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Recording of Transactions - II

Subsidiary Books- Meaning and Introduction

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

• Introduction • Need for Subsidiary Books • Kinds of Subsidiary Books • Advantages of Subsidiary Books 

Introduction Accounting process starts with identification of transactions of financial and non-financial nature. All financial transactions are first recorded in Journal. This is known as Books of Original entry. A small business has lesser number of transactions and therefore, it is possible to record all business transactions in one book i.e. Journal. However, when business grows, the number of business transaction also increases. It is very time-consuming, difficult and tedious task for a firm to record such voluminous transactions and events in one single book. Thus, in order to save time and efforts, it is advisable to sub-divide the Journal into Subsidiary Books to record the transactions of similar nature in a separate book. These sub-divided Journals are popularly known as Subsidiary Books. These books are also termed as Special Purpose Books or Special Journals or Books of Original/Primary/Prime Entry. Sub-division of Journal provides scope for division of work which leads to the improvement in efficiency and effectiveness. In other words, subsidiary books provide an ease and convenience to record the transactions of similar nature in a separate book. Journal entry is not required for the transactions which are entered in these books. Need for Subsidiary Book or Special Purpose Books The following are needs for drawing up the subsidiary books.  

i. Quick and Efficient Recording- When the size of a business is large, then definitely its number of business transaction will also be high. It is very tedious and time consuming process to record all the transaction in a Journal. By maintaining separate books, then recording of such voluminous transactions can be done in lesser time and more efficiently. So, due to this reason the need for maintaining special purpose books arises.

ii. Similar Nature- In every business organisation, there are various transactions which are similar and repetitive in nature. It will be more convenient to record all similar transactions at one place as it helps in division of work among the employees. Thus, this need can be fulfilled by preparing the special purpose books.

iii. Economical- Maintaining the subsidiary books are more economical as it saves time and at the same time it also enhances the efficiency of the employees.

iv. Easy Posting- In the subsidiary books all the similar transactions are recorded at a single place. This helps in its easy posting in the ledgers. For example, all credit sales are recorded in sales book and the total of sales book is to be posted to the sales account in the ledger.

v. Complete Information at One Place- All information related to similar transactions such as credit sales, credit purchases, cash receipts, cash payments, etc. are easily and readily available at a single place.

Kinds of Subsidiary Books The following are the most popular subsidiary books that are used in a business.

1. Cash Book- This book is maintained to record all the cash receipts and cash payments. In addition to this, all the transactions related to bank such as payment into bank and withdrawals from bank are also recorded in this book.

2. Sales Book- This book is maintained to record the credit sale of goods and services done by a firm.

3. Purchases Book- This book is maintained to record the credit purchase of goods and services by a firm.

4. Sales Return Book or Return Inward Book- This book is maintained to record the return of goods by the customers, which were previously sold to them on credit.

5. Purchases Return Book or Return Outward Book- This book is maintained to record the return of goods by the business to the suppliers, which were previously purchased from them on credit.

6. Journal Proper- This book is maintained to record all other similar transactions which cannot be incorporated or recorded in any of the above books.

Advantages of Subsidiary Book or Special Purpose Books The given below are the various advantages of maintaining the subsidiary books.

i. Division of Work- In the absence of sub-division of Journal, the large number of business transactions needs to be recorded in one single book i.e. in the Journal by more than one person. This may lead to chaos and confusion. At the same time, there will be more inflexibility and lack of accountability among the accountants. Sub-division of Journal enables different persons to maintain different books. This division of work will not only avoid confusions but also enhance the sense of accountability among the accountants.

ii. Time Saving- The recording of huge business transactions through subsidiary books leads to time saving as various accounting processes can be undertaken simultaneously due to use of different books as compared to its recording through entries in a Journal.

iii. Prompt Information- The transactions of similar nature are recorded in a particular subsidiary book. This acts as a ready or available source to access the information in a quick manner at a single place.

iv. Accountability- Sub-division of Journal entrusts its employees with high degree of responsibility and accountability for maintaining subsidiary books that are particularly assigned to them.

v. Easy Checking- As the volume of transactions is less in the subsidiary books, so, it helps in easy and quick detection of any discrepancies or errors.

vi. Specialisation- The accountability, responsibility and division of work together enhance the specialisation of each accountant or employee. This is because, routine and repetitive tasks are performed by a single person which helps in improving the efficiency.

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

• Meaning of Cash Book • Features of Cash Book • Advantages of Cash Book • Differentiation between Cash Book and Cash Account • Cash Book- A Subsidiary and a Principal Book • Similarities of Cash Book with Journal • Types of Cash Book

Meaning of Cash Book As you have already learned that every transaction is first recorded in Journal. But as the business grows, volume of transaction also increases and it becomes practically very difficult to record all the transactions in Journal. So, for all the transactions related to Cash whether it is receipt or payment a separate book is maintained, which is called Cash Book. In Cash Book all the transactions related to receipts of cash are recorded on the left side of the book as Cash Receipts and all the transactions related to cash payments are recorded on the Right Side of the Book as Cash Payments. Balance of Cash or Bank on any day can be calculated by deducting total of Right side (or Payment side) of the book from total of the Left Side (or Receipt side) of the book. Features of the Cash Book

(1) It records only cash transactions.

(2) All transactions relating to receipt of cash or cheque are recorded on the Left Side of the Cash Book and the transactions related to payment of cash or cheque are recorded on the Right Side of the Cash Book.

(3) Transactions are recorded in the Cash Book as and when they occurred i.e. in chronological order.

(4) It serves both the purpose of Journal as well as Ledger.

Advantages of the Cash Book

(1) It eliminates duplication of work because when Cash Book is maintained there is no need to record these transactions in Journal and Cash Account is also not required to be prepared. Cash book in itself acts as Journal as well as a ledger.

(2) It records cash as well as bank transactions.

(3) It helps in getting balance of Cash and Bank for any day at any point of time.

(4) It gives a daily summary of Cash transactions in form of Cash received, paid and closing balance of Cash and bank at the end of the day.

(5) Closing cash balance of the Cash Book on any particular day must match with actual cash in hand available. This physical check reduces chances of cash frauds committed by cashiers and employees.

Differentiation between Cash Book and Cash Account

Basis Cash Book Cash Account Nature

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