What are the different types of Subsidiary Books usually maintained by a firm?

Subsidiary book may be defined as a book of prime entry in which transactions of a particular category are recorded. In other words, in order to save time and energy, the transactions which are of similar character are recorded in separate books, these are called subsidiary books or subdivision of journal. A number of subsidiary books are opened to record all business transactions. In practical system of book-keeping, subsidiary books are: Cash Book: Transactions held in cash or by cheque are recorded in this book. There are two sides in a cash book. In the left hand side all cash receipts are recorded and in the right hand side all cash payments are recorded. Cash Book is of five types: single column cash book, double column cash book, triple column cash book, bank cash book and petty cash book. In the single column cash book only receipt of cash and payment of cash are recorded. In the double column cash book, receipt of cash, receipt of cash discount, payment of cash and cash discount allowed are recorded. In the triple column cash book along with the transactions which are recorded in double column cash book, cheque received and cheque paid are recorded. In the bank cash book the receipt of cheque, payment of cheque, cash discount allowed and cash discount received are recorded. In the petty cash book only small payments of cash are recorded by the petty cashier. Purchase Book: All credit purchase of goods are written in this book. Cash purchase of goods and credit purchase of assets are not recorded in this book. Other names of purchase book are purchase day book, purchase journal, bought journal, inward invoice book etc. Sales Book: All sales of goods are written in this book. Cash sale of goods and credit sale of assets are not recorded in this book. Other names of Sales Book are Sales Day Book, Sales Journal, Sold book, Outward Invoice Book etc. Purchase Return Book: It may be necessary to return some goods that the firm has bought on credit for a variety of reasons. All returns of such goods are recorded primarily in Return Outward Book. This book is also known as Purchase Return Book. Sales Return Book: Goods may be returned by the customers for a variety of reasons. All goods returned from customers are recorded in Sales Return Book. This book is also known as Return Inward Book. Bills Receivable Book: When credit sales of goods are made the purchaser gives his guarantee to make payment in future in the form of bill. When the seller receives such bill, it is Bill Receivable for him as he will receive payment in future against such bill. In case a business house receives a number of bills, a Bills Receivable Book is maintained to record all such bills.

Bills Payable Book: When credit purchases are made by a firm it gives a guarantee to the seller to make payment in future in the form of a bill. This bill is said to be Bills Payable for the firm as he will pay for the bill in future. A Bills Payable Book is opened to record all such bills. Journal Proper: It is a subsidiary book maintained to record the transaction which cannot be recorded in other special subsidiary books. Usually the transactions of infrequent character are recorded in the journal proper. The entries like adjustment entries, opening entries, closing entries, transfer entries, purchase and sale of assets on credit, interest on capital, interest of drawing etc. are recorded in journal proper. What do you mean by triple column cash book? In order to incorporate bank transactions (receipts and payments by cheque) which are allowed by the business to its customers and cash discounts. Triple Column Cash Book is prepared by adding one additional column with Double Cash Book. So Triple Column Cash Book is a Cash book which has three columns on either side to record Cash, Bank and Discount transactions. In the debit side of Triple Column Cash Book, cash receipt, cheque receipts and cash discount columns respectively. Similarly in the credit side of Triple Column Cash Book payment of cash, payment by cheque and cash discount received are recorded in Cash, Bank and Discount columns respectively. The transactions which affect cash and bank account at a time are called contra entries and are recorded in both sides of Triple Column Cash Book. The balance of cash column is the closing cash in hand, the balance of bank column is the cash at bank or bank overdraft. The discount column is not balanced but only totaled.

How transactions are recorded in ledger? The following procedures are followed for recording the transactions in the ledger: Separate accounts are opened in the ledger for different accounts recorded in the journal. The concerned accounts debited in the journal are to be debited in the ledger and the concerned account credited in the journal are also credited in the ledger. Whether the posting is made on the debit side or credit side of an account, first of all the date of transaction (as give in the journal) will be entered in the date column, the folio column is used to record the page number of the journal where the concerned journal entry appears and the amount involved in the journal entry shall be entered in amount column. While posting on the debit side of an account in the particulars column, the name of the account credited with the customary word "To" at the beginning and while posting on

the credit side of an account in the particular column, the name of the account debited in the journal entry is to be recorded with the customary word "By" at the beginning.

What are the features of profit and loss account? The Features of Profit and Loss Account are as follows:

Profit and loss account is a nominal account to be prepared at the end of the year. It includes transactions of revenue nature and does not contain items of capital nature. Incomes and Expenses relating to current year are to be shown in it. It includes outstanding expenses and accrued incomes relating to current year which are taken into consideration while prepaid expenses and incomes received in advance are excluded from it. It includes all expenses paid during the previous year but related to current year and all incomes received during the previous year but related to current year.

What are the main limitations of Balance Sheet? There is no doubt that every business prepares balance sheet at the end of each accounting period yet it suffers from the following limitations:

Some of the current assets are valued on estimated basis, so the Balance sheet is not in a position to reflect the true financial position of the business. Fixed assets are shown in the Balance sheet at original cost less depreciation up-to-date. Thus Balance sheet does not show true value of assets. Balance sheet can not reflect those assets which cannot be expressed in monetary terms such as skill, honesty and loyalty of workers. Intangible assets like goodwill are shown in the Balance Sheet at imaginary figures which may bear no relationship to the market value. Brief note on dual aspect concept of accounting Dual concept may be stated as "for every debit, there is a credit." Every transaction should have two sided effect to the extent of same amount. This concept has resulted in accounting equation which states that at any point of time the assets of any entity must be equal (in monetary terms) to the total of owner's equity and outsider's liabilities. This may be expressed in the form of equation: A-L=P

Where A stands for assets of the entity. L stands for liabilities (outsider's claims) of the entity P stands for proprietor's claim (capital) on the entity. (The form of presentation of equation A - L = P is consistent with the legal interpretation of financial position.) What do you mean by entity in accounting? According to this concept, the task of measuring income and wealth is undertaken by accounting, for an identifiable unit or entity. The unit or entity so identified is treated different and distinct from its owners or contributors. In law the distinction between owners and the business is drawn only in the case of joint stock companies but in accounting this distinction is made in the case of sole proprietor and partnership firm as well. It has also led to the development of "responsibility accounting" which enables us to find out the profitability of even the different sub-units of the main business.

Is Accounting a science or an art? In simple words, science establishes relationship of cause and effect whereas art is the application of knowledge comprising of some accepted theories and rules. Accounting is an art of recording financial transaction in a set of book; classifying in desired categories and summarizing the information for presentation in a suitable manner to the concerned persons for their benefit. Accounting is also science in the sense that it comprises of rules, principles, concepts, conventions and standards. All these form body of knowledge which has recognitions all over the world. The term GAAP denotes generally accepted accounting principles. At present we have International Accounting Standards Committee also. Why Balance Sheet is Prepared? A Balance sheet is prepared to achieve following objectives:

To disclose financial position of business on a particular date. It guides the business to decide the amount of provisions or reserves which should be created for meeting future contingencies. It disclose the owners' equity on the date of Balance Sheet. What are the three main branches of accounting? Three branches of accounting are as follows: Financial Accounting:

The main object of Financial Accounting is to find out the profitability and to provide information about financial position of the concern. It presents a general idea of the working of the business and permits management to control in general way the major functions of a business, viz. finance, administration, production and distribution. But Financial Accounting does not give details. Cost Accounting: The main objects of Cost Accounting is to find out the cost of goods produced or services rendered by business. It also helps the management to detect and control all leakages, defective works, and wastage in tools and stores. Management Accounting: The primary objective of Management Accounting is to supply relevant information at appropriate time to the management to enable it to take the decisions and effect control. 5 essential functions of accounting The functions of accounting are as follows: Recording: This is the basic function of accounting. It is essentially concerned with not only ensuring that all business transactions of financial character are in fact recorded but also that they are recorded in an orderly manner. Recording is done in the book "Journal". Classifying: Classification is concerned with the systematic analysis of the recorded data, with a view to group transactions or entries of one nature at one place. The work of classification is done in the book termed as "Ledger". Summarizing: This involves presenting the classified data in a manner which is understandable and useful to the internal as well as external end-users of accounting statements. This process leads to the preparation of the following statements: (1) Trial Balance, (2) Income statement (3) Balance sheet. Analysis and Interprets: This is the final function of accounting. The recorded financial data is analyzed and interpreted in a manner that the end-users can make a meaningful judgment about the financial condition and profitability of the business operations. The data is also used for preparing the future plan and framing of policies for executing such plans. Communicate: The accounting information after being meaningfully analyzed and interpreted has to be communicated in a proper form and manner to the proper person. This is done through preparation and distribution of accounting reports, which include besides the usual income statement and the balance sheet, additional information in the form of accounting ratios, graphs, diagrams, funds flow statements etc.

What are the essential characteristics of Journal? The following are the characteristics of journal:

Is a book of original entry because transaction is recorded at first stage in this book. Is the first step in the recording process of double entry system of book-keeping. Is also known as day book or diary because transactions are recorded in it on day to day basis as and when they take place. Is a chronological record of all transactions taking place according to the order of occurrence. Every entry in journal is accompanied with narration which describes, briefly, true nature and context of the transactions. Amount of the transaction is recorded in both debit and credit column-side by side. It helps in maintaining arithmetical accuracy of the books. Journal and ledger are inter linked because next step after journal is the ledger. What are the importance (advantages) of Ledger? Maintaining of ledger is a must in every accounting system. It is necessary as will be clear from its advantages.

Transactions relating to a particular person, item or heading of expenditure or income are grouped in the concerned account at one place. When each account is periodically balanced it reflects the net position of that account. Ledger is the stepping stone for preparing Trial Balance - which tests the arithmetical accuracy of the accounting books. Since the entries recorded in the journal are referenced into ledger the possibility of errors of defalcations are reduced to the minimum. Ledger is the destination of all entries made in journal or sub-journals. Ledger is the "store-house" of all information which subsequently is used for preparing final accounts and financial statements. Transactions are posted in the ledger after the same have been recorded in the journal. . What are the advantages of Balance Sheet? The preparation of Balance sheet gives following advantages:

It is helpful in ascertaining the financial position of the business by showing assets and liabilities of the concern on a specific date. It discloses the solvency of business by showing how much assets are available for payment of liabilities. It also disclose the proprietary interest of owner.

It helps in calculation of various ratios which help in better management of business. It helps in comparison of assets and liabilities of business on two dates to ascertain the progress being made by business. It helps to ascertain the amount of capital employed in business. What are the main advantages of Accounting? The main advantages of accounting are: Assistance to management: Accounting provides information to the management to enable it to do its work properly. Such information helps in the Planning, Decision making and Controlling. Comparative study: A systematic record enables a business to compare one year's results with those of other years and locate significant factors leading to the change if any. Evidence in the court: Systematic record of transactions is often treated by the courts as good evidence. How to prepare of provision for doubtful debts account? While preparing the provision for doubtful debts accounts, following procedure should be followed:

Any provision for bad debts appearing in credit column of trial balance should be treated as opening balance and should be brought forward on the credit side of provision for doubtful debts account. Bad debts to be written-off (outside trial balance) should be written-off. Now total debit balance of Bad debts account (which includes bad debts written-off during the year as-well-as written-off now) is transferred to provision for doubtful debts account. The new provision for doubtful debts required for next year (as per adjustments) is put on the debit side of provision for doubtful debts account as "To Balance c/d". The balancing figure of provision for doubtful debts account is then transferred to profit and loss account. Why is it necessary to subdivide the journal? The main reasons for subdividing the journal into many subsidiary books are as follows:

When there is a subdivision of journal in place of a single journal, the entire work can be divided among employees who can do the accounting work simultaneously. Proper division of work will lead to specialization which in turn, will lead to increase efficiency of the employees. Since a particular day book records only transaction of similar nature, any information in regard to those can be easily collected. Since the volume of transactions in a particular day book will be less as compared to single journal, the possibility of errors will be reduced. It will also be possible to locate errors easily.

It is necessary to post the transactions from the day books to the ledger. Cash and credit transactions can be recorded in separate books. Journal is inadequate as the sole book of original entry, when the transactions are numerous. Therefore, subdivision of journal is must for big organizations. If all types of transactions are recorded in one journal, then the size of the journal will be very large and it will hamper the annual accounting work. What are the Objectives of Adjustments in Final Account? The main objectives for which adjustments are made in the books of accounts are as follows: To give effect to non cash or national incomes and expenses: There are certain transactions which do not result in any inflow or outflow of cash into the business but are necessary to give effect for ascertaining the correct amount of profits. Such transactions are related to depreciation on fixed assets, Provision for doubtful debts, interest on capital and drawings etc. Bringing into accounts expenses of current year not yet entered in the books of accounts: Matching concept of accounting lays down that all expenses of current year which have been paid or not must be debited to the profit and loss account of current year. It means that all such expenses which have become due but not yet paid or those expenses which have been paid but were not yet due must be adjusted, otherwise, the profits disclosed by Profit and loss account will not be true profits. Bringing into accounts incomes of current year not yet recorded in the books of accounts: Matching concept of accounting also applies to incomes which lays down that income of current year must be credited in profit or loss account of current year irrespective of the fact whether they have been received or not. What are the expenses usually recorded in the debit side of Profit and Loss account? The expenses which are recorded in the debit side of Profit and Loss Account may be classified under the following heads. Office and administration expenses: All expenses which are incurred in connection with office and administration. Examples: Salary of office staff, office rent, rates, taxes and insurance, office lighting and heating, postage and telegram, printing and stationery etc. Selling expenses: All expenses which are incurred in connection to sales. Examples: Advertisement, Commission to agent, Bad debts, Packing expenses, Showroom expenses, Salary to sales staff.

Distribution expenses: All expense in connection with distribution of goods. Examples: Carriage outward, Delivery van expenses, traveling expenses, salary of warehouse, watchman etc. Financing expenses: Financing expenses normally includes interest paid on loans, discount on bill discounted, discount allowed to debtors etc. Miscellaneous expenses: Miscellaneous expenses include interest on capital, depreciation of fixed assets, sundry expenses, general expenses etc.

What are the essential functions of Journal? The basic book of accounting is called journal. Precisely it is the book of prime entry which means - Day book. Trader records his total daily transactions in it. The process of recording the transactions into journal is called 'Journalizing'. Journal may be described as a book in which the transactions are recorded in the order of occurrence i.e. in chronological order. It is called a book of prime entry or original entry because all business transactions are entered first in this book. The process of writing a transaction in journal is known as journalizing and the transaction written in journal is known as journal entry. The functions of journal are:

To analyze each transaction into debit and credit so as to enable their posting in the ledger. To arrange transactions, chronologically in order of date. Here is your paragraph on the meaning of Accounting Accounting is the analysis and interpretation of book-keeping records. It includes not only the maintenance of accounting records but also the preparation of financial and economic information which involve the measurement of transactions and other events relating to the entity. Accounting is defined as "the art of recording, classifying and summarizing in terms of money transactions and events of financial character and interpreting the results thereof." According to Smith and Ashburne: "Accounting is the science of recording and classifying business transaction and events, primarily of financial character, and the art of making significant summaries, analysis and interpretation of those transactions and

events, and communicating the results to persons who must make decisions or form r\judgment." What are the various steps involved in the accounting process? The various steps involved in the accounting process are as follows:

Analyzing the transactions. Classifying the transactions. Recording the transactions. Summarizing the transactions. Interpreting the accounting records.

What are the objectives of Trading Account? The preparation of Trading account fulfills the following objectives:

While fixing the selling price of merchandise, trader adds a fixed percent of cost as profit to the cost and later on by preparing the trading account verifies whether the projected profit has been earned or not. It gross profit is found to be less than the projected profit its reasons are analyzed and proper control is exercised in future. It Gross profit is more than projected profit, efforts are made to maintain it in future. It Trading Account discloses loss then it will be prudent to close down the business may be temporarily till the conditions improve, otherwise, it is possible that losses may exceed. Trading account also helps to ascertain the percentage of direct expenses over sales. Trading account also provides the percentage of gross profit to sales. What are the difference between Profit and loss account and Balance sheet? The difference between Profit and loss account and Balance sheet are;

Balance sheet is a statement of assets and liabilities, whereas profit and loss is an account. Balance sheet discloses the financial position of the business on a particular date, whereas, profit and loss account discloses profits earned or losses suffered during an accounting period. Profit and loss account is prepared for the accounting period ending, whereas, Balance sheet is prepared as at the last day of accounting period. Accounts which are transferred to Balance sheet do not lose their identity and become the opening balances for next period, whereas, those accounts which are transferred to the profit loss account are closed and cease to exist.

What are the features of trial balance? Features of Trial Balance:

According to double entry system, after recording all transactions until all the business transaction are journalized, and posted, strictly according to double entry system, a trial balance can't be extracted. Total of debit and credit amount columns of the trial balance must tally. If the debit and credit columns are equal, we assume that ledger accounts are arithmetically accurate. Difference in the debit and credit columns point out that some mistakes have been committed. Tallying of trial balance is not a conclusive proof of accuracy of accounts. What is Income and Expenditure Account? It is the summary of income and expenditure for the accounting year. It is just like a profit and loss account prepared on accrual basis in case of the business organizations. It includes only revenue items and the balance at the end represents surplus or deficit. The Income and Expenditure Account serves the same purpose as the profit and loss account of a business organization does. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side and incomes and gains on the income side of the account. It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or deficit (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet. The Income and Expenditure Account is prepared on accrual basis with the help of Receipts and Payments Account along with additional information regarding outstanding and prepaid expenses and depreciation etc. Hence, many items appearing in the Receipts and Payments need to be adjusted. For example, as shown in Illustration 1, subscription amount of Rs.2, 65,000 received during the year 2006-07 appearing on the receipts side of the Receipt and Payment Account includes receipts for the periods other than the current period. But the subscription amount of Rs. 2,25,000 pertaining to the current year only will be shown as income in Income and Expenditure Account for the year 2006-07