BBA 1st Semester - Financial Accounting 📚
UNIT – 2 💼
📖 Subsidiary Books
Subsidiary books are specialized journals maintained to record specific
types of transactions systematically. These books help in reducing the
volume of entries in the main journal and provide detailed information
about particular categories of transactions.
🛒 Purchase Book
The Purchase Book (also called Purchase Journal or Purchase Day Book) is
used to record all credit purchases of goods meant for resale. It records
only those purchases that are made on credit basis.
Features of Purchase Book:
Records only credit purchases of trading goods
Cash purchases are not recorded here
Purchase of assets on credit is not recorded
Only purchases from suppliers/creditors are entered
Provides detailed information about suppliers
Procedure for Recording:
1. Date of transaction
2. Name of supplier
3. Invoice number and details
4. Amount of purchase
5. Ledger folio number
Advantages:
Saves time and effort in posting
Provides complete information about credit purchases
Helps in maintaining supplier accounts
Facilitates preparation of creditors list
🏪 Sales Book
The Sales Book (Sales Journal or Sales Day Book) records all credit sales of
goods. It maintains detailed records of all sales transactions made on
credit basis.
Features of Sales Book:
Records only credit sales of trading goods
Cash sales are recorded in Cash Book
Sales of assets are not recorded here
Only sales to customers/debtors are entered
Helps in maintaining customer accounts
Information Recorded:
Date of sale
Customer name and address
Invoice number
Quantity and description of goods
Rate and total amount
Terms of sale
↩️ Purchase Returns Book
The Purchase Returns Book (Returns Outward Book) records all goods
returned to suppliers due to various reasons like defects, wrong
specifications, or excess supply.
Contents:
Details of returned goods
Reason for return
Supplier information
Debit note number
Amount of return
Key Points:
Reduces the amount owed to suppliers
Requires proper documentation (Debit Note)
Affects the calculation of net purchases
Important for inventory management
🔄 Sales Returns Book
The Sales Returns Book (Returns Inward Book) maintains records of goods
returned by customers. These returns reduce the total sales and affect the
accounts receivable.
Details Recorded:
Customer information
Description of returned goods
Reason for return
Credit note number
Amount involved
Significance:
Reduces total sales revenue
Affects customer account balances
Important for customer relationship management
Helps in quality control analysis
💰 Cash Book
Cash Book is a subsidiary book that records all cash receipts and cash
payments. It serves dual purpose - it acts as both a journal and a ledger for
cash transactions.
📝 Single Column Cash Book
The simplest form of cash book with only one money column on each side
(debit and credit).
Features:
Records only cash transactions
Has two sides: Receipts (Dr.) and Payments (Cr.)
Opening balance appears on debit side
Closing balance is always debit (asset)
Receipts (Dr. Side) Payments (Cr. Side)
Date Particulars Amount Date
Jan 1 To Balance b/d 5,000 Jan 2
Jan 5 To Sales 3,000 Jan 10
📊 Double Column Cash Book
Contains two money columns on each side - one for cash and another for
bank.
Advantages:
Records both cash and bank transactions
Shows clear picture of liquid resources
Eliminates need for separate bank account in ledger
Provides better control over cash management
Format Structure:
Date column
Particulars column
Ledger folio column
Cash column
Bank column
📈 Triple Column Cash Book
The most comprehensive form with three money columns on each side:
Cash, Bank, and Discount.
Three Columns:
1. Cash Column: Records cash receipts and payments
2. Bank Column: Records bank deposits and withdrawals
3. Discount Column: Records discount allowed and received
Special Features:
Discount columns are not balanced
Cash and bank columns are balanced separately
Provides complete picture of all monetary transactions
Most suitable for large businesses
Receipts Payments
Side Side
Date Particulars L.F. Disc. Cash Bank Date Particulars L.F.
📋 Journal Proper
Journal Proper records those transactions which cannot be recorded in any
other subsidiary book. It's also called "Miscellaneous Journal" or "General
Journal."
Transactions Recorded:
Opening entries
Closing entries
Adjustment entries
Correction entries
Transfer entries
Purchase/sale of assets on credit
Bad debts written off
Provision entries
Format:
Date
Account titles and explanation
Ledger folio
Debit amount
Credit amount
🔧 Rectification of Errors
Errors in accounting records need to be identified and corrected to ensure
accuracy of financial statements.
📊 Types of Errors
Error Type Description Detection Method
Completely omitting a Trial balance may not
Errors of Omission
transaction agree
Errors of Wrong posting of correct
Trial balance will agree
Commission amounts
Errors of Principle Violating accounting principles Trial balance will agree
Compensating Two or more errors that cancel
Trial balance will agree
Errors each other
🔍 Detailed Error Types:
1. Errors of Omission:
Complete Omission: Transaction not recorded at all
Partial Omission: Transaction recorded in journal but not posted to
ledger
2. Errors of Commission:
Posting wrong amount
Posting to wrong account
Posting on wrong side
Errors in casting, balancing, or carrying forward
3. Errors of Principle:
Treating capital expenditure as revenue expenditure
Treating revenue receipts as capital receipts
Wrong classification of accounts
4. Compensating Errors:
Multiple errors that offset each other
Trial balance appears correct despite errors
🔄 Suspense Account
A Suspense Account is a temporary account used when the trial balance
does not agree, and the difference is placed in this account until errors are
located and corrected.
Characteristics:
Temporary in nature
Used to make trial balance agree
Difference amount is placed here
Closed when all errors are rectified
Treatment:
If credits exceed debits → Suspense Account is debited
If debits exceed credits → Suspense Account is credited
Errors are corrected through journal entries
Account is closed after all corrections
🏦 Bank Reconciliation Statement (BRS)
💡 Need for BRS
Bank Reconciliation Statement is prepared to reconcile the difference
between the cash book balance and bank statement balance.
Reasons for Differences:
Timing differences: Cheques issued but not yet presented
Cheques deposited but not yet cleared
Bank charges and interest not recorded in cash book
Direct deposits by customers
Standing orders and direct debits
Errors in cash book or bank statement
Importance:
Ensures accuracy of cash book
Identifies errors and omissions
Provides control over bank transactions
Helps in fraud detection
Required for audit purposes
🔄 Procedure for BRS Preparation
Step 1: Compare cash book and bank statement Step 2: Identify items
causing differences Step 3: Classify differences as:
Items in cash book but not in bank statement
Items in bank statement but not in cash book
Step 4: Prepare reconciliation statement Step 5: Verify that reconciled
balance matches
📋 Preparation of BRS
Method 1: Starting with Cash Book Balance
Particulars Amount
Balance as per Cash Book XXX
Add:
- Cheques deposited but not cleared XXX
- Interest credited by bank XXX
- Direct deposits XXX
Less:
- Cheques issued but not presented XXX
- Bank charges XXX
- Standing orders XXX
Balance as per Bank Statement XXX
Method 2: Starting with Bank Statement Balance
Particulars Amount
Balance as per Bank Statement XXX
Add:
- Cheques issued but not presented XXX
Less:
- Cheques deposited but not cleared XXX
- Items credited in cash book but not in bank XXX
Balance as per Cash Book XXX
Common Reconciling Items:
Items to be Added to Cash Book Balance:
Interest earned on deposits
Direct collections by bank
Credit transfers received
Dishonored cheques recovered
Items to be Deducted from Cash Book Balance:
Bank charges and commission
Interest on overdraft
Standing orders and direct debits
Dishonored cheques
Items to be Added to Bank Statement Balance:
Cheques issued but not yet presented
Deposits in transit (not yet credited)
Items to be Deducted from Bank Statement Balance:
Cheques deposited but not yet cleared
Bank errors in customer's favor
✅ Benefits of BRS
Accuracy: Ensures correctness of cash records
Control: Provides control over bank transactions
Error Detection: Identifies mistakes in recording
Fraud Prevention: Helps detect unauthorized transactions
Compliance: Meets auditing requirements
Cash Management: Aids in effective cash flow management
📚 Summary
This unit covers the fundamental aspects of subsidiary books and bank
reconciliation, which are essential tools for maintaining accurate financial
records. Subsidiary books help organize transactions systematically, while
BRS ensures the accuracy of cash management. Proper understanding and
application of these concepts are crucial for effective financial accounting
and business management.
Key Learning Outcomes:
Understanding different types of subsidiary books
Recording transactions in appropriate books
Identifying and correcting accounting errors
Preparing bank reconciliation statements
Maintaining accuracy in financial records
