Different Types Of Subsidiary Books

The Comprehensive Guide to Different Types of Subsidiary Books

Maintaining accurate and detailed financial records is crucial for any business, regardless of its size or industry. While the main books of accounts, such as the journal and ledger, provide a summarized view of transactions, subsidiary books offer a more granular level of detail. These books categorize and record transactions based on specific accounts, simplifying the bookkeeping process and enhancing the accuracy of financial reporting. Understanding the various types of subsidiary books is essential for effective financial management. This comprehensive guide will explore the different types, their purposes, and how they contribute to a robust accounting system.

Introduction to Subsidiary Books: Why They're Essential

Subsidiary books are detailed records that support the main books of accounts. They provide a more in-depth view of individual transactions, allowing businesses to track specific aspects of their operations effectively. Instead of recording every single transaction in the main journal, similar transactions are grouped together in relevant subsidiary books. This organized approach simplifies the posting process to the main ledger and facilitates better analysis and control of various aspects of the business. Without subsidiary books, managing a large volume of transactions would be overwhelmingly complex and prone to errors. They are essential for:

• Detailed Transaction Tracking: Each type of subsidiary book focuses on a specific category of transactions, providing a clear and detailed record.
• Improved Accuracy: By segregating transactions, the likelihood of errors during recording and posting is significantly reduced.
• Efficient Bookkeeping: The systematic recording simplifies the overall bookkeeping process, saving time and resources.
• Enhanced Financial Analysis: The detailed data provides valuable insights for informed decision-making.
• Better Internal Control: The separation of duties and detailed recording enhances internal control over financial transactions.

Types of Subsidiary Books: A Detailed Exploration

Numerous subsidiary books exist, each designed for a particular type of transaction. The specific books used depend on the nature and complexity of a business's operations. However, some commonly used subsidiary books include:

1. Purchases Book/Purchases Return Book

The Purchases Book records all credit purchases of goods. Each entry includes details like the date, supplier's name, invoice number, and the total amount. This book provides a comprehensive record of all credit purchases made during a specific period.

The Purchases Returns Book is used to record all goods returned to suppliers for credit. Similar to the Purchases Book, it details the date, supplier's name, invoice number (often referencing the original purchase invoice), and the amount of credit received.

Example Entry in Purchases Book:

2. Sales Book/Sales Return Book

The Sales Book mirrors the Purchases Book, but for sales transactions. It records all credit sales of goods. Information recorded includes the date, customer name, invoice number, and total amount.

The Sales Returns Book records all goods returned by customers. Details include the date, customer name, invoice number (referencing the original sales invoice), and the amount of credit given.

Example Entry in Sales Book:

3. Bills Receivable Book

This book records all bills receivable, which are formal written promises from customers to pay a specific amount on a future date. Each entry includes details such as the date, customer name, bill number, due date, and amount. It's crucial for managing outstanding payments from customers.

Example Entry in Bills Receivable Book:

4. Bills Payable Book

This book records all bills payable, which are formal written promises to pay suppliers a specific amount on a future date. Each entry includes the date, supplier name, bill number, due date, and amount. This book is essential for managing the company's obligations to its suppliers.

Example Entry in Bills Payable Book:

5. Cash Book

The Cash Book records all cash transactions, both receipts and payments. It's often divided into two sections: the receipts side and the payments side. Detailed information such as the date, description of the transaction, and the amount is recorded for each entry. Different types of cash books exist, such as the single-column cash book (recording only total cash), the double-column cash book (separating cash and bank transactions), and the triple-column cash book (including discount columns).

Example Entry in a Double-Column Cash Book (Receipts Side):

6. Journal Proper

While often considered a main book, the Journal Proper can also function as a subsidiary book for unusual or non-recurring transactions that don't fit neatly into other subsidiary books. This might include adjusting entries, closing entries, or transactions that are unique to the business.

7. Other Specialized Subsidiary Books

Depending on the specific industry and business operations, other specialized subsidiary books may be used. Examples include:

• Petty Cash Book: Records small, routine cash expenditures.
• Stores Ledger: Tracks inventory levels and movements.
• Work-in-Progress Book: Monitors the costs of partially completed projects.
• Contract Ledger: Records transactions related to specific contracts.
• Debtors Ledger: A detailed record of individual customer accounts.
• Creditors Ledger: A detailed record of individual supplier accounts.

The Relationship Between Subsidiary Books and the Main Books

Subsidiary books are integral to the overall accounting system. They feed information into the main books, namely the journal and ledger. The process typically involves:

1. Recording Transactions: Individual transactions are recorded in the appropriate subsidiary book.
2. Summarizing Transactions: At the end of a period (e.g., a month), the totals from each subsidiary book are summarized.
3. Posting to the Journal: The summarized totals are then posted to the general journal. This involves creating journal entries reflecting the aggregated transactions.
4. Posting to the Ledger: From the general journal, the entries are posted to the relevant accounts in the general ledger. This updates the balance of each account, reflecting the impact of the subsidiary book transactions.

Frequently Asked Questions (FAQ)

Q: What is the difference between a subsidiary book and a ledger?

A: A subsidiary book records individual transactions within a specific category, providing detailed information. The ledger summarizes these transactions into individual accounts. Subsidiary ledgers provide more detail for specific accounts (like customers or suppliers), while the general ledger provides a consolidated view of all accounts.

Q: Are all subsidiary books necessary for every business?

A: No, the specific subsidiary books used depend on the nature and complexity of a business's operations. A small business with simple transactions may only need a few subsidiary books, while a larger, more complex business may require many more.

Q: How often should subsidiary books be updated?

A: Ideally, subsidiary books should be updated daily to ensure accuracy and to avoid delays in financial reporting.

Q: What are the benefits of using computerized accounting software?

A: Computerized accounting software significantly simplifies the process of managing subsidiary books. It automates many tasks, reduces the risk of errors, and provides better reporting capabilities.

Conclusion: The Importance of Accurate Subsidiary Bookkeeping

Maintaining accurate and up-to-date subsidiary books is paramount for effective financial management. They provide a detailed breakdown of transactions, enhancing the accuracy of financial statements and facilitating better decision-making. Choosing the right types of subsidiary books depends on the specific needs of the business, but a well-organized system ensures efficient bookkeeping and better control over financial operations. While the implementation might seem daunting initially, understanding the function and application of these books can significantly improve the accuracy, efficiency, and overall health of any business's financial records. The investment in time and effort for proper subsidiary bookkeeping is a worthwhile investment in the long-term financial success of any organization.