Financial Accounting Subsidiary Books - Accounting Basics

What are the different subsidiary books maintained in Financial Accounting?

Some of the subsidiary books maintained in financial accounting is as follows:

What is a Cash Book?

All the transactions related to cash are recorded in Cash book. Some of the cash transactions include expenses paid in cash, revenue collected in cash, payments made to creditors, payments received from debtors etc.

A discount column is included on both debit and credit side in double column cash book, where the discount allowed to the customers and discount received from creditors is recorded.

The transactions related to bank are recorded in a separate column in triple column cash book.

Note: The double column cash book and triple column cash book are for academic purposes. Only simple cash book is popularly maintained by the business. The bank transactions are recorded in a separate book known as bank book.

Note: Cash book always shows debit balance; cash in hand, and a part of current assets.

Single Column Cash Book

Cash book is similar to that of a ledger account. A separate cash account is not required to be opened in the ledger. The cash book balance is posted directly into trial balance. The rule for cash book is simple – Debit what comes in and credit what goes out. It implies that the cash received is posted in debit side and payments and expenses are posted in credit side.

Format

CASH BOOK (Single Column)
Dr.
Cr.
Date
Particulars
L.F.
Amount
Date
Particulars
L.F.
Amount

Double Column Cash Book

Double column cash book has an additional column on both debit and credit sides for Discount. The discount to the debtors of the company is recorded in debit side and the discount received from suppliers is recorded in the credit side.

The total of discount column of debit side of cash book is posted in the ledger account of ‘Discount Allowed to Customers’ account as ‘To Total As Per Cash Book’. Similarly, credit column of cash book is posted in ledger account of ‘Discount Received’ as ‘By total of cash book’.

Format

CASH BOOK (Single Column)
Dr.
Cr.
Date
Particulars
L.F.
Discount
Amount
Date
Particulars
L.F.
Discount
Amount

Triple Column Cash Book

Double column cash book has an additional column on both debit and credit sides for Bank. All the transactions related to bank are recorded and thus there is no need for opening a separate bank account in ledger.

What is Petty Cash Book?

For all the petty transactions incurred, payment need to be done and for which cash is kept with an employee, who manages the petty transactions.

For instance, cashier pays Rs 5,000 to Mr A, who will pay day-to-day organization expenses out of it. Suppose Mr A spend Rs 4,200 out of it in a day, the main cashier pays Rs 4,200, so his balance of petty cash book will be again Rs 5,000. It is very useful by maintaining petty cash as the time is saved and the cashier is provided better control.

Format

PETTY CASH BOOK
Amount Recieved
C.B.F
Date
Particulars
Amount Paid
Stationery & Printing
Cartage
Loading
Postage
L.F.

What is a Purchase Book?

All the credit purchases of the organization are recorded in a Purchase book, which is not a purchase ledger.

Format

PURCHASE BOOK
Date
Particulars
Inward Invoice No.
L.F.
Amount

What is a Sale Book?

All the credit sales of the organization are recorded in a Sales book, which is not a sales ledger.

Format

SALE BOOK
Date
Particulars
Outward Invoice No.
L.F.
Amount

What is Purchase Return Book?

The goods purchased are returned back to the suppliers may be because of defective goods or low quality goods and for which a debit note is issued.

Format

PURCHASE RETURN BOOK
Date
Particulars
Credit Note No.
L.F.
Amount

What is Sale Return Book?

The goods sold to customers are returned back because of defective goods or low quality goods and for which a credit note is issued to the customer.

Format

SALE RETURN BOOK
Date
Particulars
Debit Note No.
L.F.
Amount

What is Bills Receivables Book?

Creditors raise the bills to debtors, which are accepted by the debtors and are returned to the creditors. Bills accepted by debtors are called as ‘Bills Receivables’ in the books of creditors, and ‘Bills Payable’ in the books of debtors. These are recorded in ‘Bills Receivable Books’ and ‘Bills Payable Book’.

Format

BILLS RECEIVABLE BOOK
Date
Received From
Term
Due Date
L.F.
Amount

What is Bills Payable Book?

Bills payable issues to the supplier of goods or services for payment, and the record is maintained in this book.

Format

BILLS PAYABLE BOOK
Date
To Whom Given
Term
Due Date
L.F.
Amount

What are the key features of Subsidiary Books?

Purchase book is different from that of a purchase ledger. Only credit purchases are recorded in purchase book and all cash purchased are recorded in purchase ledger in chronological order. The daily balance of the purchase book is transferred to purchase ledger and hence purchase ledger is a comprehensive account of all the purchases. The same applies to sales book and sales ledger.

  • As it is not possible to post each and every transaction through journal entries, maintaining of a subsidiary book makes the work easier.
  • More scientific, practical, specialized, controlled and easy approach of work is facilitated by maintain subsidiary books.
  • The work is divided among different departments such as sales department, purchase department, cash department by maintaining subsidiary books, enabling to easily audit and detect errors.

What is Bank Reconciliation statement?

The reconciliation of the bank balance with the balance of the bank passbook is known as bank reconciliation. Bank reconciliation statement consists of:

  • Balance as per our cash book/bank book
  • Balance as per pass book
  • Reason for difference in both of above

As required by the firm, it can be prepared at any time depending upon the volume and number of transactions of the bank. As most of the transactions are done electronically, the time taken to reconcile the bank is reduced.

Format

BANK RECONCILIATION STATEMENT
Particulars
Debit Bank Balance as per Bank Book
Credit Bank Balance as per Bank Book (overdraft)
Balance as per Bank Book
50,000
-50,000
1. Add: Cheque issued to parties but not presented in bank
3,25,000
3,25,000
2. Less: Cheque deposited in bank but not cleared yet
-50,000
-50,000
3. Less: Bank Charges debited by bank but not entered in our books of accounts
-1,200
-1,200
4. Less: Bank interest charged by bank but not entered in our books of accounts
-10,000
-10,000
5. Add: Payment direct deposited by party without intimation to us
1,75,000
1,75,000
Balance as per Bank Pass Book/ Statement
4,88,000
3,88,000

What is a Trial Balance?

The summary of the debit and credit balances of the ledger accounts is known as a Trial balance. The total of both the sides of the trial balance should match and the trial balance is prepared on the last day of the accounting cycle.

A comprehensive list of balances is provided by a trial balance. Trial balance enables to draw financial reports of an organization, For instance, gross profit is ascertained by analyzing the trading account and profit or loss is ascertained by analyzing the profit and loss account for that particular accounting year and the balance sheet is prepared to conclude the financial position of the firm.

Format

TRIAL BALANCE
S.No. Ledger Accounts L.F. Debit(Rs.) Credit(Rs.)
1 ADVANCE FROM CUSTOMERS
2 ADVANCE TO STIFF
3 AUDIT FEES
4 BALANCE AT BANK
5 BANK BORROWINGS
6 BANK INTEREST PAID
7 CAPITAL
8 CASH IN HAND
9 COMMISSION ON SALE
10 ELECTRICITY EXPENSES
11 FIXED ASSETS
12 FREIGHT OUTWARD
13 INTEREST RECEIVED
14 INWARD FREIGHT CHARGES
15 OFFICE EXPENSES
16 OUTSTANDING RENT
17 PREPAID INSURANCE
18 PURCHASES
19 RENT
20 REPAIR AND RENUWALS
21 SALARY
22 SALARY PAYABLE
23 SALE
24 STAFF WELFARE EXPENSES
25 STOCK
26 SUNDRY CREDTIORS
27 SUNDRY DEBITORS
TOTAL

What are Financial Statements?

The profit or loss of the business is ascertained and the financial position of the firm is determined by preparing the financial statements.

Net profit for an accounting period is ascertained by the Trading, Profit and Loss account and the financial position of the business is ascertained by the balance sheet.

All the balances of the ledger accounts are entered in the specified format using trial balance and the desired results are derived by the financial equations.

Trading & Profit & Loss Account of M/s ABC Limited

For the period ending 31-03-2014

Particulars Amount Particulars Amount
To Opening Stock By Sales
To Purchases By Closing Stock
To Freight charges By Gross Loss c/d
To Direct Expenses
To Gross Profit c/d
Total Total
To Salaries By Gross Profit b/d
To Rent
To Office Expenses By Bank Interest received
To Bank charges By Discount
To Bank Interest By Commission Income
To Electricity Expenses By Net Loss transfer to Balance sheet
To Staff Welfare Expenses
To Audit Fees
To Repair & Renewal
To Commission
To Sundry Expenses
To Depreciation
To Net Profit transfer to Balance sheet
Total Total
Balance sheet of M/s ABC Limited

as on 31-03-2014

Liabilities Amount Assets Amount

CapitalXX

Add:Net ProfitXX

Fixed AssetsXXXX

Less:DescriptionXX

Bank Borrowings Current Assets -
Long Term Borrowing Stock
Current Liabilities - Debtors
Advance Form Customers Cash In hand
Sundry creditors Cash at Bank
Bills Payable Bills receivables
Expenses Payable
Total Total

What is Owner’s Equity?

The equity equation is as follows:

The investments are made by the owner or the sole proprietor of the business and some money is withdrawn out of it for personal use which is termed as drawings. This transaction is recorded as follows:

What are Current Assets?

Current assets are those assets that can be converted into cash in the next accounting year.

Such as Cash in hand, cash in bank, fixed deposit receipts (FDRs), inventory, debtors, receivable bills, short-term investments, staff loan and advances, prepaid expenses etc.

Note: Prepaid expense save the cash for the next financial or accounting year and hence come under current assets.

What are Current Liabilities?

Current liabilities are those liabilities that are to be paid within one year from the data of balance sheet. Current liabilities primarily include sundry creditors, expenses payable, bills payable, short-term loans, advance from customers, etc.

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