Subsidiary Book

A Subsidiary Book, also known as a book of original entry, is a specialized accounting book used to record specific types of financial transactions. These books help categorize and simplify transaction recording by dealing with frequent or similar types of transactions. Instead of posting every transaction directly to the general ledger, they are first entered in the relevant subsidiary book. The totals from these books are then periodically posted to the ledger, making the overall accounting process more manageable.

Purpose of Subsidiary Books:

• Organizing Transactions: They group similar types of transactions in one place, such as credit sales, credit purchases, or cash transactions.
• Reducing Clutter: They avoid overloading the general ledger with individual entries, allowing only summaries to be transferred.
• Time-Saving and Efficiency: Subsidiary books streamline the accounting process by recording similar transactions collectively, making it easier to manage large volumes of data.

Types of Subsidiary Books:

There are several types of subsidiary books, each dedicated to a particular category of transactions:

1. Purchases Book:

   • Records all credit purchases of goods that a business intends to resell. Cash purchases are not recorded here, only credit transactions.

2. Sales Book:

   • Records all credit sales of goods. It captures details of products sold on credit but excludes cash sales.

3. Purchase Returns (Returns Outwards) Book:

   • Records goods that were purchased on credit but are being returned to suppliers. This might happen if goods are defective or not up to specification.

4. Sales Returns (Returns Inwards) Book:

   • Records goods sold on credit that are returned by customers, typically due to defects or mismatched specifications.

5. Cash Book:

   • Records all cash transactions, both receipts and payments. It is divided into debit (cash receipts) and credit (cash payments) columns and serves as both a journal and a ledger.

6. Bills Receivable Book:

   • Records all promissory notes or bills of exchange that the business receives, indicating amounts owed to it by others.

7. Bills Payable Book:

   • Records bills of exchange or promissory notes issued by the business to others, reflecting amounts the business owes.

8. Journal Proper (General Journal):

   • This is used for miscellaneous transactions that don’t fit into other subsidiary books. Examples include opening entries, closing entries, adjusting entries, and correction of errors.

Features of Subsidiary Books:

• Systematic Record-Keeping: They provide an organized approach by grouping transactions of a similar nature, ensuring transactions are easy to locate.
• Daily Entry: Subsidiary books require regular and accurate entries of all relevant transactions.
• Posting to Ledger: At periodic intervals (daily, weekly, or monthly), the totals from the subsidiary books are transferred (posted) to the general ledger.

Example:

• Suppose a company makes credit purchases from multiple suppliers throughout the month. Instead of recording each purchase directly in the ledger, all transactions are entered in the Purchases Book. At the end of the month, the total of all purchases is posted to the Purchases Account in the general ledger.

Advantages of Subsidiary Books:

1. Improved Efficiency: By categorizing transactions, it reduces the need for multiple entries in the general ledger, saving time and effort.
2. Reduces Errors: Grouping similar transactions minimizes the chance of errors, making the accounting process more accurate.
3. Facilitates Control: Businesses can monitor particular aspects (e.g., credit sales or purchases) more effectively by focusing on individual subsidiary books.
4. Simplified Ledger: Since only summarized totals are transferred to the ledger, it becomes easier to manage and maintain.

Disadvantages:

• May Lead to Duplication: If not managed properly, entries may be recorded in both the subsidiary books and the ledger, leading to confusion.
• Requires Regular Maintenance: Subsidiary books need to be updated daily or periodically to avoid discrepancies.