ACCOUNTING

■ The systematicThe systematic record

ingThe systematic recording,
reporting,
and analysisThe systematic recording
, reporting,
and analysis of financialThe systemat
ic recording, reporting,
and analysis of financial transactions
The systematic recording, reporting,
and analysis of financial transactions
CLASSIFICATION OF ACCOUNTS

Every business deal with other “Person”, possesses

“Assets”, pay “Expenses” and receive “Income”.
So from the above, we can see every business
has to keep
• An account for each person
• An account for each asset and
• An account for each expense or income.
CLASSIFICATION OF ACCOUNTS

ACCOUNTS

PERSONAL IMPERSONAL
ACCOUNTS ACCOUNTS

REAL NOMINAL
ACCOUNTS ACCOUNTS
 FUNCTIONS OF
ACCOUNTING
• Keeping systematic records
• Protecting properties of the business
• Communicating the results
• Meeting legal requirements
 Keeping systematic records

The first function of accounting is to keep a

systematic record of financial transactions,
to post them to the ledger accounts and
ultimately prepare final statements.
 Protecting properties of the
business
The second important function is to protect
the property of the business. The system
accounting is designed in such a way that it
protects its assets from an unjustified and
unwarranted use.
 Meeting legal requirements

The fourth and the last function of

accounting is to meet the legal requirements
under the Companies Act, Income Tax Act,
Sales Tax Act and so on.
 THE ACCOUNTING CYCLE

Recording transactions in subsidiary books.

Classifying data by posting from subsidiary
books to the accounts.
Closing the books and preparation of final
accounts.
 PERSONAL ACCOUNTS

Accounts in the name of persons are known as

personal accounts.
Eg: Babu A/C,
Babu & Co. A/C,
Outstanding Salaries A/C, etc.
 REAL ACCOUNTS

These are accounts of assets or properties. Assets

may be tangible or intangible. Real accounts are
impersonal which are tangible or intangible in
nature.
Eg:- Cash a/c, Building a/c, etc are Real
Accounts related to things which we can feel,
see and touch.
Goodwill a/c, Patent a/c, etc Real Accounts
which are of intangible in nature.
 NOMINAL ACCOUNTS

These accounts are impersonal, but invisible and

intangible. Nominal accounts are related to those
things which we can feel, but can not see and
touch. All “expenses and losses” and all “incomes
and gains” fall in this category.
Eg:- Salaries A/C, Rent A/C, Wages A/C, Interest
Received A/C, Commission Received A/C,
Discount A/C, etc.
 DEBIT AND CREDIT

Each accounts have two sides – the left side and

the right side. In accounting, the left side of an
account is called the “Debit Side” and the right
side of an account is called the “Credit Side”. The
entries made on the left side of an account is
called a “Debit Entry” and the entries made on the
right side of an account is called a “Credit Entry”.
RULES FOR DEBIT AND CREDIT

Debit the Receiver

Personal
Account
Credit the Giver

Debit what comes in

Real Accounts Credit what goes
out
Debit all Expenses
Nominal and Losses
Accounts Credit all Incomes
and Gains
Steps for finding the debit and credit aspects
of a particular transaction

• Find out the two accounts involved in the

transaction.
• Check whether it belongs to Personal, Real or
Nominal account.
• Apply the debit and credit rules for the two
accounts.
 ASSETS

These are economic resources of an

enterprise that can be usefully expressed in
monetary terms. Assets are things of value
used by the business in its operations.
∙ Fixed Assets
∙ Current Assets
 ASSETS continue…

∙ Fixed Assets are assets held on a

long-term basis.
e.g. Land, Building, Machinery, Plant,
Furniture and Fixtures, etc.
 ASSETS continue…

∙ Current Assets are assets held on a

short-term basis.
e.g. Debtors, Bills receivable,
Stock(Inventory), Cash and Bank
balances, etc.
 LIABILITIES

These are obligations or debts that the

enterprise must pay in money or services at
some time in the future.

• Long-term liabilities

• Short-term liabilities
 LIABILITIES continue..

∙ Long-term liabilities are those that are usually

payable after a period of one year.

e.g. A term loan from a financial institution,

debentures (bonds) issued by a company.
 LIABILITIES continue..

∙ Short-term liabilities are obligations that

are payable within a period of one year.

e.g. Creditors, bills payable, overdraft from

a bank for a short period.
 CAPITAL

Investment by the owner for use in the firm

is known as capital. Owner’s equity is the
ownership claim on total assets. It is equal
to total assets minus total liabilities.
 REVENUES

These are the amounts the business earns

by selling its products or providing services
to customers. Other titles and sources of
revenue common to many businesses are:
sales, fees, commission, interest, dividends,
royalties, rent received, etc.
 EXPENSES

These are costs incurred by a business in

the process of earning revenue. Generally,
expenses are measured by the cost of
assets consumed or services used during an
accounting period. The usual titles of
expenses are: depreciation, rent, wages,
salaries, interest, costs of heat, light and
water, telephone, etc.
 PURCHASES
Purchases are total amount of goods
procured by a business on credit and for
cash, for use or sale. In a trading concern,
purchases are made of merchandise for
resale with or without processing.
In a manufacturing concern, raw materials
are purchased, processed further into
finished goods and then sold. Purchases
may be cash purchase or credit purchase.
 SALES

Sales are total revenues from goods or

services sold or provided to customers.
Sales may be cash sales or credit sales.
 STOCK

Stock (Inventory) is a measure of something

on hand – goods, spares and other items –
in a business.

It is called stock on hand.

 STOCK: continue…

In a trading concern, the stock on hand is

the amount of goods which have not been
sold on the date on which the balance sheet
is prepared. This is also called closing
stock.
 STOCK continue…

In a manufacturing concern, closing stock

comprises raw materials, semi-finished
goods and finished goods on hand on the
closing date.

Similarly, opening stock is the amount of

stock at the beginning of the accounting
year.
 DEBTORS

Debtors are persons and/or other entities who owe

to an enterprise an amount for receiving goods
and services on credit.

The total amount standing against such persons

and/or entities on the closing date, is shown in the
Balance Sheet as Sundry Debtors on the asset
side.
 CREDITORS

Creditors are persons and/or other entities who

have to be paid by an enterprise an amount for
providing the enterprise goods and services on
credit.
The total amount standing to the favour of such
persons and/or entities on the closing date, is
shown in the Balance Sheet as Sundry Creditors
on the liability side.
 Journal

Journal is the prime or original book of entry in

which all transactions are recorded in the form of
entries. Journalising is an act of recording or
entering transactions in a Journal in the order of
date.
Date Particulars LF Debit Credit
Amount Amount
 Journal Entry

Jan 1, 1981 Prakash Started a business Rs.

15,000/-
Date Particulars LF Debit Credit
Amount Amount
1981 Cash a/c 15,000
Jan 1 Dr. 15,000
To Prakash’s Capital
a/c
(Being cash invetsed to
business)
 TALLY
■ Tally is a financial accounting software package
designed by Tally Solutions mainly for small
businesses and shops.
■ Tally is a complete business accounting and
inventory management software that provides
various facilities like Govt. supported formats,
multilingual operations, online functions and
processing for small and medium businesses.
 Different versions of tally
Tally 4.5
• started with its first version of Tally 4.5

• DOS based program

• very light weight and very fast in operation.

Tally 5.4
•Next version was 5.4

•Graphic interface version.

Tally 6.3
■ Next version was tally 6.3

■ Truly windows based version

■ Support fast printing and with VAT implemented.

Tally 7.2
■ Next version of Tally was Tally 7.2.

■ Fast version with lots of new feature like statutory

compliant versions.
■ Different VAT rules for different states was
achieved with this version.
Tally 8.1
■ Tally 8.1 was developed with new data structure of Tally.

■ A module of POS and Payroll was added to it.

■ Company rectified many bugs but the version could not become popular
and company has to abort it before time and launch new version.

Tally 9
■ Latest version of Tally which has maximum features.

■ Tally 9 has advance features like Excise for Dealers, Payroll, FBT, TDS,
e-TDS filing facility etc along wit its regular features related to accounting
and inventory management.
 Tally. ERP 9
■ Tally.ERP 9 - Auditors' Edition, a
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■ With Tally.ERP 9 installed at your
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Highlights of Tally.ERP 9 – Auditors’
Edition:
Secure remote access to client data
At-a-glance dashboard showing voucher/ledger
correctness and verification status
Easy-to-spot-errors via exceptions
Special audit and compliance menus
Advantages of Tally.ERP 9:

• Powerful remote capabilities that boost

collaboration
• Easy to find qualified personnel
• Easy to customise
• Low cost of ownership via quick
implementation, Tally Integrator, Support
Centre…