Introduction
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 big concern, recording of all transactions in one
Journal and posting them into various ledger accounts will be very difficult and involve a lot of clerical
work.
This is avoided by sub-dividing the journal into various subsidiary journals or books. The subdivisions
of journal into various subsidiary journals for recording transactions of similar nature are called as
Subsidiary Books.
AIMS AND OBJECTIVES
1. Purchases Day Book for recording credit purchase of goods only. Cash purchase or assets
purchased on credit are not entered in this book.
2. Sales Day Book for recording credit sales of goods only. Assets sold or cash sales are not recorded
in this book.
3. Purchases Returns Book for recording the goods returned to the suppliers when purchased on
credit.
ADVERTISEMENTS:
4. Sales Returns Books for recording goods returned by the customers when sold on credit.
5. Bills Receivable Book for recording the bills received [Bills Receivables] from customers for credit
sales.
6. Bills Payables Book for recording the acceptances [Bills Payables] given to the suppliers for credit
purchases.
7. Cash Book for all receipts and payments of cash.
8. Journal Proper for recording any transaction which could not be recorded in the above-
mentioned subsidiary books. For example, assets purchased or sold on credit and opening entry etc.,
are entered in this book.
Advantages of Subsidiary Books:
The following are the advantages of Subsidiary books or Special journal:
1. Saving of Clerical Labour:
Subsidiary books effect considerable saving of clerical labour in postings and narration. Transactions
of any one class such as credit purchases, credit sales, cash transactions etc., are recorded through
separate subsidiary journals and there is no need for giving narration.
For example, by recording the transactions in the Purchase Day book 50% of the labour in postings is
saved. The periodical total of this book is to be debited to the Purchases a/c. Only the personal
accounts of the suppliers are to be credited.
2. Division of Clerical Work:
As separate journals are used for recording the transactions of each particular type, the division of
clerical labour amongst several office clerks becomes possible. This makes speedy record of day-to-
day transactions practicable.
3. Minimizes Frauds:
ADVERTISEMENTS:
These books make possible the introduction of internal check system under which the system of
rotation of writing up books can be adopted. This helps minimizing errors and detecting frauds.
4. Facilitates Further Reference:
As transactions of similar nature are grouped together in a separate book, the further reference to any
particular item is considerably facilitated.
Conclusion
Let the Business Model Shape Your Focus Areas
The average 10-K annual report is stuffed with dozens of dense footnotes and adjusted numbers
offered as alternatives to the recognized numbers contained in the body of the income statement and
balance sheet. For example, companies often disclose six or eight versions of earnings per share,
such as the "as reported," "adjusted," and "pro forma" versions for both basic and diluted EPS. But
the average individual investor probably does not have the time to fully assimilate these documents.
Therefore, it may be wise to first look at industry dynamics and the corresponding company business
model and let these guide your investigation. While all investors care about generic figures, such as
revenue and EPS, each industry tends to emphasize certain metrics. And these metrics often lead or
foreshadow the generic performance results.
The table below illustrates this idea by showing some of the focus areas of a few specific industries.
For each industry, please keep in mind that the list of focus areas is only a "starter set"--it is hardly
exhaustive. Also, in a few cases, the table gives key factors not found in the financial statements in
order to highlight their shortcomings:
Cash Flows Help to Determine the Quality of Earnings
While some academic theories say that cash flows set stock prices, and some investors appear to be shifting
their attention toward cash flows, can anyone deny that earnings (and EPS) move stocks? Some have cleverly
resolved the cash flow-versus-earnings debate with the following argument: in the short run, earnings move
stocks because they modify expectations about the long-term cash flows. Nevertheless, as long as other
investors buy and sell stocks based on earnings, you should care about earnings. To put it another way, even
if they are not a fundamental factor that determines the intrinsic value of a stock, earnings matter as a
behavioral or phenomenal factor in impacting supply and demand.
suggestions