Subsidiary Books: Purpose, Characteristics, and Functions.

Back to: FINANCIAL ACCOUNTING SS1

 

Welcome to class! 

In today’s class, we will be talking about subsidiary books: purpose, characteristics and functions. Enjoy the class!

Subsidiary Books: Purpose, Characteristics, and Functions.

By the end of the lesson, you should be able to;

• regurgitate the meaning of Subsidiary books
• list the various subsidiary books
• outline the uses of subsidiary books

Notes

 

Subsidiary books are the books of the prime entry (or books of original entry) into which transactions are first recorded in details before they are posted in totals into the Ledger.

Businesses use subsidiary books to record goods sold on credit, goods purchased on credit, sales returns, purchases returns etc. The subsidiary books are basically listing devices, which means that a lot of detail is removed from the ledger. It also means that bookkeeping can be divided between several people. The name book of original (or prime) entry has arisen because all transactions should be recorded in one of these books before they are entered in the ledger.

The subsidiary books are:

1. Sales Journal
2. Purchases Journal
3. Returns Inwards Journal
4. Returns Outwards Journal
5. General Journal
6. Cash Book
7. Petty Cash Book

Uses of the subsidiary books

1. Sales journal or sales day book: This is used to record goods that are sold on credit to the customers of the business.
2. Purchases journal or purchases day book: This is used to record goods bought on credit from the suppliers
3. Return inwards journal or returns inwards daybook: This is used to record goods returned by the customers to the business.
4. Returns outwards journal or returns outwards daybook: This is used to record goods returned by the business to suppliers.
5. General journal/principal journal/journal proper or the journal: The general Journal has multiple uses.

Uses of the general journal

1. It is used to record opening entries.
2. It is used to record closing entries.
3. It is used to correct errors.
4. It is used to record the purchase of fixed assets on credit.
5. It is used to record the sale of fixed assets on credit.
6. It is used to record one-off transactions.
7. It is used to effect transfers of balances between ledgers.
8. It is used to demonstrate the principle of double-entry.
9. It is used to record transactions that cannot be conveniently passed through any other subsidiary book.
10. It is used to write off bad debts.
11. It is used to record the purchase of a business.
12. It is used to record the issue, redemption and conversion of shares and debentures.
13. Cashbook: This is a subsidiary book of account that is used to record the receipt and payment of money (cash or cheque) to or by a business organization. The cash book is part of the double-entry system. It functions both as a ledger and a subsidiary book of account.
14. Petty Cash Book: This is the subsidiary book of account that is used to record the minor (low – value or petty) cash payments made by a business. Like the Cash Book, the Petty Cash Book is a subsidiary book and since it is part of the double-entry system, it is also a ledger account.

Evaluation

1. What are books of prime entry?
2. List eight uses of the General Journal.

Reading assignment

Simplified and Amplified Financial Accounting Page 41

Weekend assignment

1. A book that contains the accounts for the financial transactions of an organisation is the journal    B. ledger    C. folio     D. register
2. The two fundamental books of accounts are Cash Book and Petty Cash Book     B. Receipt and Invoice     C. Journal and Ledger     D. Notes and Coins
3. Which of the following is the principal book of account? General Journal    B. Sales book    C. Purchases book     D. Ledger
4. Which of the following is not contained in the Ledger? date of transaction    B. description of the transaction     C. folio number of transaction     D. address of the customer
5. The process of entering transactions from one book to another is reading   B. posting   C. numbering    D. casting

Theory

1. What are subsidiary books?
2. State the uses of general journal.

 

In our next class, we will be talking about the Preparation of Subsidiary Books.  We hope you enjoyed the class.

Should you any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.

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