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Financial Accounting

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Financial Accounting (Mgt-101)
VU
Lesson-26
SUBSIDIARY BOOKS
A number of books are opened in connection with control accounts to reduce the volume of general ledger.
These books are called `Subsidiary Books'.
It is important to note that only credit sales/purchases become part of control accounts. Cash
sales/purchases are not included in the control accounts.
SUBSIDIARY BOOKS FOR SALES/DEBTORS
Three subsidiary books are maintained in case of sales / debtors.
 Sales Journal / Sales Day Book ­ individual invoice wise sales are recorded in this Journal. This
book serves as source for all the recording of Credit sales.
 Sales Return / Return Inward Journal if volume of returns is also high then, these are also recorded
in a separate register.
 Debtors Ledger ­ this ledger maintains record of individual debtor.
The information flows to the debtors control account in the general ledger as follows:
Opening balance of
List of debtors balances drawn up to the end of previous period.
debtors
This also confirms with the aggregate balance of the debtors ledger.
Credit Sales
Individual credit sale is recorded in the sales journal. Periodical total
of this journal is posted into the debtors control account.
Sales Return
In case, the transaction volume of sales return is high, then these are
recorded in the sales return journal. The total is posted in the
debtors control account periodically.
Cheques / Cash
List of receipts is extracted from cash and bank book. Or a separate
Received
column is maintained in cash and bank books for this purpose.
Closing Balance
This is the balancing figure. It can also be checked with the total of
balances in debtors' ledger.
173
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Financial Accounting (Mgt-101)
VU
EXAMPLE # 1
Let's suppose that the sales journal provides the following record for the month of March, 2002:
Sales Journal
Date
Invoice #
Name / Debtor
Amount
Mar 01, 2002
01
A
10,000
Mar 15, 2002
02
B
15,000
Mar 31, 2002
03
C
20,000
Total
45,000
The above mentioned record will be posted in the personal ledger accounts of A, B & C (Debtors ledger
account) in the following manner:
A's Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
01/03
10,000
Balance b/d
10,000
Total
10,000
Total
10,000
B's Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
15/03
15,000
Balance b/d
15,000
Total
15,000
Total
15,000
C's Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
20,000
Balance b/d
20,000
Total
20,000
Total
20,000
174
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Financial Accounting (Mgt-101)
VU
In the general ledger, the amount of total sales will be booked in the following manner:
Sales Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
Total sales for the
45,000
month of march,
2002
Balance b/d
45,000
Total
45,000
Total
45,000
Debtors Control Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
Total sales for
45,000
the month of
march, 2002
Balance b/d
45,000
Total
45,000
Total
45,000
Now if we total the balance of three accounts of the debtors' ledger on Mar 31, 2002:
A
10,000
B
15,000
C
20,000
Total
45,000
It will be the same as the balance in the debtors control account of the general ledger.
RECORDING OF SALES RETURN
Let's say that sales return journal for the month of March, 2002 give the following record:
Sales Journal
Date
Name / Debtor
Amount
Jan 15, 20--
A
1,000
Jan 20, 20--
B
2,000
Jan 25, 20--
C
3,000
Total
6,000
The above mentioned record will be posted in the personal ledger accounts of A, B & C (Debtors ledger
account) in the following manner:
A's Account
Account code----
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Financial Accounting (Mgt-101)
VU
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
01/03
10,000 15/03
1,000
Balance b/d
9,000
Total
10,000
Total
10,000
B's Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
15/03
15,000 20/03
2,000
Balance b/d
13,000
Total
15,000
Total
15,000
C's Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
20,000 25/03
3,000
Balance b/d
17,000
Total
20,000
Total
20,000
176
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Financial Accounting (Mgt-101)
VU
In the general ledger, the amount of total sales return will be booked in the following manner:
Sales Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
Total sales
6,000 31/03
Total sales for the
45,000
return for the
month of march,
month of
2002
march, 2002
Balance b/d
39,000
Total
45,000
Total
45,000
Debtors Control Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
Total sales for
45,000
Total sales return
6,000
the month of
for the month of
march, 2002
march, 2002
Balance b/d
39,000
Total
45,000
Total
45,000
Again if we total the balance of three accounts of the debtors ledger on Mar 31,2002:
A
9,000
B
13,000
C
17,000
Total
39,000
It will be the same as the balance in the debtors control account of the general ledger.
RECEIPTS FROM DEBTORS
Here, we need a total figure of receipts from debtors. Therefore, when control accounts are used, we
maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank
books are not used. On the receipts side of the cash and bank book, a column is added in which receipts
from debtors are separately noted. This type of cash / bank book is also called multi column cash / bank
book.
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Financial Accounting (Mgt-101)
VU
A sample of the receipt side of cash / bank book is given hereunder:
Cash / Bank Book
Receipt Side
Date
No Narration /
Ledger
Receipt
Receipt from
Particulars
Code
Amount
Debtors
10,000
500
Received from A
5,000
5,000
300
Received from B
2,500
2,500
Received from A
1,000
1,000
Received from C
1,500
1,500
950
1,000
Total
22,750
9,000
SUBSIDIARY BOOKS FOR PURCHASES/CREDITORS
Recording of creditors is similar to debtors. The subsidiary books maintained in case of purchases /
creditors are:
 Purchase Journal / Purchase Day Book ­ individual purchases are recorded in this Journal.
 Purchase Return / Return outward Journal ­ If the volume of returns is also high, then these
are also recorded in a separate register.
 Creditors Ledger ­ this ledger maintains record of individual creditors.
The information flows to the creditor control account in the general ledger as follows:
Opening balance of
List of creditor balances drawn up to the end of previous period.
creditors
This also confirms with the aggregate balance of the creditors ledger.
Credit Purchases
Individual credit purchase is recorded in the purchase journal. Total
of this journal is posted into the creditors control account
periodically.
Purchase Return
In case the transaction volume of purchase return is high, then,
these are recorded in the purchase return journal. Periodically, the
total is posted in the creditors control a/c.
Cheques / Cash Paid List of payments is extracted from cash and bank book. Or a
separate column is maintained in cash and bank books for this
purpose.
Closing Balance
This is the balancing figure. It can also be checked with the total of
balances in creditors' ledger.
178
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Financial Accounting (Mgt-101)
VU
EXAMPLE # 2
Let's consider the following data for the month of March, 2002:
Purchase Journal
Date
Name / Debtor
Amount
Mar 01, 2002
X
5,000
Mar 10, 2002
Y
10,000
Mar 25, 2002
Z
15,000
Total
30,000
The above mentioned record will be posted in the personal ledger accounts of X, Y & Z (Creditors ledger
account) in the following manner:
X's Account  Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
5,000
01/03
5,000
Balance b/d
Total
5,000
Total
5,000
Y's Account  Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
10,000
10/03
Balance b/d
10,000
Total
10,000
Total
10,000
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Financial Accounting (Mgt-101)
VU
Z's Account  Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
25/03
15,000
Balance b/d
15,000
Total
15,000
Total
15,000
In the general ledger, the amount of total purchases will be booked in the following manner:
Purchases Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
Total purchases
30,000
for the month
of march, 2002
Balance b/d
30,000
Total
30,000
Total
30,000
Creditors Control Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
Total purchases for
30,000
the month of
march, 2002
Balance b/d
30,000
Total
30,000
Total
30,000
Now, if we total the balance of three accounts of the creditor's ledger on Mar 31, 2002:
X
5,000
Y
10,000
Z
15,000
Total
30,000
It will be the same as the balance in the creditors control account of the general ledger.
180
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Financial Accounting (Mgt-101)
VU
RECORDING OF PURCHASE RETURN
Let's say that the purchase return journal show the following picture for the month of March, 2002:
Purchase Return Journal
Date
Name / Debtor
Amount
Mar 01, 2002
X
500
Mar 10, 2002
Y
1,000
Mar 25, 2002
Z
1,500
Total
3,000
The above mentioned record will be posted in the personal ledger accounts of X, Y & Z (Creditors ledger
account) in the following manner:
X's Account  Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
01/03
500 01/03
5,000
Balance b/d
4,500
Total
5,000
Total
5,000
Y's Account  Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
10/03
1,000 10/03
10,000
Balance b/d
9,000
Total
10,000
Total
10,000
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Financial Accounting (Mgt-101)
VU
Z's Account  Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
25/03
1,500 25/03
15,000
Balance b/d
13,500
Total
15,000
Total
15,000
In the general ledger, the amount of total purchases will be booked in the following manner:
Purchases Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
Total purchases
30,000 31/03
Total purchases
3,000
for the month
return for the
of march, 2002
month of march,
2002
Balance b/d
27,000
Total
30,000
Total
30,000
Creditors Control Account
Account code----
Date
Particulars
Code  Amount
Date
Particulars
Code
Amount
#
Rs. (Dr.)
#
Rs. (Cr.)
31/03
Total purchases
3,000 31/03
Total purchases for
30,000
return for the
the month of
month of
march, 2002
march, 2002
Balance b/d
27,000
Total
30,000
Total
30,000
Now, if we total the balance of three accounts of the creditor's ledger on Mar 31, 2002:
X
4,500
Y
9,000
Z
13,500
Total
27,000
It will be the same as the balance in the creditors control account of the general ledger.
PAYMENT TO CREDITORS
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Financial Accounting (Mgt-101)
VU
Here, we need a total figure of payment to creditors. Therefore, when control accounts are used, we
maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank
books are not used. On the payment side of the cash and bank book, a column is added in which payments
to creditors are separately noted. This type of cash / bank book is also called multi column cash / bank
book.
A sample of the payment side of cash / bank book is given hereunder:
Cash / Bank Book
Payment Side
Date
No Narration /
Ledger
Payment
Payment to
Particulars
Code
Amount
Creditors
500
5,000
Received from A
2,500
2,500
3,000
Received from B
1,500
1,500
1,000
Received from C
1,500
1,500
1,950
1,500
Total
18,450
5,500
183
Table of Contents:
  1. Introduction to Financial Accounting
  2. Basic Concepts of Business: capital, profit, budget
  3. Cash Accounting and Accrual Accounting
  4. Business entity, Single and double entry book-keeping, Debit and Credit
  5. Rules of Debit and Credit for Assets, Liabilities, Income and Expenses
  6. flow of transactions, books of accounts, General Ledger balance
  7. Cash book and bank book, Accounting Period, Trial Balance and its limitations
  8. Profit & Loss account from trial balance, Receipt & Payment, Income & Expenditure and Profit & Loss account
  9. Assets and Liabilities, Balance Sheet from trial balance
  10. Sample Transactions of a Company
  11. Sample Accounts of a Company
  12. THE ACCOUNTING EQUATION
  13. types of vouchers, Carrying forward the balance of an account
  14. ILLUSTRATIONS: Ccarrying Forward of Balances
  15. Opening Stock, Closing Stock
  16. COST OF GOODS SOLD STATEMENT
  17. DEPRECIATION
  18. GROUPINGS OF FIXED ASSETS
  19. CAPITAL WORK IN PROGRESS 1
  20. CAPITAL WORK IN PROGRESS 2
  21. REVALUATION OF FIXED ASSETS
  22. Banking transactions, Bank reconciliation statements
  23. RECAP
  24. Accounting Examples with Solutions
  25. RECORDING OF PROVISION FOR BAD DEBTS
  26. SUBSIDIARY BOOKS
  27. A PERSON IS BOTH DEBTOR AND CREDITOR
  28. RECTIFICATION OF ERROR
  29. STANDARD FORMAT OF PROFIT & LOSS ACCOUNT
  30. STANDARD FORMAT OF BALANCE SHEET
  31. DIFFERENT BUSINESS ENTITIES: Commercial, Non-commercial organizations
  32. SOLE PROPRIETORSHIP
  33. Financial Statements Of Manufacturing Concern
  34. Financial Statements of Partnership firms
  35. INTEREST ON CAPITAL AND DRAWINGS
  36. DISADVANTAGES OF A PARTNERSHIP FIRM
  37. SHARE CAPITAL
  38. STATEMENT OF CHANGES IN EQUITY
  39. Financial Statements of Limited Companies
  40. Financial Statements of Limited Companies
  41. CASH FLOW STATEMENT 1
  42. CASH FLOW STATEMENT 2
  43. FINANCIAL STATEMENTS OF LISTED, QUOTED COMPANIES
  44. FINANCIAL STATEMENTS OF LISTED COMPANIES
  45. FINANCIAL STATEMENTS OF LISTED COMPANIES