Note on Subsidiary Book

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Subsidiary Book

There are numerous transaction that occurs so many times in a day. It is inadequate and inconvenient to record the transaction in the book of the original entry that is journal entry. Every transaction recorded in journal becomes thick, bulky, tedious and consumes more time, labor and money. So, the transaction which are of repetitive nature are recorded in the separate book through special journal. Such separate book of original entry, maintained for recording the similar and repetitive type of transactions is known as subsidiary book. These are also known by different names such as sub journal, sub division of journal, purchase book, sale book, Purchase return book, sale return book, cash book, etc.are the different example of subsidiary book.

Objective or importance or advantage of subsidiary book

Different objectives or importances or advantages of subsidiary book can be briefly explained with the help of the following points:

  1. Saving of time and labor

If all the transaction of similar nature are recorded together in a separate book, a considerable amount of labor and time can be saved. There is no need of preparing journal for each transaction with its narration. In other hand, different subsidiary books may be prepared by different clerks so that all transaction are entered in subsidiary immediately as they occur. For example, many credit purchases of all the day can be recorded in purchase book as a single entry.

  1. Division of work

Recording of transaction in subsidiary books can be performed by different clerks as per nature of subsidiary books. It means a person may be employed to record the purchase on credit where as another may be of credit sales. Thus, it introduces the division of labor. Division of labor increases the work efficiency of the labors. The working labor has specialization on their job.

  1. Possibility of Internal Checks

Different subsidiary books may be maintained by different clerks and the balance of subsidiary book determined by the clerk also may be recorded by another clerk while posting into ledger and preparing trial balance. Thus, error or fraud committed by one may be checked by another.

  1. Quick access of Information

Since, the transactions relating to one particular head are recorded in separate book, it is easy to get any type of information in detail.

Limitation and disadvantage of Subsidiary Book

There are certain limitations for subsidiary book and some of them can be briefly explained as follows'

  1. Expensive

Under subsidiary books of journal requires number of books and staff and therefore maintaining subsidiary book is little bit expensive.

2. Lack of complete information

A subsidiary book does not provide complete information about the financial transaction and financial situation.

3. Not suitable for small business

The system is not suitable for small businesses which have limit number of transaction

4. Requires some basic knowledge

Ir require some basic knowledge of accountancy as if any of the entries are recorded incorrect then it will be a problem or they need to be rectified.

Types of subsidiary book

  • Purchase book and purchase account
  • Sales book and sales account
  • Purchase return book and purchase return account
  • Sales return book and sales return account
  • Bill receivable book
  • Bill payable book
  • Cash book

1. Purchase book

A books in which credit purchase of goods are recorded is known as purchase book. Purchase book shows the information of supplier, quantity and price of goods purchased and other terms and conditions are available. Cash purchase of goods and credit purchase of assets are not recorded in this book. Other names of purchase book are purchase day book, purchase journal, bought journal, inward invoice book, etc. A specimen of purchase book can be given as below:

Purchase Book

Date

Particulars

Invoice no

L.F

Amount

Debit

Total

Total

xxx

Invoice

It is a document which is prepared by the seller and it includes name and address of the supplier, quantity of goods, price of goods, credit period, means of delivery, modes of payment, discount allowed, etc.

Cash Discount

Cash discount is created at time of payment and it is recorded in the books of account and not in subsidiary book. It is provided by supplier to the customer encouraging to pay due amount earlier than the due date.

Trade discount

Trade discount is deducted from the invoice price and it is recorded in subsidiary nook. It should not be recorded in any books. Therefore the purchase of goods and transaction is recorded with net amount after deducting the invoice price. It is provided by the supplier to customer encouraging to make the purchase in bilk quantity.

2. Sales book

A book in which the credit sales of goods are recorded is known as sales book. Sales book shows the information of customer, Quantity price of goods sold and other conditions are available. Cash sales of good and credit sales of assets are not recorded in this book. Other names of sales book are sales day book, sales journal, outward invoice book etc.

Date

Particular

Invoice No

Lf

Amount

Debit

Credit

Total

3. Purchase return book

It may be necessary to return some goods thet the firm has brought on credit for variety of reasons. All the returns of goods are recorded primarily in Return outward Book. This Book is also known as purchase Return Book.

Date

Particulars

Debit Note no

LF

Amount

Details

Total

Total

xxx

4. Sales return book

Sales return book is prepared to record all goods returned from the customer. Sales return book mention goods may be returned by customer due to variety of reasons. All goods returned from the customers are recorded in sales return book. This is also known as return inward book.

Date

Particulars

Credit Note no

LF

Amount

Details

Total

Total

xxx

5. Bills receivable book

When credit sales of goods are made, the purchaser gives his guarantee to make payment in future in the form of bill. When the seller receives such bill, it is Bill Receivable for him as he will receive payment in future against such bill. In case a business house receives a number of bills, a Bills Receivable Book is maintained to record all such bills.

Format of Bills Receivable Book:

No of bills

Date

From whom received

Drawer

acceptor

Where payable

term

Due date

LF

Amount

remarks

6. Bills Payable Book

When credit purchases are made by a firm, it gives a guarantee to the seller to make payment in future in the form of a bill. This bill is said to be Bills Payable for the firm as he will pay for the bill in future. A Bills Payable Book is opened to record all such bills.

Format of Bills payable Book:

date

To whom given

Drawer

payee

Where payable

term

Due date

LF

Amount

Remarks

7. Cash Book:

All the cash transactions for receipt & payment should be recorded through this book.

Important Note:

  1. While preparation of purchase return book and sales return book, debit note no. and credit note no. respectively will be written instead of Invoice no.
  2. All credit transaction are recorded into the book. On the other hand, cash transaction are not recorded in the book.
  3. All cash transaction are recorded into the account.
  4. Some transaction are not recorded in the books:
  5. Single asset purchase
  6. Purchase for official or domestic use.On the other hand, assets for the purpose of reselling or the material purchased to produce finished goods are recorded.
  7. Trade discount is deducted from related transactions and record into the book.
  8. Cash discount is deducted from related transactions and record into the account and not into the book.
  9. Related expenses are added to sales or purchase after deducting the trade discount.

(Jogender Goet, Bhesh Raj Banjade, 2012)

Bibliography

goet, J. (2012). Principal of accountinh. kalimati, kathmandu: Dreamland publication.

Different Objective or importance or advantage of subsidiary book

  1. Saving of time and labor

If all the transaction of similar nature are recorded together in a separate book, a considerable amount of labor and time can be saved. There is no need of preparing journal for each transaction with its narration. In other hand, different subsidiary books may be prepared by different clerks so that all transaction are entered in subsidiary immediately as they occur. For example, many credit purchases of all the day can be recorded in purchase book as a single entry.

  1. Division of work

Recording of transaction in subsidiary books can be performed by different clerks as per nature of subsidiary books. It means a person may be employed to record the purchase on credit where as another may be of credit sales. Thus, it introduces the division of labor. Division of labor increases the work efficiency of  the labors. The working labor has specialization on their job.

  1. Possibility of Internal Checks

Different subsidiary books may be maintained by different clerks and the balance of subsidiary book determined by the clerk also may be recorded by another clerk while posting into ledger and preparing trial balance. Thus, error or fraud committed by one may checked by another.

  1. Quick access of Information

Since the transactions relating to one particular head are recorded in separate book, it is easy to get any type of information in detail.

 

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