of transactions happens to be so large that it becomes difficult to record
them in one book. Hence, the journal is sub-divided into a number of special journals, called
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.’
In practice, the journal is sub-divided in such a way that a separate book is used for each
category of transactions which are repetitive in nature and are sufficiently large in number. In
any large business the following subsidiary books are generally used:
Purchases (Journal) Book

All credit purchases of goods are recorded in the purchases journal whereas cash purchases are
recorded in the cash book. Other purchases such as purchases of office equipment, furniture,
building, are recoded in the journal proper if purchased on credit or in the cash book if
purchased for cash. The source documents for recording entries in the book are invoices or bills
received by the firm from the supplies of the goods. Entries are made with the net amount of
the invoice. Trade discount and other details of the invoice need not be recorded in this book.
The monthly total of the purchases book is posted to the debit of purchases account in the
ledger. Individual suppliers accounts may be posted daily.
Purchases Return (Journal) Book
In this book, purchases return of goods are recorded. Sometimes goods purchased are returned
to the supplier for various reasons such as the goods are not of the required quality, or are
defective, etc. For every return, a debit note (in duplicate) is prepared and the original one is
sent to the supplier for making necessary entries in his book. The supplier may also prepare a
note, which is called the credit note. The source document for recording entries in the purchases
return journal is generally a debit note. A debit note will contain the name of the party (to
whom the goods have been returned) details of the goods returned and the reason for returning
the goods. Each debit note is serially numbered and dated.
Sales (Journal) Book
All credit sales of merchandise are recorded in the sales journal. Cash sales are recorded in the
cash book. The format of the sales journal is similar to that of the purchases journal explained
earlier. The source document for recording entries in the sales journal are sales invoice or bill
issued by the firm to the customers. The date of sale, invoice number, name of the customer
and amount of the invoice are recorded in the sales journal. Other details about the sales
transaction including terms of payment are available in the invoice. In fact, two or more than
two copies of a sales invoice are prepared for each sale.
The book keeper makes entries in the sales journal from one copy of the sales invoice. The
format of the sales joournal is shown in figure 4.8. In the sales journal, one additional column
may be added to record sales tax recovered from the customer and to be paid to the government
within the stipulated time. Periodically, at the end of each month the amount column is total
led and posted to the credit of sales account in the ledger.
Sales Return (Journal) Book

This journal is used to record return of goods by customers to them on credit. On receipt of
goods from the customer, a credit note is prepared, like the debit note referred to earlier. The
difference between the credit not and the debit note is that the former is prepared by the seller
and the latter is prepared by the buyer. Like the debit note, the credit note is also prepared in
duplicate and contains detail relating to the name of the customer, details of the merchandise
received back and the amount. Each credit note is serially numbered and dated. The source
document for recording entries in the sales return book is generally the credit note.
Cash Book
Cash book is a book in which all transactions relating to cash receipts and cash payments are
recorded. It starts with the cash or bank balances at the beginning of the period. Generally, it
is made on monthly basis. This is a very popular book and is maintained by all organisations,
big or small, profit or not-forprofit. It serves the purpose of both journal as well as the ledger
(cash) account. It is also called the book of original entry. When a cashbook is maintained,
transactions of cash are not recorded in the journal, and no separate account for cash or bank
is required in the ledger.
Journal Proper
A book maintained to record transactions, which do not find place in special journals, is known
as Journal Proper or Journal Residual. Following transactions are recorded in this journal:
1. Opening Entry: In order to open new set of books in the beginning of new accounting year
and record therein opening balances of assets, liabilities and capital, the opening entry is made
in the journal.
2. Adjustment Entries: In order to update ledger account on accrual basis, such entries are made
at the end of the accounting period. Such as Rent outstanding, Prepaid insurance, Depreciation
and Commission received in advance.
3. Rectification entries: To rectify errors in recording transactions in the books of original
entry and their posting to ledger accounts this journal is used.
4. Transfer entries: Drawing account is transferred to capital account at the end of the
accounting year. Expenses accounts and revenue accounts which are not balanced at the time
of balancing are opened to record specific transactions. Accounts relating to operation of
business such as Sales, Purchases, Opening Stock, Income, Gains and Expenses, etc. and
drawing are closed at the end of the year and their Total/balances are transferred to Trading
and Profit and Loss account by recording the journal entries. These are also called closing
entries.
5. Other entries: In addition to the above mentioned entries in the point’s number 1 to 4,
recording of the following transaction is done in the journal proper:
(i) At the time of a dishonor of a cheque the entry for cancellation for discount received or
discount allowed earlier
(i) Purchase/sale of items on credit other than goods.
(ii) Goods withdrawn by the owner for personal use.
(iii)Goods distributed as samples for sales promotion.
(iv) Endorsement and dishonor of bills of exchange.
(v) Transaction in respect of consignment and joint venture, etc.
(vi) Loss of goods by fire/theft/spoilage.
Bills Receivable Journal: It is used for recording bills of exchange and promissory notes
received from the debtors.
Bills Payable Journal: It is used for recording bills of exchange and promissory notes accepted
by the business in favour of creditors.
Advantages of Subsidiary Books
The following are the advantages of having a number of subsidiary books:
i) Classification of transactions becomes automatic: As there is a separate book for

each type of transactions, the trapactions of same nature are automatically brought
at one place. For example, all credit purchases of goods are recorded Subsidiary
Books: Cash Book in the Purchases Book.
ii) Reference becomes easy: If any reference is required, it can be traced easily by
referring to the appropriate subsidiary book. You do not have to go through all the
transactions recorded in the journal.
iii) Facilitates division of work: The division of journal into various subsidiary books
facilitates division of work among many persons. This, in turn, facilitates prompt
recording of transactions and saves a lot of time.
iv) More particulars: More details about the transactions can be given-in subsidiary
books than would be possible in one book.
. v) Responsibility can be fixed: The work of maintaining a particular book can be entrusted
to a particular person. He will be responsible for keeping it up-to-date and in order.
vi)Facilitates checking: When the Trial Balance does not agree, the location of errors will be
relatively easy.

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SUBSIDIARY BOOKS

Purchases (Journal) Book

Sales Return (Journal) Book

i) Classification of transactions becomes automatic: As there is a separate book for

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