Asok Nadhani-Accountancy-Subsidiary Books: February 2014

By Asok Nadhani
Subsidiary Books

8.1 Subsidiary Books

i) When volume of transactions increases, recording of all transactions in Journal becomes inconvenient. To have prompt and accurate information, the journal book is sub divided into subsidiary books (known as special journals). It facilitates to save time and device, labour and space and to avoid journal becoming voluminous. These books are also called Special Purpose Subsidiary books.

ii) The main type of subsidiary books are-

1. Cash Book: To record transactions in cash or by cheques.

2. Purchase Day Book: To record credit purchase.

3. Sales Day Book: To record credit sales.

4. Purchase Return Book: Value of goods returned to supplier.

5. Sales Return Book: Value of goods returned by customer.

6. Bills Receivable Book: To Record entries for bills receivable.

7. Bills Payable Books: To Record entries for bills payables.

8. Journal Proper: To record other transactions which are not recorded in any of the above mentioned books.

9. Other Subsidiary Books

8.2 Advantage of subsidiary Books

i) Due to sub-division of journal, posting of each entry becomes easy.

ii) As one type of transaction is recorded in one book, it is convenient to locate any desired transaction.

iii) As there are multiple books, the books can be divided among several persons for entry.

iv) Efficiency of the employees who maintain such books can be ascertained.

v) It is easy to make internal check.

vi) Each clerk does his work with more care because, if any mistake or irregularity is noticed in his books, he is held accountable.

vii) In the court of law, related subsidiary book can be conveniently produced instead of producing whole of the journal.

viii) Preliminary record for all entries can be easily made.

ix) Owner can, at any stage know the position of various types of transaction (e.g. sales, purchases) for any period.

8.3 Some Typical Subsidiary Books

i) Cash Book

ii) Purchase Day Book

iii) Sales Day Book

iv) Purchase Return Book

v) Sales Return Book

vi) Journal Proper

8.3.1 Cash Book

The Cash Book is sub division of the book of original entry and it records transactions related to receipts or payment of cash or by cheque only. [Refer Ch. 9]

8.3.2 Purchase Day Book

All credit purchases for tradable goods are primarily recorded in Purchase book (Credit purchase of assets like machinery, furniture, stationery, other office use items etc. are recorded in Journal Proper or Subsidiary Books).

Posting: The total of the book is posted periodically to the debit side of Purchase Account. Individual amount in the book is posted to supplier’s individual account as ‘By Purchase A/c’.

Example: Record the following transactions in Purchase Day Book and post them into ledgers.

2009 June 1	Purchased from Poddar Electric Co. – 10 Electric Fans @ Rs.800 each, 5 Electric Irons @ Rs.200 each, less trade discount @ 10%
June 15	Purchased from Sony Electric Co.- 20 Electric Heaters @ Rs.300 each, less trade discount @ 5%

Solution:

Purchase Day Book

Date	Particulars	Invoice No.	L.F	Details (Rs.)	Amount (Rs.)
2009 June 1	Poddar electric Co. 10 Electric Fans @ Rs.800 each			8,000
	5 Electric Irons @ Rs.200 each			1,000
				9,000
	Less: Trade Discount @ 10%			900	8,100
June15	Sony Electric Co. 20 Electric Heaters @ Rs.300 each			6,000
	Less: Trade Discount @ 5%			300	5,700
					13,800

Ledgers:

Poddar electric Co.

Dr.							Cr.
Date	Particulars	L.F	Rs.	Date	Particulars	L.F	Rs.
				June 1	By Purchase A/c		8,100
Sony Electric Co.
Dr.							Cr.
Date	Particulars	L.F	Rs.	Date	Particulars	L.F	Rs.
				June15	By Purchase A/c		5,700
Purchase Account
Dr.							Cr.
Date	Particulars	L.F	Rs.	Date	Particulars	L.F	Rs.
June 30	To Sundries as per Purchase Day Book (June 2010)		13,800

Note:

Trade Discount is recorded only in Purchase Day book and not posted in ledges as discussed earlier.

8.3.3 Sales Day Book

All credit sales are primarily recorded in Sales book (Credit Sale or disposal of assets like machinery, furniture etc. scrap and other used items are recorded in Journal proper).

Posting: The total of the book is posted periodically to the credit side of the Sales Account. Individual amount in the book is posted to Customer’s individual account as ‘To Sales A/c’.

Example: Record the following transactions in Sales Day Book and post them into ledgers.

2009 June 1	Sold to Gupta Co. – 10 Electric Fans @ Rs.1,000 each, 2 Electric Irons @ Rs.350 each, less trade discount @ 10%. Excise Duty is to be charged @ 10%.
June 15	Sold to NET Pvt. Ltd. - 10 Electric Heaters @ Rs.400 each, less trade discount @ 5%. Excise Duty is to be charged @ 10%.

Solution:

Sales Day Book

Date	Particulars	Invoice No.	L.F	Gross Amount (Rs.)	Trade Discount (Rs.)	Excise Duty (Rs.)	Net Amount (Rs.)
2009 June 1	Gupta Co. 10 Electric Fans @ Rs.1,000 each			10,000
	2 Electric Irons @ Rs.350 each			700
	Less: Trade Discount @ 10%			10,700	1,070
	Add: Excise Duty @ 10% (Note)					1,070	10,700
June15	NET Pvt. Ltd. 10 Electric Heaters @ Rs.400 each			4,000
	Less: Trade Discount @ 5%				200
	Add: Excise Duty @ 10% (Note)					400	4,200
				14,700	1,270	1,470	14,900

Ledgers:

Gupta Co.

Dr.

Cr.

Date

Particulars

L.F

Rs.

Date

Particulars

L.F

Rs.

June1

To Sales A/c

10,700

NET Pvt. Ltd.

Dr.

Cr.

Date

Particulars

L.F

Rs.

Date

Particulars

L.F

Rs.

June15

To Sales A/c

4,200

Sales Account

Dr.

Cr.

Date

Particulars

L.F

Rs.

Date

Particulars

L.F

Rs.

June 30

By Sundries as per Sales Day Book (June 2010)

14,900

Note:

Excise Duty is calculated on list price.

Trade Discount is recorded only in Sales Day book and not posted in ledges.

Taxes and other charges in Sales or Purchase Day Book: Sometimes, there may be additional charges in Sales (like VAT, freight outwards) etc. which need to be posted in different ledger accounts. In such case, separate columns head are created for each account and total posted in the respective ledger, to get the figures for each head separately.

In case of Purchase, normally the value is posted into Purchase Account. However, in some cases (like Input VAT), some charges are posted in separate ledger account. In such cases, the amounts are entered in separate column, to get figures for each head separately.

Sales Day Book with VAT

VAT is calculated on net price. The journal entry will be as follows:

Sundry Debtors A/c	Dr.
To Sales A/c
To Output VAT A/c

Example: On June 15, sold to NET Pvt. Ltd. - 10 Electric Heaters @ Rs.400 each, less trade discount @ 5%. Excise Duty is to be charged @ 10% on list price. VAT is charged @ 10% on net sales value.

Sales Day Book

Date	Particulars	Inv. No.	LF	Gross Amount (Rs.)	Trade Discount (Rs.)	Excise Duty (Rs.)	Net Sales Amount (Rs.)	VAT 10% (Rs.)	Total Amount (Rs.) (Net + VAT)
June 15	NET Pvt. Ltd. 10 Electric Heaters @ Rs.400 each			4,000
	Less: Trade Discount @ 5 %				200
	Add: Excise Duty @ 10 %					400	4,200	420	4,620
				4,000	200	400	4,200	420	4,620

Ledgers

NET Pvt. Ltd.

Dr.

Cr.

Date

Particulars

L.F

Rs.

Date

Particulars

L.F

Rs.

June15

To Sales A/c

4,200

To Output VAT A/c

420

Sales Account

Dr.

Cr.

Date

Particulars

L.F

Rs.

Date

Particulars

L.F

Rs.

End of the month

By Sundries as per Sales Day Book.

Rs.(4,000 – 200 + 400)

4,200

Output VAT Account

Dr.

Cr.

Date

Particulars

L.F

Rs.

Date

Particulars

L.F

Rs.

End of the month

By Sundries as per Sales Day Book

420

Note: Sales Tax is calculated on net price

8.3.4 Purchase Return Book

a) The goods purchased on credit may be returned by the purchaser for some reason (defective or not according to sample or description). Such returns are recorded in Purchase Return Book, (also known as Returns Outward Book).

Posting: The individual amounts are posted to the debit of supplier’s accounts as “ To Purchase Returns A/c.” and the total of Purchases Returns book is posted to the credit of Purchases returns account as “ By Sundries as per Purchase Return Book”.

b) In case of return by cash, the entry will be as follows-

Cash A/c	Dr.
To Purchase Return A/c

Example : Record the following transactions in Purchases Return book and post them into ledgers.

2009 June 20	Returned to Poddar Electric Co. – 1 Electric Fan @ Rs.800 each (10% Trade Discount was allowed, which is to be adjusted)
June 25	Returned to Sony Electric Co.- 1 Electric Heater @ Rs.285 each

Solution:

Purchase Return Book

Date	Particulars	Invoice No.	L.F	Details (Rs.)	Amount (Rs.)
2009 June 20	Poddar electric Co. 1Electric Fan @ Rs.800 each			800
	Less: Trade Discount @ 10%			80	720
June 25	SONY Electric Co. 1 Electric Heater @ Rs.285 each				285
					1,005

Ledgers

Poddar electric Co.
Dr.							Cr.
Date	Particulars	L.F	Rs.	Date	Particulars	L.F	Rs.
June20	To Purchase Return A/c		720
Sony Electric Co.
Dr.							Cr.
Date	Particulars	L.F	Rs.	Date	Particulars	L.F	Rs.
June25	To Purchase Return A/c		285
Purchase Returns Account
Dr.							Cr.
Date	Particulars	L.F	Rs.	Date	Particulars	L.F	Rs.
				End of the month	By Sundries as per Purchase Return Book		1,005

8.3.5 Sales Return Book

a) Goods sold on credit returned by the customer for some reason (defective or not according to sample or description) returned by the customer. Such returns are recorded in Sales Returns Book, also known as Return Inward Book.

Posting: The individual amount in the sales returns book will be posted in the respective customer’s account in the credit side as “ By Sales Return A/c.” and the total of the Sales Returns Book will be posted to the debit side of Sales Returns Account as “ To Sundries as per Sales Returns Book”.

b) In case of return by cash, the entry will be as follows-

Sales Return A/c	Dr.
To Cash A/c

Example : Record the following transactions in Purchases Return book and post them into ledgers.

2009

June 20

Returned from NET Pvt. Ltd. - 1 Electric Heater @ Rs.418.

Solution:

Sales Return Book

Date	Particulars	Invoice No.	L.F	Details (Rs.)	Amount (Rs.)
2009 June 20	NET Pvt. Ltd. 1Electric Heater @ Rs.418.				418

Ledgers

NET Pvt. Ltd.

Dr.

Cr.

Date

Particulars

L.F

Rs.

Date

Particulars

L.F

Rs.

June20

By Sales Return A/c

418

Sales Return Account

Dr.

Cr.

Date

Particulars

L.F

Rs.

Date

Particulars

L.F

Rs.

End of the month

To Sundries as per Sales Return Book

418

8.3.6 Journal Proper

Journal Proper is used for recording other transactions which are not recorded in any of the Subsidiary Books of original entry.

Such transactions may be related to (i) Opening entries, (ii) Closing entries, (iii) Transfer entries, (iv) Rectification entries, (v) Adjusting entries, and (vi) Miscellaneous entries.

8.3.6.1 Opening Entries: Balances of personal and real accounts of old books are recorded in the books of New Financial Year. Opening Entries are used to open the records of assets, liabilities and capital appearing in the Balance Sheet at end of the previous year.

Example:

Balance Sheet of X and Y Ltd.

As on 31.3.2010

Liabilities	Rs.	Assets	Rs.
Capital	1,80,000	Land and Building	95,000
Sundry Creditors	50,000	Plant and Machinery	70,000
Outstanding Salaries	20,000	Furniture	40,000
		Stock-in-trade	30,000
		Cash-in-hand	5,000
		Cash-at-Bank	10,000
	2,50,000		2,50,000

You are required to pass the opening entry.

Solution:

Journal Proper

				Dr.	Cr.
Date	Particulars		L.F.	Rs.	Rs.
2010, Jan. 1	Land and Building A/c	Dr.		95,000
	Plant and Machinery A/c	Dr.		70,000
	Furniture A/c	Dr.		40,000
	Stock-in-trade A/c	Dr.		30,000
	Cash-in-hand A/c	Dr.		5,000
	Cash-at-Bank A/c	Dr.		10,000
	To Sundry Creditors A/c				50,000
	To Outstanding Salary A/c				20,000
	To Capital A/c				1,80,000
	(The last year’s balances brought forward)

8.3.6.2 Closing Entries: At the end of financial year, Balances of nominal accounts are transferred to trading and profit and loss account. Such entries are called closing entries.

Example: Pass closing journal entries from the following Trial Balance in the books of S & Sons on 31^st Dec., 2009

Heads of Account	Dr. (Rs.)	Cr. (Rs.)
Stock	2,000
Machinery	18,000
Purchases	30,000
Wages	4,000
Discount	1,000
Salaries	7,000
Office Expenses	2,000
Depreciation	1,000
Sales	-	50,000
Commission received	-	1,500
Capital		14,500
Carriage Outward	600
Carriage Inward	400
	66,000	66,000

Closing Stock Rs.3, 000

Solution:

In the books of S & Sons.

Journal Proper

Date	Particulars		L.F.	Dr. Rs.	Cr. Rs.
2009
Dec.31	Trading A/c	Dr.		36,400
	To Stock A/c.				2,000
	To Purchases A/c.				30,000
	To Wages A/c.				4,000
	To Carriage Inward A/c.				400
	(Transfer of respective account balances to Trading A/c.)
	Sales A/c	Dr.		50,000
	To Trading A/c				50,000
	(Transfer of Sales to Trading A/c.)
	Closing Stock A/c.	Dr.		3,000
	To Trading A/c				3,000
	(Value of stock-in-hand on the closing date of the year)
	Trading A/c	Dr.		16,600
	To Profit & Loss A/c				16,600
	(Transfer of Gross Profit to Profit & Loss A/c.)
	Profit & Loss A/c	Dr.		10,000
	To Discount				1,000
	To Salaries A/c.				7,000
	To Office Expenses A/c.				2,000
	(Transfer of the above-mentioned indirect expenses to Profit & Loss A/c.)
	Profit & Loss A/c	Dr.		1,000
	To Depreciation A/c (Transfer of depreciation to Profit & Loss A/c.)				1,000
	Commission A/c	Dr.		1,500
	To Profit and Loss A/c.				1,500
	(Transfer of other revenue income to Profit & Loss A/c.)
	Profit and Loss A/c	Dr.		7,100
	To Capital A/c.				7,100
	(Transfer of net Profit to Capital A/c.)
	Gross profit=Rs.(53,000-36,400)=Rs.16,600
	Net Profit=(16,600+1,500-11,000)=Rs.7,100

8.3.6.3 Transfer Entries: When one amount is transferred from one account to another account, the entry made for this purpose is called a transfer entry. For example, the drawings made by the proprietor are transferred at the end of the year from Drawings A/c to Capital A/c.

Example: The amount of Rs.1,00,000 is to be transferred to General Reserve out of Profit at the end of the year. The entry will be in Journal proper as follows:-

Journal Proper

				Dr.	Cr.
Date	Particulars		L.F.	Rs.	Rs.
Closing Date	Profit & Loss A/c To General Reseve A/c	Dr.		1,00,000

8.3.6.4 Rectification entries: When some mistake is committed in accounting record, the same is corrected by passing an entry in Journal Proper. If it is not possible to locate the errors, the amount of difference in the trial balance is put in an account temporarily known as “Suspense Account" until that error is located.

Adjusting Entries: At the end of the year, it becomes necessary to make entries for adjustments. For Prepaid Expenses, Outstanding Expenses, Depreciation, etc.

Examples: Out of total salary of Rs.4,000, Rs.3,000 has been paid and Rs.1,000 remains outstanding and the outstanding amount of Rs.1,000 will be recorded in journal proper.

Salary A/c	Dr.	1,000
To Outstanding Salary A/c			1,000

Miscellaneous Entries: In addition to all the items discussed above remaining items are included in miscellaneous list, like dishonored bills, purchase of assets on credit, etc.

8.3.4 Other Subsidiary Books

1. Consignment Outward Book: Some businessmen send their goods to Agents, which is sold by them, on risk and on behalf of the businessman. The businessman keeps record of these goods in a book which is called ‘Consignment outward book.”

2. Credit Collection Day Book: Amount received from their customers is recorded in this book. In the evening, record in the cashbook is made from this book.

Specimen of Credit Collection Day Book

Date	Particulars	Receipt No.	L.F.	Discount	Cash	Remarks

3. Daily Cash Sales Book: Some businessmen keep a daily cash sales book in which all the cash sales of each day are recorded. At the end of day, posting is made from this book. The contents are similar to Sales Book, except that name of the customer is not recorded. Total amount received is posted into Cash A/c

Specimen of Daily Cash Sales Book

Date	Cash Memo No.	Amount	Remarks

Friday, 7 February 2014

Asok Nadhani-Accountancy-Subsidiary Books

Date

Remarks