Term Paper on Subsidiary Books | Journal | Double Entry System | Accounting

Here is a term paper on ‘Subsidiary Books’ for class 11 and 12. Find paragraphs, long and short term papers on ‘Subsidiary Books’ especially written for school and college students.

Term Paper # 1. Introduction to Subsidiary Books:

Journal is sub-divided into various parts known as subsidiary books or sub-divisions of journal. Each one of the subsidiary books is a special journal and a book of original or prime entry. There are no journal entries when records are made in these books.

Recording the transactions in a special journal and then in the ledger accounts is the practical system of accounting which is also referred to as English System. Though the usual type of journal entries are not passed in these sub-divided journals, the double entry principles of accounting are strictly followed.

Term Paper # 2. Types of Subsidiary Books:

There are different types of subsidiary books which are commonly used in any big business concern.

They are:

i. Purchases Book,

ii. Sales Book,

iii. Purchases Returns Books,

iv. Sales Returns Books,

v. Bills Receivable Books,

vi. Bills Payable Books,

vii. Journal Proper, and

viii. Cash Book.

(i) Purchases Book:

This book is used to record all credit purchases made by the business concern from its suppliers. This book is also known as ‘Purchases Books’, ‘Purchases Journal’ or ‘Invoice Book’.

It contains five columns, viz.:

a. Date,

b. Particulars,

c. Ledger Folio,

d. Inward Invoice Number and

e. Amount.

Whenever any credit purchase is made, the date on which the transaction has taken place is entered in the ‘Date Column’, the name of the party from whom the purchase has been made the particulars column, the inward invoice number with which the purchase has been made in the ‘inward Invoice Number Column’ and the money value of the purchase in the ‘Amount Column’. The ‘L.F. Column’ is to record the ledger folio number while posting is made.

Posting:

The total of purchases book for a specified period is debited to the purchases account in the Ledger. The personal accounts are posted by crediting the individual accounts.

The specimen ruling of a Purchases Book is as follows:

Purchases Book:

(ii) Sales Books:

This book is used to record all credit sales effected by the business to its customers. This book is also called as ‘Sales Book’, ‘sales Journal’ or ‘Sold Book’.

It contains five columns, viz.:

a. Date, Particulars,

b. L.F.,

c. Outward Invoice Number and

d. Amount.

When any credit sales is effected, the date is entered in the ‘Date Column’, the name of the party to whom the sale is made in the ‘Particulars Column’, the invoice number with which the sales have been effected in the ‘Out-ward Invoice Number Column’ and the money value of the sales in the ‘Amount Column’, The LF column is entered while posting is effected.

Posting:

The total of the Sales Book for a specified period is credited to the Sales Account in the Ledger. The personal account is posted by debiting the individual accounts.

The specimen ruling of a Sales Book is as follows:

Sales Book:

(iii) Purchases Returns Books:

This book is used to record all transactions relating to the goods returned to suppliers. This book is also known as ‘Purchases Returns journal’ or ‘Returns Outward Book’.

The specimen ruling of a Purchases Returns Book is given below:

Purchases Returns Book:

The columns in this book are similar to those of Purchases Book except the Debit Note Column in which the debit note number is recorded. A debit note represents a note sent to the supplier for the value of goods retuned by the business. While posting, all the personal accounts are debited in the Ledger and the total of Purchases Returns Book is credited to Purchases Returns Account.

(iv) Sales Returns Books:

This book is used to record all transactions relating to goods returned by customers. This book is also known as ‘Sales Return Journal’ or ‘Returns Inwards Book’.

The specimen ruling of sales returns book is given below:

Sales Returns Book:

The columns in this book are similar to those of Sales Book except the Credit Note Column in which the credit note number is recorded. A credit note represents a note sent to the customer for the value of the goods returned by him. While posting, all the personal accounts are credited in the Ledger and the total of sales returns book is debited to Sales Returns Account.

(v) Bills Receivable Book:

This book is used to record all the bills received by the business from its customers.

It contains details regarding:

a. The name of the acceptor,

b. Date of the bill,

c. Place of payment,

d. Term of the bill,

e. Due date and

f. The amount of the bill.

The specimen ruing of a Bills Receivable Book is given below:

Bills Receivable Book:

While posting, the individual customers’ accounts will be credited and the total of the Bills Receivable Book for a specified period will be debited to the Bills Receivable Account in the Ledger.

(vi) Bills Payable Book:

This book is used to record all the bills accepted by the business drawn by its creditors.

It contains details regarding:

a. The name of the drawer,

b. Payee and date of acceptance,

c. Due date,

d. Place of payment,

e. Term and

f. Amount of the bill.

The specimen ruling of Bills payable Book is given below:

Bills Payable Book:

While posting the individual drawer or payee account is debited and the Bills payable Account is credited with the total in the Bills Payable Book.

(vii) Journal Proper:

This book is used to record all the residual transactions which cannot find place in any of the subsidiary books. While recording, the entries are made in the journal covering both the aspects of the transaction.

The following are some of the examples of transactions which are entered in this book:

a. Opening entries and closing entries.

b. Adjusting entries

c. Transfer entries from one account to another account.

d. Rectification entries.

e. Bills of Exchange Entries

f. Credit Purchase/sale of an asset other than goods.

(viii) Cash Book:

Cash Book is a sub-division of Journal recording transactions pertaining to cash receipts and payments. Firstly, all cash transactions are recorded in the Cash Book wherefrom they are posted subsequently to the respective ledger accounts. The Cash Book is maintained in the form of a ledger with the required explanation called as narration and hence, it plays a dual role of a journal as well as ledger.

All cash receipts are recorded on the debit side and all cash payments are recorded on the credit side. All cash transactions are recorded chronologically in the Cash Book. The Cash Book will always show a debit balance since payments cannot exceed the receipts at any time.

Kinds of Cash Book:

From the above it can be observed that the Cash Book serves as a subsidiary books as well as ledger. Depending upon the nature of business and the type of cash transactions, various types of Cash books are used.

They are:

(a) Single or Simple Column Cash Book:

This is the simplest form of Cash Book and is used when payments and receipts are mostly in the form of cash and where usually no cash discount is allowed or received. But, when transactions involving discounts are effected, it is recorded in a separate ledger account.

The ruling of Single Column Cash Book is as follows:

Single Column Cash Book:

From the above it can be observed that the Single Column Cash Book is just like a ledger account. When cash is received, it is recorded on the debit side, i.e., ‘Receipts Side’ of the Cash Book, with the date on which the transaction is effected, in the ‘Date Column’, the name of the party or the head of a nominal account, from whom or for which the cash has been received, in the ‘Particulars Column’, the receipt number, with which the cash has been received by the cashier, in the ‘R. No. Column and the money value of the transaction in the ‘Amount Column’ respectively. The L.F. (Ledger Folio) column is for entering the reference ledger folio number when posting to the ledger is made.

Similarly when payment of cash is made, it is recorded on the credit side, i.e., “Payments Side” of the Cash Book, with the date in the ‘Date Column’, the name of the party or head of a nominal account in the ‘Particulars Column’, the voucher number in the ‘V. No. Column’, and the money value of the transaction in the ‘Amount Column’ respectively. The voucher represents the supporting document for all cash payments effected.

Posting:

Once the Cash Book is entered with all the cash transactions, posting of the entries is made to the respective ledger accounts subsequently. For posting, from the debit side of the Cash Book, the concerned accounts are credited and from the credit side, the concerned accounts are debited.

(b) Two Column Cash Book or Cash Book with Cash and Discount Columns:

This type of Cash Book is used when cash transactions involving discount allowed or received are effected. Usually, discount is allowed when payments are promptly made by the customers and discount is enjoyed when payments are promptly made by the business.

In this two column Cash Book, instead of only one column for cash as in a Single Column Cash Book, one additional column is introduced, viz., ‘Discount Column’. The discounts allowed by the business are entered on the debit side and discounts received are entered on the credit side of the Cash Book.

The discount columns as such cannot be balanced since they are purely memorandum columns and will not serve the purpose of a ledger account as cash columns do. To know the balance of discount columns, separate ledger accounts, viz., Discount Allowed Account and Discount Received Account can be opened.

The ruling of a two column Cash Book is as follows:

Two Column Cash Book (with Cash and Discount Columns):

Posting:

The following points should be kept in mind while posting from the cash book is effected:

1. The opening and closing balances should not be posted.

2. From the debit side of the Cash Book, all the concerned accounts are given credit.

3. From the credit side of the Cash Book, all the concerned accounts are given debit.

4. While posting cash received from a debtor or cash paid to a creditor, due care should be taken to credit the personal account with the amount of both cash and discount allowed or debit the personal account with the amount of both cash and discount received.

5. Separate accounts should be opened for discount allowed and discount received. The total of the discount allowed column represents a loss sustained by the business and the same should be debited to discount allowed account by writing ‘To sundries’ in the particulars column. The total of the discount received column represent as gain made by the business and it should be credited to the discount account by writing ‘By Sundries’ in the particulars column.

(c) Three Columnar Cash Book or Cash Book with Cash, Bank and Discount Columns:

Nowadays, every businessman invariably has a bank account to reap the advantages of safety, convenience, credit facilities and less clerical work. Thus, when a business is maintaining a bank account, the transactions can be made through cheques. Instead of maintaining the bank account in the ledger, it is found more convenient if it is included in the Cash Book as Cash Column. Thus, the three columns Cash Book is the resultant effect where in addition to cash and discount columns, bank column is also included.

The ruling of a three columnar cash book is as follows:

Three Columnar Cash Book (with Cash, Bank and Discount Columns):

All cash receipts are entered on the debit side in the cash column and all cash payments on the credit side in the cash column of the Cash Book. Amounts paid into the bank or deposited are recorded on the debit side in the bank column and all payments made by cheques are recorded on the credit side in the bank column.

(d) ‘Bank’ Cash Book or Cash Book with Bank and Discount Columns:

In case of a business where all transactions are effected through bank, i.e., all receipts are banked (deposited into the bank) on the same day and all payments are made by cheques only, the cash column in the cash book is of no use. Hence, the Cash Book with bank and discount columns alone is maintained.

The ruling of a Cash Book with bank and discount column is as follows:

Two Column Cash Book (with Bank and Discount Columns):

(e) Petty Cash Book:

The word ‘petty’ has its origin from the French word ‘petit’ which means small. The petty cash book is used to record items like carriage, cartage, entertainment expenses, office expenses, postage and telegrams, stationery, etc. The person who maintains this book is called the ‘petty cashier’.

The petty cash book is used by many business concerns to save the much valuable time of the senior official, who usually writes up the main cash book, to prevent over burdening of the main cash book with so many petty items and to find out readily and easily information about the more important transactions.

The amount required to meet out various petty items is estimated and given to the petty cashier at the beginning of the stipulated period say a fortnight or a month. When the petty cashier finds shortage of money, he has to submit the petty cash book, after making all the entries, to the chief cashier for necessary verifications. The chief cashier in turn, verifies all the entries with supporting vouchers and disburses cash or issues cheque for the exact amount spent.

Columnar Petty Cash Book or Analytical Petty Cash Book:

In this cash book various items of petty cash payments are analysed and separate analytical columns are provided for recording each and every item. The amount of cash received from the chief cashier for meeting out the petty expenses is recorded on the debit side and the actual cash payments towards various petty items are recorded on the credit side in the total as well as analytical columns.

The analytical column is provided for each usual head of expense like postage & telegrams, printing & stationery, carriage & cartage, traveling expenses, entertainment expenses, office expenses, sundry expenses, etc. Subsequently, the totals of these analytical columns are posted to the respective ledger accounts which save labour used in posting each item of payment separately in the ledger.

The balancing of petty cash book is done in the total payments column. Where the debit side (Receipts) exceeds that of the credit side (in the totals column-Payments), it represents the unspent balance of cash remaining with the petty cashier.

Imprest System:

In this system, the petty cashier is provided with a sum of cash which is termed as ‘float’ after taking into consideration the possible kinds of expenses which would be incurred for a specific period, viz., a week or a month. The petty cashier, at the end of such period, submits the petty cash book, with all entries passed, to the chief cashier.

The chief cashier, in turn, will verify all the entries with the supporting vouchers and gives the actual amount spent on various petty items. This would bring the petty cash balance to the original amount with which he has begun. This system of maintaining the original amount of cash as such is known as ‘Imprest System of maintaining Petty Cash Book’.

Term Paper # 3. Basic Documents for Subsidiary Books:

(i) Inward Invoice:

This is the document sent by the suppliers of goods giving details of goods sent, price, value, discount etc. It is the basis for entries in purchases book.

(ii) Outward Invoice:

This is a document sent by the firm to the customers, showing the details of goods supplied, their price and value, discounts etc., it is the basis for writing sales book.

(iii) Debit Note:

It is a simple statement sent by a person to another person showing the amount debited to the account of the latter along with a brief explanation. The debit notes are issued by a trader relating to purchase returns in order to put up his claim for abatement of his dues to the other party. Debit notes are serially numbered and are similar to invoices although they are usually printed in red ink.

(iv) Credit Note:

It is nothing but a statement sent by one person to another person showing the amount credited to the account of the latter along with a brief explanation. The credit notes are used for sales return in order to intimate related abatement and are similar to invoice although they are usually printed in red ink.

(v) Cash Receipts and Vouchers:

These are the vouchers and receipts for cash received and paid. Entries in cash book are made on the strength of the vouchers and receipts. They are also useful for auditing purpose.

(vi) Contra Entries:

For any single transaction the same account cannot be debited and credited. But since cash and bank accounts are maintained in the cash book, the debit and credit may be found in the two different accounts in the Cash Book. They are transactions which affect both the sides of the Cash Book.

For instance, when cash is deposited into the bank, bank account should be debited and cash account should be credited. Hence, on the debit side of the Cash Book. ‘To Cash’ is written in the particulars column and the amount is entered in the bank column. Similarly, on the credit side of the Cash Book, ‘By Bank’ is written in the particulars column and the amount is entered in the cash column.

When cash is withdrawn from the bank, on the debit side of the Cash Book, ‘To Bank’ is written in the particulars column and the amount is written in the cash column. Likewise, on the credit side of the Cash Book, ‘By Cash’ is written in the particulars column and amount is entered in the bank column.

Therefore, those entries which appear on both the sides of the Cash Book are called Contra Entries and they are identified and denoted in the Cash Book itself by writing the letter ‘C’ in the Ledger Folio Columns on either side. For these transactions, as double entry procedure is completed in the cash book itself, no further positing is made in the ledger.

In a three columnar Cash Book, cash and bank columns are balanced as any other ledger account and discount columns are imply totaled. To know the balance of the discount columns, a separate account, viz., discount account is opened in the ledger. While the cash column will always show a debit balance, the bank column may show a credit balance at times. The credit balance in the bank column represents nothing but bank overdraft.

Term Paper # 4. Advantage of Subsidiary Books:

The advantages of maintaining special journals can be summarized as under:

1. Division of Work:

The division of journal resulting in division of work ensures more clerks working independently in recording original entries in day books.

2. Facilitate Posting:

Because the transactions of one nature are recorded at one place, the posting of real account is highly facilitated.

3. Time Saving:

Due to division of work, it is possible to perform various accounting processes simultaneously. Thus, lesser time is required to complete accounting records.

4. Minimum Frauds and Errors:

Systematic recording of business transactions in special journals reduces the possibility of frauds and errors. It also helps in location of errors, if any.

5. Better Information:

A lot of useful data like credit sales, credit purchases, returns etc., is made available which is not possible in journal system.

6. Management Decisions Facilitated:

Since transactions of a similar nature are recorded at one place, the management can have the benefit of the trend and distributional pattern in planning and making decisions.

7. Specialisation and Efficiency:

When the same work is allotted to a particular person over a period of time, he acquires full knowledge of it and becomes efficient in handling it. Thus, the accounting work will be done efficiently.