Accordingly, let us see its meaning, definition, types, objectives, features, importance, and uses in simple steps.
Let's dive right in.
What are Subsidiary Books? Meaning, definition, Scope of Subsidiary Books
Subsidiary books are those books that record transactions of similar nature. These are the books of original entry that record transactions of similar nature or repetitive transactions at one place in chronological order. They are used in place of a Journal to record transactions of similar nature or repeated transactions.
In big organisations, recording all the transactions of similar nature in a journal and posting such transactions to ledger accounts involve a lot of clerical work. It would be bulky and voluminous to maintain journal and ledger accounts for such a large variety of transactions of similar nature. To overcome these problems, big organisations will divide the journal into eight different books called Subsidiary books. Each subsidiary book will record transactions of similar nature and repetitive nature. For example, a purchase book will record the transactions relating to purchase of goods on credit from suppliers. The sales book will record the transactions relating to sale of goods on credit to customers. The cash book will record only cash-related items such as cash receipts and cash payments.
What are the aims & objectives ( purpose) of preparing Subsidiary Books?
1.These books are maintained to record transactions of similar nature, repetitive in nature. For example, a Sales book is maintained to record only credit sale of goods by traders. Similarly, a Purchase book is maintained to record credit purchase of goods. All the cash related transactions are recorded in the cash book.
Thus, the main objective is to differentiate transactions of similar nature into different categories. For example, transactions relating to credit sales and purchases are recorded in the sales book and purchase book. Cash receipts and payments are recorded in the cash book.
2. These books are generally maintained by Big Organizations to record a large number of transactions. For example, small-sized organisations record all the transactions in Journal and then post them to Ledger where the transactions are very less in number. But Big organisations have a huge number of transactions to record, which would be possible through separate books like sales book, purchase book, cashbook, journal proper to record them. This helps to make record-keeping easy and flexible.
3. The purpose of these books is to save time and avoid clerical work involved in recording a huge number of transactions in Journal, This helps to divide the work, reduce errors, increase efficiency and ease of future reference of transactions due to several separate books being maintained such as cash book, purchase and sales book.
4. The other objectives would include recording the transactions in a smooth, easy, efficient manner. To maintain books of accounts in separate registers for each type of transaction. To make work divided into different categories and enables division of work among different people. To identify cash and credit transactions, bills receivable and payables, and other transactions. It also helps to avoid the possibility of occurrence of frauds and errors due to division of work and internal checks.
What are the characteristic features of Subsidiary Books?
1. It is a book of original entry that records all the business transactions which are similar and repetitive in nature. For example, transactions relating to credit sales and purchases are recorded in the sales book and purchase book. Cash receipts and payments are recorded in the cash book.
2. It a substitute for Journal where eight separate books are used for recording transactions. We have purchase book, sales book, purchase return book, sales return book, cash book, bills receivable & payable book and journal proper
3. It is easier to record the transactions into the books of accounts due to the division of work. Instead of recording all the transactions in Journal, we have separate books like sales & purchase book and cash book to record transactions separately.
4. They are specially designed for big organisations and business firms to make the recording of transactions simple, easy, fast manner.
5.These help to divide the work and to record the transactions of similar nature and repetitive nature at one place. This is a division of work which helps to reduce errors and save time and to make recording transactions easier.
6.These books are divided into eight different books. They are classified as purchase book, sales book, cash book, sales return book, purchase return book, bills receivable, bills payable book, journal proper.
7. Cashbook is further divided as a single column, double column and triple column book. Triple column cash book has discount column, bank & cash column specially designed for large organisations.
8. Purchase book and sales book are used to record the transactions relating to credit purchase and credit sale of goods and services
9. Sales return book is used to record the transactions relating to return of goods by customers which were sold on credit to customers. Similarly, the Purchase return book is used to record the goods returned to suppliers which were purchased earlier on credit
10. Bills receivable and bills payable books to record transactions relating to bills issued or received from customers or suppliers
11. Journal Proper is used to record the transactions which were not recorded in any of the above subsidiary books. For example, the purchase of machinery on credit will be recorded in the journal proper
What are the 8 different types of Subsidiary Books?
1. Purchase Book: Purchase book is to record the transactions relating to the purchase of goods on credit from suppliers. But Cash purchase of goods is recorded in the cash book. Thus, here we record only transactions involving purchase of goods on credit from suppliers. For example, purchased goods from David for $1000 on credit will be recorded in this purchase book.
2. Sales Book: Sales Book is to record the transactions relating to the sale of goods to customers on credit. But cash sales are recorded in the cash book. Thus, we record only transactions involving sale of goods to customers on credit. For example, sold goods to John for $1000 on credit will be recorded in this sales book.
3. Cash Book: This book records only cash related items and transactions such as cash sales, cash purchases, purchase fixed assets for cash. All the transactions which involve cash receipts to the business firm will be recorded in this daybook For example, receipt of cash from customers on account of goods sold, receipt of cash on account of machinery sold will be recorded in this Cashbook.
All the transactions which involve cash payments made by the business firm will be recorded in this daybook. For example, cash paid to suppliers on account of purchases made, purchase of machinery for cash will be recorded in this Cashbook This book is divided into simple cash book, double column cash book, triple column cash book, petty cash book.
4. Purchase Return Book: This book records the purchase return of goods that are originally purchased on credit from suppliers. This daybook is also called return outwards book
5. Sales Return Book: This book records the sales return of goods that are originally sold to customers on credit. This daybook is also called return inwards book
6. Bills receivable Book: This book records transactions relating to the bills receivable that are drawn in favour of the business firms. All the bills which are drawn in favour of the business firm will be recorded in this Bills receivable book
7. Bills payable Book: This book records transactions relating to the bills that are payable by the business firm. All the bills which are payable by the business firm will be recorded in this Bills payable book
8. Journal Proper: This book records the transactions that are not recorded in any of the above books. For example, transactions relating to credit purchase of fixed assets and sale of assets on credit, will be recorded in journal proper. Opening entries, closing entries, adjustment entries, rectifying entries are also recorded in this daybook.
Uses, Importance, Advantages
1. It helps in the division of work by dividing journal into different subsidiary books such as purchase book, sales book, cash book, bills receivable and payable book, journal proper.
2. It also helps in systematic and convenient recording of all the transactions of similar nature at one place in different books.
3. It also helps in convenient posting to relevant ledger accounts easily.
4. It also helps to avoid the possibility of occurrence of frauds and errors due to division of work and internal checks.
5. It helps in Saving in time as a lot of clerical work is made simple and easy with the division of work
Conclusion:
Thus now we can conclude, as to, what are Subsidiary books and it's meaning, definition, types, features, objectives, uses as well. This would help to give a better understanding of the concept in a simple and easy manner.
Thus they are those books that record transactions of similar nature. These are the books of original entry which record the transactions of similar nature or repetitive transactions at one place in chronological order. They are used in place of Journal to record transactions of similar nature or repeated transactions.
Meaning, type, advantages, limitation, and format of Subsidiary book
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