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Books For Subsidiary Use and Cash-Flow Statements

In small enterprises when a single accountant can keep accounts or the owner himself can conduct the accounts job, maintaining a single journal hook' in which journal entries are written for each transaction and posted to ledger is feasible. Transactions in larger businesses are so numerous and diversified that a single journal book is completely inadequate and inconvenient. Several accounts assistants may be required to work together on accounts and split the workload. To minimise and facilitate ledger work, it may be required to aggregate comparable transactions even at the journal stage in the form of 'special journals.' As a result, the Subsidiary Books system was created as an alternative to a single journal.





The following are examples of subsidiary books:

(a) Purchases book to keep track of credit purchases;

(b) Sales book to keep track of credit sales;

(c) Purchase returns book to keep track of returns to suppliers.

(d) A sales returns book is used to track customer returns.

(e) A cash book is used to keep track of all cash receipts and payments.

(f) A bill receivable book is used to keep track of the bills that have been received.

(g) A bill payable book is used to keep track of the bills that have been accepted.

(h) General journal or suitable journal for recording any additional transactions not covered by the foregoing specialised subsidiary books.

The following are some of the advantages of subsidiary books:

(a) Work reduction: When compared to a single journal, this approach minimises overall work because only one posting is made on the transaction date. The second aspect is a consolidated monthly posting.

(b) Allows for group work: A single journal can be written by a single person. Many accountants are capable of working on subsidiary books.

(c) Accuracy: Because of specialised work and monthly summarised postings, accounts will be more accurate.

(d) More accurate data: A lot of useful data is made available, such as total credit sales, credit purchases, returns, and so on, which is not possible in a journal system. (e) Cash book: The cash book serves as both a journal and a ledger account. As a result, there is no need for a separate cash account.


Even bank A/e is not required in the ledger when using a three-column cash book.


Basic Subsidiary Book Documents

(a) Inward invoice: An inward invoice is a document sent by a supplier of goods that contains information about the goods sent, such as price, value, and discount. It serves as the foundation for entries in the purchase book.

(b) Outward Invoice: This is a document sent by the company to its customers that contains information about the goods provided, their price and value, discounts, and so on. It serves as the foundation for writing a sales book.

(c) Debit note: When suppliers' goods are returned, they receive a debit note detailing the items returned and their value. It serves as the foundation for purchasing Returm's book.

(d) Credit Note: When consumers return items, the company prepares a credit note for them and sends it to them, detailing the amount credited to them based on the returned goods. This note serves as the foundation for the creation of a sales returns book.

(e) Cash Receipts and Vouchers: These are receipts and vouchers for money received and paid. The strength of the vouchers and receipts is used to make entries in the cash book. They're also beneficial for audits.


The primary goal of investment appraisal is to determine whether the initial capital requirements/outlay will generate sufficient future cash inflows to make the investment viable. The steps for calculating cash flows for an investment are as follows:


i. Cash flow projections


The main component of an investment appraisal is a detailed and reasonable cash flow forecast. An investment opportunity/decision must add to the firm's value in order to be considered appropriate. As a result, the project should increase the firm's cash inflows. The problem of future cash flow estimation, i.e. the initial investment outlay and the estimated cash inflows that will be generated from the new acquisition, and determining whether the acquisition adds value to the company, is discussed above. As a result, the estimation of cash flows is one of the most important and critical processes in investment appraisal.


ii. Investment Appraisal: Estimating Incremental Cash Flows


The cash flow that is incepted/added after the implementation of an investment project is referred to as incremental cash flows. Where time refers to the time when the investment is made, and cash flows generated after time are considered incremental/ additional cash flows. A comparison is made between the firm's incremental cash flow with and without the new investment to determine the firm's incremental cash flow. The difference between the two generates additional cash flows.


iii. Incorporation of the time value of money into future cash flows


The estimated future cash flows are adjusted to reflect today's current purchasing power, i.e. to take into account the time value of money at the time of occurrence. The discount rate is used to compare future estimated cash flows to current cash flows. As a result, Airbnb Inc must discount real cash flows at the given or present discount rate, while nominal cash flows must be discounted at nominal discount rates. All future cash flows can be estimated in nominal terms by Airbnb. The discounting rate is used to account for inflation, which is a contributing factor to the increase or decrease in purchasing power and, as a result, the size of the estimated cash flows.


iv. Criteria for Making a Decision


The formulation of decision criteria is the final step in investment appraisal. The criteria for making decisions vary and are usually dependent on the investment appraisal method used. compounded. The rule of thumb when using the net present value (NPV) method, which compares the difference between net future cash inflows and current cash outflows, is to pursue investment opportunities with a positive Net Present Value. The rule of thumb for the payback period investment appraisal method is to choose an investment project/opportunity with the shortest payback period. This means that the company will be able to recoup its initial investment as quickly as possible. The Accounting Rate of Return (ARR) and the Internal Rate of Return (IRR) are two other methods (IRR). These are the expected or promised benefits of completing the project. When employing this strategy, the Airbnb company should only pursue investment opportunities where the IRR exceeds the current cost of capital.


v. Analysis of benefits and best fit


This step is for mutually exclusive projects where the decision criteria are not reached after using the methods above, such as having two projects with equal NPVs. As a result, it is necessary to weigh the advantages of each, i.e. benefits other than large cash flows. These advantages include the ease with which the investment can be made, the impact on the community, and so on.