DISPOSICIÓN N.° 987/DGET/

In the past, traders use to keep record of the transaction in the journal. But it was later found not convenient. If all the transaction is recorded in the journal then the journal book becomes more thick and difficult to handle it. In big business houses, it becomes impossible to carry on the work of recording business transaction. Therefore now a days large scale business firms like to keep record of transaction in subsidiary books instead of journal. Subsidiary books are the book of original entry and it is also called primary records because the first entry of transaction is made in subsidiary books. Subsidiary Books refers to books meant for specific transactions of similar nature. Subsidiary Books are also known as Special journals or day books. To overcome shortcoming of the use of the journal only as a book of original entry, the journal is subdivided into specific journals or subsidiary books. In practice, the journal is sub-divided in such a way that a separate book is used for each category of transactions which are repetitive in nature and are sufficiently large in number. In any large business the following subsidiary books are generally used.

1. Cash Book: It is used for recording all receipts and payments of cash, including cash

purchases and cash sales of goods.

2. Purchases Book: It is used for recording credit purchases of goods only.

3. Purchases Returns Book: It is used for recording goods returned to suppliers.

4. Sales Journal: It is used for recording credit sales of goods only.

5. Sales Returns Book: It is used for recording goods returned by the customers.

6. Bills Receivable Book: It is used for recording bills of exchange and promissory notes

received from the debtors.

7. Bills Payable Book: It is used for recording bills of exchange and promissory notes accepted

by the business in favor of creditors.

8. Journal Proper: This book is used for recording all such transactions which are not covered

by any of the above mentioned special journals, for example, credit purchases of fixed assets, opening entry, rectification entries, etc.

It must, however, be noted that there is no rigidity as to the number of special journals. Depending on the necessity, the number of journals may be increased or decreased.

Cash Book Cash Transaction Non-Cash Transaction Purchases Book Purchase Returns Book Bills Payable Book Bills Receivable Book Sales Returns Book Sales Book Subsidiary Books Figure 6.1

Notes

Did u know? _{What is meant by the Non-cash transaction?}

A non-cash transaction is a transaction in terms of credit and conditions of the enterprise. The non-cash transactions shall include the following transactions of the enterprise, which do not involve any cash; they are as follows:

1. Credit sales Book 2. Credit purchases Book 3. Credit Sales Return Book 4. Credit Purchases Return Book

5. Bills Payable Book – Outcome of Credit transaction, and 6. Bill Receivable Book – Outcome of Credit transaction

6.1.1 Advantages of Subsidiary Books

The following are the advantages of having a number of subsidiary books:

1. Classification of transactions becomes automatic: As there is a separate book for each

type of transactions, the transactions of same nature are automatically brought at one place.

2. Reference becomes easy: If any reference is required, it can be traced easily by referring to

the appropriate subsidiary book. You do not have to go through all the transactions recorded in the journal.

3. Facilitates division of work: The division of journal into various subsidiary books

facilitates division of work among many persons. This, in turn, facilitates prompt recording of transactions and saves a lot of time.

4. More particulars: More details about the transactions can be given-in subsidiary books

than would be possible in one book.

5. Responsibility can be fixed: The work of maintaining a particular book can be entrusted to

a particular person. He will be responsible for keeping it up-to-date and in order. 6. Facilitates checking: When the Trial Balance does not agree, the location of errors will be

relatively easy.

6.2 Cash Book

Having outlined various subsidiary books, we shall now discuss the most important subsidiary book called ‘Cash Book’. Cash book is the book of accounts where most of the transactions are generally related with the receipts and payment of cash. It may be either purchase of goods for cash or sale of goods for cash or it may be either payment of expenses or receipts of income. In any business there would be numerous cash transactions which involve either receipts or payments of cash. Cash sales, receipt of cash from debtors, cash purchases, and payments to creditors, payment of various expenses such as salaries, wages, rent, taxes, etc., are some examples of transactions involving cash. AU these are recorded in cash book, receipts on one side and payments on the other.

Every business unit, small or big, maintains a cash book. It enables the businessman to know and verify the amount of cash in hand from time to time. As a matter of fact, cash book plays a

Notes dual role. It is a book of prime entry and also serves the purpose of a Cash Account. It is designed

in the form of a ledger account and records cash receipts on the debit side and payments on credit side. It is also balanced in the same way. Hence, when cash book is maintained, there is no need to have a Cash Account in the ledger.

Kinds of Cash Book

There are different types of cash books maintained by the business. They are: 1. Simple or Single Column Cash Book

2. Two or Double Column Cash Book 3. Three or Triple Column Cash Book 4. Petty Cash Book

We shall now consider them one by one and learn how they are prepared and posted into ledger.

6.2.1 Single Column Cash Book

Look at the pro forma of a Single Column Cash Book shown below. Doesn’t it look like a ledger account? Yes, it does. In fact a Single Column Cash Book is nothing but a Cash Account. It is used for recording all cash receipts and cash payments and serves the purpose of Cash Account as well. It is called Single Column Cash Book just because it has only one amount column on each side. Dr. Cr. Date Particulars (Receipts) L.F. Amount ( ) Date Particulars (Payments) L.F. Amount ( ) Notes

1. c/d stands for Carried Down whereas b/d stands for Brought Down.

2. One thing which is very important to remember while recording a transaction in the Cash Book is that no distinction is adopted about capital or revenue nature of transactions i.e., all the transactions are recorded in the Cash Book.

Recording in Single Column Cash Book

You know that Cash Account is a real account. According to rules, Cash Account is to be debited when cash is received and credited when cash is paid. Hence, the debit side of the cash book is used for recording all cash receipts and the credit side for all cash payments. Let us now discuss how entries are made in this book.

As explained above, whenever cash is received, it is to be recorded on the debit side. The date on which it is received is recorded in the date column. The name of the account from which it is received is mentioned in the particulars column. In the L.F. (Ledger Folio) column the page number of the account in the ledger, where the posting is made, is to be recorded at the time of