Meaning and Definition of Subsidiary Books
In the past, traders use to keep record of the transaction in the journal. However, it was eventually shown to be inconvenient. If all transactions are documented in the diary, the journal book gets thicker and more difficult to manage. It becomes impractical to continue tracking commercial transactions in large corporations. As a result, many corporations increasingly prefer to keep track of transactions in subsidiary books rather than journals. Subsidiary books are the original entry books and are also known as main records since the first transaction entry is made in subsidiary books. Subsidiary Books are books intended for specialised transactions of a similar sort. Special diaries and day books are other names for subsidiary books. In practice, the journal is sub-divided in such a way that a separate book is used for each category of transactions which are repetitive in nature and are sufficiently large in number. In any large business the following subsidiary books are generally used.
1. Cash Book: It is used for recording all receipts and payments of cash, including cash purchases and cash sales of goods.
2. Purchases Book: It is used for recording credit purchases of goods only.
3. Purchases Returns Book: It records goods returned to suppliers.
4. Sales Journal: It is used for recording credit sales of goods only.
5. Sales Returns Book: It is used for recording goods returned by the customers.
6. Bills Receivable Book: It is used for recording bills of exchange and promissory notes received from the debtors.
7. Bills Payable Book: It is used for recording bills of exchange and promissory notes accepted by the business in favour of creditors.
8. Journal Proper: This book is used for recording all such transactions that are not covered by any of the above-mentioned special journals, for example, credit purchases of fixed assets, opening entries, rectification entries, etc.
Advantages of Subsidiary Books
The following are the advantages of having a number of subsidiary books:
1. Classification of transactions becomes automatic: As there is a separate book for each type of transaction, transactions of the same nature are automatically brought to one place.
2. Reference becomes easy: If any reference is required, it can be traced easily by referring to the appropriate subsidiary book. You do not have to go through all the transactions recorded in the journal.
3. Facilitates division of work: The division of the journal into various subsidiary books facilitates division of work among many persons. This, in turn, facilitates prompt recording of transactions and saves a lot of time.
4. More particulars: More details about the transactions can be given-in subsidiary books than would be possible in one book.
5. Responsibility can be fixed: The work of maintaining a particular book can be entrusted to a particular person. He will be responsible for keeping it up-to-date and in order.
6. Facilitates checking: When the Trial Balance does not agree, the location of errors will be relatively easy.
Cash Book
Having outlined various subsidiary books, we shall now discuss the most important subsidiary book, ' Cash Book’. The cash book is the book of accounts in which most transactions are connected to cash receipts and payments. It might be the purchase of items for cash, the sale of products for cash, or the payment of costs or the receiving of money. There will be countless cash transactions in any firm that include either cash receipts or cash payments. Cash sales, cash receipts from debtors, cash purchases and payments to creditors, payment of different expenditures such as salaries, wages, rent, taxes, and so on are all instances of cash transactions. AU these are recorded in cash book, receipts on one side and payments on the other.
Kinds of Cash Book
There are different types of cash books maintained by the business. They are:
1. Simple or Single Column Cash Book
2. Two or Double Column Cash Book
3. Three or Triple Column Cash Book
4. Petty Cash Book
Single Column Cash Book
Look at the pro forma of a Single-column Cash book shown below. Doesn’t it look like a ledger account? Yes, it does. In fact, a single-column cash book is nothing but a cash account. It is used for recording all cash receipts and payments and serves the purpose of a Cash Account. It is called a Single Column Cash Book because it has only one amount column on each side.
Two-Column Cash Book
When cash is received from a debtor, some discount may be allowed to him. Similarly, when payment is made to a creditor, some discount may be allowed by him. This is known as a Cash Discount, and it must be documented in the books. You discovered that cash and discount went together when creating compound journal entries for such transactions. You are aware that debtor receipts and creditor payments must be documented in the cash book. The difficulty now is how to report the monetary discount. One way is to keep a separate journal for the discount. However, this would be inconvenient, and there is also the risk of failing to record. Hence, accountants have developed a practice of recording the discount aspect in the tile cash book itself. An extra amount column is added on both sides of the cash book.
Look at the proforma shown below. The discount given to debtors is recorded on the debit side and the discount received from creditors is recorded on the credit side. Thus, now there are two amount columns on both sides of the cash book, one for discount and the other for cash. It is called ’Two Column Cash Book’.
