What is Subsidiary Book, Day Book or Book of Original Entry?
Subsidiary book which is also known as book of original entry, book of prime entry or day book is a book in which financial transactions are first entered on a daily basis from source document before been moved to their various account in the ledger. In big organizations, this document is kept as an extension to the journal. That is, entries in the day books are later transfer into the journal, from which the ledger is later prepared. In a situation where a business only records on journal on a daily basis, the journal becomes the day book for that business. That is why subsidiary book which is also known as book of original entry, book of prime entry are believed to be same as journal.
Types of Day Book or Journal
Daybook or journal can be generally classified into six as follow:
- Sales day book or sales journal
- Purchases day book or purchases journal
- Return inward day book or return inward journal
- Return outward day book or return outward journal
- Cash book
- General journal or journal proper
It is not compulsory for a business to keep all these books as the nature of the business will determine the type of the books to keep. For a business that deals with cash transaction alone, the cash book is the main book required but for a business that also deal with credit transactions, it is necessary to keep other books alongside with the cash book.
Format Of A Day Book Or Journal
The preparation of each of the above named day book or journal takes the following format to enter day to day transactions.
| DATE | PARTICULARS | FOLIO | DETAILS | TOTAL |
|---|---|---|---|---|
Sales Day Book
This is used to record the details of goods sold on credit to customers. In this case, only items with the original intention for buying them are entered into a sales day book when such items are sold on credit. This means that a sale of asset or scrap items on credit cannot be recorded into a sales day book because; they are not part of the business dealing.
ILLUSTRATION 1
| April 10. | Sold 5 bags of rice to Jumia at N12,000 per bag. |
| April 18. | Andrew bought 2 gallons of groundnut oil at N15,000 per gallon, 2 bags of rice at N12,000 per bag, 10kg of beans at N500 per kg, less 5% trade discount. |
| April 27. | Olaoluwa Stores bought 10 bags of rice at N12,000 per bag, less 5% trade discount. |
SOLUTION 1
| DATE | PARTICULARS | FOLIO | DETAILS | TOTAL |
|---|---|---|---|---|
| N | N | |||
| April 10. | Jumia | |||
| 5 bags of rice at N12,000 per bag | 60,000 | 60,000 | ||
| April 18. | Andrew | |||
| 2 gallons of groundnut oil at N15,000 per gallon | 30,000 | |||
| 2 bags of rice at N12,000 per bag | 24,000 | |||
| 10kg of beans at N500 per kg | 5,000 | |||
| 59,000 | ||||
| Less 5% trade discount (5% x 59,000) | (2,950) | 56,050 | ||
| April 27. | Olaoluwa | |||
| 10 bags of rice at N12,000 per bag | 120,000 | |||
| Less 5% trade discount (5% x 120,000) | (6,000) | |||
| Transfer to Sales Ledger | (230,050) | |||
Definition Of Terms
Discount: This is a reduction given to a buyer to encourage him to buy in large quantity or for prompt payment. Discount can be generally classified into two:
- Cash discount
- Trade discount
- Cash discount:This discount is given to the credit customer to encourage prompt payment. For example, a customer purchased items worth N20,000 on credit and promised to pay at the end of the month. Few days later, the business realized that they will need the money by the middle of the month , they decided to write the customer to either pay N17,000 on of before the middle of the month or to pay the fill bill at the agreed date. This discount is called cash discount and it is the discount that is recorded in the cash book as discount allowed and discount received.
- Trade discount:This is the discount that is given to customers to encourage them to buy in large quantity. For example, a biro cost N50 each and the seller asked the buyer to pay N500 for one dozen instead of N600. The N100 reduction given to the customer is called Trade Discount.
Purchase Day Book or Purchase Journal
This is the book used to record goods purchase on credit from suppliers. These goods include those goods bought with the intention of being sold.
ILLUSTRATION 2
| April 1. | Purchased 4 radio sets at the rate of N15,000 each, 2 TV sets at the rate of N25,000 each, 5 DVD players at the rate of N12,000 each from Adams store. All the items are subjected to 10% trade discount. |
| April, 12. | Purchased 10 electrical cooker at the rate of N1,200 per cooker, 4 kettle heater at N2,500 per kettle from Jose Ltd, less 5% trade discount |
| April 25. | Bought 3 standing fans at the rate of N14,000 each, and 4 ceiling fans at the rate of N5,000 each from Busfad Ltd, less 10% trade discount. |
SOLUTION 2
| DATE | PARTICULARS | FOLIO | DETAILS | TOTAL |
|---|---|---|---|---|
| N | N | |||
| April 1. | Adams Store | |||
| 4 radio sets at the rate of N15,000 each | 60,000 | |||
| 2 TV sets at the rate of N25,000 | 50,000 | |||
| 5 DVD players at the rate of N12,000 each | 60,000 | |||
| 170,000 | ||||
| less 10% trade discount (5% x 170,000) | (17,500) | 161,500 | ||
| April 18. | Jose Ltd | |||
| 10 electrical cooker at the rate of N1,200 per cooker | 12,000 | |||
| 4 kettle heater at N2,500 per kettle | 10,000 | |||
| 22,000 | ||||
| Less 5% trade discount (5% x 22,000) | (1,100) | 20,900 | ||
| April 27. | Busfad Ltd | |||
| 3 standing fans at the rate of N14,000 each | 42,000 | |||
| 4 ceiling fans at the rate of N5,000 each | 20,000 | |||
| 62,000 | ||||
| Less 10% trade discount (10% x 62,000) | (6,200) | 55,800 | ||
| Transfer to Purchases Ledger | 238,200 | |||
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