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Books of Original Entry

Special Purpose Subsidiary Books - Theory & Concepts

Introduction to Subsidiary Books

What are Books of Original Entry?

Books of Original Entry, also known as Subsidiary Books or Books of Prime Entry, are specialized journals where business transactions are first recorded chronologically before being posted to the ledger. These books are designed to record specific types of transactions, making the accounting process more efficient and organized.


The concept of subsidiary books arose from the need to divide the accounting work when businesses grew larger. Instead of recording all transactions in one journal, specific books are maintained for similar types of transactions. This system facilitates division of labor, reduces errors, and provides better internal control.

1
Transaction Occurs
Business event happens
→
2
Source Document
Evidence created
→
3
Subsidiary Book
First recording
→
4
Ledger
Final posting

Historical Background

The subdivision of journal into various subsidiary books became necessary with the growth of business enterprises. In the 19th century, as businesses expanded, the volume of transactions increased dramatically. Recording all transactions in a single journal became impractical and time-consuming. This led to the development of specialized books for different types of routine transactions, allowing multiple clerks to work simultaneously on different books.

Classification of Books of Account

Books of Account are classified into:

1. Books of Original Entry (Subsidiary Books)
  • Purchase Book - For credit purchases of goods
  • Sales Book - For credit sales of goods
  • Purchase Return Book - For returns to suppliers
  • Sales Return Book - For returns from customers
  • Bills Receivable Book - For bills received
  • Bills Payable Book - For bills accepted
  • Cash Book - For cash and bank transactions
  • Journal Proper - For other transactions
2. Books of Final Entry (Ledgers)
  • General Ledger - Contains all impersonal accounts
  • Debtors Ledger - Contains individual customer accounts
  • Creditors Ledger - Contains individual supplier accounts

Purchase Book - Detailed Study

Purchase Book

Purchase Day Book / Purchase Journal / Bought Day Book

Definition & Purpose

Purchase Book is a subsidiary book that records all credit purchases of goods meant for resale or for use in manufacturing. It serves as a book of original entry where transactions are first recorded before being posted to respective ledger accounts. The book helps in maintaining a chronological record of all credit purchases, making it easier to track supplier balances and manage inventory.

Transactions Recorded

  • Credit purchases of goods for resale
  • Credit purchases of raw materials for manufacturing
  • Credit purchases of goods for business use (trading items)
  • Purchases with trade discount (net amount recorded)
  • Inter-state and intra-state purchases with GST

Transactions NOT Recorded

  • Cash purchases (recorded in Cash Book)
  • Purchase of fixed assets (recorded in Journal Proper)
  • Purchase of stationery, furniture, machinery
  • Purchase returns (recorded in Purchase Return Book)
  • Personal expenses of proprietor
PURCHASE BOOK (Traditional Format)
Page No: ___
Date Invoice No. Name of Supplier L.F. Details Amount (₹)
2024          
Jan 5 101 ABC Traders 25 100 units @ ₹50
Less: Trade Discount 10%		 4,500
Total 4,500
PURCHASE BOOK (GST Format)
Page No: ___
Date Particulars
(Name of Supplier)		 Invoice No. L.F. Details (₹) Purchases (₹) Input CGST (₹) Input SGST (₹) Input IGST (₹) Total (₹)
Jan 5 ABC Traders (Local) 101 5,000
- 500 (TD)
4,500		 4,500 405 405 - 5,310
Jan 8 XYZ Ltd (Inter-state) 102 10,000 10,000 - - 1,800 11,800
Total 14,500 405 405 1,800 17,110

Posting from Purchase Book

Individual Posting: Each supplier's account is credited individually in the Creditors Ledger.
Total Posting: The monthly total is posted to the debit of Purchase Account in General Ledger.
GST Posting: Input CGST, SGST, and IGST totals are posted to respective GST accounts.

Sales Book - Detailed Study

Sales Book

Sales Day Book / Sales Journal / Sold Day Book

Definition & Purpose

Sales Book is a subsidiary book used to record all credit sales of goods dealt in by the business. It provides a systematic record of all goods sold on credit, helping businesses track customer balances, manage receivables, and analyze sales patterns. The book excludes cash sales and sales of fixed assets.

Transactions Recorded

  • Credit sales of merchandise/goods
  • Credit sales of manufactured products
  • Sales with trade discount (net amount)
  • Local and inter-state sales with GST
  • Export sales (if applicable)

Transactions NOT Recorded

  • Cash sales (recorded in Cash Book)
  • Sale of fixed assets (recorded in Journal Proper)
  • Sale of investments or securities
  • Sales returns (recorded in Sales Return Book)
  • Sale of scrap or waste materials for cash
SALES BOOK (GST Format)
Page No: ___
Date Particulars
(Name of Customer)		 Invoice No. L.F. Details (₹) Sales (₹) Output CGST (₹) Output SGST (₹) Output IGST (₹) Total (₹)
Feb 1 Ram & Co. (Local) 501 20,000
- 2,000 (TD)
18,000		 18,000 1,620 1,620 - 21,240
Total 18,000 1,620 1,620 - 21,240

Posting from Sales Book

Individual Posting: Each customer's account is debited individually in the Debtors Ledger.
Total Posting: The monthly total is posted to the credit of Sales Account in General Ledger.
GST Posting: Output CGST, SGST, and IGST totals are posted to respective GST accounts.

Purchase Return Book - Detailed Study

Purchase Return Book

Return Outward Book / Purchase Return Journal

Definition & Purpose

Purchase Return Book records all returns of goods to suppliers that were originally purchased on credit. When goods are found defective, damaged, or not as per specifications, they are returned to the supplier. A debit note is issued to the supplier indicating the amount for which their account is debited.

Source Documents

  • Debit Note: Prepared by the purchaser and sent to supplier
  • Contains details of goods returned and reasons
  • Shows the amount to be deducted from supplier's account
  • Reference to original purchase invoice

Common Reasons for Returns

  • Defective or damaged goods
  • Wrong specifications or quality
  • Excess quantity delivered
  • Goods not as per sample
  • Expired or outdated products
PURCHASE RETURN BOOK (GST Format)
Date Particulars
(Name of Supplier)		 Debit Note No. L.F. Details (₹) Purchase Return (₹) Input CGST (₹) Input SGST (₹) Input IGST (₹) Total (₹)
Mar 5 ABC Traders DN-001 Defective goods 2,000 180 180 - 2,360

Sales Return Book - Detailed Study

Sales Return Book

Return Inward Book / Sales Return Journal

Definition & Purpose

Sales Return Book records all returns of goods from customers that were originally sold on credit. When customers return goods due to various reasons, a credit note is issued to them, indicating the amount for which their account is credited. This book helps track product quality issues and customer satisfaction.

Source Documents

  • Credit Note: Prepared by the seller and sent to customer
  • Contains details of goods accepted back
  • Shows the amount to be credited to customer's account
  • Reference to original sales invoice
SALES RETURN BOOK (GST Format)
Date Particulars
(Name of Customer)		 Credit Note No. L.F. Details (₹) Sales Return (₹) Output CGST (₹) Output SGST (₹) Output IGST (₹) Total (₹)
Apr 2 XYZ Ltd. CN-001 Damaged items 3,000 270 270 - 3,540

Journal Proper - Detailed Study

Journal Proper

General Journal / Journal

Definition & Purpose

Journal Proper is used to record all transactions that cannot be recorded in any other subsidiary book. It acts as a residual book where non-routine, special, and adjustment entries are recorded. All transactions are recorded following the double-entry system with proper narration explaining the transaction.

Transactions Recorded in Journal Proper

  • Opening Entries: Recording opening balances at the start of accounting period
  • Closing Entries: Transfer of nominal accounts to Trading/P&L Account
  • Adjustment Entries: Outstanding expenses, prepaid expenses, accrued income, etc.
  • Rectification Entries: Correction of errors in books of accounts
  • Transfer Entries: Transfer between accounts
  • Credit Transactions of Assets: Purchase/sale of fixed assets on credit
  • Bad Debts: Writing off irrecoverable debts
  • Depreciation: Providing for depreciation on fixed assets
  • Drawings: Goods or cash withdrawn by proprietor
  • Rare Transactions: Any unusual transaction not covered elsewhere
JOURNAL PROPER
Date Particulars L.F. Debit (₹) Credit (₹)
Jan 1 Cash A/c     Dr. 50,000
Bank A/c     Dr. 1,00,000
    To Capital A/c
(Being business started with cash and bank balance)		 1,50,000

GST Treatment in Subsidiary Books

Understanding GST in Books of Entry

Types of GST:
  • CGST (Central GST): Collected by Central Government on intra-state transactions
  • SGST (State GST): Collected by State Government on intra-state transactions
  • IGST (Integrated GST): Collected on inter-state transactions
GST Rates Application:
  • Intra-state (Local): CGST @ 9% + SGST @ 9% = Total 18%
  • Inter-state: IGST @ 18%
  • GST is calculated on the net amount (after deducting trade discount)
  • Input GST (on purchases) can be claimed as input tax credit
  • Output GST (on sales) is payable to the government
GST Calculation Example:

Goods worth ₹10,000 with 10% trade discount:
Net Amount = ₹10,000 - ₹1,000 = ₹9,000
CGST @ 9% = ₹810
SGST @ 9% = ₹810
Total Invoice = ₹9,000 + ₹810 + ₹810 = ₹10,620

Trade Discount vs Cash Discount

Trade Discount

  • Deduction from list price
  • Given at the time of purchase/sale
  • NOT recorded in books
  • Shown as deduction in invoice
  • Based on quantity or customer type
  • No separate accounting entry
  • Net amount after TD is recorded

Cash Discount

  • Deduction for prompt payment
  • Given at the time of payment
  • RECORDED in books
  • Shown in cash book
  • Based on payment terms
  • Separate account maintained
  • Discount Allowed/Received A/c

Advantages & Disadvantages of Subsidiary Books

Advantages

  • Division of Work: Multiple clerks can work simultaneously
  • Specialization: Each clerk becomes expert in specific book
  • Time Saving: Faster recording of similar transactions
  • Reduced Errors: Systematic recording reduces mistakes
  • Internal Check: Work of one clerk checked by another
  • Easy Reference: Quick location of specific transactions
  • Statistical Information: Easy to gather business statistics
  • Reduced Fraud: Division of work reduces fraud possibilities
  • Efficient Posting: Periodic posting saves time
  • Better Control: Management has better control over transactions

Disadvantages

  • Suitable for Large Firms: Not economical for small businesses
  • More Books: Requires maintenance of multiple books
  • Trained Staff: Requires trained accounting personnel
  • Increased Cost: More staff means higher salary costs
  • Complex System: More complicated than single journal
  • Coordination Required: Needs proper coordination between clerks
  • Space Requirements: Needs more storage space
  • Not for All Transactions: Some transactions still need Journal Proper

Rules for Posting from Subsidiary Books

General Posting Rules

1. From Purchase Book:
  • Individual amounts → Credit respective Supplier's A/c (in Creditors Ledger)
  • Monthly total → Debit Purchase A/c (in General Ledger)
  • Input GST totals → Debit respective GST accounts
2. From Sales Book:
  • Individual amounts → Debit respective Customer's A/c (in Debtors Ledger)
  • Monthly total → Credit Sales A/c (in General Ledger)
  • Output GST totals → Credit respective GST accounts
3. From Purchase Return Book:
  • Individual amounts → Debit respective Supplier's A/c
  • Monthly total → Credit Purchase Return A/c
  • GST amounts → Reverse the input GST entries
4. From Sales Return Book:
  • Individual amounts → Credit respective Customer's A/c
  • Monthly total → Debit Sales Return A/c
  • GST amounts → Reverse the output GST entries
5. From Journal Proper:
  • Each entry posted individually to respective accounts
  • Both debit and credit aspects posted separately
  • No total posting as transactions are diverse

Common Errors to Avoid

❌ Recording Cash Transactions

Never record cash purchases in Purchase Book or cash sales in Sales Book. These belong to Cash Book.

❌ Including Fixed Assets

Purchase/sale of fixed assets should not be recorded in Purchase/Sales Books. Use Journal Proper.

❌ Recording Trade Discount

Trade discount should not be recorded separately. Only net amount after discount is recorded.

❌ Wrong GST Application

Don't apply both CGST/SGST and IGST. Use CGST+SGST for local, IGST for inter-state.

❌ Mixing Personal Transactions

Personal expenses of proprietor should not be recorded in Purchase Book, even if on credit.

Important Formulas & Calculations

1. Net Purchase Calculation:

Net Purchases = Total Purchases - Purchase Returns

2. Net Sales Calculation:

Net Sales = Total Sales - Sales Returns

3. Trade Discount Calculation:

Net Amount = List Price - (List Price × Trade Discount %)
Example: ₹10,000 - (₹10,000 × 10%) = ₹9,000

4. GST Calculation (Intra-state):

CGST = Net Amount × 9%
SGST = Net Amount × 9%
Total = Net Amount + CGST + SGST

5. GST Calculation (Inter-state):

IGST = Net Amount × 18%
Total = Net Amount + IGST

Chapter Summary

Key Takeaways

Test Your Knowledge

1. Which transactions are recorded in Purchase Book?

2. Sales Return Book is also known as:

3. Which document forms the basis for entries in Purchase Return Book?

4. Credit purchase of furniture will be recorded in:

5. Trade discount is:

6. Opening entry of a business is recorded in:

7. The total of Purchase Book is posted to:

8. Which of the following is NOT a subsidiary book?

9. Bad debts written off are recorded in:

10. The main advantage of maintaining subsidiary books is:

11. Sales Book is also referred to as:

12. Cash discount is recorded in the books of accounts because it is:

13. A contra entry involves which two accounts?

14. A credit note is issued for an entry in the:

15. The process of transferring entries from subsidiary books to the ledger is called:

16. The source document for cash sales is a:

17. Which transaction is recorded in the Journal Proper?

18. The total of the Sales Return Book is posted to the:

19. The term 'folio' in accounting refers to:

20. The primary purpose of the Journal is to provide a:

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