Module 2
Subsidiary Book:
The Subsidiary books are known as the books of original entry. In daily business transactions, a
majority of the transactions are either related to sales, or to purchases or to cash. Thus, we record
the transactions of the same or similar nature in one place, that place is a subsidiary book.
Subsidiary books are special journals that record transactions of similar nature, such as cash, purchases,
sales, returns, and bills, to streamline accounting processes and overcome journal limitations
Types of Subsidiary Books
The subsidiary books are of various types which suit the needs of an organization. The
types are as follows:
• Cash book ( records transactions of cash nature only)
• Purchases book ( records transactions relating to credit purchase of goods only)
• Sales book ( records transactions relating to credit sale of goods only)
• Purchases return or return outwards book
• Sales return or return inwards book
• Bills receivable book
• Bills payable book
• Journal proper
Bank Reconciliation Statement:
Bank Reconciliation Statement (BRS) is a statement that is prepared by a firm to reconcile the balances as
per the cash book prepared by the firm and the balances as per the passbook recorded by the bank. • The
need for bank reconciliation statements arises from the fact that many times there is a difference in both
balances.
Causes of Differences in Balance:
The differences in balances in Cash Book and Pass Book may arise due to:
a. Difference in timings for recording the transaction
b. Errors are made by the bank or firm while recording the transaction.
Difference in Timings for Recording the Transaction:
There may be a difference in balance caused by the timing gap both for payment as well as for receipts.
Some of the factors responsible for these gaps are:
a. Cheques issued by banks are not yet presented for payments.
b. Cheques paid into the bank but not yet collected.
c. Direct debits are made by the bank on behalf of the customer.
d. Amounts directly deposited in the bank account.
e. Interest and dividends are collected by the bank.
f. Direct payments are made by the bank on behalf of the customers.
g. Cheques deposited/bills discounted dishonoured.
Errors Made by Firm
(i) Wrong amount debited or credited in the cash book.
(ii) Omission of any transaction.
(iii) Error in totalling or balancing the bank column of the Cashbook.
Errors committed by the bank:
(i) Wrong amount debited or credited in the passbook.
(ii) Omission of any transaction.
(iii) Error in totalling or balancing the bank column of the Passbook.
Benefits of Bank Reconciliation Statement:
a. Helps in tracking errors.
b. Helps terminate the risks of fraud.
c. Helps in tracking transaction status periodically.
d. Helps in achieving accurate balance
Need of BRS:
Preparing a bank reconciliation statement is necessary for:
1. Helps in identifying the difference between a cash book and a passbook.
2. It helps to know the actual bank balance.
3. Helps in the detection and prevention of frauds and errors in recording banking transactions
4. It helps to know the actual bank balance.
5. Helps to create a revised Cash Book that reflects true bank balance.
6. It helps in preventing the embezzlement of money from the bank account.
Differences Between Bank Statement and Bank
Reconciliation
Aspects Bank Statement Bank Reconciliation
Nature A document issued by the bank, A process is undertaken by the account
detailing account transactions over holder to compare their records with the
a specific period. bank statement.
Prepared and provided by the Conducted by the account holder or their
Preparation bank. financial team.
Function Serves as an official bank record of Aims to ensure the account holder’s
all transactions in an account. financial records match those of the bank.
Performed periodically, often monthly,
Frequency Typically issued monthly. after receiving the bank statement.
Lists transactions such as deposits, Involves the detailed comparison of
Content withdrawals, fees, and interest. transactions on the bank statement with the
account holder’s records.
Identifies discrepancies, unrecorded
Shows the account activity as transactions, and potential errors in record-
Outcome
recorded by the bank. keeping.
