Unit-1 Subsidiary Book of Accounts | BBA First Year

Unit-1 Subsidiary Book of Accounts | BBA First Year- Hello everyone welcome to the pencilchampions.com website. This website provide unit-1 subsidiary book of accounts BBA,MBA,M.COM notes. this website helpful for all student. Thankyou for visiting.

Subsidiary Books of Accounts

• Subsidiary books are those books of original entry in which transactions of similar nature are recorded at one place and in chronological order. In a large concern, recording all the transactions in one journal and posting them to different ledger accounts would be very difficult and would involve a lot of clerical work.
• This can be avoided by subdividing the journal into various subsidiary journals or books. Subdivisions of a journal into various subsidiary journals to record transactions of similar nature are called ‘subsidiary books’.

Various supporting books and their purpose are shown below:

Purchase Day Book:

• To record credit purchases of goods only. Assets purchased in cash or purchased on credit are not recorded in this book.

Sales Day Book:

• To record credit sales of goods only. Assets sold or cash sales are not recorded in this book.

Purchase Returns Book:

• For recording goods returned to suppliers when purchased on credit.
  

  ---

  Read More- https://pencilchampions.com/unit-1-accounting-terminology-business-accounting-bba-1st-year/

  ---

Sales Return Books:

• To record goods returned by customers when sold on credit.

Bills Receivable Book:

• To record bills received from customers [bills receivable] for credit sales.

Bills Payable Book:

• To record the acceptances [bills payable] given to suppliers for credit purchases.

Cash Book:

• For all receipts and payments of cash.

Journal Proper:

• To record any transaction which could not be recorded in the above mentioned subsidiary books. For example, assets bought or sold on credit and initial entries etc. are recorded in this book.

Benefits of supporting books:

Following are the benefits of supporting books or special magazine:

1. Saving of clerical labour:

• Subsidiary books save considerable clerical labor in posting and description. Transactions of any one category recorded separately like credit purchases, credit sales, cash transactions etc. are subsidiary journals and there is no need to describe them.
• For example, recording transactions in the purchases day book saves 50% of labor in posting. The periodical total of this book is to be debited from the purchases account. Money is to be deposited into the personal accounts of the suppliers only.

2. Division of Clerical Work:

• Since separate journals are used to record each particular type of transaction, division of clerical labor among several office clerks becomes possible. This makes quick recording of day-to-day transactions practical.

3. Reduces Fraud:

•  This helps reduce errors and detect fraud.

4. Facilitates further reference:

• Since transactions of similar nature are grouped together in a separate book, it becomes quite convenient to make further reference to a particular item.

Difference Between Accounting and Bookkeeping

Importance of Accounting

• Accounting helps in making accounting decisions, Planning, and controlling processes. With the help of accounting there will be documents that will be helpful in completing these processes. Then with these organized documents, they help reduce theft and fraud.
• The availability of accounting in any business transaction motivates the business to run all the activities with efficiency, effectiveness and accuracy. This leads to higher production because due to good flow of transactions in a business the management will make right decisions and proper planning.

Importance of Accounting In Business Organization

• A business organization consists of individual or collaborative SO business goals. a group of people who want to achieve something

Planning Budget

• Budgeting is a key factor in every business. Budget planning helps a business strategize, save money, and keep track of any expenses that exceed the budget amount. To make a budget you need various past records. To provide these documents, they must be very well maintained through accounting as they are the basis for planning and budgeting.

Banks and Lenders

• To get any loan from a financial institution, you must be able to present your financial situation in acceptable order. So to create this, you need to have a proper accounting system to present various books of records such as profits recorded, assets and liabilities, taxes paid, etc. Financial institutions will examine them carefully before arriving at a decision to grant a loan.

Keeping Records

• Every business needs to keep and act on records to run it smoothly. In this case, accounting plays a big role in record keeping. 

Decision Making

•  A financial statement results from accounting. Without proper accounting in a business organization, executives cannot take any sound decisions as they will work blindly making it impossible to achieve the objectives of the organization.

Information for Investors

•  Many investors will shy away from your organization if you lack financial records and accounting of gifts so they can track the progress of the business.

Profit Reporting

• The main objective of any business is to earn profit. Every business, being a small or big organization, must maintain an accounting system so that they can ensure what they are earning on their business transactions. It also enables interested parties to take decisions on the progress of business productivity.

Managing and Monitoring Cash Flow

• Proper accounting system will take care of working capital and any other cash requirements within the business organization.

Accounting has limitations;

1. Recording only monetary items

• For this reason, recorded accounting information fails to reflect the accurate financial position of a business entity.

2. Time value of money

• But the value of money always changes due to inflation. 
• As a result, the accounts maintained fail to reflect the accurate financial position of a business concern.

3. Recommended of alternative methods

• Application of alternative methods exists in depreciation of assets and valuation of stocks etc.

4. Reinforce accounting principles

• The accounting information displayed may not always reflect a true and fair picture of a business concern due to the limitations of the accounting principles used.

For example,

•  In case of inflation, the value of fixed assets shown in the accounts does not correspond to the actual situation.

5. Recording of past events

• But naturally, there is no system to record future events.

6. Allocation of problem

• Allocation process is an important problem in accounting system.

7. Maintaining confidentiality

• Confidentiality cannot be ensured for the involvement of many employees in accounting work, although maintaining confidentiality is very important.

8. Tendency to accumulate Secret

• Often management creates hidden reserves by deliberately increasing or decreasing assets and liabilities in a manner that does not reflect the overall financial picture of an organization.

9. Importance of form rather than substance

• As per the Companies Act, it is mandatory to prepare the balance sheet in the prescribed form.
• Efforts are underway around the world to overcome these limitations. Without accounting, the economic activities of any society are neither possible nor legal.

pencilchampions.com