As transactions occur, it is possible, at least in theory, to
record them from source documents directly to the proper accounts in the
Principal Book(s). but in actual practice, with hundreds of different accounts
and thousands of transactions occurring every day, such a procedure would
become cumbersome and confusing. Furthermore, after several recordings it world
become difficult to locate a particular transaction. Not only this, the
identity of individual transaction is lost and the purpose of recording it
cannot be easily ascertained. For example, if the cash account, he might not
succeed in his efforts unless he goes through the entire general ledger. A
separate record of each transaction is therefore, necessary.
Need for Subsidiary Books
Ledger, as already noted, is the principal book of account which
contains information relating to all business transaction both as regards
debits and credit aspects. It provides a cumulative analysis of the effect of
business transactions.
The use of ledger alone, though the principal book of accounts,
such procedure usually is inadvisable. It fails to meet all the requirements of
a complete accounting system. Various reasons why ledger is an incomplete
record and why subsidiary books must also be maintained are as follows:
1.) Chronological
history not available:- If business transactions are entered
directly In individual accounts in ledger, the trader
would not have as adequate picture of what occurs in his business. It is
lacking when only ledger is used.
A
business enterprises should keep a chronological record of its transactions in
order to simplify references to its activities according to date.
2.) Complete
transaction not shown at one place:- information disconnected each business
transaction affects more than one account. When the debit and credit aspects of
a transaction are entered in two shown at one place. Consequently, if there are
a large number of accounts in ledger, it would become difficult to trace any
transaction.
3.) Detail
inadequate- ledger too bulky:- only meager information concerning a transaction
can be shown conveniently in the accounts in ledger. If, however complete
information is given in the ledger, it would become too bulky to be handled
efficiently.
4.) Division
of labour hampered:- only one person at a time con efficiently
make entries in the ledger. He must have the entire
ledger available in order to record the transaction in each account affected. A
large enterprise, with a multitude of transactions to record, must use a more
efficient system which permits many employees to work on the books at the same
time.
5.) Errors
difficult to locate:- Making the entries directly in the ledger
increases the probability that errors will occur and
makes errors mode difficult to locate and correct. The following are a few
examples.
a.)
Omitting one part of a transaction
c.)
Entering the wrong amount in an account. d.) Entering an amount in the wrong
account.
These
five reasons sufficiently explain the desirability of having. Subsidiary books
where the transactions are shown—
a.)
In chronological order
b.)
Complete in one place, and