Special Purpose (Subsidiary) Books

As a business grows, recording every credit purchase and sale in the journal becomes impractical. So similar transactions are grouped into special purpose books (also called subsidiary books or books of original entry). Each book records one type of transaction. The benefits are division of labour, less bulky records, and easier reference.

The main subsidiary books for goods are:

• Purchases Book — records credit purchases of goods only (goods meant for resale). It does not record cash purchases (those go in the cash book) or the purchase of assets (those go in the journal proper).
• Sales Book — records credit sales of goods only. Cash sales go in the cash book; the sale of an asset goes in the journal proper.
• Purchases Return (Return Outward) Book — records goods returned to suppliers. A debit note is the source document.
• Sales Return (Return Inward) Book — records goods returned by customers. A credit note is the source document.

Each book is totalled periodically and the total is posted to the relevant account: the Purchases Book total → debit of Purchases A/c; the Sales Book total → credit of Sales A/c; and the individual parties are posted to their personal accounts. The classic trap to remember: only credit transactions in goods go to these books — cash deals go to the cash book, and assets/other items go to the journal proper.

Two more subsidiary books deal with bills of exchange (studied fully in a later chapter):

• Bills Receivable Book — records the bills of exchange received by the firm (bills we will collect money on). The total is posted to the debit of the Bills Receivable A/c.
• Bills Payable Book — records the bills accepted/issued by the firm (bills we must pay). The total is posted to the credit of the Bills Payable A/c.

That makes eight common subsidiary books in all: cash book, purchases book, sales book, purchases return book, sales return book, bills receivable book, bills payable book — and finally the journal proper.

The journal proper (or general journal) is the catch-all: it records every transaction that does not fit into any of the special books. This includes:

• Opening entries and closing entries;
• Adjusting entries (outstanding, prepaid, depreciation);
• Rectifying entries for errors;
• Transfer entries;
• Credit purchase or sale of assets (e.g. buying machinery on credit) — not goods, so not the purchases/sales book;
• Other non-routine items like goods taken by the owner for personal use.

So the system works like a sorting office: routine cash, credit-goods and bills transactions each go to their own book, and everything unusual goes to the journal proper. Knowing which book a transaction belongs to is one of the most-tested skills in this chapter.

Two kinds of discount appear in trade, and students must keep them apart.

So in the purchases/sales books we record the amount after deducting trade discount; trade discount itself never appears as a separate account. Cash discount, by contrast, is recorded (in the cash book) only when payment is actually made.

Modern subsidiary books also handle GST (Goods and Services Tax). On an intra-state sale, the seller charges CGST + SGST; on an inter-state sale, IGST. In the sales/purchases books, the GST is shown in separate columns:

• On a sale, the firm collects output GST — a liability owed to the government.
• On a purchase, the firm pays input GST — which it can set off (input tax credit) against output GST.

For example, goods sold for Rs 10,000 with 18% GST inside a state means CGST Rs 900 + SGST Rs 900, so the customer is billed Rs 11,800; the firm owes Rs 1,800 GST to the government (after setting off any input credit). Adding GST columns keeps the subsidiary books accurate and tax-compliant — exactly how real businesses record sales today.