Subsidiary Books and Balancing Accounts

Cash Book

In businesses with a large number of transactions, it is cumbersome to journalise every transaction in the main Journal. Instead, transactions of a similar nature are recorded in separate specialised journals, also known as Subsidiary Books. These books serve as both a book of original entry (Journal) and a ledger account for frequently occurring transactions.

The Cash Book is a subsidiary book used to record all transactions involving cash receipts and cash payments. It serves the purpose of both a Journal (recording cash transactions chronologically) and a Ledger Account (providing the balance of cash).

Types of Cash Book:

1. Single Column Cash Book:

Records only cash receipts and payments. It has one amount column on both the debit (receipts) and credit (payments) sides. It functions like a simple cash account.

Format of Single Column Cash Book:

Debit (Receipts) Side				Credit (Payments) Side
Date	Particulars (From whom cash received / Account credited)	Ledger Folio (LF)	Amount (₹)	Date	Particulars (To whom cash paid / Account debited)	Ledger Folio (LF)	Amount (₹)
...	To ...	[Page No.]	[Amount]	...	By ...	[Page No.]	[Amount]
...	To ...	[Page No.]	[Amount]	...	By ...	[Page No.]	[Amount]
(Balance c/d or b/d)				(Balance c/d or b/d)

Cash receipts are recorded on the debit side, and cash payments are recorded on the credit side. The LF column is used for posting to other Ledger accounts.

2. Double Column Cash Book (Cash and Bank Column Cash Book):

Records both cash transactions and bank transactions. It has two amount columns on both the debit and credit sides: one for Cash and one for Bank. It functions as both a Cash Account and a Bank Account.

Format of Double Column Cash Book:

Debit (Receipts) Side					Credit (Payments) Side
Date	Particulars	LF	Cash (₹)	Bank (₹)	Date	Particulars	LF	Cash (₹)	Bank (₹)
...	To ...	[Page No.]	[Amount]	[Amount]	...	By ...	[Page No.]	[Amount]	[Amount]
...	To ...	[Page No.]	[Amount]	[Amount]	...	By ...	[Page No.]	[Amount]	[Amount]
(Balance c/d or b/d)					(Balance c/d or b/d)

Cash received is entered in the Cash column on the debit side. Cheques received and deposited into the bank are entered in the Bank column on the debit side. Cash paid out is entered in the Cash column on the credit side. Payments made by cheque are entered in the Bank column on the credit side.

Contra Entries:

Transactions that involve both Cash and Bank accounts of the same business (e.g., cash deposited into the bank, cash withdrawn from the bank for office use) are called Contra Entries. These entries affect both the Cash and Bank columns of the Cash Book simultaneously, with one account debited and the other credited in the same entry. The letter 'C' is written in the LF column to denote a contra entry, and these entries are not posted to the Ledger.

Example 1. Contra Entry: Deposited cash ₹10,000 into bank.

Answer:

Effect 1: Bank balance increases (Bank is receiving). Debit Bank A/c.

Effect 2: Cash in hand decreases (Cash is going out). Credit Cash A/c.

In the Double Column Cash Book:

On the Debit side: In the Bank column, enter ₹10,000. In Particulars, write "To Cash A/c". In LF, write 'C'.
On the Credit side: In the Cash column, enter ₹10,000. In Particulars, write "By Bank A/c". In LF, write 'C'.

This single entry records both aspects in the Cash Book itself.

3. Petty Cash Book:

Used to record small day-to-day expenses (petty expenses) like postage, stationery, conveyance, tea/coffee expenses, etc. It is maintained by a Petty Cashier, who receives a fixed amount of cash from the main cashier at the beginning of a period (e.g., week or month). This system is called the Imprest System of Petty Cash.

Imprest System:

Under this system, the petty cashier is reimbursed at the end of the period for the amount spent during that period. This brings the petty cash balance back to the original fixed amount (imprest amount). This simplifies the main Cash Book as only one entry is made for the total imprest amount issued to the petty cashier.

Format of Petty Cash Book (Analytical Petty Cash Book):

Has a debit side for cash received and a credit side with multiple columns for classifying various types of petty expenses.

Debit Side (Receipts)				Credit Side (Payments - Analytical)
Cash Received (₹)	Ledger Folio (LF)	Voucher No.	Date	Particulars	Total Amount (₹)	Postage (₹)	Stationery (₹)	Conveyance (₹)	... (Other Expense Heads)
[Imprest Amount]	[Page No.]	...	...	To Cash A/c (Receipt of Imprest)
		[Voucher No.]	...	By ... (Expense Description)	[Total for this Exp.]	[Amount]	[Amount]	[Amount]	[Amount]
Total Receipts					Total Payments (Sum of all expense columns)
(Balance c/d)					(Balance c/d)

The total of each expense column in the Petty Cash Book is periodically posted to the respective expense account in the main Ledger.

Balancing Of Cash Book

Balancing the Cash Book involves finding the difference between the total of the debit side (receipts) and the total of the credit side (payments). This difference represents the closing balance of cash (or bank).

Steps:

Total the debit amount column(s).
Total the credit amount column(s).
Calculate the difference between the totals.
If the debit total is greater than the credit total, the difference is a Debit Balance (representing cash in hand or positive bank balance). Write this balance on the credit side as "By Balance c/d" (carried down).
If the credit total is greater than the debit total, the difference is a Credit Balance (representing bank overdraft in the bank column, or an error in the cash column as cash cannot be negative). Write this balance on the debit side as "To Balance c/d" (carried down). Note: Cash column can never have a credit balance in normal circumstances.
Write the larger total on both sides.
On the next day/period, bring down the balance to the opposite side as "To Balance b/d" or "By Balance b/d" (brought down).

The closing balance of the Cash Book represents the cash in hand and/or bank balance at the end of the period, which is an Asset and will appear on the Balance Sheet.

Purchases (Journal) Book

The Purchases Book (also known as Purchases Journal) is a subsidiary book used to record all credit purchases of goods. Cash purchases of goods are recorded in the Cash Book, and purchase of assets (other than goods) on credit are recorded in the Journal Proper.

Information for entries in the Purchases Book is taken from the Invoice or Bill received from the supplier (Source Document).

Purpose of Purchases Book:

Provides a chronological record of all credit purchases of goods.
Helps in readily ascertaining the total credit purchases during a period.
Avoids cluttering the main Journal with numerous similar entries.

Format of Purchases Book:

Date	Particulars (Supplier's Name)	Invoice No.	Ledger Folio (LF)	Amount (₹)
...	[Supplier Name]	[Invoice No.]	[Page No.]	[Amount]
...	[Supplier Name]	[Invoice No.]	[Page No.]	[Amount]
Total Purchases				[Total Amount]

Posting from Purchases Book: Periodically (e.g., monthly), the total of the Purchases Book is debited to the Purchases Account in the Ledger. Individual entries are credited to the respective Supplier's (Creditor's) Account in the Ledger.

Example 2. Recording in Purchases Book.

Purchased goods on credit from Shyam & Co., Kolkata, for ₹20,000 vide Invoice No. 123, dated 10th August 2024.

Answer:

Date	Particulars (Supplier's Name)	Invoice No.	LF	Amount (₹)
2024 Aug 10	Shyam & Co.	123	[Page No.]	20,000

This entry will be posted to the debit side of Purchases A/c (total) and the credit side of Shyam & Co.'s A/c (individual entry).

If Trade Discount is given, the entry is made at the net amount after deducting the trade discount. Cash discount is not relevant here as only credit purchases are recorded.

Purchases Return (Return Outwards) Book

The Purchases Return Book (also known as Returns Outward Book) is a subsidiary book used to record goods returned to suppliers, which were previously purchased on credit.

Information for entries in the Purchases Return Book is usually taken from the Debit Note issued by the business to the supplier (Source Document).

Purpose of Purchases Return Book:

To record all returns of goods to suppliers.
To readily ascertain the total value of goods returned to suppliers during a period.

Format of Purchases Return Book:

Date	Particulars (Supplier's Name)	Debit Note No.	Ledger Folio (LF)	Amount (₹)
...	[Supplier Name]	[Debit Note No.]	[Page No.]	[Amount]
...	[Supplier Name]	[Debit Note No.]	[Page No.]	[Amount]
Total Purchases Return				[Total Amount]

Posting from Purchases Return Book: Periodically, the total of the Purchases Return Book is credited to the Purchases Return Account in the Ledger. Individual entries are debited to the respective Supplier's (Creditor's) Account in the Ledger.

Example 3. Recording in Purchases Return Book.

Returned goods to Shyam & Co. worth ₹2,000 vide Debit Note No. DN/001, dated 15th August 2024.

Answer:

Date	Particulars (Supplier's Name)	Debit Note No.	LF	Amount (₹)
2024 Aug 15	Shyam & Co.	DN/001	[Page No.]	2,000

This entry will be posted to the credit side of Purchases Return A/c (total) and the debit side of Shyam & Co.'s A/c (individual entry).

Purchases Return Account is a reduction from Purchases, and its normal balance is Credit.

Sales (Journal) Book

The Sales Book (also known as Sales Journal) is a subsidiary book used to record all credit sales of goods. Cash sales of goods are recorded in the Cash Book, and sale of assets (other than goods) on credit are recorded in the Journal Proper.

Information for entries in the Sales Book is taken from the Invoice or Bill issued by the business to the customer (Source Document).

Purpose of Sales Book:

Provides a chronological record of all credit sales of goods.
Helps in readily ascertaining the total credit sales during a period.

Format of Sales Book:

Date	Particulars (Customer's Name)	Invoice No.	Ledger Folio (LF)	Amount (₹)
...	[Customer Name]	[Invoice No.]	[Page No.]	[Amount]
...	[Customer Name]	[Invoice No.]	[Page No.]	[Amount]
Total Sales				[Total Amount]

Posting from Sales Book: Periodically, the total of the Sales Book is credited to the Sales Account in the Ledger. Individual entries are debited to the respective Customer's (Debtor's) Account in the Ledger.

Example 4. Recording in Sales Book.

Sold goods on credit to Mrs. Priya, Delhi, for ₹12,000 vide Invoice No. 456, dated 20th August 2024.

Answer:

Date	Particulars (Customer's Name)	Invoice No.	LF	Amount (₹)
2024 Aug 20	Mrs. Priya	456	[Page No.]	12,000

This entry will be posted to the credit side of Sales A/c (total) and the debit side of Mrs. Priya's A/c (individual entry).

If Trade Discount is given, the entry is made at the net amount after deducting the trade discount. Cash discount is not relevant here as only credit sales are recorded.

Sales Return (Return Inwards) Book

The Sales Return Book (also known as Returns Inward Book) is a subsidiary book used to record goods returned by customers, which were previously sold on credit.

Information for entries in the Sales Return Book is usually taken from the Credit Note issued by the business to the customer (Source Document).

Purpose of Sales Return Book:

To record all goods returned by customers.
To readily ascertain the total value of goods returned by customers during a period.

Format of Sales Return Book:

Date	Particulars (Customer's Name)	Credit Note No.	Ledger Folio (LF)	Amount (₹)
...	[Customer Name]	[Credit Note No.]	[Page No.]	[Amount]
...	[Customer Name]	[Credit Note No.]	[Page No.]	[Amount]
Total Sales Return				[Total Amount]

Posting from Sales Return Book: Periodically, the total of the Sales Return Book is debited to the Sales Return Account in the Ledger. Individual entries are credited to the respective Customer's (Debtor's) Account in the Ledger.

Example 5. Recording in Sales Return Book.

Goods returned by Mrs. Priya worth ₹1,000 vide Credit Note No. CN/005, dated 25th August 2024.

Answer:

Date	Particulars (Customer's Name)	Credit Note No.	LF	Amount (₹)
2024 Aug 25	Mrs. Priya	CN/005	[Page No.]	1,000

This entry will be posted to the debit side of Sales Return A/c (total) and the credit side of Mrs. Priya's A/c (individual entry).

Sales Return Account is a reduction from Sales, and its normal balance is Debit.

Journal Proper

The Journal Proper is the residuary book of original entry. It is used to record all those transactions that cannot be recorded in any of the other subsidiary books (Cash Book, Purchases Book, Sales Book, Purchases Return Book, Sales Return Book, Bills Receivable Book, Bills Payable Book).

Types of Transactions Recorded in Journal Proper:

Opening Entry: Recorded at the beginning of each financial year to bring forward the balances of assets, liabilities, and capital from the previous year's Balance Sheet.
Closing Entries: Recorded at the end of the financial year to transfer the balances of all nominal accounts (Revenues, Expenses, Gains, Losses) to the Trading and Profit and Loss Account.
Transfer Entries: Recorded to transfer an amount from one account to another.
Adjustment Entries: Recorded at the end of the accounting period to make necessary adjustments for items like outstanding expenses, prepaid expenses, depreciation, accrued income, etc., to comply with the Accrual and Matching concepts.
Rectification Entries: Recorded to correct errors made in the books of accounts.
Transactions related to Assets other than Goods (on credit): Purchase or sale of fixed assets on credit.
Other Miscellaneous Transactions: Transactions like loss of goods by fire/theft, drawings of goods by the owner, bad debts, etc.

The format of the Journal Proper is the same as the general Journal (Date, Particulars, LF, Debit Amount, Credit Amount, Narration). Each entry in the Journal Proper is subsequently posted to the relevant Ledger accounts.

Example 6. Transaction in Journal Proper: Purchased machinery on credit from Excel Machines Ltd. for ₹2,00,000.

Answer:

(This is a purchase of an Asset (Machinery), not Goods, on credit. It cannot go in the Cash Book or Purchases Book.)

Date	Particulars	LF	Debit Amount (₹)	Credit Amount (₹)
2024 Aug 30	Machinery A/c Dr.	[LF No.]	2,00,000
	To Excel Machines Ltd.	[LF No.]		2,00,000
	(Being machinery purchased on credit from Excel Machines Ltd.)

Journal Proper ensures that all transactions, irrespective of their nature or whether they involve cash or credit (if not goods), are recorded in the books of original entry before being posted to the Ledger.

Balancing The Accounts

Balancing an account in the Ledger is the process of finding the difference between the total of the debit side and the total of the credit side of that account. This difference is called the Balance and represents the net effect of all transactions related to that account during a period.

Purpose of Balancing:

To determine the closing balance of each Ledger account at the end of an accounting period.
To prepare the Trial Balance, which lists all account balances.
To find the amounts of assets, liabilities, and capital (balances of real and personal accounts) for the Balance Sheet.
To find the amounts of revenues, expenses, gains, and losses (balances of nominal accounts) for the Profit and Loss Account.

Steps in Balancing an Account:

Total the debit amount column.
Total the credit amount column.
Find the difference between the two totals.
If the Debit total is greater than the Credit total, the account has a Debit Balance (representing cash in hand or positive bank balance). Write the amount of the difference on the credit side as "By Balance c/d" (carried down).
If the Credit total is greater than the Debit total, the account has a Credit Balance (representing bank overdraft in the bank column, or an error in the cash column as cash cannot be negative). Write the amount of the difference on the debit side as "To Balance c/d" (carried down). Note: Cash column can never have a credit balance in normal circumstances.
Write the larger total on both the debit and credit sides below the total line.
On the next day/period, bring down the balance to the opposite side below the total line. A Debit balance is brought down on the debit side as "To Balance b/d". A Credit balance is brought down on the credit side as "By Balance b/d".

The balance c/d represents the closing balance at the end of the period, and the balance b/d represents the opening balance for the next period.

Example of Balancing an Account:

Example 7. Balancing the Cash Account.

Assume the following entries in the Cash Account for August 2024:

Debit side: Aug 1 To Balance b/d ₹20,000; Aug 10 To Sales A/c ₹15,000

Credit side: Aug 5 By Purchases A/c ₹8,000; Aug 15 By Rent A/c ₹4,000

Balance the account on 31st August 2024.

Answer:

Cash Account
Debit Side				Credit Side
Date	Particulars	JF	Amount (₹)	Date	Particulars	JF	Amount (₹)
2024 Aug 1	To Balance b/d		20,000	2024 Aug 5	By Purchases A/c		8,000
Aug 10	To Sales A/c		15,000	Aug 15	By Rent A/c		4,000
				Aug 31	By Balance c/d		23,000
Total			35,000	Total			35,000
2024 Sep 1	To Balance b/d		23,000

The total debits (₹20,000 + ₹15,000 = ₹35,000) exceed total credits (₹8,000 + ₹4,000 = ₹12,000) by ₹23,000. This is the debit balance of cash. The balance c/d (₹23,000) is written on the credit side to make the totals equal. This balance is then brought down to the debit side as balance b/d on the first day of the next period (Sep 1, 2024).

Nominal Accounts (Revenues and Expenses) are usually not balanced in the same way as Real and Personal Accounts. Their balances are transferred to the Trading and Profit and Loss Account at the end of the year using closing entries. However, for the purpose of preparing a Trial Balance, their totals or balances (before transfer) are used.