Unlocking the Essentials of Subsidiary Books in Financial Accounting

WEEK 9 AND 10 LESSON NOTE

Subject: Financial Accounting

Class: SS 3
Term: First Term
Week: 9 and 10
Age: 15–18 years
Topic: Subsidiary Books
Sub-topic: Definition, Uses, Preparation, and Transfer of Totals to the Ledger
Duration: 40 Minutes

Behavioral Objectives

At the end of the lesson, students should be able to:

1. Define subsidiary books and explain their importance in bookkeeping.
2. List and describe the different types of subsidiary books.
3. Identify and record transactions in their appropriate subsidiary books.
4. Transfer the totals of subsidiary books into the ledger.

Keywords

• Subsidiary Books
• Prime Entry
• Cash Book
• Ledger
• Journals

Set Induction

The teacher will begin the lesson by showing students a ledger and asking how all the financial details in the ledger might have been recorded. This will create curiosity about the use of subsidiary books.

Entry Behavior

Students have learned about basic bookkeeping and the principle of double entry.

Learning Resources and Materials

• Charts showing examples of subsidiary books.
• Samples of completed cash books and sales journals.
• A whiteboard for illustrations.

Building Background/Connection to Prior Knowledge

Students have knowledge of financial transactions and source documents, such as invoices and receipts, which serve as input for subsidiary books.

Embedded Core Skills

• Critical thinking
• Collaboration
• Analytical skills

Reference

Lagos State Scheme of Work, SS3 Financial Accounting Textbook.

Instructional Materials

• Financial transaction samples
• Charts and tables illustrating types of subsidiary books

Content

Definition of Subsidiary Books

Subsidiary books are the books of prime entry where detailed records of transactions are first documented before posting to the ledger. They help to simplify bookkeeping and reduce the volume of details in the ledger.

Types of Subsidiary Books

1. Sales Journal: Records credit sales.
2. Purchases Journal: Records credit purchases.
3. Returns Inwards Journal: Records goods returned by customers.
4. Returns Outwards Journal: Records goods returned to suppliers.
5. General Journal: Records various non-recurrent transactions, opening/closing entries, and corrections.
6. Cash Book: Records cash and bank transactions.
7. Petty Cash Book: Records minor or petty transactions.

Uses of Subsidiary Books

1. Simplifies bookkeeping.
2. Allocates bookkeeping responsibilities among staff.
3. Records specific types of transactions in organized books.
4. Facilitates error detection and correction.
5. Provides summaries for quick posting to the ledger.

Preparation and Posting

• Transactions are first recorded in the relevant subsidiary books based on their nature.
• At the end of a period, the totals of each book are transferred to the corresponding accounts in the ledger.

Explanation of Subsidiary Books

Subsidiary books, also known as books of prime or original entry, are the first point where business transactions are recorded before being posted into the ledger accounts. These books help simplify the recording of financial transactions, reduce errors, and make the bookkeeping process efficient.

The main purpose of subsidiary books is to separate transactions into different categories for easy handling. Examples include credit sales, credit purchases, returns, and cash transactions. The division of tasks among different subsidiary books also allows multiple people to handle bookkeeping, increasing efficiency in business operations.

Types of Subsidiary Books

1. Sales Journal
   • Records all goods sold on credit.
   • Example: If a business sells 10 laptops to a customer on credit, the details will go into the Sales Journal.
2. Purchases Journal
   • Records all goods purchased on credit.
   • Example: If a store buys 20 boxes of chocolates on credit, the transaction is recorded here.
3. Returns Inwards Journal (Sales Returns Journal)
   • Records goods returned by customers.
   • Example: A customer returns two faulty mobile phones purchased on credit.
4. Returns Outwards Journal (Purchases Returns Journal)
   • Records goods returned by the business to suppliers.
   • Example: Returning damaged bags of rice to the supplier.
5. Cash Book
   • Records all cash and bank transactions, including receipts and payments.
6. Petty Cash Book
   • Records small-value payments like stationery or cleaning expenses.
7. General Journal
   • Records transactions that cannot fit into other subsidiary books, such as correcting errors or recording the purchase of fixed assets.

Uses of the General Journal

• Correcting errors in the books.
• Recording credit purchases or sales of fixed assets.
• Writing off bad debts.
• Recording one-off or unusual transactions.
• Opening and closing entries.
• Recording the redemption of shares and debentures.

Objective Questions (15 Fill-in-the-Blank Questions)

1. The subsidiary book used to record credit sales is the _____.
   a) Purchases Journal
   b) Sales Journal
   c) Cash Book
   d) Petty Cash Book
2. Goods returned to suppliers are recorded in the _____.
   a) Returns Inwards Journal
   b) Returns Outwards Journal
   c) Sales Journal
   d) Purchases Journal
3. The cash book is part of the _____.
   a) Double entry system
   b) Trial balance
   c) Income statement
   d) Prime entry system
4. The _____ is used to record small-value payments.
   a) Petty Cash Book
   b) Cash Book
   c) General Journal
   d) Sales Journal
5. Transactions that do not fit into other books are recorded in the _____.
   a) Sales Journal
   b) General Journal
   c) Returns Outwards Journal
   d) Purchases Journal
6. Goods purchased on credit are entered in the _____.
   a) Sales Journal
   b) Purchases Journal
   c) General Journal
   d) Returns Inwards Journal
7. The journal used to record bad debts written off is the _____.
   a) Sales Journal
   b) General Journal
   c) Cash Book
   d) Returns Outwards Journal
8. Sales returns are recorded in the _____.
   a) Sales Journal
   b) Returns Inwards Journal
   c) General Journal
   d) Cash Book
9. Goods returned by customers are recorded in the _____.
   a) Returns Inwards Journal
   b) Returns Outwards Journal
   c) Purchases Journal
   d) Cash Book
10. The book of original entry used to record receipts and payments is the _____.
    a) Petty Cash Book
    b) Cash Book
    c) Sales Journal
    d) Purchases Journal
11. A business divides its books of account into different journals to _____.
    a) Reduce work
    b) Simplify recording
    c) Avoid trial balance preparation
    d) Record only large transactions
12. The _____ is part of both the subsidiary books and the ledger system.
    a) Cash Book
    b) Returns Inwards Journal
    c) General Journal
    d) Purchases Journal
13. Goods returned to the supplier attract a _____.
    a) Credit Note
    b) Debit Note
    c) Invoice
    d) Receipt
14. One of the major uses of the General Journal is _____.
    a) Recording fixed asset purchases on credit
    b) Recording cash purchases
    c) Recording routine expenses
    d) Recording credit sales
15. Petty Cash Book operates using the _____.
    a) Imprest system
    b) Double entry system
    c) Trial balance system
    d) Single entry system

Class Activity Discussion (15 FAQs with Answers)

1. What are subsidiary books?
   Subsidiary books are books of original entry used to record transactions before posting them into the ledger.
2. Why are subsidiary books important?
   They simplify recording, reduce errors, and help divide bookkeeping tasks.
3. What is the purpose of the Sales Journal?
   To record all credit sales.
4. What is the Purchases Journal?
   It is used to record goods bought on credit.
5. Why is the General Journal considered versatile?
   It records entries that do not fit into other subsidiary books, such as corrections and unusual transactions.
6. What is recorded in the Cash Book?
   All receipts and payments, including cash and cheques.
7. What is the Petty Cash Book used for?
   Recording small-value payments like postage, stationery, and refreshments.
8. How does the Cash Book function as both a ledger and a subsidiary book?
   It records transactions and posts them directly to ledger accounts.
9. What are Returns Inwards and Returns Outwards Journals?
   Returns Inwards: Records goods returned by customers.
   Returns Outwards: Records goods returned to suppliers.
10. How do trade discounts appear in subsidiary books?
    They are deducted before recording transactions in the books.
11. What is the difference between a credit note and a debit note?
    Credit Note: Issued for goods returned by customers.
    Debit Note: Issued for goods returned to suppliers.
12. What is the role of the General Journal in opening and closing accounts?
    It records opening balances at the start of the year and closing balances at the end.
13. Why is the Petty Cash Book maintained under the imprest system?
    To ensure accountability and regular replenishment.
14. What is the prime entry system?
    It refers to the first point of recording transactions before ledger posting.
15. How does dividing subsidiary books improve efficiency?
    By allowing specific tasks to be handled by different people.

Evaluation Questions (10 Questions)

1. Define subsidiary books and explain their purpose.
2. List and explain the uses of any five subsidiary books.
3. What is the function of the General Journal in correcting errors?
4. Describe the difference between Returns Inwards and Returns Outwards Journals.
5. Explain the importance of the Cash Book in business transactions.
6. What transactions are recorded in the Petty Cash Book?
7. State three advantages of using the General Journal.
8. How do trade discounts affect entries in the Purchases Journal?
9. Discuss the role of the subsidiary books in reducing ledger details.
10. Explain the principle of the imprest system in maintaining the Petty Cash Book.

Presentation Steps

Step 1: Revision

• Review the principle of double entry.

Step 2: Introduction

• Explain the meaning and importance of subsidiary books.

Step 3: Student Contributions

• Students identify and classify transactions into appropriate subsidiary books.

Teacher’s Activities

1. Explain the types and uses of subsidiary books.
2. Provide examples for each book.
3. Demonstrate how to transfer totals from subsidiary books to the ledger.

Learners’ Activities

1. Identify examples of transactions.
2. Classify transactions into appropriate books.
3. Practice recording transactions in the provided templates.

Assessment

1. List seven types of subsidiary books.
2. Explain the use of the Purchases Journal.
3. State ten uses of the General Journal.

Evaluation Questions

1. Define subsidiary books.
2. Mention three examples of subsidiary books.
3. What is recorded in the Returns Inwards Journal?

Conclusion

The teacher will review key points, clarify questions, and assign tasks for practice.

SEO Details

• Captivating Title: Unlocking the Essentials of Subsidiary Books in Financial Accounting
• Focus Keyphrase: Subsidiary Books in Accounting
• SEO Title: Subsidiary Books: Types, Uses, and Preparation Explained
• Slug: subsidiary-books-overview
• Meta Description: Learn the definition, uses, and preparation of subsidiary books in financial accounting. Understand how to transfer totals to the ledger with examples.
• Definition of Source Documents Financial Accounting SS 1
• Books of Accounts: The Ledger and The Journal Financial Accounting