Primary and Secondary Books: Principle of Financial Accounting and Management for BCA, MCA, BBA, MBA

Table of Contents

1. Primary Book: Introduction
   1. Ground Rules of Journalism
   2. Types of Subsidiary Books
2. Secondary Book: Introduction
   1. Types of Secondary Books
   2. Posting Techniques in the Ledger

Primary Book: Introduction

What is a Primary Book in Accounting?

In accounting, a Primary Book (also known as the Journal) is where all financial transactions are first recorded. Think of it as a diary where you write down every single thing you spend or receive money for, right when it happens.

Why is it Important?

The Primary Book helps keep track of all the money going in and out. It makes it easier to see where your money is coming from and where it’s going. This is the first step in making sure your financial records are accurate.

What Do We Record in the Primary Book?

In the primary book, we record every transaction in detail. Let's break this down with some examples:

1. Date of Transaction: When did the transaction happen?
2. Details of Transaction: What was the transaction about? For example, did you buy something or sell something?
3. Amount Involved: How much money was involved in the transaction?

Primary Book in Details

1. Recording Sales:

• Example: You sold a notebook for ₹50. On the day you sell it, you write down in your primary book: "Sold notebook, ₹50".

2. Recording Purchases:

• Example: You bought some pens for ₹100. You write down: "Bought pens, ₹100".

3. Recording Expenses:

• Example: You paid ₹200 for electricity. You write down: "Paid electricity bill, ₹200".

4. Recording Income:

• Example: You received ₹500 from a customer who had previously bought something on credit. You write: "Received payment from the customer, ₹500".

How to Use the Primary Book?

1. Chronological Order:

• Record transactions in the order they happen, one after another. This helps in keeping everything organized by date.

2. Double-Entry System:

• For every transaction, we record two aspects:
• Debit: What comes into the business (like goods, money).
• Credit: What goes out of the business (like expenses).

• Example: If you buy a chair for ₹1,000, it affects two accounts:
• Debit (what comes in): Furniture account goes up by ₹1,000.
• Credit (what goes out): Cash account goes down by ₹1,000.

Real-Life Example

Let’s say you have a small business selling snacks. Here’s how you might record transactions in your primary book:

1. Date: 1st June
• Sold snacks worth ₹200.
• Entry: "Sold snacks, ₹200".
2. Date: 2nd June
• Bought ingredients for ₹150.
• Entry: "Bought ingredients, ₹150".
3. Date: 3rd June
• Paid ₹50 for transportation.
• Entry: "Paid for transportation, ₹50".
4. Date: 4th June
• Received ₹100 from a customer.
• Entry: "Received payment from the customer, ₹100".

Primary Book Table

Date	Description	Debit (₹)	Credit (₹)
1st June	Sold snacks		200
2nd June	Bought ingredients	150
3rd June	Paid for transportation	50
4th June	Received payment from customer		100

Explanation of the Table Columns

1. Date: The date when the transaction occurred.
2. Description: A brief description of the transaction.
3. Debit: The amount that comes into the business (e.g., sales, received payments).
4. Credit: The amount that goes out of the business (e.g., purchases, expenses).

Why Should You Care?

Keeping a primary book helps you see where your money is coming from and where it’s going. It helps you make better decisions, like knowing when to buy more supplies or when to save money.

In summary, the primary book is the first place where you write down all your business transactions. It's crucial for keeping track of your finances, making sure everything is in order, and helping you understand the financial health of your business.

Rules of Journalisation

Journalisation is the process of recording business transactions in a journal. The journal is often called the "book of original entry" because it's where transactions are first recorded. Understanding how to journal transactions is fundamental in accounting. 

Here are the rules of journalistic with simple examples:

1. Identify the Transaction

• What happened? You need to figure out what the transaction is about. For example, if you bought stationery for your business, that's a transaction.

2. Determine the Accounts Involved

• Which accounts are affected? Every transaction affects at least two accounts. For example, if you bought stationery, the accounts affected would be "Stationery Expenses" and "Cash" (if you paid in cash).

3. Classify the Accounts

Is it an asset, liability, equity, revenue, or expense?

• Assets: Things you own (e.g., cash, furniture)
• Liabilities: Things you owe (e.g., loans, bills payable)
• Equity: Owner's claim on the business (e.g., capital)
• Revenue: Money earned (e.g., sales)
• Expense: Money spent (e.g., rent, salaries)

4. Apply the Rules of Debit and Credit

Every transaction has a debit and a credit side.

• Assets and Expenses increase on the debit side and decrease on the credit side.
• Liabilities, Equity, and Revenue increase on the credit side and decrease on the debit side.

5. Record the Transaction in the Journal

Write down the details. This includes the date, the accounts debited and credited, and a brief description

Format of the Journal

Date	Description	Debit (₹)	Credit (₹)
DD/MM/YYYY	Account Name (Dr.)	Amount
	To Account Name (Cr.)		Amount
	(Description of the transaction)

Example Journal Entry

Let's assume we have the transaction: Purchased stationery for ₹500 in cash.

Date	Description	Debit (₹)	Credit (₹)
01/06/2024	Stationery Expenses (Dr.)	500
	To Cash (Cr.)		500
	(Purchased stationery for office use)

Example Journal Entries using Template

1. Owner Invests Capital

• The owner invested ₹10,000 in the business.
• Accounts Involved: Cash (Asset) and Capital (Equity).

Date	Description	Debit (₹)	Credit (₹)
01/06/2024	Cash (Dr.)	10,000
	To Capital (Cr.)		10,000
	(Owner invested money into the business)

2. Paying Rent

• Paid ₹2,000 for office rent.
• Accounts Involved: Rent Expenses (Expense) and Cash (Asset).

Date	Description	Debit (₹)	Credit (₹)
02/06/2024	Rent Expenses (Dr.)	2,000
	To Cash (Cr.)		2,000
	(Paid rent for office)

This format helps keep your journal entries organized and easy to read. Each entry includes the date of the transaction, the accounts affected, the amounts debited and credited, and a brief description of what the transaction was for.

Types of Subsidiary Books

Subsidiary books are special books used to record specific types of transactions in detail. Instead of putting every single transaction directly into the main accounting book (the ledger), businesses use these subsidiary books to make the process easier and more organized. Think of these books as detailed sections of a big, main book.

Here are the different types of subsidiary books with simple examples:

1. Cash Book

• What It Does: Records all cash transactions, both receipts and payments.
• Example: If a shopkeeper receives ₹500 from a customer and pays ₹200 for buying supplies, both these transactions will be noted in the cash book.
• Cash received and paid (like pocket money received and money spent on snacks).

2. Purchase Book

• What It Does: Records all credit purchases of goods (goods bought on credit, not paid for immediately).
• Example: If a clothing store buys shirts worth ₹10,000 on credit from a supplier, this transaction will be noted in the purchase book.
• Goods bought on credit (like borrowing books from a friend with a promise to return them later).

3. Sales Book

• What It Does: Records all credit sales of goods (goods sold on credit, not received payment immediately).
• Example: If the same clothing store sells dresses worth ₹8,000 on credit to a customer, this transaction will be noted in the sales book.
• Goods sold on credit (like lending your game console to a friend who will return it later).

4. Purchase Returns Book (or Returns Outward Book)

• What It Does: Records the return of goods that were purchased on credit.
• Example: If the clothing store returns faulty shirts worth ₹1,000 to the supplier, this transaction will be noted in the purchase returns book.
• Returning goods bought on credit (like returning a borrowed book to a friend because it had missing pages).

5. Sales Returns Book (or Returns Inward Book)

• What It Does: Records the return of goods that were sold on credit.
• Example: If a customer returns a defective dress worth ₹500 to the clothing store, this transaction will be noted in the sales returns book.
• Getting back goods sold on credit (like getting your game console back from a friend because it was not working properly).

6. Journal Proper (General Journal)

• What It Does: Records transactions that don't fit into any other subsidiary books.
• Example: If the clothing store owner takes out ₹2,000 from the business for personal use (drawings), this transaction will be noted in the journal proper.
• Miscellaneous transactions (like noting down money taken from your piggy bank for personal use).

7. Bills Receivable Book

• What It Does: Records all bills that the business has received and needs to collect payment for.
• Example: If the clothing store receives a bill of ₹5,000 from a customer to be paid after 30 days, this will be noted in the bills receivable book.
• Bills to be collected (like noting down that a friend owes you ₹100 for a shared lunch).

8. Bills Payable Book

• What It Does: Records all bills that the business has to pay.
• Example: If the clothing store has a bill of ₹7,000 to be paid to a supplier in 60 days, this will be noted in the bills payable book.
• Bills to be paid (like noting down that you owe your friend ₹50 for a borrowed pen).

Secondary Book: Introduction

In accounting, we use two main types of books to keep track of money and transactions: the primary book (which includes the journal) and the secondary book (which includes the ledger). Now, we'll focus on the secondary book.

What is a Secondary Book?

A secondary book, also known as a ledger, is like a detailed record book where all the transactions from the primary book (journal) are summarized and categorized. Think of it as a more organized way to keep track of where money is coming from and going to in a business.

Why Do We Need a Secondary Book?

Imagine you have a diary where you write down every time you spend or receive money. But if you want to see all the money you’ve spent on food in the past month, it would be hard to find because it's mixed with all other transactions. The secondary book helps solve this problem by grouping similar transactions together.

Key Parts of a Secondary Book:

1. Accounts:

• An account is like a separate page in a book for each type of transaction. For example, you might have one account for all the money spent on groceries and another account for all the money received from your part-time job.

2. Debits and Credits:

• Debit: Think of this as money going out. If you buy a new phone for ₹10,000, you debit (subtract) ₹10,000 from your cash account.
• Credit: Think of this as money coming in. If you get ₹5,000 as a gift, you credit (add) ₹5,000 to your cash account.

3. Balancing Accounts:

• At the end of a period, you check if the total debits equal the total credits in each account. This helps ensure that all money is accounted for.

How It Works: An Example

Let’s say you have a small business selling handmade crafts. Here’s how you might use a secondary book:

1. Opening an Account:

• You create an account for “Sales” to record all the money you earn from selling crafts.
• You create another account for “Expenses” to record all the money you spend on materials.

2. Recording Transactions:

• On January 1st, you sell a craft item for ₹500. You record this as a credit in the “Sales” account.
• On January 2nd, you buy materials for ₹200. You record this as a debit in the “Expenses” account.

3. Balancing the Accounts:

• At the end of January, you check your “Sales” account and see a total credit of ₹10,000.
• You check your “Expenses” account and see a total debit of ₹4,000.
• This means you have earned ₹6,000 more than you spent.

Benefits of Using a Secondary Book:

1. Organization:

• It helps you keep transactions organized and easy to review.

2. Accuracy:

• It ensures all your financial records are accurate and up to date.

3. Analysis:

• It helps you analyze where you are earning money and where you are spending it.

4. Decision Making:

• With clear records, you can make better financial decisions for your business.

By using a secondary book, you can easily track your earnings and expenses, helping you manage your money more effectively and ensuring that your business runs smoothly.

Types of Secondary Books in Accounting

In accounting, secondary books are used to keep detailed records of financial transactions. These are different from primary books like the journal. Here’s a simple explanation of the main types of secondary books, with easy examples.

1. Cash Book

The cash book records all cash transactions (both cash received and cash paid out).

• Example: If you receive ₹1,000 from selling a bicycle, you write it in the cash book. If you pay ₹500 for buying a new chair, you also write it in the cash book.

2. Sales Book

The sales book records all sales of goods made on credit.

• Example: If you sell notebooks worth ₹2,000 to a stationery shop on credit (meaning they will pay you later), you record this sale in the sales book.

3. Purchase Book

The purchase book records all purchases of goods made on credit.

• Example: If you buy furniture for your store on credit worth ₹3,000 from a supplier, you write it in the purchase book.

4. Sales Return Book

The sales return book records any goods that customers return to you after purchasing on credit.

• Example: If the stationery shop returns ₹500 worth of notebooks because they were damaged, you record this return in the sales return book.

5. Purchase Return Book

The purchase return book records any goods you return to suppliers after buying on credit.

Example: If you return ₹700 worth of faulty furniture to the supplier, you write this return in the purchase return book.

6. Journal Proper

The journal properly records transactions that don’t fit into any other books.

• Example: If you withdraw ₹1,000 from the business for personal use, called drawings, it goes into the journal proper. Another example is adjusting entries at the end of the financial year.

7. Bills Receivable Book

The bills receivable book records all the bills (promises to pay) that you expect to receive from others.

• Example: If someone gives you a bill promising to pay ₹5,000 in two months for a product, you record this in the bills receivable book.

8. Bills Payable Book

The bills payable book records all the bills (promises to pay) that you owe to others.

• Example: If you sign a bill promising to pay ₹2,500 to a supplier in one month, you write this in the bills payable book.

Posting Techniques in the Ledger

"Posting Techniques in the Ledger" refers to the process of recording financial transactions in a detailed account book called the ledger.

Imagine you have a diary where you note down all the money you spend and earn. Each page in this diary is like an account in the ledger. When you spend money, you write down the amount in the appropriate account, like "Food Expenses" or "Transportation Costs." Similarly, when you receive money, you note it down in the relevant account, like "Salary" or "Pocket Money."

In accounting, there are different techniques for recording these transactions in the ledger. For example, one technique is to post transactions directly from the journal (where transactions are first recorded) to the ledger. Another technique is to use subsidiary ledgers for specific types of transactions, like keeping a separate diary for different types of expenses.

Overall, posting techniques in the ledger help keep track of all financial transactions, making it easier to understand where the money is coming from and where it is going.

Ledger Posting: Ledger posting involves transferring entries from the journal to the respective ledger accounts. Each account will have its own ledger, and all transactions affecting that account will be posted there.

Let's take the example of the Crimson Software Ltd (CSL) Transaction:

1. Journal Entries

Date	Particulars	Debit (Rs)	Credit (Rs)
Mar 1	Cash Account Dr.	50,000
	To Capital Account		50,000
Mar 2	Cash Account Dr.	20,000
	To Loan from Mr Deeraj		20,000
Mar 3	Computer Account Dr.	58,000
	To Cash Account		58,000
Mar 4	Supplies Account Dr.	6,000
	To Creditors Account		6,000
Mar 15	Cash Account Dr.	12,000
	To Sales Account		12,000
Mar 20	Creditors Account Dr.	2,000
	To Cash Account		2,000
Mar 29	Salaries Account Dr.	4,000
	Rent Account Dr	1,200
	To Cash Account		5,200
Mar 30	Accounts Receivable Account Dr.	8,000
	To Sales Account		8,000
Mar 31	Drawings Account Dr.	3,500
	To Cash Account		3,500

2. Ledger Account

Cash Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 1	Capital Account	50,000		50,000
Mar 2	Loan from Mr. Deeraj	20,000		70,000
Mar 3	Computer Account		58,000	12,000
Mar 15	Sales Account	12,000		24,000
Mar 20	Creditors Account		2,000	22,000
Mar 29	Salaries Account		4,000	18,000
Mar 29	Rent Account		1,200	16,800
Mar 31	Drawings Account		3,500	13,300

Explanation:

1. Mar 1: Received ₹50,000 from Capital Account.

• Debit: ₹50,000
• Credit: ₹0
• Balance: ₹50,000

2. Mar 2: Received ₹20,000 from Loan from Mr. Deeraj.

• Debit: ₹20,000
• Credit: ₹0
• Balance: ₹70,000

3. Mar 3: Paid ₹58,000 for Computer.

• Debit: ₹0
• Credit: ₹58,000
• Balance: ₹12,000

4. Mar 15: Received ₹12,000 from Sales.

• Debit: ₹12,000
• Credit: ₹0
• Balance: ₹24,000

5. Mar 20: Paid ₹2,000 to Creditors.

• Debit: ₹0
• Credit: ₹2,000
• Balance: ₹22,000

6. Mar 29: Paid ₹4,000 for Salaries.

• Debit: ₹0
• Credit: ₹4,000
• Balance: ₹18,000

7. Mar 29: Paid ₹1,200 for Rent.

• Debit: ₹0
• Credit: ₹1,200
• Balance: ₹16,800

8. Mar 31: The owner withdrew ₹3,500 for personal use (Drawings).

• Debit: ₹0
• Credit: ₹3,500
• Balance: ₹13,300

Capital Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 1	Cash Account		50,000	50,000

The loan from Mr. Deeraj's Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 2	Cash Account		20,000	20,000

Computer Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 3	Cash Account	58,000		58,000

Supplies Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 4	Creditors Account	6,000		6,000

Sales Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 15	Cash Account		12,000	12,000
Mar 30	Accounts Receivable		8,000	20,000

Creditors Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 4	Supplies Account		6,000	6,000
Mar 20	Cash Account	2,000		4,000

Salaries Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 29	Cash Account	4,000		4,000

Rent Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 29	Cash Account	1,200		1,200

Accounts Receivable Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 30	Sales Account	8,000		8,000

Drawings Account

Date	Particulars	Debit (Rs)	Credit (Rs)	Balance (Rs)
Mar 31	Cash Account	3,500		3,500

Explanation:

• Cash Account: All transactions involving cash are recorded here. It starts with the investment by Rajesh and records subsequent transactions affecting cash.
• Capital Account: Records the capital invested by Rajesh.
• The loan from Mr Deeraj's Account: Records the loan taken from Mr. Deeraj.
• Computer Account: Records the purchase of computers.
• Supplies Account: Records the purchase of supplies on credit.
• Sales Account: Records the revenue from sales.
• Creditors Account: Records the liability for the supplies purchased on credit.
• Salaries Account: Records the salary expenses.
• Rent Account: Records the rent expenses.
• Accounts Receivable Account: Records the amount due from the sale of the software package.
• Drawings Account: Records the withdrawal by Rajesh for personal use.

By posting the journal entries to the respective ledger accounts, we can easily track the balances and see the overall financial position of the company.