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Principles and Practice of Accounting

CA FOUNDATION - Paper I - Principles and Practice of Accounting
Accounting plays a vital role for developing a strong base for Chartered Accountants to enable them to understand
how the accounting information can fit into the process of Financial Reporting. Considering this objective, it has
been decided to bring forth a crisp and concise capsule on the topics of Subsidiary Books and Cash Book covered in
the syllabus of Paper 1: Principles and Practice of Accounting. The purpose of above topics is to enable the students
to record the transactions of a business entity in different books in line with the nature of transactions. The concepts
involved in these topics have been gathered and presented through pictorial presentations in this capsule which will
help the students for quick revision. Under no circumstances, such revision can substitute the detailed study of the
material provided by the Board of Studies. Students are advised to refer the Study Material for comprehensive study.

Chapter 2 - Accounting Process

Unit 4 - Subsidiary Book s
In a business, most of the transactions generally relate to receipts and payments of cash, purchases and sales of goods. It is
convenient to keep a separate register for each such class of transactions one for receipts and payments of cash, one for purchase
of goods and one for sale of goods. Such register is called a book of original entry or prime entry.

The books of original or prime entry are also called Subsidiary Books since ledger accounts are prepared on the basis of these
books and without ledger posting, a trial balance cannot be taken out.

Normally, the following subsidiary books are used Distinction Between Subsidiary Books and
in a business: Principal Books
Principal Ledger
to record cash receipts and payments, including Books
Cash Book receipts into and payments out of the bank.

Simple Cash
Book
Purchases to record credit purchases of goods dealt in or of
Book the materials and stores required in the factory.
Cash books
Cash with Discount
Books Column
Purchase to record the returns of goods and materials Financial
Returns previously purchased. Books
Book
Cash books
with Bank
& Discount
Sales Book to record the sales of the goods dealt in by the firm. Column

Petty Cash
Book
Sale
Returns to record the returns made by the customers.
Book
For Credit Purchase Book
Purchase
Bills
Receivable to record the receipts of promissory notes or For Credit
Book hundies from various parties. Sales Book
Sales

For Credit Purchase

Bills to record the issue of the promissory notes or Purchase
Payable Return Book
Book hundies to other parties. Returns

For Credit Sales Return

Sales Book
Journal to record the transactions which cannot be recorded Returns
in any of the above books mentioned above. Subsidiary
Books For Bills Bill Receivable
Receivable Book
Received

For Bills Bill Payable

Accepted Book

For record of
transactions not Journal
recorded anywhere

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Principles and Practice of Accounting

Advantages of Subsidiary Books
Division of work Specialisation Saving of the time Availability of information Facility in checking
and efficiency
Since in the place of one When the same work is Various accounting Since a separate register When the trial balance
journal there will be so allotted to a particular processes can be or book is kept for each does not agree, the location
many subsidiary books, person over a period of undertaken simultaneously class of transactions, the of the error or errors is
the accounting work can time, he becomes efficient because of the use of a information relating to facilitated by the existence
be divided. in handling it. Thus the number of books. This each transaction will be of separate books. Even the
accounting work will be will lead to completing the available at one place. commission of errors and
done efficiently. work quickly. frauds will be checked by
various subsidiary books.

Purchase Book Posting the Sales Book

To record the credit purchases of goods dealt in or materials used The total of the
in the factory, a separate register called the Purchases Book or The names The accounts
appearing in the Sales Book shows
of the parties the credit sales made
the Purchases Journal, is usually maintained by firms. Sales Book are have to be
of those parties during the period
debited with concerned; the
Points to Remember which have the respective amount is credited
received the amounts.
goods. to the Sales
Account.

Cash purchases are

not entered in this Sales Return or Purchase Return Bills Receivable
book since these will Credit purchases of things Return Inward or Return and Bills Payable
be entered in the other than goods or Book Outward Book Book
cash book. materials, such as office
If customers Such a book
furniture or typewriters frequently return conveniently
are not entered in the If the firm
the goods sold to records return of usually receives
Purchases Book. them, it would goods or material /issues a
be convenient purchased to
to record the the suppliers number of
returns in a if however, the promissory
notes or
Posting the Purchase Book separate book,
which is named
returns are not
frequent, it may hundies, it
as the Sales be sufficient would be
Returns Book to record the convenient
The Purchases Book shows The amount is or the Returns transaction in the to record the
the names of the parties debited to the Inward Book. journal. transaction in a
from whom goods have Purchase Account to separate book
been purchased on credit. indicate receipt called the Bills
This Book is This Book is Receivable/ Bills
These parties are now trade of goods. similar to the similar to the Payable Book.
payables. Sales Book and Purchases Book
entries are also and entries are
made in the also made in the
same manner. same manner.

The total of Cash

Their accounts have transactions
the amounts column
to be credited for the are recorded in
shows the credit Bill the Cash
respective amounts transactions
purchases made in a Book
shown in the purchase are entered in Credit
period.
book. the Bills Receivable purchases
Books or the Bills of goods are
Payable books, recorded in
if these are the Purchases
Sales Book maintained
Since Book
The Sales Book is a register specially kept to record credit sales of
goods dealt in by the firm. we
Points to Remember
Returns
to suppliers
know
are entered in Credit
the Purchase sales of goods
Cash sales are not Returns are recorded
entered in this book Book in the Sales
since these will be Credit sales of things other Returns Book
entered in the cash book. than goods dealt in by the from
firm are not entered in the customers are
Sales Book. recorded in the
Sale Returns
Book

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Principles and Practice of Accounting

Except the above transactions, there are some entries also which have to
be recorded. For them the proper place is the journal. In fact, if there is no
Entries on dishonour of Bills
special book meant to record a transaction, it is recorded in the journal. If a promissory note (or bill) is dishonored on the due date, a
The role of the journal is thus restricted to the following types of entries: journal entry will be necessary to record the non-payment or
dishonour.
Opening entries
When books are started for the new year, the opening balance of Apart from above few, other miscellaneous entries
assets and liabilities are journalised. are also entered in Journal

Closing entries Credit purchase other than e.g. credit purchase

goods or materials required for of furniture or
At the end of the year the profit and loss account has to be prepared. production of goods. machinery.
For this purpose, the nominal accounts are transferred to this
account. This is done through journal entries called closing entries.
An allowance given to the customers or
a charge to be made to them after the
Rectification entries

Miscellaneous entries
issue of the invoice.
If an error has been committed, it is rectified through a journal entry.
Receipt or issue of promissory
notes if separate bill books are not
Transfer entries maintained.
If some amount is to be transferred from one account to another,
the transfer will be made through a journal entry. An amount becoming irrecoverable,
say, because, customer becoming
insolvent.
Adjusting entries
Effects of accidents such as loss of
At the end of the year, expenses or income may have to be adjusted property by fire.
for amounts received in advance or for amounts not yet settled in
cash. Such adjustments are done through journal entries. Usually,
the entries pertain to outstanding expenses, prepaid expenses, Transfer of net profit to capital
interest on capital and depreciation. account.

Unit-5 Cash Book

Cash Book is a subsidiary book. All cash transactions are recorded in the Cash Book. It serves as basis for preparing ledger accounts. It acts as
the cash account and the bank account; the balances are directly entered in the trial balance. The Cash Book, therefore, is part of the ledger also.
Hence, it is also to be treated as the principal book. Thus Cash Book is both a subsidiary book and a principal book.

Simple Cash Book

Subsidiary
book as well
as Principal
book The
Only difference is
the cash written on
Three receipts
Simple Cash Cash Column and cash The simple
the credit
Book Book side as ‘By
Cash Book payments The total cash book balance c/d’.
are of Dr. side is like an
recorded. is always ordinary
Two account The totals are
greater than then entered
Column and is
Cash Book the total in the two
of Cr. side balanced
in the columns
The left-hand since the opposite to
payment same way
side records as other one another
receipts of cannot and then on
exceed the accounts.
cash and the the debit side
Types of Cash Book right-hand available the balance is
side the cash. written as “To
payments. Balance b/d”,
to show cash
balance in hand
in the beginning
Simple Cash Two-Column Three-Column of next period.
Book Cash Book Cash Book

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