Fundamentals of Financial and Cost Accounting · Journal and Ledger

Subsidiary Books and Cash Book Explained for CMA Foundation

Updated 10 October 2026 · Fact-checked

Subsidiary books are separate journals that record one type of transaction each, such as credit purchases, credit sales or returns. The cash book records all cash and bank transactions and also works as a ledger. Journal proper records everything else. Pick the book by the nature of the transaction.

Understand Subsidiary Books and Cash Book

A business has hundreds of transactions. Writing all of them in one journal is slow and error-prone. So the journal is divided into subsidiary books. Each book handles one kind of repeating transaction. Totals are then posted to the ledger, which saves a lot of effort.

The main books are: Purchase book (only credit purchases of goods meant for resale), Sales book (only credit sales of goods), Purchase returns book (returns outward, goods sent back to suppliers), Sales returns book (returns inward, goods received back from customers), Bills receivable book and Bills payable book (bills accepted or received). Cash purchases, cash sales and purchases of assets on credit do not go in the purchase or sales book.

Journal proper is for entries that fit no other book. Examples are opening entries, closing and adjustment entries, rectification entries, credit purchase of fixed assets, bad debts written off, and depreciation. This is the main answer to the difference between purchase book and journal proper: the purchase book holds only credit purchases of goods for resale, while a credit purchase of furniture goes to journal proper.

The cash book is both a journal and a ledger. A single column cash book has one cash amount column on each side. A double column cash book adds a discount or a bank column. A triple column cash book has cash, bank and discount columns on both sides. Receipts go on the debit side. Payments go on the credit side. Discount allowed is on the debit side and discount received is on the credit side. A contra entry is one where both cash and bank are affected, such as depositing cash into the bank. It appears on both sides of the cash book, with the letter C in the folio column.

The petty cash book records small routine expenses. Under the imprest system, the petty cashier receives a fixed amount (the imprest) for a period. At the end, the expenses are totalled and the cashier is reimbursed exactly that amount, so the opening balance is restored. The book is usually in analytical format, with a column for each expense head such as postage, stationery and travelling.

Key formulas to remember

Purchase book rule: Credit purchase of goods for resale → Purchase book; Cash purchases go to the cash book. Credit purchase of assets goes to journal proper.
Sales book rule: Credit sale of goods dealt in → Sales book; Cash sales go to the cash book. Sale of an old asset on credit goes to journal proper.
Return books: Purchase returns = returns outward; Sales returns = returns inward; Returns of goods bought or sold on credit only. Cash returns go to the cash book.
Cash book sides: Debit = receipts and discount allowed; Credit = payments and discount received; Discount columns are not balanced like the cash and bank columns. Their totals are posted to the Discount Allowed and Discount Received accounts in the ledger.
Contra entry: Cash deposited in bank: Dr Bank column, Cr Cash column. Cash withdrawn: Dr Cash column, Cr Bank column; Both accounts are in the cash book, which itself acts as the cash and bank ledger accounts, so no separate ledger posting is needed.
Closing balance of cash book: Closing balance of the cash column or bank column = Debit total of that column − Credit total of that column (discount columns excluded); Work out cash and bank separately and leave the discount columns out. A credit balance in the bank column is an overdraft.
Imprest reimbursement: Amount reimbursed = Total petty expenses for the period; Closing petty cash + expenses = imprest amount, if no extra cash was given.

How to solve Subsidiary Books and Cash Book questions

Use this method for any question on subsidiary books or cash book, whether it asks you to choose a book, find a total or find a balance.

1Read each transaction and mark whether it is cash or credit.
2Identify what is traded: goods dealt in by the business or an asset.
3Pick the book: credit purchase of goods to the purchase book, credit sale to the sales book, returns to their return books, bills to the bills books, and everything else to journal proper.
4Check trade discount. Record purchases and sales at the amount after trade discount. Cash discount is not deducted in the purchase or sales book.
5For cash book, put receipts on the debit side and payments on the credit side. Place discounts in the discount columns.
6Treat cash-to-bank and bank-to-cash transfers as contra entries on both sides.
7Total each column, then find the balance as the difference of the two sides. Do this separately for cash and bank.
8For petty cash, add all expense columns to get the total spent. The reimbursement equals this total under the imprest system.

Quickest way: Two-question filter

When to use it: For MCQs that ask which book a transaction goes into, or what a balance is.

Ask first: is it cash or credit? Cash or bank means cash book.
Ask next: is it goods for resale? If yes and on credit, it is the purchase or sales book. If it is an asset or an adjustment, it is journal proper.
For cash book totals, ignore discount columns when finding cash or bank balances.
For imprest questions, remember: reimbursement equals expenses, and opening balance is restored.
Eliminate options that put a credit purchase of an asset in the purchase book.

Common mistakes in Subsidiary Books and Cash Book

Recording credit purchase of furniture or machinery in the purchase book
The word purchase triggers the purchase book.
Fix: The purchase book is only for goods meant for resale. Assets go to journal proper.
Including cash discount in the totals of the purchase or sales book
Students confuse trade discount with cash discount.
Fix: Trade discount is deducted before recording. Cash discount appears only when payment is made, in the cash book.
Placing discount allowed on the credit side of the cash book
Students think of discount as a payment reduction.
Fix: Discount allowed is a loss, shown on the debit side. Discount received is a gain, shown on the credit side.
Adding discount columns into cash or bank balance
All columns sit side by side.
Fix: Discount columns are only totalled and posted to ledger. Never mix them with cash or bank balances.
Treating a contra entry as a one-sided entry
Students record only the cash side or the bank side.
Fix: Record it on both sides of the cash book, in the cash column and the bank column.
Reimbursing petty cash with the closing balance instead of expenses
Confusion between what is left and what was spent.
Fix: Reimbursement equals total expenses. Check that closing balance plus reimbursement equals the imprest.

Worked examples

Example 1

Ramesh Traders had these transactions: bought goods on credit from Mehta ₹40,000; bought furniture on credit from Shah ₹15,000; bought goods for cash ₹10,000; sold goods on credit to Rao ₹25,000. What is the total of the purchase book?

Show the solution

Credit purchase of goods from Mehta ₹40,000 goes to the purchase book.
Furniture is an asset, so it goes to journal proper.
Cash purchase goes to the cash book.
The credit sale goes to the sales book.
Total of the purchase book = ₹40,000.

Answer: ₹40,000

Example 2

Opening balances: cash ₹10,000 and bank ₹30,000. Transactions: cash sales ₹20,000; deposited cash into bank ₹15,000; paid rent by cheque ₹5,000; received a cheque of ₹12,000 from a customer, this being the net amount after allowing him discount ₹500 (so the customer's dues settled are ₹12,500), and deposited it in bank the same day; paid wages in cash ₹3,000. Find the closing cash and bank balances.

Show the solution

The cheque of ₹12,000 is the net amount received. The customer's account of ₹12,500 is settled by ₹12,000 received plus ₹500 discount allowed.
Cash column debit: opening 10,000 + sales 20,000 = 30,000.
Cash column credit: deposit in bank 15,000 + wages 3,000 = 18,000.
Closing cash = 30,000 − 18,000 = ₹12,000.
Bank column debit: opening 30,000 + deposit 15,000 + customer cheque 12,000 = 57,000.
Bank column credit: rent 5,000.
Closing bank = 57,000 − 5,000 = ₹52,000.
Discount allowed ₹500 goes to the discount column on the debit side and does not affect either balance.

Answer: Closing cash ₹12,000; closing bank ₹52,000

Exam tips

Most questions ask which book a transaction belongs to. Practise the cash or credit, goods or asset filter.
In cash book questions, check for contra entries before adding any totals.
Remember that cash book discount columns are not part of the balance. This is a favourite trap.
For petty cash, check whether the question gives the imprest, the expenses or the closing balance, then use: imprest = closing balance + expenses.
There is no negative marking, so never leave an MCQ blank. Eliminate the wrong options and choose.

Practice questions from Journal and Ledger

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 purchase book and journal proper?

The purchase book records only credit purchases of goods meant for resale. Journal proper records transactions that have no special book, such as credit purchase of assets, opening entries and adjustments.

How do I prepare a three column cash book?

Draw cash, bank and discount columns on both sides. Put receipts on the debit side and payments on the credit side. Show contra entries on both sides, then balance cash and bank separately and total the discount columns.

What is the imprest system in petty cash book?

The petty cashier gets a fixed sum at the start of a period. At the end, the head cashier reimburses exactly the amount spent. This restores the original fixed sum.

Is the cash book a journal or a ledger?

It is both. It is a book of original entry for cash and bank transactions, and it also acts as the cash account and bank account, so no separate ledger posting is needed for them.