SUBSIDIARY BOOKS— MEANING, IMPORTANCE AND TYPES

Subsidiary books are books where transactions of similar nature are recorded chronologically.

They are books where transactions are recorded not be from the source documents and from which postings are made to the relevant accounts in the ledger periodically.

Business transactions are first recorded in subsidiary books before being transferred to the ledger.

Subsidiary books exist to provide periodic totals for posting into the ledger.

Subsidiary books are also called daybooks, books of original entry, or books of prime entry.

Subsidiary books do not form part of the double-entry. 

They are only to record cash and credit transactions before being transferred to the ledger

Importance of subsidiary books

1. Division of work: Instead of a single journal, we have several subsidiary books.

This means that separate subsidiary books may be handled by different people, saving time and reducing the likelihood of mistakes

2. Efficiency: The division of labour made possible by the presence of numerous subsidiary books ensures that transactions are recorded efficiently.

3. Easy reference: Since transactions of similar nature are recorded in each subsidiary book, each transaction can easily be referenced in the future.

4. Useful in making decisions: Subsidiary books keep track of transactions of a similar nature.

As a result, they can be utilized in making decisions about specific transaction types.

For example, managers may reference the sales journal while making decisions relating to credit sales.

5. Facilitate internal checks: Since transactions of similar nature are recorded in the same place in the subsidiary book, the subsidiary book can be used to track errors and frauds relating to a particular transaction.

For example, we check the cashbook for possible errors when preparing a bank reconciliation statement because we know that transactions involving cheques are recorded there.

Types of subsidiary books

Subsidiary books are divided into eight books, namely:

1. Sales daybook or journal 

2. Purchases daybook or journal

3. Sales returns or returns inwards journal

4. Purchase returns or return outwards daybook, or returns outwards journal.

5. General journal or principal journal or journal proper.

6. Cashbook.

7. Bills receivable

8. Bills payable

Sales daybook

This is a book of original entries in which credit sales are recorded before being posted to the ledgers. 

Cash sales should not be recorded in the cash book. Instead, they are recorded in the cash book.

Similarly, sales of fixed assets must be excluded from the sales daybook.

An outgoing invoice is the source document for the sales daybook.

The total of the sales day book will be posted to the credit side of the sales account in the general ledger and the debit side of the personal ledger of individual customers.

dateparticularsfoliodetailstotal

Purchase daybook

This is the book for recording goods bought on credit from the suppliers.

Also known as the purchase journal, the purchase day book is where credit purchases of goods and services that a business deals in are recorded.

Just as cash sales are not recorded in the sales day book, cash purchases should not be recorded in the purchases daybook

Equally, the purchase of fixed assets must not be recorded in the purchase day book.

The source document of the purchase day book is the incoming invoice.

The total of purchases day book will be posted to the debit side of the sales account in the general ledger and credit side of the personal ledger of the Individual supplier.

dateparticularsfoliodetailstotal

Purchases return journal

This is the book used to record goods returned to the supplier for various reasons, such as defects, damages, or the wrong delivery.

It is the book where the goods are returned by a business to its suppliers.

The purchase return journals are also known as return outwards books.

The recordings of the purchase return journal are based on debit notes.

Hence, it can be said debit note is the source document of the purchase return journal.

dateparticularsfoliodetailstotal

Sales return journal

This is used to record goods returned by customers. It may be due to the the the wrong type, colour, poor quality or breakage.

The sale return journal is the book where goods returned by the customer of a business are recorded.

Another name for the sales return journal is the returns inward daybook

It is worth noting that the source document for the sales return journal is the credit note.

dateparticularsfoliodetailstotal

Cashbook

This is a double-entry account that is used to record both cash and bank transactions.

It is a subsidiary book used to record cash receipts and cash payments.

The source document for the cashbook is receipts and cheques.

A cashbook is a book that has both a debit and a credit side.

As a result, the cash book is a subsidiary book as well as a ledger account.

There are four main types of cash books, including:

  • Single column cashbook: This is a cashbook with only one column (cash)
  • Double column cashbook: This is a cashbook with two columns (cash and bank columns
  • Triple column cashbook: This is a cashbook with three columns (cash, bank and discount columns). Below is the format of three column cash book
  • Petty cashbook: This is a cash book used to record petty expenses.

dateparticularsdiscount allowedcashbankdateparticularsdiscount receivedcashbank

Bills receivable book

This records the receipt of bills drawn in favour of the company (bills receivable).

It is a book in which acceptance of bills in our favour are recorded.

The total of bills receivable book is posted to the bills receivable account as well as to the individual account of the customers

date of
bill
Bill noAcceptorfromtermsdue to dateAmount

Bills payable book

This records the issue of bills (bills payable).

This book records transactions relating to the bills that are payable by the business firm.

It is a book used to record the acceptances given to the suppliers for credit purchases.

The total of the bills payable book is deposited to both the bills payable account and each supplier's account.

date of
bill
Bill nodraweepayeetermsdate of maturityAmount

General journal

Any entry that cannot be made in one of the specific journals indicated above is made in the general journal.

The general journal is a subsidiary book used to record transactions relating to adjustment entries, opening entries, closing entries, reconciliation, and sales of assets. 

It can equally be defined as the daily records of transactions that cannot be recorded in any of the special journals.

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Also known as journal proper, the general journal is used for recording the following:

1. Opening entries: General journals are used to record opening entries of assets and liabilities at the beginning of the year from the year's books.

2. Closing entries: Closing entries are recorded in general journals before being transferred to permanent accounts.

3. Adjusting entries: Adjusting entries, which are entries made at the end of the year to allocate income and expenditure to the period in which they occurred, are also recorded in general journals.

Adjusting entries that are usually recorded in the general journal are accrued revenue, accrued expenses, depreciation, prepaid income and deferred revenues.

4. Error correction: The general journal is sometimes used for error correction

If, for example, James' account was debited instead of John's account, the entry will be made in the general journal.

5. Any other transaction: The general journal is also used to record any other transactions that cannot be recorded in the other subsidiary books.

To conclude, here are the eight different types of subsidiary books and their functions:

1. Sales Daybook (or sales journal): This is used for recording credit sales.

2. Purchase daybook (or purchases journal): This is used for recording credit purchases.

3. Returns Inward Daybook (or returns inward journal or sales returns day book): This is used for recording returns from customers.

4. Returns Outward Daybook (or returns outward journal or purchases returns day book): This is used for recording returns to suppliers

5. Cashbook: This is used for recording receipts and payments of money.

6. Journal proper: This is where other transactions such as the purchase and sale of fixed assets on credit, opening entries, correction of errors, transfers from one account to another, taking goods from the business for personal use, end-of-period adjustments, and any other transaction that cannot be recorded in any of the other subsidiary books are recorded.

7. Bills receivable daybook: This is used to record all accepted bills received by a company

8. Bills payable daybook: This is where a company records all bills it accepts from its creditors.

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