Financial and Management Accounting Unit 4

Unit 4 Subsidiary Books

Structure:
4.1 Introduction
Objectives
4.2 Subsidiary Books
Purchases book
Sales book
Purchases returns book
Sales returns book
Bills receivable book
Bills payable book
Cash book
Petty cash book
4.3 Summary
4.4 Glossary
4.5 Terminal Questions
4.6 Answers
4.7 Case Study

4.1 Introduction
In the previous unit we analysed double entry accounting, journalising,
posting, debit, credit, and balancing. We also discussed the classification of
accounts under traditional approach and accounting equation approach.
Journal is a book of original entry and only one journal is maintained if the
business is very small in size and the transactions are limited. However, for
large businesses having numerous transactions, it becomes difficult if all
transactions were to be recorded in the same book. Hence, the need for sub
dividing the journal arises. Such sub divisions of journal are called
“Subsidiary books”.
In this unit, we will study how to maintain subsidiary books in detail.
Objectives:
After studying this unit, you should be able to:
• analyse the need and importance of subsidiary books
• list the various subsidiary books maintained by companies

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• record transactions in the appropriate subsidiary books

• draw up single column, double column, and triple column cash books
• analyse the need and importance of petty cash book

4.2 Subsidiary Books

Each subsidiary book is meant for recording transactions of a particular
type. Typically, the subsidiary books are maintained for transactions that
occur most repeatedly and are most voluminous. For example, sales,
purchases, and cash transactions.
The following seven types of subsidiary books are popular.
1. Purchases book
2. Sales book
3. Purchases returns book
4. Sales returns book
5. Bills receivable book
6. Bills payable book
7. Cash book
A transaction that cannot be entered into any of these subsidiary books will
be entered in the basic journal (journal proper).
The transactions, as and when they occur, are directly entered in the
subsidiary books without recording in the journal proper. Hence the
subsidiary books are also books of original entry. From the respective
books, posting is made to the ledger at regular time intervals (say a month).
Let us now understand each type of subsidiary books in detail.

4.2.1 Purchases book (purchases journal)

This book is meant for recording purchases. However, only credit purchases
of goods are recorded in this journal as the cash purchases will pass
through the cash book. The format of purchases book is given below.
Format of Purchases Book
Purchase Name of the supplier
Date L.F. Details Amount
Invoice No. (creditor)

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Each of the columns of the purchases book is explained below.

• Date – The credit purchases made are entered in this book in
chronological order. The date of purchase is entered in this column.
• Purchase invoice number – The invoice number of that particular
purchase is entered in this column.
• Name of the supplier – Name and address of the supplier (creditor) is
entered in this column.
• Details – Details of a particular purchase like description of the goods,
quality, quantity, unit selling price, gross amount of the bill, trade
discount if any, etc. are entered in this column.
• Amount – The net amount of the bill (gross minus trade discount if any)
is entered in this column. This amount represents the amount of bill due
to that particular supplier (creditor).
In this context it is better to know about three important terms- Trade
discount, Cash discount and Credit period
• Trade discount
It is a reduction granted by a supplier on the listed (catalogue) price of
goods or services on business consideration (such as quantity bought, trade
practices, etc.). For prompt payment cash discount is allowed.
Example: 5 gold coins are sold at the list price of Rs.15,000 each, subject
to trade discount of 12%. The trade discount will be calculated as:

5 gold coins @ Rs.15,000 75,000

Less trade discount @ 12 % 9,000
Amount payable as per invoice 66,000

• Cash discount
It is a reduction granted by a supplier to a customer on the amount of bill
due, considering payment within the credit period. It is given in order to
encourage prompt payment by the customer.

• Credit period
It is the time given by a supplier to a customer to make payment for the
purchases made. Normally the credit period allowed in business is 30 days,
45 days, 60 days, or 90 days.

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Example: 5 gold coins are sold at the list price of Rs.15,000 each, subject
to trade discount of 12%. The invoice price after trade discount is
Rs. 66,000. Cash discount terms are 2%, 30 days. This denotes that the
buyer will get 2% cash discount if he makes payment within 30 days. The
cash discount is calculated as follows:

Amount payable as per invoice 66,000

Less cash discount @ 2% 1,320
Cash payable if paid within 30 days 64,680

Differences between trade discount and cash discount are:

1. Trade discount is a reduction granted by a supplier on the catalogue
price. Cash discount is a reduction granted on the invoice price,
considering immediate payment or payment within a stipulated period.
2. Trade discount is given to promote sales while cash discount
encourages early or prompt payment.
3. Trade discount does not appear in the books of accounts but cash
discount appears in the books of accounts.
4. Trade discount may vary with the quantity purchased while cash
discount varies with the period.
Illustration 1: From the following transactions, prepare the purchase book
of Adithya bros.
Invoice
Date Particulars
No.
5.3.20X1 442 Purchased on credit from Goyal Bros – 55 polyester
sarees @ Rs.100
Less: Trade discount @10%
8.3.20X1 450 Purchased on credit from Adikari Mills – 10 silk sarees
@ Rs.2500
Less: Trade discount @10%
15. 3.20X1 451 Cash purchases from RD ltd. 20 chiffon sarees @
Rs.7,500
Less: Trade discount @5%

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Solution:
Books of Adithya Bros
Purchase Book
Purchase Details Amount
Date Invoice Name of the supplier L.F.
No. Rs. Rs.
5.3.20X1 442 Goyal Bros
55 polyester sarees @ Rs. 100 5,500
Less: Trade discount 10% 550 4,950
8.3.20X1 450 Adikari Mills
10 silk sarees @ Rs.2,500 25,000
Less: Trade discount 10% 2,500 22,500
Total for the month 27,450

Note: Cash purchases from RD ltd. will be recorded in cash book.

4.2.2 Sales book

Sales book or sales day book is the subsidiary book meant for recording
sales. However, only credit sale of goods are recorded in this journal as the
cash sales will pass through the cash book. The format of sales book is
given below.
Format of Sales Book
Invoice Name of the Customer Details Amount
Date L.F.
No. (Debitor) Rs. Rs,

Illustration 2: From the following transactions, prepare the sales book of

Adithya Bros.

Date Invoice No. Particulars

20X1 621 Sold on credit to MRV Ltd. – 25 polyester sarees @
15.3 Rs.250
Less: Trade discount @10%
18.3. 622 Sold on credit to PHR Ltd. – 5 silk sarees @ Rs. 3,500
Less: Trade discount @10%
25. 3. 623 Cash sales to BV Ltd. – 10 chiffon sarees @ Rs.10,000
Less: Trade discount @5%

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Solution:
Books of Adithya Bros
Sales Book
Invoice Amount
Date Name of the customer L.F. Details
No. Rs.
20X1 621 MRV Ltd.
15.3. 25 polyester sarees @ Rs.250 6,250
Less: Trade discount 10% 625 5,625
18.3. 622 PHR Ltd.
5 silk sarees @ Rs. 3,500 17,500
Less: Trade discount 10% 1,750 15,750
Total for the month 21,375

Note: Cash sales to BV ltd. will be recorded in cash book.

4.2.3 Purchases returns book

Purchases returns refer to goods returned to the supplier out of purchases
made from him. The reason for such return of goods can be because the
goods were damaged, were not as per specifications, or were not as per the
sample approved.
Purchases returns book
It is the subsidiary book meant for recording the purchases returns.
However, only such returns, which are made out of credit purchases, are
recorded in this journal as the returns out of cash purchases will pass
through the cash book. The purchases returns book is also called “Returns
Outwards Book”. The format of purchases returns book is given below.
Format of Purchases Returns Book
Debit Note Details Amount
Date Name of the supplier L.F.
No. Rs. Rs.

4.2.4 Sales returns book

Sales returns refer to goods returned by the customer out of sales made to
him. The reason for such return of goods can be because the goods were

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damaged, were not as per specifications, or were not as per the sample
approved. The format of sales returns book is given below.
Format of Sales Returns Book
Credit Details Amount
Date Name of the customer L.F.
Note No. Rs. Rs.

Credit note number

The value of sales returns is deducted from the amount receivable from the
customer. In order to do such deductions, the debtor’s account will be
credited in the books of the creditor. A credit note is a note sent to the
debtor (buyer) by the creditor (supplier) to intimate that his account has
been credited in the books of the creditor. It contains details like date of
return, specifications and quantity of the goods returned, reasons for the
return, and the value of the goods returned.
4.2.5 Bills receivable book
Bill receivable book is one of the subsidiary books. To prepare this book one
should know about the bill of exchange. A bill of exchange is defined by the
Indian Negotiable Instruments Act, 1881 as “an instrument in writing
containing an unconditional order signed by the maker, directing a certain
person to pay a certain sum of money only to, or to the order of a certain
person or to the bearer of the instrument ”.
Normally a bill of exchange is raised when goods are sold or purchased on
credit.
The parties to a bill of exchange are:
• Drawer – He is the creditor who writes (draws) the bill of exchange on
the debtor.
• Drawee – He is the debtor who accepts the bill of exchange.
• Payee – He is the person who is entitled to receive the amount
mentioned in the bill. Normally the drawer is also the payee of the bill.
Accepting of a bill of exchange
The creditor draws the bill and presents it to the debtor for accepting it. The
debtor accepts the bill by affixing his signature on the bill. By doing so the

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debtor acknowledges that he owes the amount mentioned there in to the

drawer and also agrees to repay it on or before the date mentioned there in.
Bills Receivable (B/R) and Bills Payable (B/P)
The bill of exchange drawn by the creditor becomes a valid document after it
is signed by the debtor. The same bill becomes a ‘Bill Receivable’ for the
creditor and a ‘Bill Payable’ for the debtor.

Bills receivable book is a subsidiary book meant for recording acceptances

obtained from the debtors. A hypothetical bills receivable book is given
below.

Books of Sham Sundar & Co.,

Bills Receivable Book

No.
of Date of Date of Received Accep- Where Term of Due Amount
LF Remarks
the receipt the bill from whom tor payable the bill Date* Rs.
bill
1 1-7-11 1-7-11 Mr. X Mr. X Delhi 3 mths 4-10-11 7,000
2 5-7-11 5-7-11 Mr. Y Mr. Y Noida 4 mths 8-10-11 9,000
3 19-7-11 19-7-11 Mr. A Mr. A Agra 3 mths 22-10-11 12,000
4 25-7-11 25-7-11 Mr. B Mr. B Delhi 4 mth 28-10-11 10,000
Total for the month 38,000

4.2.6 Bills payable book

Bills payable book is a subsidiary book meant for recording acceptances
given to creditors.
A hypothetical bills payable book is given below.
Books of Sun Shine Co.
Bills Payable Book
No.
of Date of To whom Where Term of Due Amount Date Re-
Drawer Payee LF
the the bill given payable the bill date Rs paid marks
bill
2000
3
1 7.6.2000 Ram Ram Ram. Agra Sept 56,000
months
10
4
2 June 12 Sunder Sunder Sunder Delhi Oct 15 72,000
months
5 Nov
3 June 20 KV KV KV Chennai 50,000
months 23
Total 1,78,000

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4.2.7 Cash book

Cash book is the most important subsidiary book. It is the book meant for
recording all cash transactions i.e., cash receipts and cash payments made
during a particular period.
Differences between other subsidiary books and cash book.
Other subsidiary books Cash book
They are only journals It is both a journal and a ledger
Ledger accounts have to be No separate ledger account is
maintained in the ledger like maintained in the ledger for cash.
Purchases a/c, Sales a/c, Cash book serves as cash account
Purchases Returns a/c, Sales also.
Returns a/c, B/R a/c, and B/P a/c.
They do not have debit and credit It has debit and credit side. It looks
side. like a ledger account.
They are not balanced but only It is balanced as it is also a ledger
totalled. The total is transferred to account. The cash book itself gives
the respective ledger accounts. the balance.

Recording transactions in the cash book

The receipts of cash are debited to the cash book and the payments of cash
are credited to the cash book. The format of cash book is given below.
Format of Cash Book
Dr. Cr.
Particulars V Amount Particulars R Amount
Date LF Date LF
(Receipts) No. Rs. (Payments) No. Rs.

By Bal c/d
Total Total
To Bal b/d

Two columns of the cash book are explained below.

• V no. (Voucher number) - A voucher is a document raised to record
receipt of cash. They are serially numbered. The number of the voucher
in which a particular receipt is recorded is entered in this column.

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• R no. (Receipt number) - The number of the receipt in which a particular

payment is recorded is entered in this column.

Types of Cash Books

Following are the different types of cash books.
1. Simple cash book (Single column cash book)
2. Two column cash book
3. Three (triple) column cash book
4. Petty cash book
a. Simple cash book
b. Analytical cash book
Let us now understand the different cash books in detail.
1. Simple cash book
It has only one amount column on either side. The format of cash book
shown above is a simple cash book.
2. Two column cash book
The discount columns are inserted in the cash book to:
• Enter the discount allowed to debtors along with the payment received
from them.
• Enter the discount received from creditors along with the payment made
to them.
Hence there will be two amount columns on either side of the cash book.
Such a cash book is called two column cash book. The discount allowed
column appears on the debit side and the discount received column appears
on the credit side of the two column cash book. The format of two column
cash book is given below.
Format of Two Column Cash Book
Dr. Cr.
Particulars L DA Amount Particulars R L DR Amount
Date V No. Date
(Receipts) F Rs. Rs. (Payments) No F Rs. Rs.

By Bal c/d
Total Total
To Bal b/d

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DA = Discount Allowed
DR = Discount Received
While the amount column is balanced, the discount columns are only
totalled but not balanced.

3. Three (Triple) column cash book

Presently, most of the cash transactions happen through banks. It would be
convenient to maintain the bank account also in the cash book. In order to
do this, a bank column is inserted on either side of the cash book. Hence,
there will be three amount columns on either side of the cash book. Such a
cash book is called three (triple) column cash book. Amount deposited to
the bank account appears on the debit side of the cash book and the
amount withdrawn from the bank account appears on the credit side. The
format of three column cash book is given below.

Format of Three Column Cash Book

Dr. Cr.
Particulars V L DA Cash Bank Particulars R L DR Cash Bank
Date Date
(Receipts) No. F Rs. Rs. Rs. (Payments) No F Rs. Rs. Rs.

By Bal c/d
Total Total
To Bal b/d

Contra Entry
A contra entry is an entry which appears on both sides of a three column
cash book. This happens in the following two situations.
1. When cash is deposited to the bank account
Journal entry
Bank a/c Dr.
To Cash a/c
2. When cash is withdrawn from the bank account
Cash a/c Dr.
To Bank a/c
As both cash and bank accounts are maintained in the cash books, both
postings are done to the cash book itself. Therefore, the entry appears twice
in the cash book, once on either side.

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Some hypothetical cash books are shown for all the three types (single,
double and three column). (Petty cash book is discussed in the later section)
Single column cash book of Rekha & Bros
Dr. Cr.
Date Receipts Cash Date Payments Cash
2003 2003
July 1 To Balance b/d 4,500 July 1 By Rent of shop 900
4 To Sales 8,050 3 By Postage 50
10 To Interest on FD 2,000 14 By Purchases 7,000
20 To Commission 4,000 20 By Stationery 800
28 To Sale of goods 10,000 28 By wages 2,000
30 To Balagopalan 5,000 31 By Narasimhan 9,000
By Balance c/d 13,800
Total 33,550 Total 33,550
Two column cash book of Simpson Co.
Dr. Cr.
DA Cash DR Cash
Date Receipts Date Payments
(Rs.) (Rs.) (Rs) (Rs)
2003 2003
Apr 5 To Balance b/d 13,000 Apr 2 By Wages 400
To Sales 800 5 By Electricity 50
7 To Ashok Co 250 2,000 8 By Repairs 400
11 To Beta Co 150 2,350 15 By Venki Ltd 200 10,800
20 To Sales 500 30 By Balance c/d 7,000
Total 400 18,650 Total 200 18,650
Three column cash book of Janardhan Works
Dr. Cr.
DA Cash Bank DR Cash Bank
Date Receipts Date Payments
Rs. Rs. Rs. Rs. Rs. Rs.
2002 2002
Jan 2 To balance b/d 3700 4,500 Jan 6 By wages 1,550
Jan 5 To Patel 100 2,400 Jan 3 By Agarwal 50 950
10 To Neelima 6,000 15 By Cash C 3,000
15 To Bank C 3,000 22 By Drawings 2,000
30 To Cash C 1,000 30 By Bank C 1,000
31 To Dividend 2,000 31 By Rent 1,500
from X Co
31 By Bal c/d 5,600 7,000
Total 100 9,100 13,500 Total 50 9,100 13,500
Feb 1 To bal b/d 5,600 7,000

C: Contra Entry

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4.2.8 Petty cash book

A separate cash book can be maintained for petty (small) expenses like
stationery, postage, stamps, refreshments, carriage, cartage, daily wages,
etc. Such a separate book is known as petty cash book.
Types of petty cash book
1. Simple petty cash book
It looks like a simple cash book.
2. Analytical petty cash book
This is prepared in a columnar fashion to facilitate analysis of payments.
The petty cash book is normally maintained under a system called Imprest
system. Under this system, at the beginning of a month, a fixed sum of
money is given by the chief cashier to the petty cashier to meet petty
expenses. At the commencement of the next period, the petty cashier is
reimbursed to the extent of amount spent by him during the earlier period.
Illustration 3:
Enter the following transactions in an analytical petty cash book for the
month of November, 2005.
1st. Received a cheque for petty cash Rs.1000
2nd. Paid bus fare to messengers Rs. 50
4th. Paid auto fare Rs.70
10th. Postal stamps purchased Rs.80
12th. Paid for stationery Rs.90
5th. Paid for carriage Rs.60
16th. Purchased envelopes Rs.50
20th. Paid wages Rs.100
25th. Gave tips to driver Rs.50
30th. Paid telephone bills Rs.20

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Analytical petty cash book

Ledger A/c’s
voucher No.
Particulars

payments
Amount

Total
Date

Date
Particulars LF
Analysis of payments

Expenses Rs.
Printing and
Stationery
Carriage
Postage

Sundry
Wages
Travel
Rs.

Rs.

Rs.

Rs.

Rs.
Nov

Nov To 1000 1st By bus fare 50 50

1 bank
2 By auto 70 70
fare
4 By postal 80 80
10 By 90 90
stationery
12 By carriage 60 60
15 By 50 50
cnvelopes
16 By wages 100 100
20 By tips 50 50
25 By telegram 20 20
30 Total exp 570 120 100 60 140 100 50
No30 By balance 430
c/d
Total 1000
To bal 430
Dec b/d
st
1 To
Cash 570

Activity 1:
Draw the formats of various subsidiary books.
Hint: Refer to Section 4.2.7

Self Assessment Questions

1. Purchases book contains only cash purchases. (True/False)
2. Sale book contains sale of goods and assets. (True/False)
3. Credit note is sent to a debtor. (True/False)

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4. Cash book is also a cash account. (True/False)

5. Trade discount and cash discount are the same. (True/False)
6. Contra entry appears on both sides of a single column cash book.
(True/False)
7. Petty cash book is maintained in case of petty organisation.
(True/False)
8. “Imprest” is a fixed amount given by the main cashier to the petty
cashier. (True/False)

4.3 Summary
Let us recapitulate the important concepts discussed in this unit:
• Subsidiary books are subdivisions of journal. They include purchase
book, sales book, purchases return book, sales returns book, bills
receivables book, bills payable book, cash book, and journal proper.
There are two types of discounts -trade discount and cash discount.
• Bill of exchange is a document in writing promising to pay a certain sum
of money or money’s worth to the drawer at a certain date for the value
received.
• Cash book records cash receipts and cash payments made during a
particular period.

4.4 Glossary
Cash discount: Deduction from the amount of debt due.
Contra entry: An entry which appears on both sides of a triple column cash
book.
Imprest: Amount given by the main cashier to the petty cashier to meet
petty expenses.
Trade discount: Deduction on the catalogue price.

4.5 Terminal Questions

1. Purchases book records ___________________ purchases.
2. Cash purchases are recorded on ____________ side of the cash book.
3. Credit sales are entered in __________ book.

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4. Record a journal entry for drawings made for personal purposes of the
business person.
5. What is the type of entry when drawings are made from the bank for
office purpose?
6. During the year, suppose the total owner’s equity of Beta Co. increased
from Rs. 50,000 to Rs. 60000. This is due to earnings made during the
year. Is this statement necessarily true?
7. Enter the following transactions in the single column cash book of
Gopichand.
March, 2003
1st. Commenced business with cash 20000
2nd. Bought goods for cash 5000
rd
3 . Sold goods for cash 4000
th
4 . Goods purchased from Ravi Kumar 10000
th
10 . Paid to Ravi Kumar 7000
th
14 . Cash sales 8000
18th. Purchased furniture for office 4000
nd
22 . Paid wages 500
th
25 . Paid rent 600
th
30 . Received commission 4000
30th. Withdrew for personal purpose 1000
st
31 . Paid salary 900
8. Record the following transactions in two column cash book (Cash and
Bank) in the books of Soft Silk Co., for the month of July, 2004. Find
out the closing balances for the month of July 2004.
July, 2004 Rs.
st
01 . Opening balance b/d (Cash) 14,500
Opening balance b/d (Bank) 7,000
04th. Cash purchases 6,700
th
05 . Rent for June month paid by cheque 2,500
th
09 . Cash sales 15,200
th
12 . Dividend paid by cheque 4,350
th
15 . Cash deposited into bank 5,000
18th. Cash paid to Rahim Bros to settle his account 10,000
20th. Repairs paid 1,000

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22nd. Commission paid by cheque 2,000

23rd. Customer, Deepak remitted to our bank account 20,000
25th. Cash withdrawn from bank for office use 5,000
th
27 . Drawings made from business cash for personal purposes 2,000
28th. Purchased stationery by cash 3,000
th
30 . Cash withdrawn for personal use from bank 1,400
9. Prepare three columnar cash book for the month of May.

May 1st Balance cash in hand Rs.14000; bank overdraft at bank

Rs.5000
4th Invested further capital Rs.10000 out of which Rs.6000 was
deposited in the bank
6th Sold goods for cash Rs.30000
6th Collected from debtors of last year Rs.80000; Discount allowed
to them Rs.2000
10th Purchased goods for cash Rs.55,000
11th Paid Ram Vilas, our creditor Rs.25,000; discount allowed by him
Rs.650
13th Commission paid to our agent Rs.5,300
14th Office furniture purchased for cash Rs.2,000
14th Rent paid Rs. 400; electricity charges paid Rs.1,000
14th Drew cheque for personal use Rs.7,000
17th Cash sales Rs.25,000
18th Collection from Atal Bihari Rs.40,000, deposited in the bank on
19th April
19th Drew from the bank for office use Rs.5,000
22nd Drew cheque for petty expenses Rs.1,500
24th Dividend received by cheque Rs.500, deposited in the bank on
the same day
25th Commission received by cheque Rs.2,300, deposited in the
bank on 28th April
29th Drew from the bank for salary of the office staff Rs.15,000
30th Deposited cash in the bank Rs.10,000

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10. Prepare petty cash book on imprest system from the following
particulars:
Jan 1st – Received for petty cash payment Rs.500
Jan 2nd – Paid for postage Rs.40
Jan 5th – Paid for stationery Rs.25
Jan 8th – Paid for advertisement Rs. 50
Jan 12th – Paid for wages Rs.50
Jan 16th – Paid for carriage Rs.25
Jan 20th – Paid for conveyance Rs.22
Jan 25th – Paid for travelling expenses Rs.80
Jan 27th – Paid for postage Rs.50
Jan 28th – Paid wages to cleaner Rs.10
Jan 30th – Paid for telegram Rs.20
Jan 30th – Sent registered notice Rs.10

4.6 Answers

Self Assessment Questions

1. False
2. False
3. True
4. True
5. False
6. False
7. False
8. True

Terminal Questions
1. Credit
2. Credit
3. Sales Day
4. Drawings A/c Dr.
To Cash a/c
5. Cash account Dr.
To Bank account.

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6. The statement is true if additional capital is not brought in during the

year. Owner’s equity increases if profits are added or additional capital
is brought in.
7. Cash balance 170000
Hint: Goods Purchased from Ravi Kumar is a credit purchase.
8. Cash balance 7000, bank balance (debit) 16750
9. Cash balance 59300, bank balance (debit) 25300 , DA 2000, DR 650
10. Balance 18

4.7 Case Study

RD International Ltd. incurred the following transactions for the month of
June 2011.
1 Cash in hand, Rs.15,700 , cash at Bank Rs.25,400, and Capital Account
Rs.41,100
3 Bought goods for cash Rs.4,100
4 Purchased goods from Meera & Co. for Rs.5,800 less 10% trade discount
7 Sold goods to Bedi & Co. for Rs.5800 less 20% trade discount
9 Withdrew Rs.500 from bank for private use
12 Sold goods to Amjad Khan for Rs. 6,400
15 Paid Rs.5,000 to Meera & Co. in full settlement of their account
18 Goods worth Rs.400 returned by Amjad Khan
20 Received Rs.4000 from Amjad Khan
21 Purchased goods from Shiv Dayal & Co. for Rs.8,700;
23 Rs.6,000 paid to Shiv Dayal & co. by cheque, discount allowed Rs.300
24 Purchased furniture for Rs.800 from Manjeet Furniture House on credit
26 Paid into bank Rs.2,200
28 Amjad Khan declared insolvent; a first and final dividend of 50 paise in a
rupee is received from him
29 Goods worth Rs.600 returned to Shiv Dayal & Co
30 Interest on capital provided Rs.411
30 Goods worth Rs.400 taken by the proprietor for his personal use
30 Paid Rs.500 for advertisement by cheque
30 Paid salaries to staff Rs.1,800
30 Cash sales Rs.21,800
30 Paid into bank Rs.21,800
30 Paid into bank Rs.20,000
30 Bought 100 shares in Hind Nil Ltd. at Rs.11 per share, brokerage paid Rs.25
30 Received Rs.5,900 from Bedi & Co., discount allowed Rs.100

Manipal University Jaipur Page No. 101

Financial and Management Accounting Unit 4

You are the newly appointed accountant of the company. The company has
asked you to enter all the transactions in the journal and then post them to
the ledger.
Source: Narang, K. L & Jain, S. P. Financial Accounting, Kalyani Publishers
Discussion Questions:
1. Would you like to make any suggestions to the company?
2. If yes, what suggestions would you make?
3. How will you record these transactions as per you suggestions? Please
show important journal entries, books, and ledger accounts.
Answer to Case Study
1. Yes
2. The company must maintain subsidiary books instead of a single
journal.
3. Important journal entries, books, and ledger accounts.
Journal Entries
Debit Credit
Date Particulars L.F. Amount Amount
Rs. Rs.

2011 Furniture Account Dr. 800

June 24 To Manjeet Furniture House 800
(Being furniture purchased on credit)
1,000
“28 Bad Debts Account Dr. 1,000
To Amjad Khan
(Being 50% amount due written off as bad debt
on Amjad Khan becoming insolvent)

Interest on Capital Account Dr. 411

411
To Capital Account
(Being interest on capital provided )

Drawings Account Dr. 400

To Purchases Account 400
(Being goods taken for personal use of the
proprietor)
900
Capital Account Dr. 900
To Drawings Account
(Being transfer of balance of Drawings Account)

3,511 3,511

Manipal University Jaipur Page No. 102

Financial and Management Accounting Unit 4

Sales Book
Details Amount
Date Particulars L.F.
Rs. Rs.
2011
June 7 Bedi & Co. goods sold Dr. 8,900
Less : 20% trade discount 1,780 7,120
12 Amjad Khan 6,400
30 Total for the month credited to sales
account 13,520

Purchases Book
Details Amount
Date Particulars L.F.
Rs. Rs.
2011
June 4 Meera & Co. goods purchased 5,800
Less : 10% trade discount 580 5,220
21 Shiv Dayal & Co. 8,700
30 Total for the month debited to purchases
account 13,920

Sales Returns Book

Details Amount
Date Particulars L.F.
Rs. Rs.
2011
June 18 Amjad Khan 400
30 Total for the month debited to Sales 400
Returns Amount

Manipal University Jaipur Page No. 103

Financial and Management Accounting Unit 4

Cash Book
Dr. Cr.

DA Cash Bank DR Cash Bank

Date Particulars Date Particulars
Rs. Rs. Rs. Rs. Rs. Rs.
2011
June 1 To Balance b/d 15,700 25,400 2011
20 T o Amjad Khan 4,000 June 3 By Purchases A/c 4,100
26 To Cash 2,200 9 By Drawings A/c 500
28 To Amjad Khan 1,000 15 By Meera & Co. 220 5,000
30 To Sales A/c 21,800 23 By Shiv Dayal & Co. 300 6,000
30 To Cash 20,000 26 By Bank 2,200
30 To Bedi & Co. 100 5,900 30 By Advertisement A/c 500
30 By Salaries
30 By Bank 1,800
30 By Investment 20,000
Shares A/c
1,125
30 By Balance c/d
14,175 40,600
Total 100 48,400 47,600 Total 520 48,400 47,600
July 1 To Balance b/d 14,175 40,600

Purchases Account
Dr. Cr.

Date Particulars Rs. Date Particulars Rs.

2011 2011
June 4 To Cash A/c 4,100 June 30 By Drawings 400
30 To Sundry Creditors 13,920 30 By Balance c/d 17,620
Total 18,020 Total 18,020
July 1 To Balance b/d 17,620

Sales Account
Dr. Cr.
Date Particulars Rs. Date Particulars Rs.
2011 2011
June 30 To Balance c/d 35,320 June 30 By Sundry Debtors 13,520
30 By Cash A/c 21,800
Total 35,320 Total 35,320
July 1 By Balance b/d 35,320

Manipal University Jaipur Page No. 104

Financial and Management Accounting Unit 4

Sales Returns Account

Dr. Cr.

Date Particulars Rs. Date Particulars Rs.

2011 2011
June 30 To Sundry Debtors 400 June 30 By Balance c/d 400
400 400
July 1 To Balance b/d 400

Purchases Returns Account

Dr. Cr.

Date Particulars Rs. Date Particulars Rs.

2011 2011
June 30 To Balance c/d 600 June 30 By Sundry Creditors 600
600 600
July 1 By Balance b/d 600

References:
• Narayanaswamy R, Financial Accounting, A Managerial Perspective 3/e,
PHI
• Narang K. L & Jain, S. P. Financial Accounting, Kalyani Publishers

E-Reference:

• www.phindia.com/narayanaswamy – retreived on december 23rd 2012

Manipal University Jaipur Page No. 105