TOPIC: SUBSIDIARY BOOKS

MEANING OF BOOKS OF ORIGINAL ENTRY

Books of original entry can be defined as the books into which transactions are recorded on a daily basis
from the source documents and from which transfers are made at suitable periodic intervals to the
relevant accounts in the ledger. The subsidiary books prevent the ledger from containing too much
detail.
Examples of Subsidiary Books
The books of original entry normally used in financial accounting are listed below:
1. Sales Day Book: For recording credit sales Purchases
2. Day Book: For recording credit purchases
3. Returns Inward Day Book: For Recording returns from customers
4. Returns Outwards Day Book: For recording returns to suppliers.
5. Cash Book: For recording the receipts and payment of money
6. Journal Proper: For recording other transactions.
Other names for books of original entry are SUBSIDIARY BOOKS and BOOKS OF PRIME ENTRY.

TREATMENT OF THE BOOKS OF ORIGINAL ENTRY

1. SALES DAY BOOK
As credit sales occur, they are listed in the sales day book which is ruled up to show, among others, the
date of the sale, the customer's name and the amount. The customer's personal account is debited while
the credit entry to sales account is made. At the end of the period (which may be weekly, monthly
quarterly or any other convenient period), the total of the sales day book shall be posted to the credit
side of sales account in the general ledger. At this point, the double entry for the credit sales is now
complete. The sales day book is not an account and therefore does not form part of the double entry
records.

2. PURCHASES DAY BOOK

Credit purchases are listed in the purchases day book as they occur, the suppliers' personal accounts
being credited. The debit entry" to purchased account is delayed until the end of the period. Then the
total of the purchases day book is transferred to the debit of the purchases account in the general ledger
thereby completing purchases. The purchases day book is not an account is not part of the double entry
for the credit purchases. The purchases day book, not being an account is not part of the double entry
records. Its use, however, saves the purchases account form containing too much detail. The purchased
day book is also known as PURCHASE JOURNAL

3. RETURNS INWARDS DAY BOOK

When customers return goods, "credit notes" are issued to the customers indicating that their personal
accounts are being credited thereby reducing the amount being owed by them. In a typical trading
business, the volume of returns from customers is relatively large. In furtherance of the objective of
preventing the ledger from containing unnecessary details, a returns inwards day book is maintained in
which all the credit notes are listed, while the customers' personal accounts are credited. At the end of
the period, the total of the returns inwards day book is pasted to the debit side of the returns inwards
account in the general ledger. The returns inwards book is sometimes called RETURNS INWARDS
JOURNAL OR SALES RETURNS DAYBOOK.

4. RETURNS OUTWARDS DAY BOOK

When goods are returned to suppliers, "debit notes" are issued to them to indicate that the suppliers'
personal accounts are being debited to reduce the debt being owed to them. These debit notes are listed
in the returns outwards day book while the suppliers' personal accounts are debited. The double entry
shall be competed when at the end of the period the total of the returns outwards daybook is posted to
the credit of the returns outwards account in the general ledger. Alternative names for this daybook are
returns outwards journal or purchases returns day book.

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5. CASHBOOK
Cashbook has the dual effect of being a book of prime entry and a ledger. It is a book of prime entry in
that all cash receipts and disbursements are entered into this book as they occur, which may be daily or
otherwise and ledger account in the sense that the balance or total is not transferred to any other book.
As a matter of fact at the end of a period one side of the account has reduced the other to a net closing
balance as in the case of ledger. Also an entry in cash constitutes one part of the double entry, and it
only remains to make the other part.

i. TWO COLUMN CASHBOOK

The two-column cashbook is so called because it has two cash columns, one each for bank and cash
transactions respectively. The two columns on the debit side record receipt of money while the two
columns on the credit side record payment of money. The bank column on the debit side records cheque
received and cash paid into bank while the bank column on the credit side records payment by cheques.
The cash column on the debit side records cash received while the cash column on the credit side
records cash paid.

Contra Entry
When the double entry for a transaction appears on both sides of the cash book, this is called
"contra entry". Contra entries in the cash book are made when cash is deposited into the bank
account out of the cash in hand or when cash is withdrawn from the bank account for office use.

ii. THREE COLUMN CASH BOOK

A three-column cash book has a third column (in addition to the two columns for bank and cash) for
recording the cash discounts received from creditors. A cash discount is the amount allowed off. (i.e.
deducted from) debts to encourage settlement of the debts within a specified period of time.

In a typical trading organisation, cash discounts are fairly common and require a large number of
entries. If these are posted directly to the discount allowed account (when cash discounts are allowed to
debtors) or discount received account when cash discounts are received from creditors) both accounts
will end up containing too many entries. If this is to be avoided, it is necessary to modify the recording
process so that postings are only made periodically to the discounts accounts in the general ledger. This
need is met by adding a third column to the cashbook to record the cash discounts on a memorandum
basis before the periodic totals are transferred to the discounts accounts. The discount column on the
credit side of the cash book is for discounts allowed to debtors while the discount column on the credit
side records discounts received from creditors. For example, when a customer is allowed a cash
discount, this is listed in the discount allowed column while the personal account of the customer is
credited.

At the end of the period, the total of the discount allowed column is transferred to the debit side of
discount allowed account in the general ledger. Conversely, when cash discount is received from a
creditor, this is listed in the discount received column while the creditor's personal account is debited. At
the end of the period, the total of discount received column is transferred to the credit side of the
discount received account in the general ledger.

Analytical Petty Cashbook

Where there are a large number of small cash payments in the operation of a business, such transactions
may be taken out of the main cash book to a separate book known as petty cash book. The handling and
recording of small cash payments could be delegated to a junior staff known as the petty cashier. This
saves the main cashier from routine work. Since the petty cash book is maintained on analytical basis,
this ensures that small payments are not posted to the ledger one by one as would be the case if they
were recorded in the main cashbook. In the petty cash book, an analysis column is maintained for each
expense heading. The total of the petty cash rather than the individual amount in cash column is
transferred to the ledger account at the end of the period thereby, saving the ledger and the main cash
book from too much detail. The petty cash book is maintained on an imprest basis.
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The Imprest System
To set up the imprest system, the main cashier gives to the petty cashier an amount adequate to meet
petty cash needs for a specific period. This amount is known as the petty cash float and is set by
management. The petty cashier then begins to make disbursement being supported with duly
authorized/approved petty cash voucher (PCV) signed by the recipient. The petty cashier retains the
original copy of each PCV while the recipient retains the duplicate. At the end of the period or when the
float is almost exhausted, the petty cashier shall apply for reimbursement of an amount equal to the total
amount disbursed. He shall submit the petty cash vouchers as evidence of the cash disbursed. If the
main cashier is satisfied, the reimbursement will be made to the petty cashier thus replenishing or
restoring the float to the original amount out of which the petty cashier begins to make disbursements
all over again.

6. JOURNAL PROPER
The journal proper is a book of account that is used to record transactions that by their nature cannot be
recorded in any other book of account. Such transactions are as follows:
i. opening entries – through this, opening capital is determined
ii. sales of fixed assets on credit
iii. purchase of fixed assets on credit
iv. other transactions made on credit
v. correction of errors
vi. end of year adjustments
vii. closing entries – through which final accounts are prepared
viii. contra – transactions or set offs.

Advantages of Journal Proper

1. The journal shows all the information about a transaction in one place. The debits and credits of
a transaction are recorded together in one place where as they are in different ledgers.
2. It provides an explanation of the transaction recorded. The journal will show the complete story
of a transaction in one entry.
3. The journal provides a chronological record of all the events in the life of a business. Once we
know the date of a transaction we can locate it easily in the journal.
4. The use of the journal helps to prevent errors because the debit and credit appear together hence,
there is not likely to be any omission.

SUMMARY OF BOOKS OF PRIME ENTRY

Sales Day Book - Contains all credit sales within a stipulated period.
Sales Returns Book - Contains all returns from the customers who have earlier
purchased on credit. It reduces the trade debtor figure.
Purchases Day Book - This summarizes all credit purchases within a period.
Purchases Returns Book - This contains all returns made on earlier purchases. It reduces the
trade credit purchase balance
Petty Cash Book - This book or journal is used to record all minor or petty payments
for which the use of cheques will be uneconomical.
Bills - We have two bills, the bill receivable and bills payable. They are
used to record all forms of bills of exchange.
Journal Proper - all day books are also called journals but the Journal Proper is used
to correct errors, open business ledger accounts, record purchase
of fixed assets on credit, etc.
General Comments
It is important to note that these books are also known as journals i.e. purchases journal, sales journal,
returns inwards journal, returns outwards journal. They are called special journals.

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REVIEW QUESTION
Section A: Multiple Choice Questions (MCQ)
1. Purchases book records:
A. All cash purchases.
B. Ail credit purchases.
C. Credit purchases of goods in trade.
D. None of the above.
2. Which of the following types of information are found in subsidiary ledgers, but not in the general
ledger?
A. Total cost of goods sold for the period.
B. The quantity of a particular product sold during the period.
C. The amount owed to a particular creditor
D. The portion of total current assets that consist of cash.
3. The balance of the petty cash is …  
A. An expense
B. Income
C. An asset
D. Liability
4. A …is sent to a customer when he returns the goods.
A. Debit note
B. Credit note
C. Proforma invoice
D. None of the above 
5. Ms Delhi Stationers purchase 1,000 pes of cover file @ N275 per 100. The wholesaler offered 5%
sales tax on net price. Transport charges were N50. The purchase price per piece of cover file will be …
A. N2,793.13
B. N279.31
C. N27.93
D. N2.9375
6. The purchases Journal records  
A. All purchases.
B. All purchases of goods dealt in by the firm.
C. Credit purchases of goods dealt in by firm.
D. Cash purchase of goods dealt in by firm.
7. The petty cashier generally works on … system.  
A. Accrual
B. Balancing
C. Imprest
D. None of the three
8. Cashbook is a form of …
A. Trial Balance
B. Journal
C. Ledger
D. All of the above
9. Purchase of fixed assets on credit basis is recorded in …
A. Cashbook.
B. Purchases book.
C. Journal proper.
D. None of the above.
10. Atul purchased goods costing N50,000 at an invoice price, which is 50% above cost. On invoice
price he enjoyed 15% trade discount and N3,750 cash discount on cash payment of goods in lump sum
at the time of purchase. The purchase price to be recorded in the books before cash discount will be …  
A. N75,000 B. N60,000
C. N63,750 D. N50,000
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11. A cheque of N35,000 received by M/s Nandini was endorsed to M/s Chan on account of full
settlement of N35,500 on 1st October 2006. Chan deposited the same into the bank on 4th October
2006, In the books of M/s Chan, the amount to be debited on 1st October 2006 will be … 
A. Cash account N35,000 and discount account N500.
B. Bank account N35,000 and discount account N500.
C. Cash account N35,500.
D. Bank account N35,500
12. The total of the sales book is posted periodically to the credit of
A. Sales account
B. Cashbook
C. Journal proper
D. None of the above
13. Total of purchase return book is posted periodically to the credit of …
A. Purchase return account
B. Cashbook
C. Journal proper
D. None of the three
14. Journal Proper records …  
A. Bills receivables
B. Bills payables
C. Cash payments
D. Opening entry
15. The total of the purchase day book is posted periodically to the debit of …
A. Purchases account
B. Cashbook
C. Journal proper
D. None of the above
16. The total of the sales return book is posted periodically to the debit of …
A. Sales return Account
B. Cash book
C. Journal proper
D. None of the above.
17. A started business with N10,000 cash and N2,000 furniture. Sales amounted to N50,000 including
N5,000 cash sale. N10,000 sales were outstanding at the end of the year. Purchases amounted to
N30,000 including N10,000 cash purchase. N15,000 has been paid to creditors. Expenses paid during
the year are N19,300. Cash balance at the end will be …
A. N6,000
B. N7,000
C. N5,700
D. N5,000
18. Bad debts entry is passed in …
A. Sales book
B. Cash book
C. Journal proper
D. None of these
19. Goods were sold on credit basis to XY Bros, for RS. 1,000. This will be recorded in               
A. Cash book
B. Journal proper
C. Bills receivable book
D. Sales book
20. Petty expenses paid in cash are recorded in:
A. Purchase book B. Sales book
C. Petty cash book D. Purchase return book

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SECTION B: Theory Questions 50 marks
1. What are subsidiary books?
2. Highlight typical key information contained in any source document
3. Outline three benefits derivable from the use of the journal proper?
4. What are credit notes?
5. What are debit notes?
6. Explain contra entries

ANSWERS
Solution to question 1
1. Subsidiary books can be defined as the books into which transactions are recorded on a daily
basis from the source documents and from which transfers are made at suitable periodic intervals
to the relevant accounts in the ledger. The use of subsidiary books prevents the ledger from
containing too much detail.

Solution to question 2
2. The following benefits are derivable from the use of the journal proper;
a. The journal book is a kind of diary of transactions, which fall outside the ones recorded
in other subsidiary books.
b. The journal book gives the explanation for each entry through the "narration" attached to
each journal en try.
c. The journal book also serves as a book of instruction in that it tells the bookkeeper,
which account to debit and which to credit.

Solution to question 3
3. Credit notes are issued to the customers indicating that their personal accounts are being credited
thereby reducing the amount being owed by them.

Solution to question 4
4. Debit notes are issued to supplier to indicate that their personal accounts are being debited to
reduce the debt owed to them.

Solution to question 5
5. Contra Entry: - it occurs when the double entry for a transaction appears on both sides of the
cash book. Contra entries in the cash book are made when cash is deposited into the bank
account out of the cash in hand or when cash is withdrawn from the bank account for office use.

Solution to question 6
6. Other names are subsidiary books and books of prime entry

REVISION QUESTIONS
1. What can a journal be used for?
2. Explain the usage of the imprest system
3. When is it appropriate to use:
i. Sales Day Book
ii. Returns Outwards Day Book
iii. Returns Inwards Day Book?
4. What are contra entries?

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