PART C

ANS. 13

Subsidiary Books are those books of original entry in which transactions of similar nature are
recorded at one place and in chronological order. In a big concern, recording of all
transactions in one Journal and posting them into various ledger accounts will be very
difficult and involve a lot of clerical work.
This is avoided by sub-dividing the journal into various subsidiary journals or books. The
subdivisions of journal into various subsidiary journals for recording transactions of similar
nature are called as ‘Subsidiary Books.’
The following are the advantages of Subsidiary books or Special journal:
1. Saving of Clerical Labour:
Subsidiary books effect considerable saving of clerical labour in postings and narration.
Transactions of any one class such as credit purchases, credit sales, cash transactions etc., are
recorded through separate subsidiary journals and there is no need for giving narration.
For example, by recording the transactions in the Purchase Day book 50% of the labour in
postings is saved. The periodical total of this book is to be debited to the Purchases a/c. Only
the personal accounts of the suppliers are to be credited.
2. Division of Clerical Work:
As separate journals are used for recording the transactions of each particular type, the
division of clerical labour amongst several office clerks becomes possible. This makes
speedy record of day-to-day transactions practicable.
3. Minimizes Frauds:
These books make possible the introduction of internal check system under which the system
of rotation of writing up books can be adopted. This helps minimizing errors and detecting
frauds.
4. Facilitates Further Reference:
As transactions of similar nature are grouped together in a separate book, the further
reference to any particular item is considerably facilitated.

ANS. 14
The accounting process provides financial data for a broad range of individuals whose
objectives in studying the data vary widely.   Three primary users of accounting information
were previously identified, Internal users, External users, and Government/ IRS.  Each group
uses accounting information differently, and requires the information to be presented
differently.
Internal Users
Accounting supplies managers and owners with significant financial data that is useful for
decision making. This type of accounting in generally referred to as managerial accounting.
 Some of the ways internal users employ accounting information include the following:
Assessing how management has discharged its responsibility for protecting and managing the
company’s resources
Shaping decisions about when to borrow or invest company resources
Shaping decisions about expansion or downsizing
External Users
Typically called financial accounting, the record of a business’ financial history for use by
external entities is used for many purposes.  The external users of accounting information fall
into six groups; each has different interests in the company and wants answers to unique
questions. The groups and some of their possible questions are:
Owners and prospective owners. Has the company earned satisfactory income on its total
investment? Should an investment be made in this company? Should the present investment
be increased, decreased, or retained at the same level? Can the company install costly
pollution control equipment and still be profitable?
Creditors and lenders. Should a loan be granted to the company? Will the company be able
to pay its debts as they become due?
Employees and their unions. Does the company have the ability to pay increased wages? Is
the company financially able to provide long-term employment for its workforce?
Customers. Does the company offer useful products at fair prices? Will the company survive
long enough to honour its product warranties?
Governmental units. Is the company, such as a local public utility, charging a fair rate for its
services?
General public. Is the company providing useful products and gainful employment for
citizens without causing serious environmental problems?

ANS.13
 Preparing the monthly profit and loss, and balance sheet reports
 Tax reporting and inventory processing
 Collecting and analysing data, which is then used in the preparation of weekly and
monthly estimates
 Advising on estimates for project funding
 Creating KPI reports
 Preparing weekly cash flow statements, and controlling expenditure and cash flow
 Assisting with the preparation of year-end accounts and statutory accounts
 Responding to financial inquiries by gathering and interpreting data
 Conducting internal audits such as wage reviews
 Examining financial records to check for accuracy
 Managing and training staff when necessary

ANS. 16

In order to be competitive and profitable, your business needs access to today’s financial
facts and tomorrow’s costing priorities.
The solution?
Use an accurate accounting system that integrates cost management and financial accounting.
Both accounting roles perform critical financial functions that ensure long-term profitability
through the tracking of progress, achievements, and failures of any given organisation.
The University of Cape Town, in partnership with GetSmarter, offers online short courses in
both disciplines: cost and management accounting and financial accounting.
Become familiar with their 7 key differences so that you can identify which course will best
suit your business or career priorities.
1. What are the key responsibilities of cost management and financial accounting?
Cost and management accounting is for finance professionals and business managers or
owners whose role it is to maintain records to identify where to cut costs for increased
profitability.
Purpose: Ascertain business costs for day-to-day planning, cost control, and internal decision
making.
Financial accounting is for accountants whose role it is to record all transactions and
accurately report the entire financial picture and performance of a business.
Purpose: Secure overall business financial information and report on performance and
position.
2. What recording systems are used for cost management and financial accounting?
Cost management professionals book actual transactions and compare them to estimates.
They then base reports on the estimation of cost and on the recording of actual transactions.
Purpose: Cost of sale of product(s), addition of a profit margin and determination of selling
price of the product.
Financial accounting professionals evaluate actual transactions only and do not use
estimation in recording financial transactions.
Purpose: Journal entries, ledger accounts, trial balance, cash flow and financial statements.
3. Who is the target audience for cost management and financial accounting?
Cost accounting involves the preparation of a broad range of reports that management needs
to run a business.
Purpose: The readers are exclusively internal management.
Financial accounting involves the preparation of a standard set of reports for an outside
audience.
Purpose: The readers may include investors, creditors, credit rating agencies, and regulatory
agencies.
4. What is the period of profit for cost management and financial accounting?
Cost management accounting is used as per the requirement of management or on an as-and-
when-required basis.
Purpose: Profit is determined related to a particular product, job or process.
Financial accounting is required during the report period at the end of the financial year.
Purpose: Profit is determined for the whole organization made during a particular period
only.
5. What regulatory framework is used in cost management and financial accounting?
Cost accounting involves creating reports that can be in any format specified by management.
There is no regulatory framework governing cost accounting reports so they can be tailor
made to suit a certain costing need or managerial demand.
Purpose: Cost accounting reports are voluntary and created with the intention of including
only that information pertinent to a specific decision or situation.
The reports prepared under financial accounting are highly specific in their format and
content. The structure of financial accounting reports is tightly governed by either generally
accepted accounting principles or international financial reporting standards.
Purpose: Financial reports are a statutory requirement and ensure a business’s accounting
standards are compliant.
6. What product costs are measured in cost management and financial accounting?
Cost accounting compiles the costs of raw materials, work-in-process, and finished goods
inventory.
Purpose: Record the details for each product, process, job or contract.
Financial accounting incorporates this information into its financial reports, primarily into the
balance sheet.
Purpose: To show overall costs and profit gains or losses.
7. What level of detail is expected in cost management and financial accounting?
Cost accounting usually results in reports at a much higher level of detail within the
company.
Purpose: Record internal and external transactions for present and future, such as for
individual products, product lines, geographical areas, customers, or subsidiaries.
Financial accounting’s primary focus is on reporting the results and financial position of an
entire business entity.
Purpose: Record external transactions only, with a focus on historical data. One way of
doing this would be to translate an annual accounting cycle from a source document into
financial statements.