SPECIAL PURPOSE SUBSIDIARY BOOKS

4.2 SPECIAL PURPOSE SUBSIDIARY BOOKS

You have learn; that in any business the number of cash and bank transactions is quite large. Hence, the fms always maintain a separate book called Cash Book to record them. Similarly, the trarisactions relating to purchase and sale of goods are also large in number and they take place too frequently. It is, therefore, considered desirable to maintain sepwate books for p~chases and sales of goods also. But you know cash purchases and cash sales of goods are recorded in the Cash Book. Therefore, separate books will be needed only for &cording credit purchases and credit soles of goods. The firms generally maintain four :beparate books to record credit transactions relating to goods. These are: (i) Purchases journal, (ii) Purchases Returns Journal, Gii) Sales Journal, and (iv) Sales Retbrns Journal. kt us now discuss them one by one.

4.2.1 purchases Journal

The Purchases Journal (also called Purchases Book) is used for recording credit purchases of &ds and raw-materials. Note that the credit purchases of fixed assets like furniture, vehicles, etc. are not recorded in this book. They are to 'be recorded in Journal hoper about which you will learn later in this unit. The Purchases Journal is also called 'Purchases Book', 'Purchases Day Book:, and 'Invoice Book'. The proforma of Purchases Journal is given in Figure 4.1.

When goods are purchased on credit you will receive a bill from the seller. Such a bill is called 'Invoice'. It contains the details pertaining to the quantity, description, price, trade discount, total amount, etc. It is generally prepared in duplicate. The original is given to the buyer and the duplicate is retained by the seller. The entries in the Purchase Journal are made on the basis of the purchase invoices received. Although the invoices bear a number but the buyer accords his own serial number to all inward invoices for easy reference. It is this serial number which will be entered in the invoice number column of the Purchases Journal.

The transactioils recorded in the Purchases Journal are to be posted to their respective personal accounts in the ledger. When a purchase is made on credit, the supplier becomes 1 the creditor for the firm. Hence, every credit purchase recorded in the Purchases Journal is posted on the credit side of the personal account of the supplier by writing 'By Purchases A/c' in particulars column. The Purchases Journal is totalled periodically, say, weekly or monthly. This total is posted to the debit side of Purchases Account in the ledger by writing 'To Sundries-as per Purchases Journal'. Thus, you observe that posting of Purchases Journal involves two steps: (i) posting each p~irchase to the credit of the respective personal accounts of suppliers, and (ii) posting the total purchases to the debit of the Purchases Account. With this, the double entry for credit purchases is complete.

4.2.2 Purchases Returns Journal

In any business, sometimes goods purchased may have to be returned to the supplier either partly or fully. This may become necessary when they are found to be defective, damaged in transit, inferior quality, short weight, received too late, or not in conformity with the order t- ilg'iven. If the number of such returns is small they can be recorded in the journal itself. But, if it is large, a separate book called 'Purchases Returns Journal' should be used for recording these transactions. This book is also called 'Returns Outwards Journal' or 'Purchases Returns Book'. The proforma of a Purchases Returns Journal is given in Figure 4.2

When goods are reunred to the supplier, a statement called 'Debit Note' is sent to him intimating that his account has been debited on account of the goods returned. The debit note also contains particulars and the value of goods returned. It is also prepared in I duplicate. The original is sent to the supplier and the duplicate is retained by the firm. The entries in the Purchases Returns Journal are made on the basis of the copies of debit notes , I issued, The debit notes bear a serial number which is duly recorded in the third column of , I the Purchases Returns Journal. While recording the amount of purchases returns, you inust remember that if the original purchases involve some trade discount, it is also adjusted in the , value of goods returned. The transactions recorded in the Purchases Returns Journal ,ue to , I be posted to their respective personal accounts in the ledger. Separate account in the name of each supplier already exists in the ledger (opened at the time of purchase). The entries made I in the Purchases Returns Journal will be posted to the debit of each supplier's account by writing 'To Purchases Returns A/c'. The total of the I'urchases Returns Journal is posted t? , the credit side of the 'Purchases Returns Account' in the 'Ledger by writing 'By Sundries-as per Purchases Returns Jounral.

4.2.3 Sales Journal

The sales Journal is used for recording the credit sales of goods oily. The credit sale of items which do not constitute goods are not to be recorded in this book. The Sales Journal is also called 'Sales Book' or 'Sales Day Book'

The ruling of the Sales Journal is similar to that of the Purchases Journal. The difference is only with regard to the second column. In Purchases Journal the second column is used for .,recording the name of the supplier. But, in case of the Sales Journal, it is used for writing the name of the customer.

You know when goods are sold oi credit, an invoice is given to the buyer. The seller generally has a bound invoice book which contains consecutively numbered invoices in duplicate. While the original copy is given to the buyer, the duplicate remains in the book itself. The entries in the Sales Journal are made with the help of the duplicate copies of the invoices issued.

The customer to whom the goods are sold on credit becomes debtor to the firm. Hence, each sale recorded in the Sales Journal is posted to the debit of the personal account of the custorneq concerned by writing 'To Sales A/c' in particulars column. The totdof the Sales Journal is posted on the credit side of the Sales Account by writing 'By Sundries-as per Sales Book'.

4.2.4 Sales Returns Journal

When customers return goods to the business, it is normally recorded in a separate book

called 'Sales Returns Journal'. If, however, the number of such returns are small, they can

be recorded in the Journal itself. The Sales Returns Journal is also called 'Returns Inwards

Journal' or 'Sales Returns Book'. Its ruling is more or less similar to that of Purchases

Returns Journal. The second column of the Sales Returns Journal is used for recording the

name of the customer and the third column for credit note number, while in Purchases

Returns Journal they are used for recording the name of the supplier and debit note number

respectively.

When a customer returns goods to the business, a statement called 'Credit Note' is issued to him. It contains particulars and the value of goods returned by him. The entries in Sales Returns Journal are made with the help of credit notes issued. While recording the account of sales returns, you must remember that if the original sales involve some trade discount, it is also adjusted in the value of goods returned. The transactions recorded in the Sales Returns Journal are posted to the respective personal accounts in the ledger. Separate accounts in the name of each customer already exists in the ledger (opened at the time of sale). Credit the customers' accounts individually by writing 'By Sales Returns A/cY and then post the total of the Sales Returns Journal to the debit s3de of the Sales Returns A/c by writing 'To Sundrieslas per Sales Returns Journal'.

Look at Illustration 1 and study how credit transactions relating to goods are recorded in various special purpose subsidiary books and postings made in the ledger.

Illustration 1

Enter the following transactions in proper subsidiary books of Chekra Enterprises and show their postings into ledger.