Subsidiary Books in financial accounting

Subsidiary Books

Subsidiary

  • Relating to something that is added but is not essential
  • Functioning in a subsidiary or supporting capacity
  • supplementary
  • auxilliary
  • ancillary
  • additional
  • contributory
  • secondary

Subsidiary Books used in Financial Accounting are Books which are used in place of the Journal, to enable easier and more efficient accomplishment of the tasks involved in accounting directed at achieving the objectives of accounting.

Regular and voluminous Transactions

Most organisations, especially business organisations typically would have transactions of similar nature being conducted repeatedly and in substantial volume regularly. Such transactions may be related to any of the activities the organisation is involved with. Purchase transactions, Sale transactions, Cash transactions etc. are some of these.

For understanding the need for subsidiary books let us consider the following transactions relating to sales made in an organisation from Jun 11th and 12th 20_6.

  1. Sold Goods to Nancy for 12,000
  2. Mr. Nayar bought goods to the value of 18,000.
  3. Sold goods to M/s Bharat Metals on credit for 28,000.
  4. Sold Goods valued 12,000 for cash to Sayanora & Co.
  5. Sold goods to M/S Local Motors : 32,000

Recording these transactions in the journal and posting them into the ledger would result in the following recordings and postings in the journal and the ledgers respectively.

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
Particulars L/F Amount
(Dr)
Amount
(Cr)
11/06/_06 Nancy a/c
To Sales a/c
Dr
12,000
12,000
[Being the value of credit sales made to Nancy vide invoice no:___ dated:__]
11/06/_06 Nayar a/c
To Sales a/c
Dr
18,000
18,000
[Being the value of credit sales made to Nayar vide invoice no:___ dated:__]
12/06/_06 M/s Bharat Metals a/c
To Sales a/c
Dr
28,000
28,000
[Being the value of credit sales made to M/s Bharat Metals vide invoice no:___ dated:__]
12/06/_06 Cash a/c
To Sales a/c
Dr
12,000
12,000
[Being the value of sales made on cash to Sayanora & Co vide receipt no:___ dated:__]
12/06/_06 M/S Local Motors a/c
To Sales a/c
Dr
32,000
32,000
[Being the value of credit sales made to Sayanora & Co vide invoice no:___ dated:__]
Sales a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
 
11/06/_6
11/06/_6
12/06/_6
12/06/_6
12/06/_6

By Nancy a/c
By Nayar a/c
By Bharat Metals a/c
By Cash
By Local Motors a/c








12,000
18,000
28,000
12,000
32,000
Nancy a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

11/06/_6

To Sales a/c
 


12,000
Nayar a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

11/06/_6

To Sales a/c
 


18,000
Bharat Metals a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

12/06/_6

To Sales a/c
 


28,000
Cash a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

12/06/_6

To Sales a/c
 


12,000
Local Motors a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

12/06/_6

To Sales a/c
 


32,000

We can specify some common characteristics of these recorded transactions.

Regular

They occur regularly in the organisation. Sales are regularly conducted by any business organisation.

Repetitive

These are transactions which are being recorded repetitively in the books of accounts with modifications regarding some aspects like amounts and the buyer. The journal entries that are used to record these transactions look similar. The same ledger account is debited (or credited) in all the transactions. Sales a/c is credited in all the transactions above.

Subsidiary Book - recording

To reduce the effort in recording the transactions of repetitive nature, a journal that has a different kind of design or format is used. The new design includes provision for recording all the information that is recorded in the regular journal.

Information in the Journal

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
Particulars L/F Amount
(Dr)
Amount
(Cr)
11/06/_06 Nancy a/c
To Sales a/c
Dr
12,000
12,000
[Being the value of credit sales made to Nancy vide invoice no:___ dated:__]

The information available from the journal entry relating to sales.

  • Date of Transaction
  • Voucher/Receipt Number linking the journal entry to the proof of the transaction.
  • The Two ledger accounts affected by the transaction.
  • The Folio (page) number in the ledger where the posting in the ledger accounts affected is being made.
  • Narration giving brief details relating to the transaction.

The design or format is meant to give a different kind of presentation for recording and viewing the information and not for eliminating any information that is available in the journal. It gives rise to a possibility of including additional information over and above the information that we record in the regular journal.

Subsidiary Book - Journal in a different format

To record all the credit sales transactions, a journal named sales book is used. The format of the journal (book) along with the recording of the sales transactions above would be as follows.
Sales Book
Date Particulars Invoice No. L/F Amount
11/06/_6

11/06/_6

12/06/_6
12/06/_6
Rahim
[Towards order made on 24th May]
Anjuman
[Clearance stock sold]
Bharat Steel
Laxmi Motors
[Sample Order]












12,000

15,000

8,000
14,000
12/06/_6 Total 49,000

Only credit (sales) transactions are recorded in this book.

Presentation similar to a ledger

The format in which information is presented is similar to the presentation on one of the sides of a ledger. Here in case of sales book, it looks similar to the credit side of the Sales a/c in the ledger.
Sales a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
 
11/06/_6
11/06/_6
12/06/_6
12/06/_6
12/06/_6

By Nancy a/c
By Nayar a/c
By Bharat Metals a/c
By Cash
By Local Motors a/c








12,000
18,000
28,000
12,000
32,000

Information available in subsidiary book

All the information that is available in the journal is also available in this book. By providing additional columns or place holders additional relevant information may also be recorded here.

Each entry represents a simple journal entry

Each entry in the subsidiary book represents a single simple journal entry. A simple journal entry involves two account heads. One is debited and the other credited.

Total Account

Of the two accounts affected by the entry in a subsidiary book, one is the total account that is represented by the book itself. In case of a sales book, the total account is the Sales a/c. The name of this account is indicated by the name of the book and is not mentioned repeatedly for each transaction.

Individual accounts

The account head entered in the particulars column represents the indivual account that is affected by the transaction being recorded. Its type is dependent on the subsidiary book in consideration. In a sales book, the individual account is a personal account.

Journal entry narration

Narration if required is entered in the particulars column below the personal account head affected by the transaction.

Periodical Totals

The subsidiary book is periodically totaled and the total amount is shown as an entry with word total in the particulars column. The period for which the total is drawn is dependent on the information needs of the organisation.

Posting to Ledgers from Subsidiary Book

Each entry in the subsidiary book, being a simple journal entry, effects two ledger accounts and thus has to get posted to those two accounts.

To Individual Accounts

Each entry represents a transaction and provides the name of the individual account that is affected by the transaction. The individual account affected by a transaction is posted to the relevant ledger account on the day on which the transaction is recorded in the subsidiary book.
Nancy a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

11/06/_6

To Sales a/c
 


12,000
Nayar a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

11/06/_6

To Sales a/c
 


18,000
Bharat Metals a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

12/06/_6

To Sales a/c
 


28,000
Local Motors a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

12/06/_6

To Sales a/c
 


32,000

To Total Account

The total account is posted with the periodical totals on the date on which the total is drawn.
Sales a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
 
12/06/_6

By Buyers


49,000

Since it combines information relating to multiple entries, some relevant term would be used to indicate the posting. In case of sales book, the term buyers or debtors is used.

J/F

The J/F column is filled with the page number of the subsidiary book from which the information relating to the posting is drawn.

Benefits of using a Subsidiary Book

A subsidiary book includes all the information that is available in a normal journal. Since each book is used for recording similar transactions, the use of a subsidiary book enables recording and collecting additional information by providing for additional columns or fields. The book can be customised in a manner that is suitable for the needs of the organisation.

Knowledge of accounting is not a requirement for being able to enter data into the book. There are no terms that are specific to accounting like Debit and Credit in the book. This makes it easier to delegate the accounting function by handing over the task of recording to the personnel involved in carrying on the activity.

Eg : For example, the personnel in the sales department can record the sales book. They do not need any special knowledge of accounting for doing this. They just need to know what information has to be filled where. If the book is passed on to the accounting department daily, ledger postings can be done by them.

Isn't information missing from the ledger?

The ledger provides all the information relating to an element at a single place. As such all the individual sales transactions when posted in a ledger provide the total information relating to sales at a glance.
Sales a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
 
11/06/_6
11/06/_6
12/06/_6
12/06/_6
12/06/_6

By Nancy a/c
By Nayar a/c
By Bharat Metals a/c
By Cash
By Local Motors a/c








12,000
18,000
28,000
12,000
32,000

Isn't this information missing from the total account when using subsidiary books?

The journal entry in a normal journal has a format that would not enable us to get an idea of the transactions at a glance. Moreover, all the transactions being recorded in a chronological order would not make available all the journal entries relating to similar transactions at a single place. In such cases, the ledger provides us all the information relating to the element at a single place.

A subsidiary book is designed in a format different from that of a regular journal enabling it to serve the purpose of a journal and at the same time provide the information relating to the total account in a format that it would be available had the subsidiary book not been used.

Sales Book
Date Particulars Invoice No. L/F Amount
11/06/_6

11/06/_6

12/06/_6
12/06/_6
Rahim
[Towards order made on 24th May]
Anjuman
[Clearance stock sold]
Bharat Steel
Laxmi Motors
[Sample Order]












12,000

15,000

8,000
14,000
12/06/_6 Total 49,000

Lessened burden in recording and posting

Only total amounts on the day the total is drawn in the subsidiary book are posted in the total account. This would reduce the burden of posting the individual transactions in the total account. It would also ease the task of verification by providing most of the detail in a single book instead of in the journal and ledger separately.

Use of Subsidiary Books in Computerised Accounting

The advent of computerised accounting has given rise to a number of new possibilities with regards to various aspects of accounting. Accounting starts with recording the journal and anything that happens therefrom like making up the ledger, deriving the trial balance is a derived flow of information. This gave rise to the possibility of automising the flow of information which is what we see in computerised accounting.

We only record the journal entry and everything else is programmed to flow automatically. The arrangement that is made in a computer to enter information or data is called a form. The form that enables entering information relating to a journal entry can be designed in any convenient way.

Conventionally the classical design used incorporated all the information that we record in a journal with the information relating to each debit or credit being identified as a line item. There would be as many line items as there are debits and credits together. In simple journal entries there would be 2 line items for each transaction.

Common information
Date 11/06/_06
Narration credit sales made to Nancy
Voucher/Invoice
Line Items
Dr Nancy a/c 12,000
Cr Sales a/c 12,000

The above arrangement itself should give us an idea that the design of the form that we use for entering the information relating to each journal entry can be customised as per our needs.

This possibility of customisation combined with the idea of subsidiary books enabled the creation of forms customised for each department. So even in computerised accounting we come across the idea of books similar to subsidiary books that are used to enter information relating to set of similar transactions. Sales book, purchases book etc.

Author : The Edifier
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