Table of Contents
4.1 Special Purpose Books
As businesses grow, maintaining all transactions in a single journal becomes inefficient. To overcome this, special journals or subsidiary books are used to categorize transactions of a similar nature. These books improve accuracy, reduce errors, and facilitate workload distribution in accounting. The major special journals include:
- Cash Book – Records all cash receipts and payments.
- Purchases Book – Records credit purchases of goods meant for resale.
- Purchases Return Book – Records goods returned to suppliers.
- Sales Book – Records credit sales of goods.
- Sales Return Book – Records goods returned by customers.
- Journal Proper – Captures transactions that do not fit into other books.
These books help businesses manage large volumes of transactions efficiently.
4.2 Cash Book
A cash book is a specialized journal that records all cash transactions, both receipts and payments. It functions as both a journal and a ledger, eliminating the need for a separate cash account in the ledger.
4.2.1 Types of Cash Books
- Single Column Cash Book – Contains only a cash column and is used to record cash receipts and payments.
- Double Column Cash Book – Includes both cash and bank columns, making it easier to track transactions involving bank deposits and withdrawals.
- Triple Column Cash Book – Has cash, bank, and discount columns to account for any cash discounts received or given.
- Petty Cash Book – Used for recording small, repetitive expenses such as stationery, postage, and minor repairs.
The cash book ensures systematic cash management and prevents financial discrepancies.
4.3 Purchases Book and Sales Book
4.3.1 Purchases Book
A purchases book records all credit purchases of goods intended for resale. It excludes cash purchases and non-trading assets (e.g., furniture or equipment). Entries in this book are based on invoices received from suppliers.
Example: If a business buys 100 units of inventory on credit, this transaction is recorded in the purchases book. At the end of the month, the total purchases are posted to the Purchases Account in the ledger.
4.3.2 Sales Book
A sales book records all credit sales of goods made by the business. Cash sales are excluded since they are recorded in the cash book. The basis for entries in the sales book is the invoices issued to customers.
Example: If a company sells 50 units of a product on credit to a customer, this transaction is recorded in the sales book and later transferred to the Sales Account in the ledger.
4.4 Purchases Return and Sales Return Books
Sometimes, businesses return goods to suppliers or receive returns from customers due to defects, incorrect quantities, or other reasons. These returns are recorded in special return books.
4.4.1 Purchases Return Book
Also known as the Return Outward Book, this records goods that a business returns to suppliers. The main reasons for purchase returns include:
- Defective or damaged goods.
- Incorrect quantity supplied.
- Goods not meeting quality standards.
Example: If a business returns faulty goods worth ₹10,000, it records the transaction in the purchases return book, and the amount is adjusted in the supplier’s account.
4.4.2 Sales Return Book
Also called the Return Inward Book, this records goods returned by customers. Customers may return products for reasons such as:
- Wrong product delivery.
- Defective or damaged items.
- Late delivery, making the goods unusable.
Example: If a customer returns items worth ₹5,000, the transaction is recorded in the sales return book and adjusted in the customer’s account.
Returns impact the overall sales and purchase figures, making it crucial to track them separately.
4.5 Journal Proper
While special journals handle most transactions, some do not fit into any of them. Such transactions are recorded in the Journal Proper.
Common Entries in Journal Proper:
- Opening and Closing Entries – To carry forward balances from one accounting period to another.
- Adjusting Entries – For outstanding expenses, prepaid expenses, or accrued income.
- Rectification Entries – To correct errors in previous journal entries.
- Asset Purchases and Disposals on Credit – When assets like machinery or furniture are bought or sold on credit.
Summary of Key Points
- Special Purpose Books help categorize and efficiently manage large volumes of transactions.
- Cash Book records all cash transactions and eliminates the need for a separate cash ledger.
- Purchases and Sales Books record all credit transactions related to goods for resale.
- Purchases Return and Sales Return Books track returns from suppliers and customers, respectively.
- Journal Proper is used for transactions that do not fit into any other book.
By using these specialized books, businesses ensure a systematic and accurate recording of financial transactions, facilitating better financial management and decision-making.