The accounting process starts with the identification of transactions of financial and non-financial nature. All financial transactions are first recorded in Journal. This is known as Books of Original Entry. A small business has a lesser number of transactions and therefore, it is possible to record all business transactions in one book i.e. Journal. However, when business grows, the number of business transactions also increases. It is a very time-consuming, difficult, and tedious task for a firm to record such voluminous transactions and events in one single book. Thus, in order to save time and effort, it is advisable to subdivide the Journal into Subsidiary Books to record the transactions of similar nature in a separate book.
These sub-divided Journals are popularly known as Subsidiary Books. These books are also termed as Special Purpose Books or Special Journals or Books of Original/Primary/Prime Entry. Sub-division of Journal provides scope for division of work which leads to the improvement in efficiency and effectiveness. In other words, subsidiary books provide ease and convenience to record transactions of similar nature in a separate book. Journal entry is not required for the transactions which are entered in these books.
Need for Subsidiary Book or Special Purpose Books
Quick and Efficient Recording: When the size of a business is large, then definitely its number of business transactions will also be high. It is a very tedious and time-consuming process to record all the transactions in a Journal. By maintaining separate books, then recording of such voluminous transactions can be done in lesser time and more efficiently. So, due to this reason, the need for maintaining special purpose books arises.
Similar Nature: In every business organization, there are various transactions that are similar and repetitive in nature. It will be more convenient to record all similar transactions in one place as it helps in the division of work among the employees. Thus, this need can be fulfilled by preparing the special purpose books.
Economical: Maintaining the subsidiary books is more economical as it saves time and at the same time it also enhances the efficiency of the employees.
Easy Posting: In the subsidiary books all the similar transactions are recorded in a single place. This helps in its easy posting in the ledgers. For example, all credit sales are recorded in the sales book and the total of the sales book is to be posted to the sales account in the ledger.
Complete Information at One Place: All information related to similar transactions such as credit sales, credit purchases, cash receipts, cash payments, etc. is easily and readily available at a single place.
Kinds of Subsidiary Books
Cash Book: This book is maintained to record all the cash receipts and cash payments. In addition to this, all the transactions related to the bank such as payment into the bank and withdrawals from the bank are also recorded in this book.
Sales Book: This book is maintained to record the credit sale of goods and services done by a firm.
Purchases Book: This book is maintained to record the credit purchase of goods and services by a firm.
Sales Return Book or Return Inward Book: This book is maintained to record the return of goods by the customers, which were previously sold to them on credit.
Purchases Return Book or Return Outward Book: This book is maintained to record the return of goods by the business to the suppliers, which were previously purchased from them on credit.
Journal Proper: This book is maintained to record all other similar transactions which cannot be incorporated or recorded in any of the above books.
Advantages of Subsidiary Book
Division of Work: In the absence of a sub-division of Journal, the large number of business transactions needs to be recorded in one single book i.e. in the Journal by more than one person. This may lead to chaos and confusion. At the same time, there will be more inflexibility and lack of accountability among the accountants. Sub-division of Journal enables different persons to maintain different books. This division of work will not only avoid confusion but also enhance the sense of accountability among the accountants.
Time-Saving: The recording of huge business transactions through subsidiary books leads to time-saving as various accounting processes can be undertaken simultaneously due to the use of different books as compared to its recording through entries in a Journal.
Prompt Information: The transactions of similar nature are recorded in a particular subsidiary book. This acts as a ready or available source to access the information in a quick manner in a single place.
Accountability: The sub-division of Journal entrusts its employees with a high degree of responsibility and accountability for maintaining subsidiary books that are particularly assigned to them.
Easy Checking: As the volume of transactions is less in the subsidiary books, so, it helps in easy and quick detection of any discrepancies or errors.
Specialization: The accountability, responsibility, and division of work together enhance the specialization of each accountant or employee. This is because a routine and repetitive tasks are performed by a single person which helps in improving efficiency.
Also, Read Ledger in Accounting?