Fundamentals of Financial and Cost Accounting · Accounting Cycle

Subsidiary Books and Cash Book for CMA Foundation

Updated 10 October 2026 · Fact-checked

Subsidiary books are separate journals for repeated transactions, such as credit purchases, credit sales, returns and bills. The cash book records all cash and bank receipts and payments and also acts as a ledger. To solve questions, identify the book, apply the rule, then total and balance each column.

Understand Subsidiary Books and Cash Book

If a business recorded every transaction in one journal, the journal would be huge and slow to use. So transactions of the same kind are recorded in separate books called subsidiary books (or special journals). Each book handles one type of transaction. Only the totals are posted to the ledger, which saves time.

The main subsidiary books are: Purchases Book (credit purchases of goods meant for resale), Sales Book (credit sales of goods), Purchase Returns Book (goods returned to suppliers, also called Returns Outward), Sales Returns Book (goods returned by customers, also called Returns Inward), Bills Receivable Book and Bills Payable Book. Cash purchases and cash sales do not go in these books. They go in the cash book. Credit purchase of an asset, such as furniture, goes in the Journal Proper, not the Purchases Book.

The difference from the journal: the journal records every kind of transaction one by one, with debit and credit entries and a narration. Subsidiary books record only one type of transaction each and are posted mostly in totals. Transactions that fit no subsidiary book (opening entries, closing entries, rectifications, credit purchase of assets) go in the Journal Proper.

The cash book records cash and bank transactions. It is both a book of original entry and a ledger account, so it is not posted again to a separate cash account. A single column cash book has only a cash column. A double column cash book has cash and discount columns, or cash and bank columns. A triple column cash book has cash, bank and discount columns. Receipts go on the debit side. Payments go on the credit side.

A contra entry is a transaction affecting both cash and bank, for example cash deposited into bank. It is entered on both sides of the cash book, so no other account is touched. A petty cash book records small routine expenses such as postage, tea and conveyance. Under the imprest system, the petty cashier gets a fixed amount in advance. At period end, the head cashier reimburses exactly the amount spent, which restores the imprest.

Key formulas to remember

Cash book sides: Debit side = receipts (cash in, bank in). Credit side = payments (cash out, bank out); Cash cannot go negative, so the cash column always shows a debit balance or nil.
Discount rule: Discount allowed = on debit side (loss). Discount received = on credit side (gain); Discount columns are only totalled, not balanced. Debit total goes to Discount Allowed A/c, credit total to Discount Received A/c.
Contra entry: Cash deposited in bank: Bank column Dr, Cash column Cr. Cash withdrawn: Cash column Dr, Bank column Cr; Marked 'C' in the folio column. Both entries are on opposite sides.
Bank balance: Favourable balance = debit balance. Overdraft = credit balance; The bank column can show a credit balance, which means an overdraft.
Net purchases and sales: Net purchases = Purchases − Purchase returns. Net sales = Sales − Sales returns; Returns are kept in separate books and deducted at the end.
Imprest reimbursement: Amount received = Total petty expenses for the period. Closing petty cash = Imprest amount; Opening balance + amount received − expenses = closing balance, which equals the imprest.
Imprest to be received: Amount to be received = Imprest − Cash balance in hand (at period end); Used when the question gives the closing cash in hand.

How to solve Subsidiary Books and Cash Book questions

Use this method for any question on subsidiary books or cash book, whether it asks for a book, a balance or a classification.

1Read each transaction and decide: cash or credit, goods for resale or an asset, purchase or sale, return or bill.
2Pick the book. Credit purchase of goods goes to the Purchases Book. Credit sale of goods goes to the Sales Book. Returns go to their own books. Anything else goes to the Journal Proper.
3For a cash book, list every receipt on the debit side and every payment on the credit side, in date order, with the right column (cash, bank, discount).
4Mark contra entries. Show them once on each side, in the cash and bank columns.
5Put discount allowed on the debit side and discount received on the credit side. Do not add them into the cash or bank amount.
6Total each column. Balance the cash and bank columns by finding the difference and carrying down the balance. Only total the discount columns.
7For petty cash, add each expense analysis column, total them, and compute the reimbursement as total expenses.
8Check: debit total equals credit total in each balanced column, and the answer matches the option asked.

Quickest way: Column totals and elimination

When to use it: Use for MCQs that ask for a closing cash or bank balance, a total of a book, or which book a transaction belongs to.

For balance questions, compute: Opening balance + all receipts − all payments, for cash and bank separately.
Ignore discount in the cash or bank figure. The cash or bank column holds only the amount actually paid or received.
Treat a contra entry as moving money. It raises one column and lowers the other by the same amount.
For book-identification MCQs, ask: is it goods, is it on credit, is it for resale? Fixed assets and opening entries are always Journal Proper.
For petty cash, closing balance should equal the imprest after reimbursement. Use this to check your answer.
Cross out options that break the sign rule, such as a cash balance on the credit side.

Common mistakes in Subsidiary Books and Cash Book

Recording a credit purchase of furniture in the Purchases Book.
The word purchase triggers the Purchases Book automatically.
Fix: Purchases Book is only for credit purchases of goods meant for resale. Furniture and machinery go in the Journal Proper.
Adding discount to the cash or bank amount.
Students see the discount as part of the receipt or payment.
Fix: Cash and bank columns show only the money that moved. Discount sits in its own column.
Putting discount allowed on the credit side.
Confusion between discount allowed and received.
Fix: Allowed to customers is a loss and goes on the debit side. Received from suppliers is a gain and goes on the credit side.
Entering a contra entry on one side only.
Students treat it like a normal receipt or payment.
Fix: Contra entries affect two columns on opposite sides. Cash deposited: bank column debit, cash column credit.
Recording cash purchases in the Purchases Book.
Students think any purchase of goods belongs there.
Fix: Only credit transactions go into subsidiary books. Cash transactions go directly to the cash book.
Reimbursing the wrong amount under the imprest system.
Students refund the original imprest instead of the amount spent.
Fix: Reimburse only total expenses for the period. Then the cash in hand returns to the imprest.

Worked examples

Example 1

Rohit Traders had cash ₹10,000 and bank ₹40,000 on 1 April. On 2 April, cash sales were ₹20,000. On 3 April, cash of ₹15,000 was deposited in bank. On 5 April, a cheque of ₹8,000 was issued to Sharma in full settlement of his account, after Sharma allowed ₹200 discount. The ₹8,000 is the net amount actually paid by cheque. What are the closing cash and bank balances?

Show the solution

Cash: opening ₹10,000 + cash sales ₹20,000 = ₹30,000.
Deposit in bank is a contra entry. Cash falls by ₹15,000, so cash = ₹30,000 − ₹15,000 = ₹15,000.
Bank: opening ₹40,000 + deposit ₹15,000 = ₹55,000.
The cheque issued to Sharma is a bank payment of ₹8,000, the net amount actually paid. The discount received of ₹200 goes in the discount column and does not change bank.
Bank = ₹55,000 − ₹8,000 = ₹47,000.

Answer: Closing cash ₹15,000 and closing bank balance ₹47,000 (debit).

Example 2

A petty cashier works on the imprest system with an imprest of ₹5,000. In a month, the expenses were: postage ₹600, conveyance ₹900, stationery ₹750 and sundries ₹350. How much does the head cashier give to restore the imprest, and what is the cash in hand before reimbursement?

Show the solution

Total expenses = ₹600 + ₹900 + ₹750 + ₹350 = ₹2,600.
Cash in hand before reimbursement = Imprest − Expenses = ₹5,000 − ₹2,600 = ₹2,400.
Reimbursement needed = ₹5,000 − ₹2,400 = ₹2,600.
After reimbursement, cash in hand = ₹2,400 + ₹2,600 = ₹5,000, the imprest.

Answer: The head cashier gives ₹2,600. Cash in hand before reimbursement is ₹2,400.

Exam tips

Questions on book identification are common. Always check two things: is it credit, and is it goods for resale.
In cash book MCQs, check for contra entries first. They are the most common trap.
Remember that the discount column is totalled, not balanced. Options that show a discount balance are wrong.
For petty cash, use the check that closing cash after reimbursement equals the imprest.
Scan options for the bank balance sign. A credit balance in the bank column means overdraft.

Practice questions from Accounting Cycle

Subsidiary Books and Cash Book in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Subsidiary Books and Cash Book: frequently asked questions

What is the difference between journal and subsidiary books?

The journal records all kinds of transactions one by one with debit and credit entries. Subsidiary books record only one type of transaction each, such as credit sales, and are posted in totals. Transactions that fit no subsidiary book go in the Journal Proper.

How do I prepare a three column cash book?

Draw debit and credit sides, each with discount, cash and bank columns. Enter receipts on the debit side and payments on the credit side. Show contra entries on both sides. Total the discount columns and balance the cash and bank columns.

What is the imprest system in the petty cash book?

The petty cashier gets a fixed sum called the imprest. At the end of the period, the head cashier reimburses only what was spent. This brings the petty cash back to the original fixed amount.

Is the cash book a ledger or a journal?

It is both. It is a book of original entry because transactions are first recorded in it. It is also a ledger account for cash and bank, so its balances go straight to the trial balance.