Subsidiary Books

Introduction to Subsidiary Books and Journal Proper

Objectives After going through this lesson, you shall be able to understand the following concepts.

• Meaning of Subsidiary Books

• Kinds of Subsidiary Books

• Need for Subsidiary Books

• Advantages of Subsidiary Books  

• Introduction to Journal Proper

• Types of Entries in Journal Proper

• Difference between Journal Proper and Subsidiary Books

Meaning of Subsidiary Books As we know that all the transactions of a business is recorded in the books of original entry. Now, let us suppose that on an average basis, a business enters into 500 transactions in one day. Obviously, it will not be possible for a firm to record all such transactions in the Journal and hence the need arises to sub-divide the Journal into subsidiary books. These books are used to record the transactions of similar nature at one place. These books are also termed Special Purpose Books or Special Journals or Books of Original/Primary Entry. Now, let us discuss the various types of subsidiary books. Kinds of Subsidiary Books The following is the graphical representation of the most popular subsidiary books used in a business.  

Example 1: The following transactions should be recorded under which book of original entry?

A. Rent received through cheque

B. Goods sold to Mr. Sharma for Rs 1,500, whose payment is due after 2 months from the date of sale

C. Goods sold for cash of Rs 300, but the cash was not given immediately

D. Free samples given by the manufacturer, which costs Rs 2,000

E. Purchased furniture worth Rs 5,000 from M/s Sky Timbers

F. Ram returned goods worth Rs 500.

G. Received a bill for Rs 4,000 from a debtor

Solution

S. No. Transaction Recorded in Explanation A. Rent received through cheque Cash Book The transaction involves payment through cheque, which reduces the bank balance; therefore, it is to be recorded in the Cash Book. B. Goods sold to Mr. Sharma, whose payment is due Sales Book Payment due implies that the sale is made on credit; therefore, it will be recorded in the Sales Book. C. Goods sold for cash for Rs 300, but the cash was not given immediately Journal Proper When goods are sold and the customer fails to pays the due amount within a day, it is to be entered in the Journal Proper until the cash is received. D. Free samples given by the manufacturer, which costs Rs 2,000 Journal Proper Free samples does not involve any liability to pay any amount; therefore, it is to be recorded in the Journal Proper E. Purchased furniture worth Rs 5,000 from M/s Sky Timbers Journal Proper Purchase of an asset on credit will be recorded in the Journal Proper. F. Ram returned goods worth Rs 500 Sales Return Book Ram returned the goods that were sold to him, so this transaction will be entered in the Sales Return Book assuming that the goods were sold on credit terms. G. Received a bill for Rs 4,000 from a debtor Bills Receivable Book Receipt of Bills Receivable from the debtor will be recorded in the Bills Receivable Book.

Example 2: Fill in the blanks with appropriate alternatives.

A. Purchases Book records the merchandise purchased on _____. (credit, cash)

B. ______ records the transactions that do not find place in any of the day books. (Journal Proper, Ledger)

C. Sales Return Book records the goods returned by the _____.(creditors, debtors)

D. ______ is also known as the book of original entry. (Purchases Book, Purchases Account)

Solution

A. Purchases Book records the merchandise purchased on credit. Explanation: Merchandise is another name for goods in which the entity deals. Thus, Purchases Book records all the credit purchases of goods.   

B. Journal Proper records the transactions that do not find place in any of the day books. Explanation: Transactions that do not find place in any of the day books, namely Purchases Book, Sales Book, Purchases Return Book, Sales Return Book and Cash Book, are recorded in the Journal Proper.

C. Sales Return Book records the goods returned by the debtors.

D. Purchases Book is also known as the book of original entry. Explanation: Book of original entry is that book where all the transactions are initially recorded; therefore, Journal and Subsidiary Books are also known as book of original entry.

Need for Subsidiary Books or Special Purpose Books The following are the needs for drawing up the subsidiary books.

1. It helps in quick and efficient recording of voluminous transactions in lesser time.

2. Similar nature transactions are recorded at one place.

3. It saves time and enhances the efficiency of the employees.

4. It helps in the easy preparation of ledger accounts.

Advantages of Subsidiary Books The given below is a graphical representation of the various advantages of maintaining the subsidiary books.

Example 3: Which of the following is incorrect for subsidiary books?

(a) It helps in easy posting of transactions.

(b) It makes every individual specialised in his work.

(c) It builds accountability among the employee…