Subsidiary Books Meaning
Accounting is indeed a tedious task. For this the companies who have an abundant financial transaction in a year to journalize them all is really bothersome. Hence, the companies prepare the subsidiary books, where the recording of the transactions of a similar nature is done in a chronological manner.
The Subsidiary books are known as the books of original entry. In daily business transactions, a majority of the transactions are either related to sales, or to purchases or to cash. Thus, we record the transactions of the same or similar nature in one place, that place is a subsidiary book. We record the transactions chronologically to facilitate the accountant.
Types of Subsidiary Books
The subsidiary books are of various types which suit the needs of an organization. The types are as follows:
Cash book
Purchases book
Sales book
Purchases return or return outwards book
Sales return or return inwards book
Bills receivable book
Bills payable book
Journal proper
Subsidiary Books of Accounts
The Subsidiary Books are the books of Original Entry. These books are also called Day Books or special journals. We record the transactions in this book which are of similar nature, the recordings are done in chronological manner in Subsidiary Books. Subsidiary books actually are helpful in overcoming the limitations of journal books or journal entries.
Subsidiary Books Format
Format of Purchase Book
Format of Sales Book
Format of Purchase Return Book
Format of Sales Return Book
Format of Bills Receivable Book
Format of Bills Payable Book
Advantages of Subsidiary Books
The advantages of the subsidiary book are as follows:
1. Proper With Systematic Record of the Business Transactions
The business transactions are classified and grouped properly in cash and non-cash transactions, these are further classified as credit purchases, credit sales, and returns, etc. The books facilitate individual transactions, as they can be properly and systematically recorded in the subsidiary books.
2. Convenience While Posting
The transactions of a nature are recorded at a single place, in one of the subsidiary books. Example, all the credit purchases of the goods are recorded in the purchases book while all the credit sales of goods are recorded in the sales book.
3. Efficiency
The work is being divided here which gives the advantage of specialization. When the same work is done by a person repeatedly and continuously the person becomes efficient in handling it.
4. Helpful in Decision Making
Subsidiary books provide accurate and complete details about each type of transaction separately. Thus, the management can use the information as the basis for deciding the future actions.
5. Errors and Frauds are Prevented
The Internal check becomes more effective as now the work can be divided in such a manner, where the work of one person is automatically checked by another person. With this internal check, the possibility of occurrence of the errors or fraud may be avoided and to the least minimized.
6. Availability of Requisite Information at a Glance
The transactions are entered in only one journal thus, it becomes difficult to locate the information about a particular item. When the subsidiary books are maintained, the details about a particular type of transaction can be easily obtained from the subsidiary books. The maintenance of these subsidiary books helps in obtaining the necessary information at a single glance.
FAQs on Subsidiary Books: Types and Uses in Accounting
1. What are subsidiary books and why are they called 'Books of Original Entry'?
Subsidiary books are specialised journals used in accounting to record a large number of similar transactions. They are called Books of Original Entry because business transactions are first recorded in these books chronologically before being posted to the main ledger. This practice helps to keep the General Ledger concise and organised.
2. What is the primary importance of maintaining subsidiary books for a business?
The primary importance of using subsidiary books is efficiency and accuracy. By dividing the journal into specialised books (like a Cash Book or Sales Book), a business can handle a large volume of transactions quickly, delegate work to different clerks, and minimise the risk of errors in the accounting records.
3. What are the most common types of subsidiary books used in accounting?
While a business can create any subsidiary book it needs, the most common types include:
- Cash Book: For all cash and bank transactions.
- Purchases Book: For all credit purchases of goods.
- Sales Book: For all credit sales of goods.
- Purchases Return Book: For goods returned to suppliers.
- Sales Return Book: For goods returned by customers.
- Journal Proper: For transactions that don't fit in any other book.
4. How is a Purchases Book different from a Purchases Account?
A Purchases Book is a subsidiary book where only the credit purchases of goods meant for resale are recorded initially. In contrast, a Purchases Account is a ledger account in the General Ledger. The total from the Purchases Book is periodically transferred to the debit side of the Purchases Account.
5. What kind of transactions are recorded in the Journal Proper?
The Journal Proper is used to record miscellaneous transactions that cannot be entered in any other subsidiary book. Examples include:
- Opening entries: To record assets and liabilities at the start of a new accounting year.
- Closing entries: To close nominal accounts at the end of the year.
- Rectification entries: To correct errors made in recording.
- Purchase or sale of assets on credit.
6. How do subsidiary books help in the division of accounting work?
Subsidiary books allow for a practical division of labour. Different accounting clerks can be assigned to maintain different books simultaneously. For example, one person can handle the Cash Book while another manages the Sales Book. This speeds up the accounting process and promotes specialisation.
7. What is the purpose of the Ledger Folio (L.F.) column in subsidiary books?
The Ledger Folio (L.F.) column is used for cross-referencing. When an entry from a subsidiary book is posted to an account in the General Ledger, the page number of that ledger account is written in the L.F. column. This makes it easy to trace any entry from the subsidiary book to its corresponding place in the ledger.
8. Can a very small business operate without using any subsidiary books?
Yes, a very small business with few transactions can operate by recording everything directly into a single General Journal. However, as the business grows and the number of transactions increases, not using subsidiary books can make the journal very long, difficult to manage, and prone to errors. Subsidiary books provide better control and clarity.
9. If a business buys machinery on credit, which book is the transaction recorded in?
The purchase of machinery on credit would be recorded in the Journal Proper, not the Purchases Book. The Purchases Book is exclusively for recording the credit purchase of goods that the business deals in (i.e., goods for resale). The purchase of an asset on credit is a miscellaneous transaction recorded in the Journal Proper.
10. What is the main difference between Trade Discount and Cash Discount in the context of subsidiary books?
A Trade Discount is a reduction in the list price of goods, offered by a seller to a buyer. It is not recorded in the books of accounts; entries in the Purchases or Sales book are made at the net price (List Price - Trade Discount). A Cash Discount is an incentive for prompt payment. It is recorded separately in the Cash Book to show it as an expense (for the seller) or income (for the buyer).
