written by khatabook | November 25, 2022

Importance of Subsidiary Books, Types, Examples, Advantage

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Table of Content


The term ‘subsidiary books’ refers to the various ancillary books a business may keep in addition to its main accounting records. These books are usually less formal than the main accounting records and are used to provide information that supplements the information in the main accounting records. The most common subsidiary books are the sales journal, the purchases journal, the cash receipts journal, and the cash disbursements journal. 

Did you know? The quantity of a particular product sold during a specified period is noted only in subsidiary books and not in general ledgers.

What are Subsidiary Books?

A subsidiary book is a financial book of a company that keeps recording transactions unrelated to the company's core business. These transactions can include anything from investments to personal loans. Subsidiary books can be used by companies to keep track of their finances and to make sure that they are not overspending.  

Subsidiary books are accounting records used to record transactions that cannot be quickly recorded in the general ledger. These books are used to record transactions more detailed and specific way. Subsidiary books can include inventory, accounts receivable, and accounts payable records. Using subsidiary books allows for a more accurate recording of transactions and can provide additional information that can be useful in decision-making.  

Also Read: Bills Payable in Balance Sheet: Definition and Meaning

The Importance of Subsidiary Books 

Subsidiary books are important because they provide a more detailed record of a company's transactions. This information can be used to make better decisions about where to allocate resources and how to manage finances. Additionally, subsidiary books can help managers identify problem areas and track progress over time.  

There are a few diverse types of subsidiary books, including ledgers, journals, and cash books. Each book has its purpose and can provide different information to decision-makers. For example, ledgers give a complete picture of a company's financial position, while journals offer a more detailed record of transactions. On the other hand, cash books provide information on a company's cash flow.  

While all these books are essential, ledgers are typically the most important for decision-makers, and this is because they provide a complete picture of a company's financial position. By understanding a company's financial position, managers can make better decisions about where to allocate resources and how to manage finances. 

Types of Subsidiary books 

The following are the different types of subsidiary books used in accounting by various organisations:

1. Ledger: 

A ledger is a bookkeeping record of all financial transactions made by a company. This includes sales, purchases, receipts, and payments. The ledger is the main record-keeping book for a business.  

2. Cash Book: 

A cash book is a book of original entries in which all cash receipts and payments are recorded. The cash book is used to track a company's cash flow.  

3. Trial Balance: 

A trial balance is a statement that lists all the ledger accounts and their balances. The trial balance is used to check the accuracy of the ledger.  

4. General Journal: 

A general journal is a book of original entries in which all transactions are recorded. The general journal records transactions that do not fit into any other category.  

5. Sales Journal: 

A sales journal is a book of original entries in which all sales are recorded. The sales journal is used to track a company's sales.  

6. Purchases Journal: 

A purchases journal is a book of original entries in which all purchases are recorded. The purchases journal is used to track a company's purchases.  

7. Receipts Journal: 

A receipts journal is a book of original entries in which all cash receipts are recorded. The receipts journal is used to track a company's cash receipts.  

8. Payments Journal: 

A payments journal is a book of original entries in which all cash payments are recorded. The payments journal is used to track a company's cash payments. 

Also Read: What Is Consignment Accounting and Its Format?

Example of Subsidiary Books 

In accounting, subsidiary books are "secondary books of original entry in which transactions are first recorded before being posted to the ledger." In other words, these books keep track of the transactions before they are transferred to the main ledger.  

The most common subsidiary books are the sales journal and the purchases journal. The sales journal is where all sales transactions are recorded. This includes the date of the sale, the customer's name, the sale amount, and other relevant information. The purchases journal is where all purchase transactions are recorded. This includes the date of the purchase, the supplier's name, the purchase amount, and other relevant information.  

Other subsidiary books include the cash receipts journal and the cash disbursements journal. The cash receipts journal is where all cash received is recorded. This consists of the transaction's date, the customer's name, the amount of money received, and any other relevant information. The cash disbursements journal is where all cash paid out is recorded. This includes the transaction's date, the supplier's name, the amount of money paid, and other relevant information. 

How to Maintain Subsidiary Books?

There are a few key things to keep in mind when maintaining subsidiary books: 

  • Make sure to keep accurate records of all transactions. This includes recording both sides of each transaction (i.e., debits and credits).  
  • Keep your records organised. This will make it easier to find specific information when you need it.  
  • Make sure to reconcile your subsidiary books with your general ledger regularly. This will ensure that your financial statements are accurate.  
  • Keep copies of all supporting documentation for your records. This could include receipts, invoices, contracts, etc.  
  • Use accounting software to automate more tedious tasks like recording transactions and reconciling accounts. This will save you time and reduce the chances of error. 

Also Read: Human Resource Accounting: Concept, Objectives, and Benefits

Advantages of Subsidiary Books 

There are many advantages of subsidiary books which are as follows: 

1. Subsidiary books are used for recording transactions in a more detailed and classified manner, providing more information for analysis and decision-making.  

2. It helps prepare final accounts as they provide more detailed and classified information.  

3. These books aid in the detection of errors and irregularities.  

4. Subsidiary books are helpful in cost determination and cost control.  

5. It helps in the efficient management of inventory.  

6. Having subsidiary books makes managing money and other resources easier.

7. These help in the efficient utilisation of resources.  

8. Subsidiary books provide information for management decisions.  

9. Using subsidiary books might be beneficial when preparing tax returns.

10. It helps in the prevention and detection of fraud. 

Conclusion

A subsidiary book is a book that is subordinate to another book, and it is a book that is used to supplement or complement another book. A subsidiary book is not a complete work in itself; it is a book that is part of a more significant work.  

The subsidiary books are a vital part of the accounting process and provide essential business information. They help track expenses, income, and inventory and can provide insights into a company's financial health. While they are not required by law, they can be extremely helpful in managing a business and should be considered by any business owner. 

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FAQs

Q: Why are subsidiary books important?

Ans:

Subsidiary books are important because they provide a more efficient method of recording transactions. By recording transactions in subsidiary books, accountants also record financial transactions efficiently.

Q: What is the difference between a ledger account and a subsidiary book?

Ans:

A ledger account is an account that contains all the transactions relating to a specific item. A subsidiary book is a book of original entries in which transactions are recorded and posted to the ledger accounts.

Q: What is the purpose of the subsidiary books?

Ans:

The purpose of the subsidiary books is to provide a more efficient method of recording transactions. The accountant can then post the information to the ledger accounts by recording transactions in the subsidiary books, and this saves time and reduces the chance of errors.

Q: What are the subsidiary books?

Ans:

The subsidiary books are the books of original entry in which transactions are first recorded and then posted to the ledger accounts. These books include the sales journal, purchases journal, cash receipts journal, and cash disbursements journal.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.