Question

Give short answers for the following questions:

1.What do you understand by 'Subsidiary books'?

2.What is journal?

3.What is petty cash book?

4. What are the different kinds of Subsidiary books?

5. What do you mean by Cash book?

6. Define trade discount and cash discounts.

7. What is the difference between trade discount and cash discount?

Answer 1

1. What do you understand by Subsidiary books?

Subsidiary books are called as sub division of a journal. These type of books are kept for recording the transactions, which is similar in nature. When I am saying similar in nature, for eg: all the cash related transactions will be recorded in one book. Likewise all the credit purchase related transactions will be recorded in another book. The transactions recorded in the books will be in chronological order to find it easily. Since the transactions are primarily entered in these type of separated books, it is also called as books of original entry. The entries in these books are later transferred to concerned ledger accounts.

The major purpose of keeping subsidiary book is to have a better control over the transactions especially in the organizations has numerous number of transactions in different natures. There are lot of benefits by keeping subsidiary books like, saving of time, work can be divided among different clerks, easy access to information in various nature etc.

2. What is Journal?

A journal is a book kept to record all the transactions happening in a business. The records in a journal book is called journal entries. A Journal entry will be having two aspects, which is debit and credit. A single journal entry can have multiple ledger account on both credit and debit sides. The total debit amount should always match with the total of credit amounts.

The amount against accounts used in the journal entry will be later transferred to ledger accounts for the balancing purpose and trail balance is prepared from the balance of these ledger accounts.

3. What is petty cash book?

A petty cash book is an accounting book to record the expenses which is small in nature. Small in nature means the amount of expenses is immaterial. This book is usually kept with the petty cash accountant / Petty Cashier. He records all the cash receiving and spending through the petty cash in this book. Petty cash accountant will be having a cash custody amount and his spending is limited to the sum of this custody amount. The petty cash accountant debit the amount in this book while he receives the money of petty cash custody and credit the amount when he spend from the petty cash.

The balance of this book should always match with the physical cash balance with the petty cash accountant.

Based on the internal policy and size of the organization, the amount can be spend through petty cash per transaction varies.

4. What are the different kind of Subsidiary books?

The major types of Subsidiary books are as follows;

1. Cash Book
2. Purchase book
3. Sales Book
4. Purchase Return Book
5. Sales Return Book
6. Bills Receivable Book
7. Bills Payable Book
8. Journal book

Pont to note: The subsidiary books are not limited to above given types. The requirement of subsidiary books will change from business to business based on the nature of transaction.

5. What do you mean by Cash Book?

A cashbook is a subsidiary journal book maintained to record cash related transactions. Cash related transactions means cash receiving and cash disbursements including bank transactions. The transactions in this book is recorded in a chronological order for easy tracing purpose.

The balance of this book is periodically reconciled with the cash balance and with the bank statement to make sure that the actual balance is matching with the cash book balance to make sure that there is no fictions transactions are recorded in the cash book.

6. Define trade discount and cash discounts.

Trade discount: Trade discount is defined as the reduction provided by the seller to the buyer from the listed price of the product.

Cash discount: Cash discount is defined as the discount provided by the seller to the buyer on the receivable balance to boost the payment. Ex: The seller offers 2% discount on total invoice value if the buyer pays within 10 days from the invoice date.

7. Difference between trade discount and cash discounts.

Trade Discount	Cash Discount
The purpose is to increase the sales	Purpose is reduce the receivable days and increase the cash inflow to manage the working capital.
Discount will be awarded in the invoice	Discount will be given at the time of payment
Not recorded separately in books as the total revenue is recognized after deducting the trade discount	Recorded against the special ledger account at the time of receiving the payment.
Calculated based on the item price	Calculated based on the total invoice value.