5. Subsidiary Books

Subsidiary Books

Subsidiary books are books of original entry. In the normal course of business, a majority of transactions are either relate to sales, purchases or cash. So we record transactions of the same or similar nature in one place, i.e. the subsidiary book. And we record these transactions in chronological order.

This actually saves a lot of man-hours and tiresome clerical work. Instead of journalizing each entry, they are recorded into various subsidiary books. Think of your subsidiary book as sub-journals that record only one type of transaction.

There is no separate entry for these transactions in the general ledger. The posting to the Ledger Accounts is done from the subsidiary book itself. This method of recording is known as the Practical System of Accounting or sometimes the English System.

One thing to remember is that such a system does not violate the rules of Double Entry System. We have still recorded the transactions according to this system. All transactions are still affecting two accounts. Only instead of a journal, we are using subsidiary books as the books of original entry.

Subsidiary Books

 

Types of Subsidiary Books

The following are the subsidiary books a company will generally maintain while writing their accounts,

  • Cash Book- It is a book which records the receipts and payment of cash transaction.
  • Purchase Book- It is a book which records all the credit purchases of goods of the company.
  • Purchase Return Book- It is a book which records all the return of credit purchases of goods of the company.
  • Sales Book- It is a book which records all the credit sales of goods of the company.
  • Sales Return Book- It is a book which records all the return of credit sales of goods of the company.
  • Bills Receivable Book- It is a book which records all the bills receivable.
  • Bills Payable Book- It is a book which records all the bills payable.
  • Journal Proper- All the transactions which are not recorded in the above books are recorded here.

 

It’s Advantages

Let us now take a look at some of the advantages these subsidiary books provide in the process of accounting

  1. Saving Labour Hours: Recording in a subsidiary book saves a lot of time and clerical hours. Firstly there is no need to journalize and/or give narrations for every transaction. This helps reduce the time it takes to completely record a transaction. Also since we use a number of subsidiary books, various accounting process can be undertaken simultaneously. This will save the time of the clerks/accountants.
  2. Division of Work: In place of one general journal, we have several subsidiary books, So the resulting work may be divided among several members of the staff. This will save time, improve efficiency and result in fewer errors as well.
  3. Specialization of Work: If one person maintains the same subsidiary book over many years he acquires full knowledge and understanding of the work. We can say he becomes a specialist in one type of transaction (say purchases for example). He becomes very efficient in handling such transactions and hardly any error gets made.
  4. Easy for Reference: When transactions of all types are in the same subsidiary book it becomes easy to search for them. Whenever any information is needed we directly refer the subsidiary book to get said information.
  5. Easier for Checking: If the Trial Balance does not match, it will be much easier to locate the error thanks to the existence of separate books i.e. a subsidiary book. Same goes if you want to detect fraud.

 

Purchase Book and Purchase Return Book

A Subsidiary book or a Day book is a book of Original entry. Subsidiary books contains the records of similar transactions. An organization maintains six kinds of Subsidiary books. They are Cash book, Purchase book, Purchase Return book, Sales book, Sales return book, and Journal proper.

Organizations that do not maintain the Subsidiary books maintain Journal for all the transactions. A Journal holds records of all entries irrespective of their nature. Thus, Journal does not bifurcate the entries on the basis of their nature.

Purchase Book

Purchase Book

Purchase book is a Subsidiary book. The Purchase book or Purchase day book contains the record of all credit-purchase. Cash book accommodates the records of all goods-purchase.

A Purchase book does not hold the record of purchases of assets. The Journal proper contains those records. The entries are recorded in the Purchase book from source documents. Invoices or bills received from the suppliers of goods serve as the source documents.

We make the entries in the Purchase book with the net amount of the invoice. Which is why a Purchase book does not contain trade discount and other details which are there on the invoice.

Every month the total of the Purchase book is posted on the Debit side of the Purchases A/c. Purchases A/c is a ledger A/c. However, the individual accounts of the suppliers may be posted daily. Also, where the volume of transactions is too large, the entries in the ledger can be posted weekly or fortnightly. Given below is the performa of the Purchase book:

Purchase Book

Date Invoice No. Name of the Supplier L.F.  Amount (₹)

Purchase Return Book/ Return Outward Book

When the goods purchased on credit are returned to the supplier, these are recorded in the Purchase return book. Sometimes, goods purchased can be defective or of low quality, etc. and hence, need to be returned. A separate book is maintained for the purchase return and these are not deducted from the purchases in the Purchase book. Also, Purchase return is recorded at the net amount on the invoice.

Debit note is prepared for every return of goods. It is prepared in duplicate. The original one is sent to the supplier while the duplicate copy is kept for our own records. The Debit note contains the name of the supplier, details of goods returned and the reason thereof. Each debit note is dated and serially numbered.

The supplier may also prepare a Credit note. It is prepared when goods are received from a customer and is therefore sent to him. Given below is the performa of the Purchase return book

Purchase Return Book

Date Debit Note No. Name of the Supplier L.F.  Amount (₹)

Solved Example For You

Q: Record the following transactions in the books of M/s. Mac and Co. and also show the ledger accounts.

Date                                                                   Details
1 Aug Purchased from ABC Ltd. (Invoice No. 524): 2000 balls @ ₹ 5 per piece.
15 Aug Purchased from XYZ Ltd. (Invoice No. 611): 100 bats @ ₹ 250 per piece. Trade discount 20%
29 Aug Purchased from Con Ltd. (Invoice No. 444): 200 skates for ₹100000. Trade discount 10%
29 Aug Purchased from ABC Ltd. (Invoice No. 741): 200 Chess for ₹2000. Trade discount 15%
30 Aug Purchased from Con Ltd. (Invoice No. 521): 100 skates for ₹40000. Trade discount 8%

Ans:

In the Books of M/s. Mac and Co.

Purchase Book

Date Invoice No. Name of the Supplier L.F.  Amount (₹)
 1 Aug  524  ABC Ltd. 10000
2000 balls@ ₹ 5 per piece.
15 Aug 611 XYZ Ltd. 20000
100 bats@ ₹ 250 per piece.        = 25000
Less: 20% T.D.                          =   5000
29 Aug 444 Con Ltd. 90000
200 skates @ ₹ 500 per piece    = 100000
Less: 10% T.D.                          =   10000
29 Aug 741 ABC Ltd. 1700
200 Chess @ ₹ 100 per piece     =  2000
Less: 15% T.D.                           = 300 
30 Aug 521 Con Ltd. 36800
100 skates @ ₹ 400 per piece    = 40000
Less: 8% T.D.                            =   3200
31 Aug  Total 167500

Ledger Accounts

ABC Ltd. A/c       

Date Particulars Amount Date Particulars Amount
1 Aug Purchases 10000
1 Aug Purchases 1700

 XYZ Ltd. A/c     

Date Particulars Amount Date Particulars Amount
 15 Aug  Purchases  20000

 Con Ltd. A/c     

Date Particulars Amount Date Particulars Amount
29 Aug Purchases 90000
30 Aug Purchases 36800

                                                                                                                                                                                        Purchases A/c     

Date Particulars Amount Date Particulars Amount
31 Aug Sundries as per Purchase Book 167500

Q: Record the following transactions in the books of M/s. Zen and Co. and also show the ledger accounts

Date2018                                                                   Details
3 Aug Returned goods purchased from MNC Ltd. (Debit Note No. 24): 2 T.V. @ ₹ 50000 per piece.
17 Aug Goods returned purchased from Daya Ltd. (Debit Note No. 26): 10 DVD Players @ ₹ 2500 per piece. Trade discount 20%
30 Aug Returned goods purchased from X Ltd. (Debit Note No. 28): 5 refrigerators for ₹60000. Trade discount 10%

 

Ans.                                       In the Books of M/s. Zen and Co.

Purchase Return Book

Date Debit Note No. Name of the Supplier L.F.  Amount (₹)
 3 Aug 24  MNC Ltd. 100000
2 T.V. @ ₹ 50000 per piece
17 Aug 26 Daya Ltd. 20000
10 DVD Players @ ₹ 2500 per piece. = 25000
Less: 20% T.D.                                     =   5000
30 Aug 28 X Ltd. 54000
5 refrigerators @ ₹ 12000 per piece    = 60000
Less: 10% T.D.                                    = 6000
Total 174000

Ledger Accounts
MNC Ltd. A/c                                                                                                                              

Date Particulars Amount Date Particulars Amount
 3 Aug Purchases Return 100000

Daya Ltd. A/c   

Date Particulars Amount Date Particulars Amount
17 Aug Purchases Return 20000

X Ltd. A/c     

Date Particulars Amount Date Particulars Amount
 30 Aug Purchases Return 54000

 Purchases Return A/c     

Date Particulars Amount Date Particulars Amount
31 Aug  Sundries as per Purchase Return Book 154000

 

 

Sales Book

Sales Book

A Sales Book is a Subsidiary Book and is, therefore, also a book of Original Entry. A Sales Book or Sales Day Book contains the records of all-credit sales of goods. While a Cash Book holds the records of all-cash sales of goods.

We don’t keep record sold assets in the Sales Book. One records that in Journal Proper. We record entries from Source Documents in the Sales Book. Source Documents are Invoices or bills received from the suppliers of goods.

The entries in the Sales Book are also made with the net amount of the invoice. Therefore, Sales Book does not contain a Trade Discount and other details are given on the invoice.

Every month the total of the Sales Book is posted on the Credit side of the Sales A/c. Sales A/c is a ledger A/c. However, the individual accounts of the customers can be posted daily. Also, where the volume of transactions is too large, the entries in the Sales A/c can be posted weekly or fortnightly.

The seller prepares the invoice in two or more copies. The invoice contains the details about the sales, the terms of payment, etc.  Given below is the Performa of the Sales Book

Sales Book

Date Invoice No. Name of the Customer L.F.  Amount

Sales Return Book/ Return Inward Book

Sometimes, goods sold can be defective or of low quality, etc. and hence, the customer may return them. Thus, goods sold that are returned by the customer or buyer, are recorded in the Sales Return Book. It is noteworthy that the return of only those goods is entered in these books that were earlier sold on credit.

A Credit Note is prepared for every return of goods. It is prepared in duplicate. The Credit Note contains the name of the customer, details of goods returned and reason thereof. Each Credit Note is dated and serially numbered. The Credit Note serves as the source document for entries in the Sales Return Book.

The customer to whom the goods were sold may also prepare a Debit Note. It is prepared when goods are returned to the seller and is therefore sent to him. Given below is the Performa of the Sales Return Book:

Sales Return Book

Date Credit Note No. Name of the Customer L.F.  Amount

Solved Example For You

Q. Record the following transactions in the books of M/s. M and Co. and also show the ledger account

Date                                                                   Details
10 Aug Sold to A Ltd. (Invoice No. 24): 2000 shirts @ ₹ 500 per piece.
16 Aug Sold to B Ltd. (Invoice No. 26): 100 ties @ ₹ 200 per piece. Trade discount 20%
18 Aug Sold to C Ltd. (Invoice No. 28): 50 coats for ₹100000. Trade discount 10%
21 Aug Sold to D Ltd. (Invoice No. 30): 100 trousers @ ₹ 400 per piece. Trade discount 15%
25 Aug Sold to E Ltd. (Invoice No. 33): 50 ties @ ₹ 250 per piece. Trade discount 10%

Ans. In the Books of M/s. M and Co.(Below are entries when recorded in the sales book will look like)

Sales book

Date Invoice No. Name of the Customer L.F.  Amount
 10 Aug 24  A Ltd. 1000000
2000 shirts @ ₹ 500 per piece
16 Aug 26 B Ltd. 16000
100 ties @ ₹ 200 per piece.   = 20,000
Less: 20% T.D.                       =   4,000
18 Aug 28 C Ltd. 90000
50 coats @ ₹ 2,000 per piece    = 100000
Less: 10% T.D.                          =   10000
21 Aug 30 D Ltd. 32000
100 trousers @ ₹ 400 per piece = 40,000
Less: 15% T.D.                          = 6,000
25 Aug 33 E Ltd. 11250
50 ties @ ₹ 250 per piece         = 12,500
Less: 10% T.D.                         = 1,250
31 Aug Total 1149250

(Entries, when recorded in the books of individual traders will look like the below entries)

A Ltd. A/c                                                   

Date Particulars Amount Date Particulars Amount
 10 Aug To Sales 1000000

B Ltd. A/c                                                                   

Date Particulars Amount Date Particulars Amount
 16 Aug To Sales 16000

C Ltd. A/c                                                                                                                           

Date Particulars Amount Date Particulars Amount
 18 Aug To Sales 90000

D Ltd. A/c 

Date Particulars Amount Date Particulars Amount
 21 Aug To Sales 32000

E Ltd. A/c     

Date Particulars Amount Date Particulars Amount
 25 Aug To Sales 11250

Sales A/c     

Date Particulars Amount Date Particulars Amount
31 Aug  Sundries as per Sales Book  1149250

Q. Record the following transactions in the books of M/s. Z and Co. and also show the ledger accounts.

Date                                                                   Details
5 Aug Goods returned by M Ltd. (Credit Note No. 2): 2 bags @ ₹ 500 per piece.
11 Aug Goods returned by D Ltd. (Credit Note No. 3): 10 suitcases @ ₹ 2500 per piece. Trade discount 20%
28 Aug Goods returned by X Ltd. (Credit Note No. 5): 5 duffle bags for ₹5000. Trade discount 10%

Ans.In the Books of M/s. Z and Co.(Below are entries when recorded in the sales return book will look like)

 Sales Return Book

Date Credit Note No. Name of the Customer L.F.  Amount
 5 Aug  2  M Ltd. 1000
2 bags @ ₹ 500 per piece.
11 Aug 3 D Ltd. 20000
10 suitcases @₹ 2500 per piece          = 25000
Less: 20% T.D.                                    = 5000
28 Aug 5 X Ltd. 4500
5 duffle bags @ ₹1000 per piece           = 5000
Less: 10% T.D.                                      = 500
31 Aug Total 25500

(Entries, when recorded in the books of individual traders will look like the below entries)

MNC Ltd. A/c

Date Particulars Amount Date Particulars Amount
 5 Aug By Sales Return 1000

D Ltd. A/c   

Date Particulars Amount Date Particulars Amount
 11 Aug By Sales Return 20000

 X Ltd. A/c           

Date Particulars Amount Date Particulars Amount
 28 Aug By Sales Return 4500

 Sales Return A/c 

Date Particulars Amount Date Particulars Amount
31 Aug Sundries as per Sales Return Book  25500

 

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