Subsidiary Books – Meaning & Purpose
Imagine a big supermarket like Big Bazaar. Thousands of sales happen daily. Thousands of purchases. If they record EVERYTHING in one single Journal, it would be chaos!
Subsidiary Books are the solution. They are special journals for special transactions.
What are Subsidiary Books?
Definition: Special journals where transactions of similar nature are recorded.
Also called:
- Books of Original Entry (because transactions are recorded here first, instead of the main Journal)
- Day Books
- Special Journals
Concept: Instead of one big "Journal", we split it into many smaller books.
Why Do We Need Them? (Advantages)
1. Division of Labour
One person can handle Sales Book, another Purchases Book, another Cash Book. Work gets done faster!
2. Efficiency & Specialization
The person handling Cash Book becomes an expert in cash transactions.
3. Easy Reference
Want to know total credit sales? Just check the Sales Book total. No need to hunt through a massive journal.
4. Reduces Bulk in Ledger
We post totals to the ledger periodically (e.g., monthly), not every single transaction. This keeps the ledger clean.
5. Internal Check
Easier to detect errors and frauds when work is divided.
Types of Subsidiary Books
We classify them based on the nature of transaction:
| Transaction Type | Subsidiary Book Used |
|---|---|
| Cash Transactions | Cash Book (Receipts & Payments) |
| Credit Purchases of Goods | Purchases Book |
| Credit Sales of Goods | Sales Book |
| Returns of Goods to Suppliers | Purchases Returns Book (Return Outward) |
| Returns of Goods from Customers | Sales Returns Book (Return Inward) |
| Bills Receivable | Bills Receivable Book |
| Bills Payable | Bills Payable Book |
| All Other Transactions | Journal Proper (General Journal) |
Important Rules for Recording
Rule 1: Cash vs Credit
- Cash Book: Records ONLY cash/bank transactions.
- Other Books: Record ONLY credit transactions.
Rule 2: Goods vs Assets
- Purchases/Sales Books: Record ONLY goods (items you trade in).
- Journal Proper: Records purchase/sale of assets (furniture, machinery) on credit.
Rule 3: Trade Discount
- We record the Net Amount (List Price - Trade Discount).
- Trade discount is NOT shown in the books separately.
Example Scenario
Ram's Electronics Transactions:
- Sold TV for Cash: Goes to Cash Book
- Sold TV on Credit to Mohan: Goes to Sales Book
- Bought AC on Credit from LG: Goes to Purchases Book
- Bought Furniture on Credit: Goes to Journal Proper (Not goods!)
- Mohan returned defective TV: Goes to Sales Returns Book
- Paid Salary: Goes to Cash Book
Journal Proper
This is the "residuary" book. If a transaction doesn't fit in any other book, it comes here.
Examples:
- Opening entries
- Closing entries
- Rectification entries
- Transfer entries
- Credit purchase/sale of fixed assets
- Outstanding expenses/Prepaid expenses
Quiz
Test Your Knowledge
Question 1 of 5
1. Subsidiary books are also known as:
💡 Final Wisdom: "Think of Subsidiary Books as folders on your computer. Instead of putting all files on the Desktop (Journal), you organize them into 'Photos', 'Documents', 'Music'. It makes life much easier!"