ICAI Notes- Unit 4: Subsidiary Books | Principles and Practice of Accounting - CA Foundation PDF Download

 Page 1


 
 
    
 
2.83 
ACCOUNTING PROCESS 
 
LEARNING OUTCOMES 
UNIT – 4 SUBSIDIARY BOOKS 
 
 
After studying this chapter, you will be able to: 
? Understand the techniques of recording transactions in Purchase 
Book, Sales Book; Returns Inward Book and Returns Outward Book; 
Bills Receivable and Bills Payable Book. 
? Learn the technique of posting from Subsidiary Books to Ledger. 
? Understand that even if subsidiary books are maintained, 
journalisation is required for many other transactions and events. 
? Learn the difference between the subsidiary books and principal 
books. 
 
 
 
 
• Ledger
• Cash books
Principle books
• Purchases and Sales book, Purchase and 
Sales return books
• Bill payable and Bills receivable books
• Journal Proper
Subsidiary books
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
Page 2


 
 
    
 
2.83 
ACCOUNTING PROCESS 
 
LEARNING OUTCOMES 
UNIT – 4 SUBSIDIARY BOOKS 
 
 
After studying this chapter, you will be able to: 
? Understand the techniques of recording transactions in Purchase 
Book, Sales Book; Returns Inward Book and Returns Outward Book; 
Bills Receivable and Bills Payable Book. 
? Learn the technique of posting from Subsidiary Books to Ledger. 
? Understand that even if subsidiary books are maintained, 
journalisation is required for many other transactions and events. 
? Learn the difference between the subsidiary books and principal 
books. 
 
 
 
 
• Ledger
• Cash books
Principle books
• Purchases and Sales book, Purchase and 
Sales return books
• Bill payable and Bills receivable books
• Journal Proper
Subsidiary books
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.
84 
a
 
2.84 
 4.1 INTRODUCTION  
In a business, most of the transactions generally relate to receipts and payments of cash, sale 
of goods and their purchase. It is convenient to keep a separate register for each such class 
of transactions one for receipts and payments of cash, one for purchase of goods and one for 
sale of goods. A register of this type is called a book of original entry or of prime entry. The 
transactions recorded in such books will not require journal entries. The system by which 
transactions of a class are first recorded in the specified book, specially meant for it and on 
the basis of which ledger accounts are then prepared is known as the Practical System of Book 
keeping or even the English System. It should be noted that in this system, there is no 
departure from the rules of the double entry system. 
These books of original or prime entry are also called subsidiary books since ledger accounts 
are prepared on their basis without further processing of ledger posting. Normally, the 
following subsidiary books are used in a business: 
(i) Cash Book to record receipts and payments of cash, including receipts into and 
payments out of the bank. 
(ii) Purchases Book to record credit purchases of goods dealt in or of the materials and 
stores required in the factory. 
(iii) Purchase Returns Book to record the returns of goods and materials previously 
purchased. 
(iv) Sales Book to record the sales of the goods dealt in by the firm. 
(v) Sale Returns Book to record the returns of goods made by the customers sold to them 
earlier. 
(vi) Bills Receivable Book to record the receipts of promissory notes or hundies from 
various parties. 
(vii) Bills Payable Book to record the issue of the promissory notes or hundies to other 
parties. 
(viii) Journal (proper) to record the transactions which cannot be recorded in any of the 
seven books mentioned above. 
It may be noted that in all the above cases the word “Journal” may be used for the word 
“book”. 
 
© The Institute of Chartered Accountants of India
Page 3


 
 
    
 
2.83 
ACCOUNTING PROCESS 
 
LEARNING OUTCOMES 
UNIT – 4 SUBSIDIARY BOOKS 
 
 
After studying this chapter, you will be able to: 
? Understand the techniques of recording transactions in Purchase 
Book, Sales Book; Returns Inward Book and Returns Outward Book; 
Bills Receivable and Bills Payable Book. 
? Learn the technique of posting from Subsidiary Books to Ledger. 
? Understand that even if subsidiary books are maintained, 
journalisation is required for many other transactions and events. 
? Learn the difference between the subsidiary books and principal 
books. 
 
 
 
 
• Ledger
• Cash books
Principle books
• Purchases and Sales book, Purchase and 
Sales return books
• Bill payable and Bills receivable books
• Journal Proper
Subsidiary books
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.
84 
a
 
2.84 
 4.1 INTRODUCTION  
In a business, most of the transactions generally relate to receipts and payments of cash, sale 
of goods and their purchase. It is convenient to keep a separate register for each such class 
of transactions one for receipts and payments of cash, one for purchase of goods and one for 
sale of goods. A register of this type is called a book of original entry or of prime entry. The 
transactions recorded in such books will not require journal entries. The system by which 
transactions of a class are first recorded in the specified book, specially meant for it and on 
the basis of which ledger accounts are then prepared is known as the Practical System of Book 
keeping or even the English System. It should be noted that in this system, there is no 
departure from the rules of the double entry system. 
These books of original or prime entry are also called subsidiary books since ledger accounts 
are prepared on their basis without further processing of ledger posting. Normally, the 
following subsidiary books are used in a business: 
(i) Cash Book to record receipts and payments of cash, including receipts into and 
payments out of the bank. 
(ii) Purchases Book to record credit purchases of goods dealt in or of the materials and 
stores required in the factory. 
(iii) Purchase Returns Book to record the returns of goods and materials previously 
purchased. 
(iv) Sales Book to record the sales of the goods dealt in by the firm. 
(v) Sale Returns Book to record the returns of goods made by the customers sold to them 
earlier. 
(vi) Bills Receivable Book to record the receipts of promissory notes or hundies from 
various parties. 
(vii) Bills Payable Book to record the issue of the promissory notes or hundies to other 
parties. 
(viii) Journal (proper) to record the transactions which cannot be recorded in any of the 
seven books mentioned above. 
It may be noted that in all the above cases the word “Journal” may be used for the word 
“book”. 
 
© The Institute of Chartered Accountants of India
 
 
    
 
2.85 
ACCOUNTING PROCESS 
Advantages of Subsidiary Books 
The use of subsidiary books affords the undermentioned advantages: 
(i) Division of work: Since in the place of one journal there will be so many subsidiary 
books, the accounting work may be divided amongst a number of clerks. 
(ii) Specialization and efficiency: When the same work is allotted to a particular person 
over a period of time, he acquires full knowledge of it and becomes efficient in 
handling it. Thus the accounting work will be done efficiently. 
(iii) Saving of the time: Various accounting processes can be undertaken simultaneously 
because of the use of a number of books. This will lead to the work being completed 
quickly. 
(iv) Availability of information: Since a separate register or book is kept for each class of 
transactions, the information relating to each class of transaction be available at one 
place. 
(v) Facility in checking: When the trial balance does not agree, the location of the error 
or errors is facilitated by the existence of separate books. Even the commission of 
errors and frauds will be checked by the use of various subsidiary books. 
 4.2 DISTINCTION BETWEEN SUBSIDIARY BOOKS AND 
PRINCIPAL BOOKS 
The books in which transactions are first recorded to enable further processing are called 
subsidiary books. The ledger and the cash book are the principle books since they furnish 
information for preparation of the trial balance and financial statements. The following chart 
will help you in understanding the difference between Subsidiary Books and Principal Books. 
© The Institute of Chartered Accountants of India
Page 4


 
 
    
 
2.83 
ACCOUNTING PROCESS 
 
LEARNING OUTCOMES 
UNIT – 4 SUBSIDIARY BOOKS 
 
 
After studying this chapter, you will be able to: 
? Understand the techniques of recording transactions in Purchase 
Book, Sales Book; Returns Inward Book and Returns Outward Book; 
Bills Receivable and Bills Payable Book. 
? Learn the technique of posting from Subsidiary Books to Ledger. 
? Understand that even if subsidiary books are maintained, 
journalisation is required for many other transactions and events. 
? Learn the difference between the subsidiary books and principal 
books. 
 
 
 
 
• Ledger
• Cash books
Principle books
• Purchases and Sales book, Purchase and 
Sales return books
• Bill payable and Bills receivable books
• Journal Proper
Subsidiary books
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.
84 
a
 
2.84 
 4.1 INTRODUCTION  
In a business, most of the transactions generally relate to receipts and payments of cash, sale 
of goods and their purchase. It is convenient to keep a separate register for each such class 
of transactions one for receipts and payments of cash, one for purchase of goods and one for 
sale of goods. A register of this type is called a book of original entry or of prime entry. The 
transactions recorded in such books will not require journal entries. The system by which 
transactions of a class are first recorded in the specified book, specially meant for it and on 
the basis of which ledger accounts are then prepared is known as the Practical System of Book 
keeping or even the English System. It should be noted that in this system, there is no 
departure from the rules of the double entry system. 
These books of original or prime entry are also called subsidiary books since ledger accounts 
are prepared on their basis without further processing of ledger posting. Normally, the 
following subsidiary books are used in a business: 
(i) Cash Book to record receipts and payments of cash, including receipts into and 
payments out of the bank. 
(ii) Purchases Book to record credit purchases of goods dealt in or of the materials and 
stores required in the factory. 
(iii) Purchase Returns Book to record the returns of goods and materials previously 
purchased. 
(iv) Sales Book to record the sales of the goods dealt in by the firm. 
(v) Sale Returns Book to record the returns of goods made by the customers sold to them 
earlier. 
(vi) Bills Receivable Book to record the receipts of promissory notes or hundies from 
various parties. 
(vii) Bills Payable Book to record the issue of the promissory notes or hundies to other 
parties. 
(viii) Journal (proper) to record the transactions which cannot be recorded in any of the 
seven books mentioned above. 
It may be noted that in all the above cases the word “Journal” may be used for the word 
“book”. 
 
© The Institute of Chartered Accountants of India
 
 
    
 
2.85 
ACCOUNTING PROCESS 
Advantages of Subsidiary Books 
The use of subsidiary books affords the undermentioned advantages: 
(i) Division of work: Since in the place of one journal there will be so many subsidiary 
books, the accounting work may be divided amongst a number of clerks. 
(ii) Specialization and efficiency: When the same work is allotted to a particular person 
over a period of time, he acquires full knowledge of it and becomes efficient in 
handling it. Thus the accounting work will be done efficiently. 
(iii) Saving of the time: Various accounting processes can be undertaken simultaneously 
because of the use of a number of books. This will lead to the work being completed 
quickly. 
(iv) Availability of information: Since a separate register or book is kept for each class of 
transactions, the information relating to each class of transaction be available at one 
place. 
(v) Facility in checking: When the trial balance does not agree, the location of the error 
or errors is facilitated by the existence of separate books. Even the commission of 
errors and frauds will be checked by the use of various subsidiary books. 
 4.2 DISTINCTION BETWEEN SUBSIDIARY BOOKS AND 
PRINCIPAL BOOKS 
The books in which transactions are first recorded to enable further processing are called 
subsidiary books. The ledger and the cash book are the principle books since they furnish 
information for preparation of the trial balance and financial statements. The following chart 
will help you in understanding the difference between Subsidiary Books and Principal Books. 
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.
86 
a
 
2.86 
 
Financial Books 
of Accounts
Principal Books
Ledger
Cash Books
Simple Cash 
Book
Cash book with 
discount column
Cash book with  
Bank & discount 
column
Petty Cash Book
Subsidiary Books
Purchase Book
Sales Book
Purchase Return 
Book
Sales Return 
Book
Bill Received 
Book
Bill Payable Book
Journal Proper
© The Institute of Chartered Accountants of India
Page 5


 
 
    
 
2.83 
ACCOUNTING PROCESS 
 
LEARNING OUTCOMES 
UNIT – 4 SUBSIDIARY BOOKS 
 
 
After studying this chapter, you will be able to: 
? Understand the techniques of recording transactions in Purchase 
Book, Sales Book; Returns Inward Book and Returns Outward Book; 
Bills Receivable and Bills Payable Book. 
? Learn the technique of posting from Subsidiary Books to Ledger. 
? Understand that even if subsidiary books are maintained, 
journalisation is required for many other transactions and events. 
? Learn the difference between the subsidiary books and principal 
books. 
 
 
 
 
• Ledger
• Cash books
Principle books
• Purchases and Sales book, Purchase and 
Sales return books
• Bill payable and Bills receivable books
• Journal Proper
Subsidiary books
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.
84 
a
 
2.84 
 4.1 INTRODUCTION  
In a business, most of the transactions generally relate to receipts and payments of cash, sale 
of goods and their purchase. It is convenient to keep a separate register for each such class 
of transactions one for receipts and payments of cash, one for purchase of goods and one for 
sale of goods. A register of this type is called a book of original entry or of prime entry. The 
transactions recorded in such books will not require journal entries. The system by which 
transactions of a class are first recorded in the specified book, specially meant for it and on 
the basis of which ledger accounts are then prepared is known as the Practical System of Book 
keeping or even the English System. It should be noted that in this system, there is no 
departure from the rules of the double entry system. 
These books of original or prime entry are also called subsidiary books since ledger accounts 
are prepared on their basis without further processing of ledger posting. Normally, the 
following subsidiary books are used in a business: 
(i) Cash Book to record receipts and payments of cash, including receipts into and 
payments out of the bank. 
(ii) Purchases Book to record credit purchases of goods dealt in or of the materials and 
stores required in the factory. 
(iii) Purchase Returns Book to record the returns of goods and materials previously 
purchased. 
(iv) Sales Book to record the sales of the goods dealt in by the firm. 
(v) Sale Returns Book to record the returns of goods made by the customers sold to them 
earlier. 
(vi) Bills Receivable Book to record the receipts of promissory notes or hundies from 
various parties. 
(vii) Bills Payable Book to record the issue of the promissory notes or hundies to other 
parties. 
(viii) Journal (proper) to record the transactions which cannot be recorded in any of the 
seven books mentioned above. 
It may be noted that in all the above cases the word “Journal” may be used for the word 
“book”. 
 
© The Institute of Chartered Accountants of India
 
 
    
 
2.85 
ACCOUNTING PROCESS 
Advantages of Subsidiary Books 
The use of subsidiary books affords the undermentioned advantages: 
(i) Division of work: Since in the place of one journal there will be so many subsidiary 
books, the accounting work may be divided amongst a number of clerks. 
(ii) Specialization and efficiency: When the same work is allotted to a particular person 
over a period of time, he acquires full knowledge of it and becomes efficient in 
handling it. Thus the accounting work will be done efficiently. 
(iii) Saving of the time: Various accounting processes can be undertaken simultaneously 
because of the use of a number of books. This will lead to the work being completed 
quickly. 
(iv) Availability of information: Since a separate register or book is kept for each class of 
transactions, the information relating to each class of transaction be available at one 
place. 
(v) Facility in checking: When the trial balance does not agree, the location of the error 
or errors is facilitated by the existence of separate books. Even the commission of 
errors and frauds will be checked by the use of various subsidiary books. 
 4.2 DISTINCTION BETWEEN SUBSIDIARY BOOKS AND 
PRINCIPAL BOOKS 
The books in which transactions are first recorded to enable further processing are called 
subsidiary books. The ledger and the cash book are the principle books since they furnish 
information for preparation of the trial balance and financial statements. The following chart 
will help you in understanding the difference between Subsidiary Books and Principal Books. 
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.
86 
a
 
2.86 
 
Financial Books 
of Accounts
Principal Books
Ledger
Cash Books
Simple Cash 
Book
Cash book with 
discount column
Cash book with  
Bank & discount 
column
Petty Cash Book
Subsidiary Books
Purchase Book
Sales Book
Purchase Return 
Book
Sales Return 
Book
Bill Received 
Book
Bill Payable Book
Journal Proper
© The Institute of Chartered Accountants of India
 
 
    
 
2.87 
ACCOUNTING PROCESS 
 4.3  PURCHASES BOOK  
To record the credit purchases of goods dealt in or materials used in the business, a separate 
register called the Purchases Book or the Purchases Journal, is usually maintained by firms. 
The format is given below: 
Date Particulars Details 
`
 
Amount 
`
 
    
It should be remembered that: 
(i) Cash purchases are not entered in this book since these will be entered in the cash 
book; and 
(ii) Credit purchases of items other than goods or materials, such as office furniture or 
typewriters are journalised - they are not entered in the Purchases Book. 
The particulars column is meant to record the name of the supplier and name of the articles 
purchased and the respective quantities. The amount in respect of each article is entered in 
the details column. After totalling the various amounts included in a single purchase, the 
amount for packing, or other charges is added and the amount for trade discount is deducted. 
The net amount is entered in the amount column. The total in the amount column shows the 
total purchase made in a period. 
ILLUSTRATION 1 
The Rough Book of M/s. Narain & Co. contains the following : 
2022 
Feb. 1. Purchased from Brown & Co. on credit : 
  5 gross pencils @ 
`
100 per gross, 
  1 gross register @ 
`
 240 per doz. 
  Less : Trade Discount @ 10% 
 2. Purchased for cash from the Stationery Mart; 
  10 gross exercise books @ 
`
 300 per doz. 
 3. Purchased computer for office use from M/s. office 
  Goods Co. on credit for 
`
 30,000. 
 4. Purchased on credit from The Paper Co. 
  5 reams of white paper @ 
`
100 per ream. 
© The Institute of Chartered Accountants of India