Q.What are special purpose books?
Concept understanding — Special Purpose Books
Special Purpose Books – A First Look
Think about your own diary. You might jot down everything in one place – expenses, friend's birthdays, to-do lists. But when you need to find "how much I spent on food last month," you have to flip through every page. That's messy.
Now imagine a shopkeeper. Every day, hundreds of transactions happen: selling goods, buying stock, paying rent, receiving cash from a customer. If the shopkeeper wrote everything in one book, finding a single mistake would take hours. Worse, the book would be a jumble of unrelated entries.
That's why accountants use Special Purpose Books – separate notebooks for each type of transaction. Instead of one diary, you have a "Sales Diary," a "Purchase Diary," a "Cash Diary," and so on. Each book records only one kind of event, making the whole system clean, fast, and hard to mess up.
What Exactly Is a Special Purpose Book?
A Special Purpose Book (also called a Subsidiary Book) is a book of original entry – the first place a transaction is recorded – that is reserved for a single class of transactions. Instead of dumping everything into one Journal, you use:
- Sales Book – only credit sales of goods
- Purchase Book – only credit purchases of goods
- Cash Book – only cash and bank transactions
- Sales Return Book – only goods returned by customers
- Purchase Return Book – only goods returned to suppliers
- Journal Proper – the leftover transactions that don't fit anywhere else (e.g., opening entry, rectification, transfer entries)
A Special Purpose Book is not a ledger. It is a journal – the first record. From these books, entries are later posted to the ledger accounts.
Why Does This Matter?
Three reasons, and they are big ones for any exam or real business:
- Division of labour – One person handles sales, another handles purchases. No single person is overloaded.
- Speed – Recording a credit sale in the Sales Book takes seconds because you don't have to write "Sales Account Dr, Customer Account Cr" every time – the book's format does that for you.
- Error detection – If the total of the Sales Book doesn't match the total of the Sales Account in the ledger, you know exactly where to look.
Accounting Treatment – The Debit/Credit Logic
Here is the key rule: Every Special Purpose Book is a journal in disguise. Each book has a built-in double-entry logic. When you record a transaction in a Special Purpose Book, you are implicitly doing a journal entry. Later, the totals are posted to the ledger.
Let's take the most common ones:
1. Sales Book (Credit Sales of Goods)
- Debit: Customer's Personal Account (the buyer owes you money)
- Credit: Sales Account (revenue earned)
But in the Sales Book, you don't write "Dr" and "Cr" for each line. You just list the customer's name, invoice number, and amount. At the end of the month, you total the book and post:
- Debit the total to Sundry Debtors Account (in the ledger)
- Credit the total to Sales Account
Sales Book total → Dr Sundry Debtors, Cr Sales
2. Purchase Book (Credit Purchases of Goods)
- Debit: Purchases Account (expense/inventory)
- Credit: Supplier's Personal Account (you owe them money)
At month-end:
- Debit the total to Purchases Account
- Credit the total to Sundry Creditors Account
Purchase Book total → Dr Purchases, Cr Sundry Creditors
3. Sales Return Book (Goods Returned by Customers)
- Debit: Sales Returns Account (contra to sales)
- Credit: Customer's Personal Account (reduce what they owe)
Month-end posting:
- Debit the total to Sales Returns Account
- Credit the total to Sundry Debtors Account
4. Purchase Return Book (Goods Returned to Suppliers)
- Debit: Supplier's Personal Account (reduce what you owe)
- Credit: Purchase Returns Account (contra to purchases)
Month-end posting:
- Debit the total to Sundry Creditors Account
- Credit the total to Purchase Returns Account
Format of a Special Purpose Book
Every Special Purpose Book has a standard columnar format. Here is the Sales Book as an example:
| Date | Particulars (Customer Name) | Invoice No. | Ledger Folio | Amount (Rs) |
|---|---|---|---|---|
| 2024-01-05 | M/s Gupta Traders | 101 | L.F. 12 | 15,000 |
| 2024-01-12 | M/s Sharma & Co. | 102 | L.F. 18 | 22,500 |
| Total | 37,500 |
The Ledger Folio column is filled when the entry is posted to the customer's personal account in the ledger. The total (Rs 37,500) is the amount that gets posted to Sundry Debtors (Dr) and Sales (Cr).
A Common Mistake to Avoid
Do not record cash sales or cash purchases in the Sales Book or Purchase Book. Those books are for credit transactions only. Cash transactions go into the Cash Book. Also, do not record the sale of an asset (like an old machine) in the Sales Book – that book is only for goods (stock-in-trade).
The Big Picture
Special Purpose Books are not just a syllabus topic. They are the backbone of any manual accounting system. They turn a chaotic stream of transactions into organised, verifiable streams. Once you understand that each book is just a specialised journal with a fixed debit-credit pattern, the whole concept clicks.
In your exam, you will be asked to:
- Identify which book a transaction belongs to
- Prepare a Special Purpose Book from given data
- Post the totals to the ledger
Master the logic – which account gets debited and which gets credited – and the formats will follow naturally.
Special purpose books (also called subsidiary books or books of original entry) are separate books maintained to record particular classes of repetitive transactions, instead of journalising every transaction in one journal. Because a large business has too many transactions for a single journal, the journal is sub-divided so that each type of transaction is recorded in its own book.
The main special purpose books are:
| Book | Records |
|---|---|
| Cash book | All cash and bank receipts and payments |
| Purchases (Bought) book | Credit purchases of goods |
| Sales book | Credit sales of goods |
| Purchases Return book | Goods returned to suppliers |
| Sales Return book | Goods returned by customers |
| Bills Receivable / Bills Payable books | Bills received / accepted |
| Journal Proper | Transactions not fitting any of the above |
Special purpose books are the sub-divided books of original entry (cash book, purchases, sales, purchases return, sales return, bills books and journal proper) in which specific kinds of transactions are recorded separately.
Special purpose books are separate subsidiary books, each recording one particular type of repetitive transaction, into which the journal is sub-divided so that a large volume of transactions can be handled efficiently.
Meaning. In a small business all transactions can be recorded in one journal. But as the number of transactions grows this becomes impractical, so the journal is divided into several books, each meant for a specific class of transaction. These subsidiary or special purpose books are books of original entry — the transaction is recorded here first and then posted to the ledger.
Main special purpose books
| Special purpose book | Transactions recorded |
|---|---|
| Cash Book | All receipts and payments of cash and through bank |
| Purchases (Bought) Book | Credit purchases of goods only |
| Sales Book | Credit sales of goods only |
| Purchases Return (Return Outward) Book | Goods returned to suppliers |
| Sales Return (Return Inward) Book | Goods returned by customers |
| Bills Receivable Book | Bills of exchange received |
| Bills Payable Book | Bills of exchange accepted |
| Journal Proper | Transactions that cannot be recorded in any of the above (opening entries, adjustments, credit purchase/sale of assets, etc.) |
Cash purchases and cash sales are not entered in the purchases/sales books because they are already recorded in the cash book.
Working Notes
- No computation is required; this is a theory question defining special purpose books.
Special purpose (subsidiary) books are the separate books of original entry into which the journal is sub-divided — the cash book, purchases book, sales book, purchases return book, sales return book, bills receivable and bills payable books and the journal proper — each recording one specific class of transaction.
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2024Set ANNUAL1 markQ.What is Debit balance of input IGST Account?
›Reveal solutionSolution
Input IGST is a current asset account that records IGST paid on purchases (inter-state); a debit balance in it represents input tax credit still available to be set off against future GST liability.
Under GST, a registered dealer pays Input CGST/SGST/IGST on purchases and collects Output CGST/SGST/IGST on sales. At the time of filing returns, Input tax is set off against Output tax liability.
-
A debit balance in the Input IGST Account means the business has paid more IGST on its purchases than it has so far set off against its output tax liability.
-
This unutilised amount is an asset of the business (Input Tax Credit receivable from the government), and is shown on the assets side of the Balance Sheet under Current Assets.
✓Final answerA debit balance in the Input IGST Account represents unutilised Input Tax Credit (ITC) — an amount recoverable from the government — and is shown as a current asset in the Balance Sheet.
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- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2023Set ANNUAL1 markQ.When days of grace are not allowed?
›Reveal solutionSolution
Days of grace are not allowed on a bill payable on demand / at sight / on presentment.
A bill of exchange ordinarily carries three extra days, called 'days of grace', added to its nominal due date before it legally falls due for payment (e.g., a bill due 1st April actually matures on 4th April).
These days of grace apply only to time bills / usance bills, i.e., bills that mention a definite period after which they are payable (like "3 months after date"). They are not allowed when the bill is made payable:
- On demand,
- At sight, or
- On presentment,
— because in these cases the bill is payable immediately on presentation to the drawee, with no period of credit to extend in the first place.
✓Final answerDays of grace are not allowed on a bill payable 'on demand', 'at sight' or 'on presentment' — i.e., where the bill does not specify a fixed period of credit.
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2022Set ANNUAL1 markMCQQ.Noting charges are ultimately borne by – A. Drawer B. Drawee C. Payee D. Bank
›Reveal solutionSolution
Noting charges are ultimately borne by the Drawee (the acceptor), because the dishonour of the bill happened due to the drawee's default in payment.
Explanation: When a bill of exchange is dishonoured on its due date, the holder may get the fact of dishonour certified by a Notary Public, who charges a fee known as "noting charges." Although the holder pays this fee at the time of noting, it is a loss caused entirely by the drawee's (acceptor's) failure to honour the bill. Therefore:
- The holder debits the Drawee's account with the noting charges (added to the amount recoverable from the drawee), along with the bill amount.
- Ultimately, it is the Drawee who bears this cost, since the drawee is the party responsible for the dishonour.
Note: this topic (Bills of Exchange) is not currently a separate chapter in this platform's chapter list — see syllabus note.
✓Final answerB. Drawee — noting charges are a consequence of the drawee's dishonour and are ultimately recovered from (borne by) the drawee.
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2022Set ANNUAL1 markQ."If the acceptor of the bill refuse to pay the bill on its maturity date, it is called the retirement of the bill". Comment.
›Reveal solutionSolution
The statement is incorrect / false. When the acceptor of a bill refuses (or is unable) to pay the bill on its due date, it is called Dishonour of the Bill by Non-payment — not "retirement."
Explanation:
- Dishonour of a bill: occurs when the acceptor fails to pay the amount of the bill on its date of maturity. The holder then usually gets the bill "noted" (and if needed, "protested") by a Notary Public as evidence of dishonour, and can proceed to recover the amount (plus noting charges) from the drawer/endorsers.
- Retirement of a bill: is the exact opposite situation — it happens when the acceptor (drawee) pays off (retires) the bill before its due date, and in return, the holder usually allows a rebate (discount) for the unexpired period, as a reward for early payment.
So "refusal to pay on maturity" describes dishonour, a default event, while "retirement" describes an early, voluntary payment — the two terms must not be interchanged.
Note: this topic (Bills of Exchange) is not currently a separate chapter in this platform's chapter list — see syllabus note.
✓Final answerThe statement is incorrect. Refusal to pay the bill on its maturity date is called "Dishonour of the Bill," not "Retirement of the Bill." Retirement refers to paying the bill off before its due date (usually with a rebate).
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2021Set ANNUAL1 markMCQQ.Noting charges are ultimately borne by —(a) Drawer(b) Drawee(c) Payee(d) Bank
›Reveal solutionSolution
Noting charges are ultimately borne by the Drawee (the acceptor), because it is the drawee's failure to pay the bill on its due date that causes the dishonour and the resulting noting expense.
When a bill of exchange is dishonoured on its due date, the holder gets the fact of dishonour certified by a Notary Public, who charges a fee called 'noting charges'. The holder initially pays this fee to the notary, but since the dishonour happened because the drawee (acceptor) failed to meet the bill, the holder debits the drawee's account with the bill amount PLUS the noting charges — recovering the full amount, including the noting charges, from the drawee. The drawer (who merely drew the bill) and the payee (who may simply be the person entitled to receive payment) are not responsible for the default; the bank, if involved only as a collecting agent, is also not liable.
This topic (Bills of Exchange) does not currently have its own dedicated chapter on the platform for this board/grade — mapped here to the closest existing chapter (Recording of Transactions - II, which covers subsidiary/special-purpose books) as an honest best-fit; see syllabus_note.
✓Final answer(b) Drawee
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2021Set ANNUAL1 markQ."If the acceptor of the bill refuses to pay the bill on its maturity date, it is called the retirement of the bill". Comment.
›Reveal solutionSolution
The given statement is factually wrong: non-payment on the due date is 'Dishonour', while 'Retirement' means the opposite — paying off the bill before its due date.
A bill of exchange can meet one of several fates on or around its due date:
- Honoured: the acceptor pays the bill amount on the due date — the normal, expected outcome.
- Dishonoured: the acceptor fails/refuses to pay on the due date. The holder then gets the dishonour noted (and sometimes protested) by a Notary Public, and can recover the amount, plus noting charges, from the drawer or any prior endorser.
- Retired: the acceptor pays the bill before its due date, usually in exchange for a rebate (discount) allowed by the holder for the unexpired period — this is a voluntary EARLY settlement, the exact opposite of what the question describes.
- Renewed: the parties mutually agree to cancel the old bill and draw a fresh one, usually with interest added, when the acceptor cannot pay on time.
So the correct term for 'acceptor refuses to pay on maturity date' is Dishonour, not Retirement.
This topic (Bills of Exchange) does not currently have its own dedicated chapter on the platform for this board/grade; mapped to the closest existing chapter as an honest best-fit — see syllabus_note.
✓Final answerThe statement is INCORRECT — refusal of the acceptor to pay the bill on its maturity date is called Dishonour of the Bill, not retirement.
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