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Subsidiary Books are books that keep track of transactions that are similar in nature in a systematic way. They’re also known as Daybooks or Special Journals. It is difficult to record all transactions in one journal and post them to numerous accounts in large corporations. As a result, the journal is separated into multiple subsidiary books for quick and accurate recording of all transactions. There is a separate book for each sort of transaction.
Types of Subsidiary Books
There are eight main types of subsidiary books used to record various types of transactions.
The 8 Subsidiary books are as follows:
Cash Book
Purchase Book
Sales Book
Purchase Return Book
Sales Return Book
Bills Receivable Book
Bills Payable Books
Journal Proper
Cash book
The cash book is the first and most important subsidiary book. It keeps track of all transactions involving cash and bank receipts and payments. An organisation’s cash books are divided into three categories.
Purchase book
The Purchase Book is a sub-book that is used to keep track of all credit-related transactions. The asset’s purchases are never documented in the purchase book.
Sales book
The Sales Book keeps track of all credit sales transactions. The sale of assets cannot be recorded in the sales book.
Purchase returns book
The purchase return book, also called the return outward book, is used to keep track of all returns to the supplier. Every return is issued a debit note, which is noted in the Purchase Return Book.
Sales return book
The sales return book keeps track of all inbound returns transactions. A return inward book is another name for it. When a consumer returns merchandise, a credit note is provided to the customer and documented in the Sales Return Book.
Bills Receivable Book
The Bills Receivable Book keeps track of all transactions involving bills drawn in the company’s favour. On the debit side of the Bills Receivable account, the total of the bills receivable book is posted.
Bills Payable Book
The Bills Payable Book keeps track of all transactions involving bills drawn on the company and payable by the company.
Journal proper
Certain transactions are referred to as miscellaneous transactions since they cannot be recorded in any of the above-mentioned books. As a result, all miscellaneous transactions are recorded in the Journal Proper. It includes things like asset credit purchases and sales, depreciation, and so forth.
Sales Return Book
Returns inwards book is another name for sales returns book. It’s used to keep track of the items that our consumers return to us. This book’s ruling is identical to that of the sales day book.
Advantages of sales return book
A higher return on sales investment bodes well for the company. Some of the perks are listed below:
The ROS is a good indicator of whether the entity’s revenue operations are profitable or not. If the profits aren’t increasing, it’s likely that the business’s operating expenses need to be reduced or the profit margin increased.
The ROS is a crucial metric for stakeholders to use when making decisions about the entity’s future. In terms of creditors, if the firm will be able to repay their debts, investors, whether they should continue investing, and those linked with the entity in general, how the near future appears.
Comparing entities in the same industry also reveals what improvements are required, as well as the areas where the company has an edge and should pursue aggressively in the future. When the results aren’t as good as they should be, the management is forced to look for explanations, examine how competitors operate, and assess the roadblocks in the way. It’s a good tool for introspection, like any efficiency ratio.
When the entity compares the ratio to those from previous periods, it gets a sense of what is doing well and what needs to be improved. A trend analysis provides a good indication of the firm’s future direction as well as the opportunities and problems that it will face.
Conclusion
The debit balance in the sales return book is in contrast to the credit amount in the sales book. When the consumer returns the products, a note called a “Credit note” is prepared. Returns of products acquired on credit are recorded in the returned outward book.
