Financial Accounting, SS 1, Week 4

Topic: Source Document and  Subsidiary Books

Content

  1. Meaning of source document
  2. Types of document
  3. Meaning of subsidiary book
  4. Reasons for subsidiary book
  5. Classification of subsidiary Books

Source document

All entries that will pass through the subsidiary book must be supported by document providing details of information of the preparation of the books.

The source document provide detail information for the preparation of the books. The documents are:

  1. Invoice: This sets out the full details of goods sent by the suppliers to the buyer stating the quantity, price, discount given and terms of payment.
  2. Credit note: This is the document sent by the seller to the customers for reduction in the amount owned by him. It arises because some goods are damaged or not supply as ordered. To avoid confusion, it must be printed in red. It can be viewed from two perspectives. (I) credit note received from suppliers: If the credit note relates to goods returned to the suppliers, it will be entered in the returns outwards book and then be debited to the suppliers account. (II) Credit note issued to customers: This will be posted to the returns inwards book and then credited to the customers account
  3. Debit note: This is the document sent by the seller to the buyer to correct an undercharged or when goods are not charged to the invoice
  4. Petty cash voucher: This covers payments credited to the petty cash book
  5. Statement of Account: This is document sent by the seller to the buyer at regular intervals,usually showing credits and debits to the account and the balance due
  6. Receipts

Subsidiary Books

Meaning of Subsidiary books

The subsidiary books are the books of original or prime entry in which events and transaction are initially recorded before being posted or transferred to the ledgers. The recording of transaction in the books of original entry is not in a double entry system

Reasons for subsidiary books

  • To know the total sales and purchases
  • They are used as books to make first  entry of transactions
  • To keep tract of the people to whom money is owed and of the people who owed money

Division of subsidiary books

Subsidiary books can be divided into six books, which will be expatiated separately to show their nature.

  1. Sales day book
  2. Purchases day book
  3. Sales returns or returns inwards journal
  4. Purchase returns or returns outward day book or returns outwards journal
  5. General journal or Principal journal or journal proper
  6. Cash book

 

  1. Sales day book: is a book of original entry in which credit sales are recorded before positing to the ledger cash transaction most not be recorded equally sales of fixed asset must be excluded from the sales day book the seller prospect the sales journal from sales invoice.
  2. Purchase day book: this is used to record goods bought on credit from the suppliers the addition of entries been posted to the debit side of the purchase account which is credited to personal ledger of supplier it has column for date,particular,folio,and total supplier it has column for date particular,folio and total
  3. Return outward journal is the book for recording goods returned to suppliers by the business,the transaction enter in this book are taken from the credit note sent by the supplier of goods can be returned as a result of damaged.it has the same features with other journal.
  4. Return inward journal is used to record goods previously sold but later return by customer to the business goods may be return as a result of inferior quality or as a result of damage in transit the transaction recorded are taken from credit note issued to custom

Format of a typical journal

date Particulars Folio details Total
         

 

Uses of different part of journal

  • Date this is used to record the date in which the transaction takes place.
  • Particulars;this column shows the details of transaction which had taken place.
  • Folio;it shows the page of a ledger of which a transaction are posted.
  • Amount:the value of transaction will be shown in this column.

Uses of journal

  • Recording of disposal of fixed assets
  • Correction of errors
  • Double entry transactions
  • For recording opening entries
  • Transfer of item between account
  • For recording transaction that do not occur regularly
  • Purchases of asset on credit
  • For recording acquisition of new business
  • For recording closing balance of entries

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