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Financial Accounting Tutorial Home Page

Subsidiary Accounting Books

 In this web primer we will also discuss:
Subsidiary books or sub-journals or special journals are the various names used to describe practical system of book keeping. As the size of business grew the volume of transactions of all the business houses rose alarmingly and it was realized that journal was inadequate as the only book of original entry. It was found to be convenient and advantageous to have different books of original entries for different activities of the business like purchases, sales, purchases returns and sales returns etc. 

Special journals

These are the journals in which special classes of transactions are recorded such as ; Purchases book records purchases of goods on credit; Sales book records sales of godson credit; Purchases returns book records the return of goods purchased (returns outwards) ;Sales returns book records the return of goods sold (return inwards) ; Bills receivable book records the bills accepted by the debtors and Bills payable book records the bills drawn by the creditors. 

General Journal

Records those transactions which do not fall within the scope of special journals. Such transactions usually relate to
 
(1) Opening entries
(2) Closing entries
(3) Transfer entries
(4) Rectification entries
(5) Adjusting entries
(6) Credit purchase of assets
(7) Credit sale of discarded or obsolete fixed assets etc.
 

Difference between General Journal and Special Journal

General Journal

1. Transactions for which no special journal exists are recorded.
2. Each transaction is posted to ledger separately.
3. Ruling of journal is identical.
4. Essential part of accounting process. 

Special Journal

1. Specific types of transactions are recorded in each special journal.
2. Only the periodical totals are posted in group a. counts like purchases or sales account.
3. Ruling is modified as the requirements of the business e.g., additional columns for excise duty or sales tax may be provided.
4. Optional as per the desire of the business. 
 

Purchases Book

Purchases Book is also known as 'Invoice Journal' or 'Bought Journal' or Purchases Journal, issued for recording credit purchases of goods meant for resale. Cash purchases will not be entered in Purchases Book (to be entered in cash book) and credit purchases of goods not meant for resale viz., assets shall be entered in journal proper and not in the purchases book. 

Form of the Purchases Book

Usual Purchase book should have columns for date, invoice number, particulars, ledger folio, details and amount. 

Invoice

When we purchase goods on credit we receive a statement from the supplier giving the particulars of the goods supplied by him. This statement is called an invoice. The invoice states the quantity, price and value of goods supplied. It also states the discounts allowable (trade and cash) and the conditions under which payment is expected. 

Trade Discount

It is an allowance made by the supplier to the retailers off the catalogue or invoice or list price. (The object of allowing 'trade discount' is to enable the retailer to sell the goods to the consumer at list price and still leaving margin for meeting business expenses and his profit.) Trade discount is offered without reference to the time factor within which supplier expects to receive the payment. Entries in the books of both supplier as well as retailer are made on the basis of net amount i.e. invoice price less trade discount.
It may be distinguished from cash discount as follows: 

Trade discount

1. It is a concession "off the catalogue price" and allowed on purchases.
2. It is not recorded in ledger accounts.
3. It is deducted from the invoice. 

Cash discount

1. It is a concession allowed on payment being made "within certain period"
2. Ledger account is maintained for discount allowed and availed.
3. It is not deducted from the invoice.
 
Posting The net amount of invoices will be posted to the ledger as follows: Credit the personal accounts of the suppliers with the individual amount, and Debit the purchases account with the periodical total.
 

Sales Book

In this book are recorded all goods sold on credit. The ruling is similar to that of purchases book. If there are cash sales they are recorded in cash book and sale of assets (distinguish between goods and assets) are recorded in the journal proper. The entries in the sales book are made from the copies of the invoices which have been sent to the customers along with the .goods. Such copies of the invoices may be termed as 'Outward invoice' Each such outward invoice should be numbered consecutively and the reference be given in the sales book along with the entry. .Posting. The net amounts of the invoices are posted to the ledger as follows: Debit the personal accounts of the customers with the value of sales to them. Credit  Sales account with the periodical total.
 

Purchases Returns Book

This book is also known as "Returns Outwards Book". It records all returns of goods bought. Goods purchased may have to be returned to the supplier for various reasons such as not up to sample or not ordered or damaged during the transit etc. The ruling of the return books is identical with the ruling of purchases book. Debit Note. While returning the goods to the suppliers a letter is sent to them for their information and stating therein that we have debited your account by this amount on account of goods being returned herewith for the reasons stated. Generally such "information letters' are printed with counterfoil. Debit notes are sent to the parties concerned the counterfoils providing the base for writing up the purchases returns book. 

Credit Note

When a debit note is received along with the goods returned from the customer, itis a claim on us. If claim is accepted then Credit Note, usually printed in red ink, with full details is sent to the customer signifying our acceptance of the goods and customer's account being given the required credit. Counterfoils provide the base for writing up the Sales Returns Book.

Sales Returns Book

This book is also known as "Returns inwards book" . It records all returns of goods sold. Goods sold may be returned. by our customers for various reasons such as goods sent being of wrong description or inferior quality or damaged. Ruling is identical with the ruling of sales book. Credit Note: When a debit note is received along with the goods returned from the customer, it is a claim on us. If claim is accepted then Credit Note, usually printed in red ink, with full details is sent to the customer signifying our acceptance of the goods and customer's account being given the required credit. Counterfoils provide the base for writing up the Sales Returns Book.
 

Bills Receivable Book

All receipts of bills are entered in a book called bills receivable book. Whenever a bill of exchange is received its particulars are entered in the appropriate columns of the Bills Receivable Book. Posting from bills receivable book-The periodical total of the bills receivable book is posted to the debit of the bills receivable account in the ledger. Each entry in the book is posted to the credit of the individual account from whom the bill is received.
 

Bills Payable Book

The details of the bills accepted by a trader are recorded in the book known as Bills Payable Book. Posting of the bills payable book-The periodical total of the bills payable book is posted to the credit of the bills payable account in the ledger. Each entry in the book is posted to the debit of the individual account to whom the bill is granted.


 

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