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Unit 04 - Subsidiary Books

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Unit 4 Subsidiary Books

Structure:

4 Introduction

Objectives

4 Subsidiary Books

Purchases book

Sales book

Purchases returns book

Sales returns book

Bills receivable book

Bills payable book

Cash book

Petty cash book

4 Summary

4 Glossary

4 Terminal Questions

4 Answers

4 Case Study

4 Introduction

In the previous unit we analysed double entry accounting, journalising,

posting, debit, credit, and balancing. We also discussed the classification of

accounts under traditional approach and accounting equation approach.

Journal is a book of original entry and only one journal is maintained if the

business is very small in size and the transactions are limited. However, for

large businesses having numerous transactions, it becomes difficult if all

transactions were to be recorded in the same book. Hence, the need for sub

dividing the journal arises. Such sub divisions of journal are called

“Subsidiary books”.

In this unit, we will study how to maintain subsidiary books in detail.

Objectives:

After studying this unit, you should be able to:

• analyse the need and importance of subsidiary books

• list the various subsidiary books maintained by companies

record transactions in the appropriate subsidiary books
draw up single column, double column, and triple column cash books
analyse the need and importance of petty cash book

4 Subsidiary Books

Each subsidiary book is meant for recording transactions of a particular

type. Typically, the subsidiary books are maintained for transactions that

occur most repeatedly and are most voluminous. For example, sales,

purchases, and cash transactions.

The following seven types of subsidiary books are popular.

1. Purchases book

2. Sales book

3. Purchases returns book

4. Sales returns book

5. Bills receivable book

6. Bills payable book

7. Cash book

A transaction that cannot be entered into any of these subsidiary books will

be entered in the basic journal (journal proper).

The transactions, as and when they occur, are directly entered in the

subsidiary books without recording in the journal proper. Hence the

subsidiary books are also books of original entry. From the respective

books, posting is made to the ledger at regular time intervals (say a month).

Let us now understand each type of subsidiary books in detail.

4.2 Purchases book (purchases journal)

This book is meant for recording purchases. However, only credit purchases

of goods are recorded in this journal as the cash purchases will pass

through the cash book. The format of purchases book is given below.

Format of Purchases Book

Date

Purchase

Invoice No.

Name of the supplier

(creditor) L. Details Amount

Example: 5 gold coins are sold at the list price of Rs,000 each, subject

to trade discount of 12%. The invoice price after trade discount is

Rs. 66,000. Cash discount terms are 2%, 30 days. This denotes that the

buyer will get 2% cash discount if he makes payment within 30 days. The

cash discount is calculated as follows:

Amount payable as per invoice

Less cash discount @ 2%

Cash payable if paid within 30 days

66,

1,

64,

Differences between trade discount and cash discount are:

1. Trade discount is a reduction granted by a supplier on the catalogue

price. Cash discount is a reduction granted on the invoice price,

considering immediate payment or payment within a stipulated period.

2. Trade discount is given to promote sales while cash discount

encourages early or prompt payment.

3. Trade discount does not appear in the books of accounts but cash

discount appears in the books of accounts.

4. Trade discount may vary with the quantity purchased while cash

discount varies with the period.

Illustration 1: From the following transactions, prepare the purchase book

of Adithya bros.

Date

Invoice

No.

Particulars

5.3 442 Purchased on credit from Goyal Bros – 55 polyester

sarees @ Rs.

Less: Trade discount @10%

8.3 450 Purchased on credit from Adikari Mills – 10 silk sarees

@ Rs.

Less: Trade discount @10%

15. 3 451 Cash purchases from RD ltd. 20 chiffon sarees @

Rs,

Less: Trade discount @5%

Solution:

Books of Adithya Bros

Purchase Book

Date

Purchase

Invoice

No.

Name of the supplier L.

Details

Rs.

Amount

Rs.

5.3 442 Goyal Bros

55 polyester sarees @ Rs. 100

Less: Trade discount 10%

5,

550 4,

8.3 450 Adikari Mills

10 silk sarees @ Rs,

Less: Trade discount 10%

25,

2,500 22,

Total for the month 27,

Note: Cash purchases from RD ltd. will be recorded in cash book.

4.2 Sales book

Sales book or sales day book is the subsidiary book meant for recording

sales. However, only credit sale of goods are recorded in this journal as the

cash sales will pass through the cash book. The format of sales book is

given below.

Format of Sales Book

Date Invoice

No.

Name of the Customer

(Debitor)

L. Details

Rs.

Amount

Rs,

Illustration 2: From the following transactions, prepare the sales book of

Adithya Bros.

Date Invoice No. Particulars

20X

15. 621 Sold on credit to MRV Ltd. – 25 polyester sarees @

Rs.

Less: Trade discount @10%

18. 622 Sold on credit to PHR Ltd. – 5 silk sarees @ Rs. 3,

Less: Trade discount @10%

25. 3. 623 Cash sales to BV Ltd. – 10 chiffon sarees @ Rs,

Less: Trade discount @5%

damaged, were not as per specifications, or were not as per the sample

approved. The format of sales returns book is given below.

Format of Sales Returns Book

Date

Credit

Note No.

Name of the customer L.

Details

Rs.

Amount

Rs.

Credit note number

The value of sales returns is deducted from the amount receivable from the

customer. In order to do such deductions, the debtor’s account will be

credited in the books of the creditor. A credit note is a note sent to the

debtor (buyer) by the creditor (supplier) to intimate that his account has

been credited in the books of the creditor. It contains details like date of

return, specifications and quantity of the goods returned, reasons for the

return, and the value of the goods returned.

4.2 Bills receivable book

Bill receivable book is one of the subsidiary books. To prepare this book one

should know about the bill of exchange. A bill of exchange is defined by the

Indian Negotiable Instruments Act, 1881 as “an instrument in writing

containing an unconditional order signed by the maker, directing a certain

person to pay a certain sum of money only to, or to the order of a certain

person or to the bearer of the instrument ”.

Normally a bill of exchange is raised when goods are sold or purchased on

credit.

The parties to a bill of exchange are:

Drawer – He is the creditor who writes (draws) the bill of exchange on

the debtor.

Drawee – He is the debtor who accepts the bill of exchange.
Payee – He is the person who is entitled to receive the amount

mentioned in the bill. Normally the drawer is also the payee of the bill.

Accepting of a bill of exchange

The creditor draws the bill and presents it to the debtor for accepting it. The

debtor accepts the bill by affixing his signature on the bill. By doing so the

debtor acknowledges that he owes the amount mentioned there in to the

drawer and also agrees to repay it on or before the date mentioned there in.

Bills Receivable (B/R) and Bills Payable (B/P)

The bill of exchange drawn by the creditor becomes a valid document after it

is signed by the debtor. The same bill becomes a ‘Bill Receivable’ for the

creditor and a ‘Bill Payable’ for the debtor.

Bills receivable book is a subsidiary book meant for recording acceptances

obtained from the debtors. A hypothetical bills receivable book is given

below.

Books of Sham Sundar & Co.,

Bills Receivable Book

####### No.

####### of

####### the

####### bill

####### Date of

####### receipt

####### Date of

####### the bill

####### Received

####### from whom

####### Accep-

####### tor

####### Where

####### payable

####### Term of

####### the bill

####### Due

####### Date* LF

####### Amount

####### Rs.

####### Remarks

####### 1 1-7-11 1-7-11 Mr. X Mr. X Delhi 3 mths 4-10-11 7,

####### 2 5-7-11 5-7-11 Mr. Y Mr. Y Noida 4 mths 8-10-11 9,

####### 3 19-7-11 19-7-11 Mr. A Mr. A Agra 3 mths 22-10-11 12,

####### 4 25-7-11 25-7-11 Mr. B Mr. B Delhi 4 mth 28-10-11 10,

####### Total for the month 38,

4.2 Bills payable book

Bills payable book is a subsidiary book meant for recording acceptances

given to creditors.

A hypothetical bills payable book is given below.

Books of Sun Shine Co.

Bills Payable Book

####### No.

####### of

####### the

####### bill

####### Date of

####### the bill

####### To whom

####### given Drawer Payee

####### Where

####### payable

####### Term of

####### the bill

####### Due

####### date LF

####### Amount

####### Rs

####### Date

####### paid

####### Re-

####### marks

####### 1 7.6 Ram Ram Ram. Agra months 3

####### 2000

####### Sept

####### 10

####### 56,

####### 2 June 12 Sunder Sunder Sunder Delhi months 4 Oct 15 72,

####### 3 June 20 KV KV KV Chennai months 5 Nov 23 50,

####### Total 1,78,

R no. (Receipt number) - The number of the receipt in which a particular

payment is recorded is entered in this column.

Types of Cash Books

Following are the different types of cash books.

1. Simple cash book (Single column cash book)

2. Two column cash book

3. Three (triple) column cash book

4. Petty cash book

a. Simple cash book

b. Analytical cash book

Let us now understand the different cash books in detail.

1. Simple cash book

It has only one amount column on either side. The format of cash book

shown above is a simple cash book.

2. Two column cash book

The discount columns are inserted in the cash book to:

Enter the discount allowed to debtors along with the payment received

from them.

Enter the discount received from creditors along with the payment made

to them.

Hence there will be two amount columns on either side of the cash book.

Such a cash book is called two column cash book. The discount allowed

column appears on the debit side and the discount received column appears

on the credit side of the two column cash book. The format of two column

cash book is given below.

Format of Two Column Cash Book

Dr. Cr.

####### Date Particulars(Receipts) V No.

####### L

####### F

####### DA

####### Rs.

####### Amount

####### Rs. Date

####### Particulars

####### (Payments)

####### R

####### No

####### L

####### F

####### DR

####### Rs.

####### Amount

####### Rs.

####### By Bal c/d

####### Total Total

####### To Bal b/d

DA = Discount Allowed

DR = Discount Received

While the amount column is balanced, the discount columns are only

totalled but not balanced.

3. Three (Triple) column cash book

Presently, most of the cash transactions happen through banks. It would be

convenient to maintain the bank account also in the cash book. In order to

do this, a bank column is inserted on either side of the cash book. Hence,

there will be three amount columns on either side of the cash book. Such a

cash book is called three (triple) column cash book. Amount deposited to

the bank account appears on the debit side of the cash book and the

amount withdrawn from the bank account appears on the credit side. The

format of three column cash book is given below.

Format of Three Column Cash Book

Dr. Cr.

Date Particulars(Receipts) No. V LF DARs. CashRs. BankRs. Date Particulars(Payments) No R LF DRRs. CashRs. BankRs. By Bal c/d Total Total To Bal b/d

Contra Entry

A contra entry is an entry which appears on both sides of a three column

cash book. This happens in the following two situations.

1. When cash is deposited to the bank account

Journal entry

Bank a/c Dr.

To Cash a/c

2. When cash is withdrawn from the bank account

Cash a/c Dr.

To Bank a/c

As both cash and bank accounts are maintained in the cash books, both

postings are done to the cash book itself. Therefore, the entry appears twice

in the cash book, once on either side.

4.2 Petty cash book

A separate cash book can be maintained for petty (small) expenses like

stationery, postage, stamps, refreshments, carriage, cartage, daily wages,

etc. Such a separate book is known as petty cash book.

Types of petty cash book

1. Simple petty cash book

It looks like a simple cash book.

2. Analytical petty cash book

This is prepared in a columnar fashion to facilitate analysis of payments.

The petty cash book is normally maintained under a system called Imprest

system. Under this system, at the beginning of a month, a fixed sum of

money is given by the chief cashier to the petty cashier to meet petty

expenses. At the commencement of the next period, the petty cashier is

reimbursed to the extent of amount spent by him during the earlier period.

Illustration 3:

Enter the following transactions in an analytical petty cash book for the

month of November, 2005.

1 st. Received a cheque for petty cash Rs.

2 nd. Paid bus fare to messengers Rs. 50

4 th. Paid auto fare Rs.

10 th. Postal stamps purchased Rs.

12 th. Paid for stationery Rs.

5 th. Paid for carriage Rs.

16 th. Purchased envelopes Rs.

20 th. Paid wages Rs.

25 th. Gave tips to driver Rs.

30 th. Paid telephone bills Rs.

Analytical petty cash book

####### Date

####### Particulars Amount

####### Date Particulars

####### voucher No.

####### Total

####### payments

####### Analysis of payments LF

####### Ledger A/c

####### ’s

####### Nov

####### TravelRs. PostageRs. CarriageRs.

####### Printing andStationery

####### Rs.

####### Wages

####### Rs.

####### Sundry

####### Expenses Rs.

####### Nov

####### 1

####### To

####### bank

####### 1000 1st By bus fare 50 50

####### 2 By auto

####### fare

####### 70 70

####### 4 By postal 80 80

####### 10 By

####### stationery

####### 90 90

####### 12 By carriage 60 60

####### 15 By

####### cnvelopes

####### 50 50

####### 16 By wages 100 100

####### 20 By tips 50 50

####### 25 By telegram 20 20

####### 30 Total exp 570 120 100 60 140 100 50

####### No30 By balance

####### c/d

####### 430

####### Total 1000

####### Dec

####### 1 st

####### To bal

####### b/d

####### To

####### Cash

####### 430

####### 570

Activity 1:

Draw the formats of various subsidiary books.

Hint: Refer to Section 4.

Self Assessment Questions

1. Purchases book contains only cash purchases. (True/False)

2. Sale book contains sale of goods and assets. (True/False)

3. Credit note is sent to a debtor. (True/False)

4. Record a journal entry for drawings made for personal purposes of the

business person.

5. What is the type of entry when drawings are made from the bank for

office purpose?

6. During the year, suppose the total owner’s equity of Beta Co. increased

from Rs. 50,000 to Rs. 60000. This is due to earnings made during the

year. Is this statement necessarily true?

7. Enter the following transactions in the single column cash book of

Gopichand.

March, 2003

1 st. Commenced business with cash 20000

2 nd. Bought goods for cash 5000

3 rd. Sold goods for cash 4000

4 th. Goods purchased from Ravi Kumar 10000

10 th. Paid to Ravi Kumar 7000

14 th. Cash sales 8000

18 th. Purchased furniture for office 4000

22 nd. Paid wages 500

25 th. Paid rent 600

30 th. Received commission 4000

30 th. Withdrew for personal purpose 1000

31 st. Paid salary 900

8. Record the following transactions in two column cash book (Cash and

Bank) in the books of Soft Silk Co., for the month of July, 2004. Find

out the closing balances for the month of July 2004.

July, 2004 Rs.

01 st. Opening balance b/d (Cash) 14,

Opening balance b/d (Bank) 7,

04 th. Cash purchases 6,

05 th. Rent for June month paid by cheque 2,

09 th. Cash sales 15,

12 th. Dividend paid by cheque 4,

15 th. Cash deposited into bank 5,

18 th. Cash paid to Rahim Bros to settle his account 10,

20 th. Repairs paid 1,

22 nd. Commission paid by cheque 2,

23 rd. Customer, Deepak remitted to our bank account 20,

25 th. Cash withdrawn from bank for office use 5,

27 th. Drawings made from business cash for personal purposes 2,

28 th. Purchased stationery by cash 3,

30 th. Cash withdrawn for personal use from bank 1,

9. Prepare three columnar cash book for the month of May.

May 1st Balance cash in hand Rs; bank overdraft at bank

Rs.

4 th Invested further capital Rs out of which Rs was

deposited in the bank

6 th Sold goods for cash Rs.

6 th Collected from debtors of last year Rs; Discount allowed

to them Rs.

10 th Purchased goods for cash Rs,

11 th Paid Ram Vilas, our creditor Rs,000; discount allowed by him

Rs.

13 th Commission paid to our agent Rs,

14 th Office furniture purchased for cash Rs,

14 th Rent paid Rs. 400; electricity charges paid Rs,

14 th Drew cheque for personal use Rs,

17 th Cash sales Rs,

18 th Collection from Atal Bihari Rs,000, deposited in the bank on

19 th April

19 th Drew from the bank for office use Rs,

22 nd Drew cheque for petty expenses Rs,

24 th Dividend received by cheque Rs, deposited in the bank on

the same day

25 th Commission received by cheque Rs,300, deposited in the

bank on 28th April

29 th Drew from the bank for salary of the office staff Rs,

30 th Deposited cash in the bank Rs,

6. The statement is true if additional capital is not brought in during the

year. Owner’s equity increases if profits are added or additional capital

is brought in.

7. Cash balance 170000

Hint: Goods Purchased from Ravi Kumar is a credit purchase.

8. Cash balance 7000, bank balance (debit) 16750

9. Cash balance 59300, bank balance (debit) 25300 , DA 2000, DR 650

10. Balance 18

4 Case Study

RD International Ltd. incurred the following transactions for the month of

June 2011.

1

3

4

7

9

12

15

18

20

21

23

24

26

28

29

30 Cash in hand, Rs,700 , cash at Bank Rs,400, and Capital Account

Rs,

Bought goods for cash Rs,

Purchased goods from Meera & Co. for Rs,800 less 10% trade discount

Sold goods to Bedi & Co. for Rs less 20% trade discount

Withdrew Rs from bank for private use

Sold goods to Amjad Khan for Rs. 6,

Paid Rs,000 to Meera & Co. in full settlement of their account

Goods worth Rs returned by Amjad Khan

Received Rs from Amjad Khan

Purchased goods from Shiv Dayal & Co. for Rs,700;

Rs,000 paid to Shiv Dayal & co. by cheque, discount allowed Rs.

Purchased furniture for Rs from Manjeet Furniture House on credit

Paid into bank Rs,

Amjad Khan declared insolvent; a first and final dividend of 50 paise in a

rupee is received from him

Goods worth Rs returned to Shiv Dayal & Co

Interest on capital provided Rs.

Goods worth Rs taken by the proprietor for his personal use

Paid Rs for advertisement by cheque

Paid salaries to staff Rs,

Cash sales Rs,

Paid into bank Rs,

Bought 100 shares in Hind Nil Ltd. at Rs per share, brokerage paid Rs.

Received Rs,900 from Bedi & Co., discount allowed Rs.

You are the newly appointed accountant of the company. The company has

asked you to enter all the transactions in the journal and then post them to

the ledger.

Source: Narang, K. L & Jain, S. P. Financial Accounting, Kalyani Publishers

Discussion Questions:

1. Would you like to make any suggestions to the company?

2. If yes, what suggestions would you make?

3. How will you record these transactions as per you suggestions? Please

show important journal entries, books, and ledger accounts.

Answer to Case Study

1. Yes

2. The company must maintain subsidiary books instead of a single

journal.

3. Important journal entries, books, and ledger accounts.

Journal Entries

Date Particulars L.

Debit

Amount

Rs.

Credit

Amount

Rs.

2011

June 24

“

Furniture Account Dr.

To Manjeet Furniture House

(Being furniture purchased on credit)

800 1,

411

400

900

800 1,

411

400

900 Bad Debts Account Dr.

To Amjad Khan

(Being 50% amount due written off as bad debt

on Amjad Khan becoming insolvent)

Interest on Capital Account Dr.

To Capital Account

(Being interest on capital provided )

Drawings Account Dr.

To Purchases Account

(Being goods taken for personal use of the

proprietor)

Capital Account Dr.

To Drawings Account

(Being transfer of balance of Drawings Account)

3,511 3,

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