A subsidiary book in accounting is a book of original entry where transactions of a similar nature are recorded in a chronological (day-to-day) order. Instead of recording every single transaction in one main journal, businesses use multiple subsidiary books to classify and record specific types of transactions, which simplifies the accounting process and makes the ledger cleaner.
The Purpose and Importance of Subsidiary Books
Imagine a large business that has hundreds of sales and purchases every day. Recording each one in a single journal would be incredibly time-consuming and messy. This is where subsidiary books, also known as Day Books, come in. Their primary purpose is to subdivide the journal and streamline the accounting workflow.
The key advantages are:
- Division of Labour: Different accounting clerks can handle different subsidiary books simultaneously (e.g., one person for sales, another for cash), leading to greater efficiency.
- Reduces Ledger Volume: Instead of posting each individual transaction to the ledger, periodic totals from the subsidiary books are posted. This keeps the general ledger concise and easy to manage.
- Easy Error Detection: Since similar transactions are grouped together, it’s easier to locate and rectify errors.
- Detailed Information: Each subsidiary book provides detailed chronological information about a specific type of transaction, which is useful for management analysis.
- Prevents Fraud: The division of work among different clerks reduces the chances of fraudulent activities.
Types of Subsidiary Books with Examples
Subsidiary books are broadly classified based on the nature of the transaction. The most commonly used subsidiary books are:
| Subsidiary Book | Purpose | What it Records |
|---|---|---|
| Cash Book | To record all cash and bank transactions. | All cash receipts and payments, including bank deposits and withdrawals. It acts as both a journal and a ledger. |
| Purchase Book | To record all credit purchases of goods. | Invoices for goods purchased on credit for the purpose of resale. (Cash purchases go to the Cash Book, credit purchase of assets goes to the Journal Proper). |
| Sales Book | To record all credit sales of goods. | Invoices for goods sold on credit. (Cash sales go to the Cash Book). |
| Purchase Return Book | To record the return of goods purchased on credit. | Goods returned to suppliers. Also known as Returns Outward Book. |
| Sales Return Book | To record the return of goods sold on credit. | Goods returned by customers. Also known as Returns Inward Book. |
| Bills Receivable Book | To record all bills of exchange received from debtors. | Details of bills received, their due dates, and amounts. |
| Bills Payable Book | To record all bills of exchange accepted to pay creditors. | Details of bills accepted, their due dates, and amounts. |
| Journal Proper | To record transactions that cannot be recorded in any other subsidiary book. | Opening entries, closing entries, purchase/sale of assets on credit, rectification entries. |
Example of a Purchase Book Format
Here is a simple format of a Purchase Book to illustrate how transactions are recorded.
| Date | Invoice No. | Name of Supplier (Particulars) | L.F. | Amount (₹) |
|---|---|---|---|---|
| Jan 05 | 101 | M/s Gupta Traders (10 TVs @ 15,000 each) | 1,50,000 | |
| Jan 12 | 215 | M/s Verma & Sons (20 Fridges @ 20,000 each) | 4,00,000 | |
| Jan 25 | 302 | M/s Gupta Traders (5 Washing Machines @ 12,000 each) | 60,000 | |
| Jan 31 | Total transferred to Purchase A/c | 6,10,000 |
At the end of the month, the total of ₹6,10,000 is posted to the debit side of the Purchase Account in the General Ledger. The individual accounts of Gupta Traders and Verma & Sons will be credited in the Creditors’ Ledger. This system is a core concept in departmental accounting and essential for managing different business units. It is different from project-based methods like contract costing but fundamental to day-to-day bookkeeping.
Frequently Asked Questions (FAQs)
What is a subsidiary book in accounting?
A subsidiary book is a book of original entry used to record specific types of frequent transactions like credit sales, credit purchases, or cash transactions. It helps in subdividing the journal to make the accounting process more efficient and organized.
What are the 8 types of subsidiary books?
The eight main types are the Cash Book, Purchase Book, Sales Book, Purchase Return Book, Sales Return Book, Bills Receivable Book, Bills Payable Book, and the Journal Proper. Each book is designated for a particular kind of business transaction.
Why is the cash book called a subsidiary book and a principal book?
The Cash Book is called a subsidiary book because it is a book of original entry where cash transactions are first recorded. It is also called a principal book (or a ledger) because it serves the function of the Cash Account, eliminating the need for a separate cash account in the general ledger.
Is a ledger a subsidiary book?
No, a ledger is not a subsidiary book. A subsidiary book is where transactions are first recorded (book of original entry). A ledger is where transactions are posted from the subsidiary books to their respective accounts. The ledger is the principal book of accounts.
What is the journal proper used for?
The Journal Proper is a subsidiary book used to record transactions that cannot be entered in any other special journal. This includes opening entries, closing entries, credit purchase or sale of assets, and entries to rectify errors.