Subsidiary Books

Subsidiary Books are books of Original Entry.

They are also known as Day Book or special
journals.

We record transactions of similar nature in

Subsidiary Books.

They are helpful in overcoming the

limitations of journal book.

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 1

 Appropriate for Large Companies
In case of large companies, numerous
transactions takes place on a single day and if the
company maintains only one book of account
than it will be very difficult to record all
transactions properly. So Large companies
choose to prepare subsidiary books, in which
they record transactions of a similar nature in
chronological order.

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 2

 Different Types of Subsidiary Books
The subsidiary books can be divided into the
following types:
1. Cash book
2. Purchases book
3. Sales book
4. Purchases return or return outwards book
5. Sales return or return inwards book
6. Bills receivable book
7. Bills payable book
8. Journal proper
1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 3
 Types of Subsidiary Books
1. Cash Book – A cash book is a book of prime entry which
records all transactions made by a business in both cash
and a bank instrument.

2. Purchase Book – A purchase book is one of the special

purpose books where all the credit purchases are recorded by
a business.

3. Sales Book – A sales book is one of the subsidiary books

where all the credit sales are recorded by a business.

4. Purchase Returns Book – Also known as returns outward

book, a purchase returns book is prepared to record goods
returned by a business to its suppliers.
1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 4
 5. Sales Return Book – Also known as returns inward book, a
sales return book is prepared to record goods returned to a
business by the customers.

6. Bills Receivable Book – It is a book that records all bills

receivable by a business, the total of bills receivable book is
posted on the debit side of the B/R account.

7. Bills Payable Book – It is a book that records all bills

payable by a business, the total of bills payable book is posted
on the credit side of the B/P account.

8. Journal Proper – It is a book in which all miscellaneous

transactions which are not recorded in any other subsidiary
book are recorded.
1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 5
 Advantages of Subsidiary Books
Recording in a subsidiary book saves a lot of
time and clerical hours.

In place of one general journal, we have

several subsidiary books, So the resulting
work may be divided among several members
of the staff. This will not only save the time,
but also improve efficiency and result in fewer
errors.

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 6

 Cont….
If one person maintains the same subsidiary
book over many years he acquires full
knowledge and understanding of the work. So
he/she becomes a specialist in that work.

As transactions of similar nature are grouped

together in a separate book, the further
reference to any particular item is
considerably facilitated.
1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 7
 Disadvantages of Subsidiary Books
The biggest disadvantage of having subsidiary books system is
that it is expensive as opposed to having single book of
accounts.

Another problem with this system is that the company will

need to have sufficient manpower so as to handle different
books for different accounts. In simple words for a small
company which has fewer employees, this system is not
advisable.

Their might be chances of error and frauds happening in

subsidiary books. That is subsidiary books are not error free.

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 8

Cont….

As we can see from the above that subsidiary

books have advantages as well as
disadvantages, however, its advantages
outweigh its disadvantages and that is the
reason why a majority of companies choose to
have subsidiary books system in place.

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 9

 Cash Book
A cash book is a subsidiary book in which all cash
transactions(cash,coins and cheques) during a period are
recorded.

The cash book has two sides i.e., debit and credit. All the cash
receipts are recorded towards debit side and all cash payments
are recorded towards credit side.

The difference between the sum of balances of the debit side

and credit side shows the balance of the cash on hand or bank.

The cash book is recorded in chronological order, and the

balance is updated and verified on a continuous basis.

Cashbook plays a dual role as it is the book of the original entry

of the company as well as book the final entry.
1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 10
Cash Book serves both as a Journal as well as a
Ledger

A cash book is used to record the transactions

immediately; thus, it serves the purpose of a
journal.

At the same time, it is also a ledger since purely cash

transactions are posted in it (similar to a cash
account in a ledger).

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 11

 Types of Cash Book
A cash book varies based on its complexity and the needs and
requirements of the business. Following are different types of Cash
Book.

General Cash Book

The cash book, which serves as a journal for the first recording of the
cash transactions and also replaces the cash account in a ledger, is
called a general cash book.

Petty Cash Book

The small cash transactions taking place a significant number of
times daily if recorded in a general cash book may make it bulky and
difficult to handle. Therefore such numerous business operations
involving a minimal amount of transactions can be written down in a
separate book called a petty cash book.

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 12

 General cash book is further subdivided into
three different categories:

• Single Column Cash Book

• Double Column Cash Book
• Triple Column Cash Book

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 13

 Simple Cash Book
This is also known as a Single Column Cash Book. This cash
book will only record cash transactions. The cash receipts will
be recorded on the debit side and the cash payments will be
recorded on the credit side. And since we will record all cash
transactions here there is no need for a cash ledger account.

Now since there is only one column we do not record bank

transactions in this cash book. Any discounts given will also
be not recorded. We will record bank and discount
transactions in their separate ledger accounts.

Cash books are balanced quite frequently. One important

point to remember is that the cash book can never have a
credit balance. Cash books only show a debit balance.
1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 14
 Double/Two Column Cash Book

Here instead of one column, we have an additional

column for discounts. So along with the cash
transactions, we will also record the discounts in the
same cash book. So both discounts received and the
discount allowed are recorded here.

Discount is a nominal account – so the discount

allowed (loss) is recorded on the debit side and
discount received (profit) is recorded on the credit
side.

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 15

 Triple/Three Column Cash Book
This cash book has the cash, the discount and
additionally the bank columns on its debit and credit
sides. A triple column cash book is usually
maintained by large firms which make and receive
payments in cash as well as by cheques and which
frequently receive and allow cash discounts.

So when we receive a cheque it is recorded towards

debit side in bank column as it is a bank receipt and
Viceversa. Contra entries are made in Triple Column
Cash book. A contra entry is transactions that happen
between a cash account and a bank account.
1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 16
 Examples of Contra entries

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 17

 Cash Paid into Bank:

When cash is paid into bank, Bank Account receives the

benefit and Cash Account gives the benefit and the double
entry is complete by debiting the Bank Account and
crediting the Cash Account.

This means, on the debit side of Cash Book, that amount

is written, in Bank Column as “To Cash” and on the credit
side of cash book, the amount is written in Cash Column
as “By Bank”.

Since, both the entries appear in Cash Book, letter “C” is

written in L.F. column. C stands for contra and contra
means opposite or against, which indicates that the other
aspect of the transaction
1/31/2022
is found on the opposite side.
Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 18
Cash Withdrawn from Bank:

When a businessman withdraw some amount from the bank

for office use, Bank Account gives the benefit and Cash
Account receives the benefit.

Since, Cash Account and Bank Account appear in Cash Book;

both the aspects can be entered in the cash book.

When cash is drawn, cash comes in and is debited in the cash

book in cash column as “To Bank” and credit in cash book in
Bank Column as “To Cash”. This is a contra entry.

1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 19

 Petty Cash Book

In an organisation, there are usually cash transactions

happening in all the departments. These we will recorded in
one of the general cash books maintained by the organisation.

But there are many cash transactions happening for very small
amounts. Sometimes many of such transactions occur in just
one day. These are known as petty transactions. Examples are
expenses for postage, stationery, traveling, food bills, etc.

So since the number of such transactions tends to be very high

we maintain a separate cash book for them – the petty cash
book. Such a cash book is maintained by the petty cashier.
1/31/2022 Geeta Madhuri Naidu Tentu – Financial Accounting – GITAM UNIVERSITY 20