In case of a family of 4 if all 4 family members have only one bank account in which all family members do the transactions and now if one family member wants to check only his or her transactions than it will be very difficult to find the transaction of that family member as all family members are doing transactions in that bank account, however, if all family members have different bank accounts than it is easy to locate transactions done by each family member. In case of accountancy similar process is adopted where the company has subsidiary books in which transactions of similar nature are recorded in chronological order so that company does not have to look all accounting entries if the need for checking of particular accounting entry arises. In order to understand more about this concept, one should look at the advantages and disadvantages of subsidiary books –
Advantages of Subsidiary Books
Easy to Locate Errors
The biggest advantage of subsidiary books is that in case of any error it is easier to find the error, hence, for example, suppose there is error in sales figure than instead of checking of all accounting records company can simply check the sales subsidiary book as that book will have all cash and credit sales resulting in company locating the error quickly and easily.
Specialization Benefits
In case of preparing books of accounts if one person is given the task of recording all transactions then it will be very tough as well as time taking task besides one person does cannot have proper knowledge of all aspects of accountancy and that is where this system scores because if one person is preparing sales ledge book or purchase ledger book for long period time than company start getting benefits of specialization as that person will become expert in preparing the respective subsidiary book resulting in fewer errors as well as quick completion of the assigned work.
Appropriate for Large Companies
In case of large companies, this is the only option as large companies have numerous transactions and if the company maintains only one book of account than it will be very difficult if not impossible to record all transactions properly. In simple words as far as big companies are concerned about having a subsidiary books system in place for the recording of accounting transactions is the only feasible option.
Disadvantages of Subsidiary Books
Expensive
The biggest disadvantage of having subsidiary books system is that it is expensive as opposed to having single book of accounts, hence in the above case of bank accounts if family has to open 4 bank accounts than all bank accounts will involve account opening charges and other charges which will be expensive as opposed to having only one bank account same is the case with company maintain different ledger books for different accounts.
Manpower Requirement
Another problem with this system is that the company will need to have sufficient manpower so as to handle different books for different accounts. In simple words for a small company which has only 4 or 5 employees, this system is not advisable.
Not Error Free
If the company is thinking that having this system in place can result in error-free books of accounts than the company is wrong as chances of error and frauds happening in subsidiary books remains and that is the reason why the company cannot be complacent and needs to be vigilant. In simple words, if you take the above example than just as a parent after opening bank account of your child you need to keep an eye on transactions done by your kid in the same way company needs to keep an eye on transactions happening in various subsidiary books.
As one can see from the above that subsidiary books have advantages as well as disadvantages, however, its advantages outweigh its disadvantages and that is the reason why a majority of companies choose to have subsidiary books system in place.