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UNIT 14: SUBSIDIARY BOOKS AND CASH BOOK

Learning Objectives

After completing this unit, students will be able to:

  • Explain why large businesses subdivide the Journal into specialized Subsidiary Books (Special Journals) and state their advantages.
  • Identify the golden rules for what is included and excluded in Subsidiary Books.
  • Prepare the four merchandise Subsidiary Books with net Trade Discount calculations:
    1. Purchase Book
    2. Purchase Return Book / Return Outward Book
    3. Sales Book
    4. Sales Return Book / Return Inward Book
  • Explain why the Cash Book is both a Book of Original Entry and a Ledger Account, and prepare:
    1. Simple (Single Column) Cash Book
    2. Double Column Cash Book (Cash & Discount, Bank & Discount, and Cash & Bank Columns with Contra Entries ‘C’)
    3. Triple Column Cash Book (Cash, Bank, and Discount Columns)
  • Understand the basic concept of a Petty Cash Book.

14.1 Meaning, Need, and Types of Subsidiary Books

In a medium or large business where hundreds of credit purchases, credit sales, and cash receipts/payments occur daily, recording every single transaction in one single Journal becomes bulky, slow, and impossible for multiple clerks to work on simultaneously. To overcome this limitation, the Journal is subdivided into specialized books called Subsidiary Books, Special Journals, or Day Books.

“Subsidiary books of accounts are also called books of original entry because all the transactions are recorded originally or in the first instance in these subsidiary books.” — A.N. Agarwala

Summary of the Major Subsidiary Books

Name of Subsidiary BookTransactions Recorded Exclusively in This BookSource Document Used
1. Purchase Book (Purchase Journal)Only Credit Purchases of Merchandise Goods (meant for resale)Inward Invoice / Purchase Bill received from supplier
2. Sales Book (Sales Journal)Only Credit Sales of Merchandise Goods to customersOutward Invoice / Sales Bill issued to customer
3. Purchase Return Book (Return Outward Book)Return of goods previously purchased on credit back to the supplierDebit Note issued to supplier
4. Sales Return Book (Return Inward Book)Return of goods previously sold on credit by customers back to the businessCredit Note issued to customer
5. Cash BookAll Cash and Bank Receipts and Payments (including cash purchases, cash sales, and cash/bank settlement of assets/expenses)Cash Receipts, Payment Vouchers, Cheque Counterfoils
6. Bills Receivable & Bills Payable BooksBills of exchange drawn on debtors or accepted in favor of creditorsBills of Exchange / Promissory Notes
7. Journal Proper (General Journal)Residual transactions that do not fit into any of the above special books (e.g., credit purchase/sale of fixed assets, depreciation, bad debts, opening/closing/rectification entries)Journal Vouchers

CRITICAL GOLDEN RULE FOR PURCHASE BOOK & SALES BOOK (EXAM TRAP!):
When preparing a Purchase Book or Sales Book, you must STRICTLY IGNORE AND EXCLUDE two types of transactions:

  1. Cash Transactions: Any purchase or sale made for cash or by cheque is NOT recorded in the Purchase Book or Sales Book (it goes to the Cash Book).
  2. Asset Transactions: Any purchase or sale of Fixed Assets (such as furniture, machinery, computers, or office equipment—unless the business itself is a furniture/computer dealership!) is NOT recorded in the Purchase Book or Sales Book (credit asset purchases go to Journal Proper).
    Always write a clear Note at the bottom of your solution explaining why those transactions were excluded!

14.2 Merchandise Subsidiary Books: Formats and Worked Illustrations

1. Purchase Book & Purchase Return Book

  • Purchase Book Columns: Date | Particulars (Name of Supplier & Item Details) | Invoice No. | L.F. | Details (Rs.) | Total Amount (Rs.)
  • Purchase Return Book Columns: Date | Particulars (Name of Supplier & Returned Items) | Debit Note No. | L.F. | Details (Rs.) | Total Amount (Rs.)

Worked Illustration 14.1: Purchase Book

Question: Prepare a Purchase Book of Kathmandu Electronics from the following transactions for Mangsir 2082:

  • Mangsir 2: Purchased from Pashupati Electric Suppliers, New Road (Invoice No. 114):
    • 20 Electric Heaters @ Rs. 1,500 each
    • 15 Rice Cookers @ Rs. 2,000 each
    • Less: Trade Discount @ 10%
  • Mangsir 8: Purchased from Surya Furniture on credit: 2 office tables @ Rs. 8,000 each for office use.
  • Mangsir 14: Purchased from Everest Appliances, Birgunj (Invoice No. 209):
    • 10 Refrigerators @ Rs. 25,000 each
    • 20 Table Fans @ Rs. 2,500 each
    • (Add: Packing and delivery charges Rs. 2,000)
  • Mangsir 20: Purchased 10 Electric Irons @ Rs. 1,200 each for cash from Kalimati Store.

Solution:

Purchase Book of Kathmandu Electronics

DateParticularsInvoice No.L.F.Details (Rs.)Total Amount (Rs.)
2082-08-02Pashupati Electric Suppliers, New Road
20 Electric Heaters @ Rs. 1,500 each
15 Rice Cookers @ Rs. 2,000 each
Sub-total
Less: 10% Trade Discount		114
30,000
30,000
60,000
(6,000)



54,000
2082-08-14Everest Appliances, Birgunj
10 Refrigerators @ Rs. 25,000 each
20 Table Fans @ Rs. 2,500 each
Sub-total
Add: Packing and delivery charges		209
2,50,000
50,000
3,00,000
2,000



3,02,000
2082-08-30Total — Purchase A/c (Dr.)3,56,000

Notes on Excluded Transactions:

  1. Mangsir 8: Purchase of 2 office tables from Surya Furniture is excluded because office furniture is a fixed asset, not merchandise goods for resale.
  2. Mangsir 20: Purchase of 10 Electric Irons from Kalimati Store is excluded because it is a cash purchase (recorded in the Cash Book).

2. Sales Book & Sales Return Book

  • Sales Book Columns: Date | Particulars (Name of Customer/Debtor & Item Details) | Invoice No. | L.F. | Details (Rs.) | Total Amount (Rs.)
  • Sales Return Book Columns: Date | Particulars (Name of Customer & Returned Items) | Credit Note No. | L.F. | Details (Rs.) | Total Amount (Rs.)

Worked Illustration 14.2: Sales Book and Sales Return Book

Question: From the following transactions of Mechi Tea & Grocery House, Jhapa, prepare (a) Sales Book and (b) Sales Return Book:

  • Poush 3: Sold on credit to Pokharel General Store, Damak (Bill No. 501):
    • 50 kg Orthodox Tea @ Rs. 600 per kg
    • 100 kg Sugar @ Rs. 110 per kg
    • Less: 10% Trade Discount
  • Poush 8: Pokharel General Store returned 5 kg damaged Orthodox Tea @ Rs. 600 per kg (Credit Note No. 12). (Note: Since a 10% trade discount was allowed on the original sale on Poush 3, the same 10% trade discount must be deducted on the return!)
  • Poush 15: Sold to Ilam Mart for cash: 20 kg Coffee @ Rs. 800 per kg.
  • Poush 22: Sold on credit to Birtamode Emporium (Bill No. 502):
    • 40 jars Honey @ Rs. 750 per jar
    • 20 bags Rice @ Rs. 2,200 per bag
  • Poush 26: Birtamode Emporium returned 2 broken jars of Honey @ Rs. 750 per jar (Credit Note No. 13).

Solution:

(a) Sales Book of Mechi Tea & Grocery House, Jhapa

DateParticularsInvoice No.L.F.Details (Rs.)Total Amount (Rs.)
2082-09-03Pokharel General Store, Damak
50 kg Orthodox Tea @ Rs. 600 per kg
100 kg Sugar @ Rs. 110 per kg
Sub-total
Less: 10% Trade Discount		501
30,000
11,000
41,000
(4,100)



36,900
2082-09-22Birtamode Emporium
40 jars Honey @ Rs. 750 per jar
20 bags Rice @ Rs. 2,200 per bag		502
30,000
44,000

74,000
2082-09-30Total — Sales A/c (Cr.)1,10,900

(Note: Poush 15 cash sale to Ilam Mart is omitted as cash sales are recorded in the Cash Book.)

(b) Sales Return Book of Mechi Tea & Grocery House, Jhapa

DateParticularsCredit Note No.L.F.Details (Rs.)Total Amount (Rs.)
2082-09-08Pokharel General Store, Damak
5 kg Orthodox Tea @ Rs. 600 per kg
Less: 10% Original Trade Discount		12
3,000
(300)

2,700
2082-09-26Birtamode Emporium
2 jars Honey @ Rs. 750 per jar		13
1,500
1,500
2082-09-30Total — Sales Return A/c (Dr.)4,200

14.3 Cash Book: Types, Contra Entries, and Worked Illustrations

A Cash Book is a special subsidiary book in which all cash and bank receipts are recorded on the Debit (left) side and all cash and bank payments are recorded on the Credit (right) side.

Why is the Cash Book called both a Journal (Book of Original Entry) and a Ledger?

  • It is a Book of Original Entry (Journal) because all cash and banking transactions are recorded in the Cash Book first directly from source vouchers.
  • It is a Ledger Account because it is formatted in a two-sided ‘T’ account (Dr. Receipts and Cr. Payments) and balanced just like a Cash Ledger and Bank Ledger. When a Cash Book is maintained, no separate Cash Account or Bank Account is opened in the Ledger.

Types of Cash Books

  1. Simple / Single Column Cash Book: Contains only one amount column (Cash Rs.) on both Debit and Credit sides.
  2. Double Column Cash Book: Contains two amount columns on both Debit and Credit sides:
    • (a) Cash and Discount Column Cash Book: Discount Allowed (Dr.) & Cash (Dr.) | Discount Received (Cr.) & Cash (Cr.).
    • (b) Bank and Discount Column Cash Book: Discount Allowed (Dr.) & Bank (Dr.) | Discount Received (Cr.) & Bank (Cr.).
    • (c) Cash and Bank Column Cash Book: Cash (Dr.) & Bank (Dr.) | Cash (Cr.) & Bank (Cr.).
  3. Triple Column Cash Book: Contains three amount columns on both sides: Cash, Bank, and Discount (Discount Allowed on Dr. side; Discount Received on Cr. side).

Concept of Contra Entry (‘C’) in Double (Cash & Bank) and Triple Column Cash Books

When a single transaction simultaneously affects both the Cash Account and the Bank Account in opposite directions on the same date, it is recorded on both the Debit side and the Credit side of the Cash Book and marked with the capital letter C in the L.F. column (indicating that no further posting to the Ledger is needed). Such an entry is called a Contra Entry.

A Contra Entry (‘C’) occurs in ONLY TWO situations:

Contra SituationJournal Entry Behind ItEntry on Debit (Receipts) Side of Cash BookEntry on Credit (Payments) Side of Cash Book
1. Cash deposited into the Bank (or Bank Account opened with cash)Bank A/c ... Dr.
To Cash A/c		Write To Cash A/c, put C in L.F., and enter the amount in the BANK ColumnWrite By Bank A/c, put C in L.F., and enter the amount in the CASH Column
2. Cash withdrawn from the Bank for Office Use (Warning: Withdrawal for personal/domestic use is Drawings, NOT a Contra entry!)Cash A/c ... Dr.
To Bank A/c		Write To Bank A/c, put C in L.F., and enter the amount in the CASH ColumnWrite By Cash A/c, put C in L.F., and enter the amount in the BANK Column

Worked Illustration 14.3: Triple Column Cash Book (Cash, Bank, and Discount Columns)

Question: Prepare a Triple Column Cash Book from the following transactions of Annapurna Traders, Chitwan for the month of Magh 2082:

  • Magh 1: Cash in hand Rs. 45,000 and Cash at bank Rs. 80,000.
  • Magh 4: Purchased goods for Rs. 20,000; paid Rs. 8,000 in cash and the balance Rs. 12,000 by cheque.
  • Magh 7: Sold goods for cash Rs. 30,000.
  • Magh 10: Deposited cash Rs. 25,000 into the bank. (Contra Entry!)
  • Magh 14: Received a cheque of Rs. 19,200 from Deepak in full settlement of his account of Rs. 20,000.
  • Magh 18: Paid cash Rs. 14,500 to Rabin in full settlement of his account of Rs. 15,000.
  • Magh 22: Withdrew cash Rs. 10,000 from bank for office use and Rs. 5,000 from bank for proprietor’s personal use.
  • Magh 27: Paid office salary Rs. 16,000 by cheque and electricity bill Rs. 2,500 in cash.

Solution:

Dr. ………………………………… Triple Column Cash Book of Annapurna Traders ………………………………… Cr.

DateParticularsL.F.Cash (Rs.)Bank (Rs.)Disc. Allowed (Rs.)DateParticularsL.F.Cash (Rs.)Bank (Rs.)Disc. Received (Rs.)
082-10-01To Balance b/d45,00080,000—082-10-04By Purchase A/c8,00012,000—
082-10-07To Sales A/c30,000——082-10-10By Bank A/cC25,000——
082-10-10To Cash A/cC—25,000—082-10-18By Rabin’s A/c14,500—500
082-10-14To Deepak’s A/c—19,200800082-10-22By Cash A/cC—10,000—
082-10-22To Bank A/cC10,000——082-10-22By Drawing A/c—5,000—
082-10-27By Salary A/c—16,000—
082-10-27By Electricity A/c2,500——
082-10-30By Balance c/d35,00081,200—
Total85,0001,24,200800Total85,0001,24,200500
082-11-01To Balance b/d35,00081,200

Important Rules Observed Above:

  1. Discount Columns are NEVER Balanced: Discount Allowed (Dr. Rs. 800) and Discount Received (Cr. Rs. 500) are simply totalled at the bottom because one is an expense and the other is an income!
  2. Cash Column Always Has a Debit Balance: You cannot spend more physical cash than you have in the cash box.
  3. Bank Column Normally Has a Debit Balance (or Credit Balance if Bank Overdraft): If a question starts with Bank Overdraft, enter it on the Credit side as By Balance b/d in the Bank column.

14.4 Concept of Petty Cash Book

To relieve the main cashier from recording dozens of tiny daily expenses (such as Rs. 50 for tea/refreshments, Rs. 30 for postage stamps, Rs. 100 for bus/tempo fare, or Rs. 80 for photocopy), a junior clerk called the Petty Cashier is given a fixed sum of cash (Float / Imprest Amount) at the beginning of each month/week under the Imprest System of Petty Cash. At the end of the period, the exact amount spent by the Petty Cashier is reimbursed by the Chief Cashier so the petty cash balance is restored to the original float.

Things to Remember (Unit 14 Summary)

  • Purchase Book and Sales Book record ONLY credit purchases and credit sales of merchandise goods; cash transactions and fixed asset transactions are strictly excluded.
  • Contra Entry (C) occurs in only two cases: (1) Cash deposited into bank, and (2) Cash withdrawn from bank for office use.
  • In a Triple Column Cash Book, the Cash and Bank columns are balanced (By Balance c/d), whereas the Discount Allowed and Discount Received columns are merely totalled, never balanced.

Exercises (Unit 14)

A. Very Short Answer Questions (1 Mark Each)

  1. Define Subsidiary Books and list any four types.
  2. What is a Debit Note and a Credit Note?
  3. Define a Contra Entry and state the two transactions in which it occurs.
  4. Why are the Discount columns in a Cash Book not balanced?

B. Numerical Problems for Practice (8 Marks Each)

Problem 14.1 (Purchase & Sales Books): From the following transactions of Janakpur Book House, prepare (a) Purchase Book and (b) Sales Book:

  • Ashwin 2: Purchased from Ekta Publication, Kathmandu: 50 copies Grade 9 Account Book @ Rs. 400 each and 40 copies Science Book @ Rs. 500 each, less 15% trade discount.
  • Ashwin 6: Sold to Mithila Boarding School on credit: 30 copies Grade 9 Account Book @ Rs. 450 each and 20 dozen Exercise Copies @ Rs. 600 per dozen.
  • Ashwin 11: Purchased a revolving chair from Janaki Furniture on credit for Rs. 6,500.
  • Ashwin 18: Purchased from Buddha Publication: 60 copies Economics Book @ Rs. 350 each, less 10% trade discount.
  • Ashwin 24: Sold to Dhanusha Stationery on credit: 40 copies Science Book @ Rs. 550 each, less 10% trade discount.
  • Ashwin 28: Sold old newspapers and books for cash Rs. 4,500. (Check Answers: Total of Purchase Book = Rs. 52,900; Total of Sales Book = Rs. 45,300).

Problem 14.2 (Triple Column Cash Book): Prepare a Triple Column Cash Book from the following transactions for Kartik 2082:

  • Kartik 1: Cash in hand Rs. 30,000; Cash at bank Rs. 50,000.
  • Kartik 5: Cash deposited into bank Rs. 15,000.
  • Kartik 9: Goods sold for Rs. 25,000; received Rs. 10,000 in cash and Rs. 15,000 by cheque.
  • Kartik 14: Paid to Suman by cheque Rs. 11,600 in full settlement of Rs. 12,000.
  • Kartik 19: Received cash from Pratima Rs. 8,700 in full settlement of Rs. 9,000.
  • Kartik 24: Withdrew cash from bank for office use Rs. 8,000 and for domestic use Rs. 3,000.
  • Kartik 29: Paid rent in cash Rs. 6,000 and salary by cheque Rs. 12,000. (Check Answers: Closing Cash Balance = Rs. 35,700; Closing Bank Balance = Rs. 45,400; Discount Allowed = Rs. 300; Discount Received = Rs. 400).

Worked answers to these exercises are in Unit 14 Solutions.