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Subsidiary books:

Subsidiary books are special journals or ledgers where the first, or the original, transaction
entries are made before being posted in their respective accounts. They are referred to as
subsidiary books because they are separate books which categorize income and debits into
their proper areas before they are added into the principle or main books. The journal
entry made in the primary records acts as a source of information to be used in building
specific final accounts in bookkeeping. The primary records have many names that include
prime book of entry, books of original entry, primary records, and many others that depict
their function.

The most common types of subsidiary books of accounting include a purchase book which is
used to record all credit purchases done. A sales book that shows all of the credit sales and
a cash bookwhich records all cash received and paid. A purchases return book records all of
the purchases that have been returned to the supplier, as well as a sales return book that
indicates all the sold items returned. There is also a bills received book which shows all the
bills paid, along with thebills payable books that show all the bills paid such as electricity.
The final books are main journals, or journal proper subsidiary books, that do not require
entry into mini journals.

There are many advantages of using different subsidiary books for varying entries rather than
having them in only one journal. The first advantage is that it helps keep the records brief
it is impossible to manage every single transaction in the main ledger as it occurs.
Another advantage of using the subsidiary books of accounting makes it easy to track
transactions and avoids the cluttering that would occur if all of the different information was
in one place. The separated information saves the need to give extended details of the
transaction and makes future references easy and simple. The primary records are classified
according to the nature of the transactions.
The third advantage is that the subsidiary books reduce cases of fraud. The journal entries are
done in chronological order, meaning that the dates follow each other, and it involves detailed
postings to other accounts. What this means is that it is almost impossible to manipulate all
the books involved, but if it is done, the detection is quite simple.

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The posting in the primary records can be assigned to different accounting clerks, thus it is
accurate and faster during the processing phase of accounting. Each clerk plays their part and
gives the records to others for further processing and reconciliation. This too eliminates the
opportunities of fraud within the businesses. It would take more than one clerk to
successfully commit fraud and conceal it.
Lastly, the primary records indicate separate transactions of similar natures, thus any needed
analysis is made convenient. This saves time and many other resources. The accuracy of the
records is also enhanced greatly for they play a large role in determining the financial health
of individual company.

Cash Book
Cash book is a record of all the transactions related to cash. Examples include: expenses
paid in cash, revenue collected in cash, payments made to creditors, payments received from
debtors, cash deposited in bank, withdrawn of cash for office use, etc.
In double column cash book, a discount column is included on both debit and credit sides to
record the discount allowed to customers and the discount received from creditors
respectively.
In triple column cash book, one more column of bank is included to record all the
transactions relating to bank.
Note: In modern accounting, simple cash book is the most popular way to record cash
transactions. The double column cash book or three column cash book is practically for
academic purpose. A separate bank book is used to record all the banking transactions as
they are more than cash transactions. These days, cash is used just to meet petty and routine
expenditures of an organization. In most of the organizations, the salaries of employees are
paid by bank transfer.
Note: Cash book always shows debit balance, cash in hand, and a part of current assets.
Single Column Cash Book
Cash book is just like a ledger account. There is no need to open a separate cash account in
the ledger. The balance of cash book is directly posted to the trial balance. Since cash
account is a real account, ruling is followed, i.e. what comes in debit, and what goes out
credit. All the received cash is posted in the debit side and all payments and expenses are
posted in the credit side of the cash book.
Format
CASH BOOK (Single Column)

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Dr.
Date

Cr.
Particulars

L.F.

Amount

Date

Particulars

L.F.

Amount

Double Column Cash Book

Here, we have an additional Discount column on each side of the cash book. The debit side
column of discount represents the discount to debtors of the company and the credit side of
discount column means the discount received from our suppliers or creditors while making
payments.
The total of discount column of debit side of cash book is posted in the ledger account
of Discount Allowed to Customers account as To Total As Per Cash Book. Similarly,
credit column of cash book is posted in ledger account of Discount Received as By total
of cash book.
Format
CASH BOOK (Single Column)
Dr.
Dat
e

Cr.
Particula
rs

L.F
.

Discou
nt

Amou
nt

Dat
e

Particula
rs

L.F
.

Discou
nt

Amou
nt

Triple Column Cash Book

When one more column of Bank is added in both sides of the double column cash book to
post all banking transactions, it is called triple column cash book. All banking transactions
are routed through this cash book and there is no need to open a separate bank account in
ledger.

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Petty Cash Book

In any organization, there may be many petty transactions incurring for which payments
have to be done. Therefore, cash is kept with an employee, who deals with it and makes
regular payments out of it. To make it simple and secure, mostly a constant balance is kept
with that employee.
Suppose cashier pays Rs 5,000 to Mr A, who will pay day-to-day organization expenses out
of it. Suppose Mr A spend Rs 4,200 out of it in a day, the main cashier pays Rs 4,200, so his
balance of petty cash book will be again Rs 5,000. It is very useful system of accounting, as
it saves the time of the main cashier and provides better control.
We will soon discuss about Analytical or Columnar Petty Cash Book which is most
commonly used in most of the organizations.
Format
PETTY CASH BOOK
Amoun
t
Recieve
d

C.B.
F

Dat
e

Particula
rs

Amou
nt Paid

Stationer
y&
Printing

Cartag
e

Loadin
g

Postag
e

Purchase Book
Purchase book is prepared to record all the credit purchases of an organization. Purchase
book is not a purchase ledger.
Format
PURCHASE BOOK
Date

Particulars

Inward Invoice No.

L.F.

Amount

L.F
.

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Sale Book
The features of a sale book are same as a purchase book, except for the fact that it records all
the credit sales.
Format
SALE BOOK
Date

Particulars

Outward Invoice No.

L.F.

Amount

Purchase Return Book

Sometimes goods are to be retuned back to the supplier, for various reasons. The most
common reason being defective goods or poor quality goods. In this case, a debit note is
issued.
Format
PURCHASE RETURN BOOK
Date

Particulars

Credit Note No.

L.F.

Amount

Sale Return Book

The reason of Sale return is same as for purchase return. Sometimes customers return the
goods if they dont meet the quality standards promised. In such cases, a credit note is issued
to the customer.
Format

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SALE RETURN BOOK

Date

Particulars

Debit Note No.

L.F.

Amount

Bills Receivables Book

Bills are raised by creditors to debtors. The debtors accept them and subsequently return
them to the creditors. Bills accepted by debtors are called as Bills Receivables in the
books of creditors, and Bills Payable in the books of debtors. We keep them in our record
called Bills Receivable Booksand Bills Payable Book.
Format
BILLS RECEIVABLE BOOK
Date

Received From

Term

Due Date

L.F.

Amount

Bills Payable Book

Bills payable issues to the supplier of goods or services for payment, and the record is
maintained in this book.
Format
BILLS PAYABLE BOOK
Date

To Whom Given

Term

Due Date

L.F.

Amount

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Key Features of Subsidiary Books

There is a difference between a purchase book and a purchase ledger. A purchase book
records only credit purchases and a purchase ledger records all the cash purchases in
chronical order. The daily balance of purchase book is transferred to purchase ledger.
Therefore, purchase ledger is a comprehensive account of all purchases.
The same rule applies to sale book and sale ledgers.

It is quite clear that maintaining a subsidiary book is facilitation to journal entries,

practically it is not possible to post each and every transaction through journal
entries, especially in big organizations because it makes the records bulky and
unpractical.

Maintenance of subsidiary books gives us more scientific, practical, specialized,

controlled, and easy approach to work.

It provides us facility to divide the work among different departments like sale
department, purchase department, cash department, bank department, etc. It makes
each department more accountable and provides an easy way to audit and detect
errors.

In modern days, the latest computer technology has set its base all over the world.
More and more competent accounts professionals are offering their services.
Accuracy, quick results, and compliance of law are the key factors of any
organization. No one can ignore these factors in a competitive market.

Bookkeeping and accounting

DEFINING BOOKKEEPING
Bookkeeping is an indispensable subset of accounting. Bookkeeping refers to the process of
accumulating, organizing, storing, and accessing the financial information base of an entity,
which is needed for two basic purposes:

Facilitating the day-to-day operations of the entity

Preparing financial statements, tax returns, and internal reports to managers

Bookkeeping (also called recordkeeping) can be thought of as the financial information

infrastructure of an entity. The financial information base should be complete, accurate, and

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timely. Every recordkeeping system needs quality controls built into it, which are
called internal controls.
DEFINING ACCOUNTING
The term accounting is much broader, going into the realm of designing the bookkeeping
system, establishing controls to make sure the system is working well, and analyzing and
verifying the recorded information. Accountants give orders; bookkeepers follow them.
Accounting encompasses the problems in measuring the financial effects of economic
activity. Furthermore, accounting includes the function of financial reporting of values and
performance measures to those that need the information. Business managers, investors, and
many others depend on financial reports for information about the performance and condition
of the entity.

Bookkeeping and accounting are both relevant tool in communicating the financial activity,
performance and condition of a business entity.
The important role of bookkeeping and accounting in every business has increased the
demand for bookkeeping and accounting job or services worldwide. Because of the high
demand, it made bookkeeping and accounting as two of the most profitable and rewarding
profession in the world.
If you want to enter this lucrative profession and opportunity, it is a good choice to learn and
understand the concept, principles and procedures of both bookkeeping and accounting.
In this article, you will pick up valuable learning on the distinct definition of bookkeeping
and accounting, and the difference between them. You will understand the function and
process of both bookkeeping and accounting, what separates bookkeeping from accounting,
and when bookkeeping or accounting procedures is used.
Bookkeeping vs Accounting
It is very common for non-accountants to think that bookkeeping and accounting are of the
same thing. Although they both involve the process of recording the financial transactions of
a business, bookkeeping and accounting are two different topics.
Bookkeeping is the process of recording, in chronological order, the daily transactions of a
business entity. It forms part of the accounting information system.

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On the other hand, accounting is an information system includes the process of recording,
classifying, summarizing, reporting, analyzing and interpreting the financial condition and
performance of a business in order to communicate it to stakeholders for business decision
making.
Illustration
To provide a clear understanding of the difference between bookkeeping and accounting, take
a look at this sample illustration.
Imagine theres one piece of apple pie divided into 6 slices. Each slice was given a
corresponding name as recording, classifying, summarizing, reporting, analyzing, and
interpreting. The whole one piece of apple pie is called the accounting information system
which represents accounting. On the other hand, bookkeeping represents one slice of the
apple pie which is recording.

Bookkeeping is an important part of the accounting information system because it serves as

the groundwork of accounting. Bookkeeping is a branch of accounting which is responsible
in recording the financial transactions of the business. It is the starting point of the whole
accounting process. The person responsible on the bookkeeping process is often referred to

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as bookkeeper or accounting clerk. They are the one who ensures the recording of business
transactions in the book of accounts, such as journals and ledgers, in chronological manner.
Bookkeepers are responsible in safeguarding the completeness and accuracy of the book of
accounts. They assist accountants in preparing reports, like financial statements or tax returns,
by providing summary and supporting documents of the recorded business
transactions. Bookkeeping is only limited to the recording process, although in cases of small
businesses, bookkeepers may also do the preparation of reports. As such, bookkeeping can be
performed by non-accountants who gained relevant trainings and experience in bookkeeping.
To learn more about bookkeeping job, read our article entitled, What is a Bookkeeper?
Accounting, on the other hand, represent the whole accounting process, from recording until
interpreting business financial information. Accounting is one of the most diversified
professions because professional accountants have different options in which area of
accounting they want to focus their career such as financial accounting, managerial
accounting, tax accounting, auditing, etc.
Unlike bookkeeping, accounting jobs are performed by accounting graduates or licensed
professional accountants. Accounting involves more technical understanding and procedures
compared to bookkeeping.

A business entity can record its monetary transactions either on Single Entry
System or Double Entry System of Bookkeeping. The former is less laborious as well as
less time consuming while the latter completely records the transactions which need
substantial effort and time. Many accounting students suffer confusion between these two
approaches to bookkeeping. If you are looking for their differences, then you are at the right
place. This article will reveal all the substantial differences between Single Entry System and
Double Entry System.
Definition of Single Entry System
Single Entry System of Bookkeeping is the oldest method of maintaining financial records in
which an entry is made for every financial transaction. In this system, the corresponding
opposite entry is not made because the transactions are recorded only once. Full record
keeping of transactions is not done due to a single entry of every transaction. It mainly keeps
track of the transactions relating to cash receipts and disbursements.
This method of keeping records is primarily used by a sole proprietorship and partnership
firms. This system does not require high knowledge and expertise for entering transactions.
Journals, Ledgers and Trial Balance, are not prepared for it. However, the income statement
is prepared to know the profit or loss of the business.

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Due to some drawbacks like one sided entry, reconciliation of accounts is not possible, the
possibility of frauds and errors is maximum. That is why it does not coincide with Generally
Accepted Accounting Principles (GAAP). Moreover, accounting records maintained under
this system are not suitable for tax purposes.
Definition of Double Entry System
Double Entry System is the scientific method of keeping financial records, developed by
Luca Pacioli, in 1494. This system is based on the principle of duality, i.e. every transaction
has a dual aspect. Each transaction affects two accounts at the same time, in which one
account is debited while the other is credited.
To explain this, we will use an example, Suppose Mr. A has purchased goods of Rs.1000 for
cash from Mr. B, so here on one hand, he has received goods and on the other hand the cash
is given to Mr. B. So, you should have noticed that the goods have been acquired by giving
up cash. Therefore, as its name signifies, this system records both the aspects of a single
transaction, i.e. the increase in goods with the simultaneous decrease in cash.
Due to two-fold effect, the system possesses completeness, accuracy as well as it matches
with the Generally Accepted Accounting Principles (GAAP). A complete procedure is there
for recording every transaction. The procedure starts from source documents, followed by the
journal, ledger, trial balance, then at the end financial statements are prepared.
There are fewer chances of fraud and embezzlement because the full-fledged recording of
transactions is done in this system. Errors can easily be detected. Further, the accounts can be
reconciled, due to the two-fold aspect. Tax laws also recommend Double Entry System to
record transactions. Although a person should be professionally skilled to maintain records as
per this system. Moreover, due to the complexity of this system, it is time-consuming too.
Key Differences Between Single Entry System and Double Entry System
The following are the major differences between single entry system and double entry
system:
1.

The bookkeeping system in which only one aspect of a transaction is recorded, i.e.
either debit or credit, is known as Single Entry System. Double Entry System, is a system of
keeping records, whereby both the aspects of a transaction are captured.

2.

Single Entry Transaction is simple and easy whereas Double Entry System is complex
as well as it requires expertise in accounting for maintaining records.

3.

In single entry system, incomplete records are maintained while in double entry
system complete recording of transactions is there.

4.

In single entry system comparison between two accounting periods is very difficult.
Conversely, we can easily compare two accounting periods in the double entry system.

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5.

Single Entry System maintains personal and cash accounts. On the other hand,
personal, real and nominal accounts are kept in Double Entry System.

6.

The Single Entry system is best suited for small enterprises, but big organizations
prefer Double Entry System.

7.

Frauds and embezzlement are easy to identify in double entry system which cannot be
located in single entry system.
Conclusion
A person of little accounting knowledge can maintain records as per single entry system, but
due to some shortcomings in this system, double entry system has been evolved. Almost all
the countries of the world have adopted double entry system for maintaining accounting
records.

Comparison Chart
BASIS FOR
COMPARISO
N

SINGLE ENTRY SYSTEM

DOUBLE ENTRY SYSTEM

Meaning

The system of accounting in which

only one sided entry is required to
record financial transactions is
Single Entry System.

The accounting system, in which

every transaction affects two accounts
simultaneously is known as the
Double Entry System.

Nature

Simple

Complex

Type of
recording

Incompletes

Complete

Errors

Hard to identify

Easy to locate

Which type of
accounts are
maintained?

Personal and Cash Account

Personal, Real and Nominal Account

Preferable for

Small Enterprises

Big Enterprises

Preparation of
Financial
Statement

Difficult

Easy

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Suitable for tax

purposes
No

Yes

Creating journal entries requires some rules, such rule is named as Three Golden Rules of
Accounting standards. There are three kinds of account as Personal Account, Real Account
and Nominal Account. Lets see the rules for those different account from scratch and in
detail.

1.

Personal Account
Personal account relates to persons with whom a business keeps dealings. A person called be
a natural person or a legal person. If a person receives anything from the business, he is
called receiver and his account is to debited in the books of the business. If person gives
anything to business, he is called as a giver and his account is to be credited in the books of
the business.

The Golden Rule for Personal Account is,

Debit the Receiver and Credit the Giver

Example: Goods worth 1000 bucks sold to Mr. Smith from Mr. John. In this transaction, Mr.
Smith is the receiver of goods, he is called receiver and his account is to be debited in the
books of business. Mr. John is the giver of goods, he is called giver and his account is to be
credited in the books of business.
1.

Real Account

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Real account relates to property which may either come into the business or go from
business. If any property or goods comes into the business, account of that property or goods
is to be debited in the books of the business. If any property or goods goes out from the
business account of that property or goods is to be credited in the books of business.

The Golden Rule for Real Account is,

Debit What Comes in and Credit What Goes out

Example: Goods sold on cash for 1500 bucks. In this transaction cash, an assets for business
comes into the business on sales of goods, and therefore cash account is to be debited in the
books of business. On the other side, goods, an assets of business goes out of the business on
sale and therefore goods account is to be debited in the books of business.
1.

Nominal Account
Nominal account is an account that relates to business expenses, loss, income and gains. If
business incurs expense to manage and run business, account of that expense is to be debited
in the books of business. When a business earns income by rendering services or hiring
business assets, an account of that income is to credited in the books of business.

On other hand, if in the case the transaction of sale or purchase of goods or assets, if any loss
is incurred by the business, account of that loss is to debited in the books or assets. if in the
transaction of sale or purchase of goods or assets any profit is earned by the business, then
account of that profit is to be credited in the books of business.

The Golden Rule for Nominal Account is,

Debit all Expenses or Loss and Credit all Income Gains or Profit

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Example: (1) Paid 50 bucks as a commission to our agent, here commission which is paid to
an agent is business expense and it is to be debited in the books of business. (2) Received 100
bucks as interest on our fixed deposit, here interest which is received is business income and
therefore it is to be credited in the books of business.
The above all are the three golden rules of accounting with examples.
Classification of Accounts
Based on nature
An account may be classified as real, personal or as a nominal account
Type

Real

Persona
l

Represent

Examples

Physically tangible things in the

real world and certain intangible
things not having any physical
existence

Tangibles - Plant and Machinery, Furniture

and Fixtures, Computers and Information
Processing Equipment,Cash Accounts etc.
Intangibles
-Goodwill, Patents and Copyrights

Business and Legal Entities,Bank

Accounts

Individuals, Partnership
Firms, Corporate entities, Non-Profit
Organizations, any local or statutory
bodies including governments at country,
state or local levels

Temporary Income and

Expenditure Accounts for
Nomina recognition of the implications of
l
the financial transactions during
each fiscal year till finalisation of
accounts at the end

Sales, Purchases, Electricity Charges

Example: A sales account is opened for recording the sales of goods or services and at the end
of the financial period the total sales are transferred to the revenue statement account (Profit
and Loss Account or Income and Expenditure Account).
Similarly expenses during the financial period are recorded using the respective Expense
accounts, which are also transferred to the revenue statement account. The net positive or

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negative balance (profit or loss) of the revenue statement account is transferred to reserves or
capital account as the case may be.

1. Personal Account
Debit the Receiver and Credit the Giver
1. If a person receives anything from the business, he is called receiver and his
account is to debited in the books of the business.
2. If person gives anything to business, he is called as a giver and his account is to
be credited in the books of the business.
2. Real Account
Debit What Comes in and Credit What Goes out
1. If any property or goods comes into the business, account of that property or
goods is to be debited in the books of the business.
2. If any property or goods goes out from the business account of that property or
goods is to be credited in the books of business.
3. Nominal Account
Debit all Expenses or Loss and Credit all Income Gains or Profit
1. If business incurs expense to manage and run business, account of that expense is
to be debited in the books of business.
2. When a business earns income by rendering services or hiring business assets, an
account of that income is to credited in the books of business.

Examples of Journal Entries

Transaction 1: Company A sold its products at $120 and received the full amount in cash.

Steps

Self-Questions
What did Company A receive?

Answers
Cash.

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If Company A received cash, how would this

affect the cash balance?

Receiving cash increases the cash

balance of the company.

Which side of cash account represents the

increase in cash?

Debit side (Left side).

What is the account name to record the sales

of products.

Sales.

Credit side (Right side).

Which side of sales account represents the

increase in sales?
Does the sum of debit side amounts equal to
the sum of credit side amounts? In other
words, does this journal entry balances?

Yes.
$120 = $120

[Journal entry to record transaction 1]

Debit

Credit

Cash
120
Sales
120

Examples of Journal Entries

Transaction 2: Company A purchased supplies and paid $50 in cash.

Steps

Self-Questions

Answers

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What did Company A receive?

Supplies.

If Company A received supplies, how

would this affect the supplies balance?

It increases supplies
balance.
Debit side (Left side).

Which side of supplies account

represents the increase in cash?
What did Company A pay?

Cash.

Which side of cash account represents

the decrease in cash?

Credit side (Right side).

Does the sum of debit side amounts

equal to the sum of credit side
amounts? In other words, does this
journal entry balance?

Yes.

$50 = $50

[Journal entry to record transaction 2]

Debit

Credit

Supplies
50
Cash
50