Key Points

As a business grows, recording all transactions in a single journal becomes cumbersome. To handle a large volume of repetitive transactions efficiently, the journal is subdivided into special purpose books, also known as subsidiary books or daybooks.

The primary subsidiary books include the Cash Book, Purchases Book, Sales Book, Purchases Return Book, Sales Return Book, and the Journal Proper for transactions that do not fit elsewhere.

The Cash Book records all transactions involving cash and bank receipts and payments. It serves the dual purpose of a journal (as a book of original entry) and a ledger (as it maintains the cash and bank accounts), eliminating the need for separate cash and bank accounts in the general ledger.

A single column cash book has one amount column on each side for cash transactions only. A double column cash book has two amount columns on each side, one for cash and one for bank transactions, allowing for the recording of both types of transactions in one place.

A contra entry is a transaction that affects both the cash and bank accounts simultaneously, such as depositing cash into the bank or withdrawing cash from the bank for office use. It is recorded on both the debit and credit sides of the double column cash book and is marked with a 'C' in the L.F. column.

A Petty Cash Book is used to record small, frequent expenses like postage and stationery. It typically operates on the Imprest System, where a fixed sum (imprest amount) is given to a petty cashier, and the amount spent is reimbursed periodically to restore the original sum.

The Purchases Book is used exclusively to record all credit purchases of goods, which are the items the business deals in for resale. Cash purchases of goods are recorded in the Cash Book, and credit purchases of assets are recorded in the Journal Proper.

The Sales Book is used to record all credit sales of goods. Cash sales are recorded in the Cash Book, and the credit sale of an asset is recorded in the Journal Proper.

This book records the return of goods previously purchased on credit to the suppliers. The source document for this entry is a Debit Note, which is sent to the supplier.

This book records goods returned by customers that were originally sold on credit. The source document is a Credit Note, which is sent to the customer acknowledging the return.

The Journal Proper is a residual book used to record transactions that cannot be entered in any other subsidiary book. This includes opening entries, closing entries, adjustment entries, rectification entries, and credit purchase or sale of assets.

Transactions from subsidiary books are posted to the ledger. Individual entries (like customer or supplier accounts) are posted daily, while the periodic total of books like the Purchases Book or Sales Book is posted to the respective control accounts (e.g., Purchases A/c, Sales A/c) at the end of the period.

Balancing an account involves totaling both the debit and credit sides and finding the difference. This difference, known as the 'balance c/d' (carried down), is placed on the shorter side to make the totals equal and is then brought down ('balance b/d') to the opposite side for the next accounting period.