Ledger Creation

The information required for creation of ledgers depends on the features opted by you. If the setting of the Accounting Features [F:11] of your company is No for all options, your ledger creation screen would need minimal information.

It should be noted that Tally automatically creates two ledger accounts, viz., Cash (under Cash-in-hand) and Profit & Loss Account (direct Primary account). It does not make any other presumptions. You must create all other account

heads. There are no restrictions in ledger creation except that you cannot create another Profit & Loss A/c (actually an account that behaves like one). You may create any number of Cash accounts (by another name like "Petty Cash" ).

You will, now, be guided to create a ledger account with minimal information. For discussions on additional features, please refer to 'Advanced Usage'.

Gateway of Tally > Accounts Info. > Ledgers > Single Create

Name
Feel free to give the full name of the account. Tally fits it all in. Press to move to the next field. Tally does not allow duplicate names. The uniqueness check is made here itself instead of after you have entered all other information.

You will find that punctuation and other non-relevant information are ignored by Tally in its recognition of a name, Thus, CST, C.S.T. and C. S. T. are all considered identical.

You will now actually experience the small conveniences, which you would soon take for granted. You notice that Tally converts the first letter of all relevant words to upper case which helps you speed up your data entry. You need not bother about changing the case every time it is a different word.

Group
All accounts must be classified in their appropriate groups. (You should go through the post on Groups now if you not already done so). You must specify which group the ledger falls under.

Note: You may always create a new group by pressing +.

A Group is not important by itself, but because it controls the usage of ledger accounts. A wrong classification would affect the treatment of the ledger account in final statements and during voucher entry. You can, of course, alter a ledger account to change its group classification at any time.

Note: alter a ledger or a group from any display by +.
If your group is sundry creditors/debitors than tally ask whether Maintain balance bill by bill, If it yes than it ask credit period in day, enter the details.
Enter the relevent details like address, state, pincode, phone/fax no, income tax no, sales tax / tin no, contact person etc.
then it ask accept yes or no, If you give yes ledger account is saved else it go for editing the details.

Gateway of Tally of an "Accounts-with-Inventory" Company

The Gateway of Tally menu of an Accounts-with-Inventory company appears as:

The Gateway of Tally screen is separated into four sections, – Title Area, Main Area (Ctrl + M), Calculator Area (Ctrl + N)and the Button Bar.

Main Area
The left-hand side of the Main Area gives information of

Current Period – this is the currently loaded or selected company's accounting period.

Current Date – this is the date of the last Voucher Entry of the selected company (this is NOT the calendar date).

List of Selected Companies – This displays the name of the loaded or selected company.

Masters – for creation of Accounting Masters and Inventory Masters and Importing Master information.

Transactions / Vouchers - for creation of Accounting Vouchers and Inventory Vouchers and Importing transaction information.

Reports – for viewing and printing financial and inventory reports using the information given in Masters and Transactions.

Button Bar
The Button Bar area on this screen, displays the following buttons (keys):

Help (Alt + H) – to access Tally's online context-sensitive help

F1: Select Cmp – to select a company

F1: Shut Cmp – to shut or close the company

F2: Period – to change the period

F3: Cmp Info – to access the Company Information Menu

F11: Features – to access the Company features for a company

F12:Configure – to access the configuration settings to manage the information put into Tally.

Note: You cannot load more than one company at one time. The loaded or selected company will be shut first and then the other company is loaded.

Important:
1. Use the buttons on the right-hand side of the screen to Explore the Potential of Tally.
2. Press [Enter] wherever the cursor is placed to know the Depth of Tally!

Create Company

Gateway of Tally > Company Info. > Create

BRS - Bank Reconciliation Statement

How to get BRS Reports in Tally 9?

What is BRS? In accounting terminology BRS stands for Bank Reconciliation Statement. For example you make a payment by issuing a bank check to a party / supplier. What will happen to the check. The transaction will not reflect immediately in your bank. The party will first deposit the check on or after the date mentioned on the check. Then it will take further one-three days for the check to clear depending on the bank. But your voucher entry in Tally is on prior date. So your bank ledger in tally may be showing wrong balance, not the actual balance. You don't know what happened to the check. Whether it is cleared or not? After getting your bank statement you will make reconciliation entry. Thus you will get actual bank balance.

In Tally 9 there is an option to enter the bank date. Tally will show two balances in reconciliation statement. The Balance as per company books. And amount not reflected in Bank, and Balance as per Bank.

Whatever voucher entries you make (Payment/Receipt/Contra etc) will be reflected in Balance as per company books. For whatever vouchers you make BSR entry will be shown in Balance as per bank. The difference between the two is given as Amount not reflected in Bank.

We will see this with the following examples and screen shots.

Now will go to Display menu -> Accounts Books -> Ledger -> State bank of India. Then Click Reconcile button on the right hand side. (Short cut : F5).

Now the Balance as per company books is Rs. 1000
Amounts not reflected in Bank is Rs.1000
Balance as per Bank is Rs.0
I gave the check on 11.june.10. If the check clears on 13.june.10 i give that date under Bank Date column. Now the Bank account will tally

Financial Accounting

Financial accounting is concerned with recording and processing all transactions with outsiders and events affecting the financial position of the firm. This leads to the preparation of the annual profit and loss account and the balance sheet.

Double Entry System of Accounting

Accounting records can be prepared under any on of the following systems

a) single entry system

Under this system only the personal aspects of the transactions are recorded in the books and the impersonal aspects are ignored. It is not based on the ‘dual’ aspect concept and is incomplete, inaccurate and unscientific.

b) Double entry system

It is the most common system of keeping records whereby the two aspects of every transaction – the giving aspect and the receiving aspect are recorded in the books of accounts. Each aspect will be recorded in one account and this method of writing every transaction in two accounts is known as Double entry system of book keeping. This is the most scientific, complete and accurate system of accounting.

Advantages of double entry system

It provides a complete record of every transaction whether it relates to the personal or impersonal accounts.
It provides an arithmetical check on the records as the total of debit entries must be equal to the total credit of all entries.
The amount owing to outsiders and the amount due to the business can be ascertained with the help of personal accounts.
The profit and loss account can be prepared with the help of nominal accounts which is helpful to the business to ascertain the operating results of the business.
It helps to prepare the balance sheet of the business which is helpful to ascertain the financial position of the business on a particular day.
It helps to reduce the occurrence of the errors and frauds and when occurred can be deducted easily. It can work with the help of internal check system.

Disadvantages of double entry system

This system requires the maintenance of a number of books of accounts which is not practical in small concerns.
The system is costly because a number of records are to be maintained.
There is no guarantee of absolute accuracy of the books of account in spite of agreement of the trial balance.

Accounting Terms

Assets are the properties owned by a trader, kept for using them for business purposes.
Liabilities are debts owing to others by the trader.
Capital is a liability of a business due to the proprietor. It represents the owners fund employed in the business.
Transaction refers to the transfer money or money’s worth from one account to another account.
Goods refers to the commodities bought by the trader for the purpose of resale
Fixed assets are the properties kept by the owners of a business firm for use in business and not for resale. For example land, building, plant, fixtures, equipments and so on.
Current assets are the assets meant for conversion into cash. For example stock in hand, debtors, cash in hand and at bank and so on.
Account is a summary of transactions affecting a person, an asset, profit or loss etc.,

Debtor and Creditor

Debtor is a person who owes money to the business
Creditor is a person to whom the business owes money.

Debit and Credit:

Every transaction, at least affects two accounts in the opposite directions. The account which receives the benefit is debited and the account which gives the benefit is credited.

Journal is a book of first entry. Business transaction are recorded first in the journal as and when they take place. Then, they are recorded in the ledger accounts.

Journalizing is the act of entering the transactions in the journal.

Ledger is the main book of account. It contains all the accounts of business in well arranged form.

Posting refers to the entering the transactions in appropriate ledger accounts.

Trial balance is a list of ledger balances as on the last date of accounting period. If the total of debit balances and that of credit balances are equal, then it is understood that recording are done in all the books correctly and accurately.

Rules for Debit and Credit:

Personal accounts: Debit the receiver, Credit the giver

Real accounts: Debit what comes in, Credit what goes out

Nominal accounts: Debit all expenses and losses, Credit all incomes and gains

Personal Accounts:

These accounts record a business dealing with persons or firms. The person receiving something is given debit and the person giving something is given cedit.

Real Accounts:

These are the accounts of assets. Assets entering the business is given debit and asset leaving the business is given credit.

Nominal Accounts:

These account deal with expenses, incomes, profits and losses. Accounts of expenses and losses are debited and accounts of incomes and gains are credited.

Subsidiary books

In small business firms, the volume of transactions is also small and hence, all of them can be recorded in one subsidiary book namely, the journal. But in large business houses since the number of transactions if large, it is impossible to enter them in one subsidiary book. Therefore, it is desirable to sub-divide the transactions according to their nature. And it is customary to keep each division of transactions in one book. The book in which the transactions are entered at first time are known as subsidiary books.

Kinds of subsidiary books:

Cash book to record cash receipts and payments.
Purchase book for recording credit purchase of goods.
Sales book or day book for recording all goods sold on credit
Purchases Returns book for recording all goods sold on credit.
Purchsess Returns book or Returns outwards book for recording all purchses returned to the creditors.
Sales returns book or Returns Inwards book for recording all sales returned by the custoemers.
Bills receivables book to keep record of bills received from customers.
Bills payable book to keep record of bills payable to creditors.
Journal proper to keep a record of those transactions for which there is no separate book.

Journal, Ledger and Trial Balance

The stages in book-keeping are,

Recording the transactions in subsidiary books or books of prime entry
Posting the entries into the appropriate accounts in the main book called ledger.
Preparing the Trial balance, thereby profit and loss account and Balance sheet.

Journal

Journal is derived from the French word “Jour” which means a day. Journal, therefore, means daily record of business transactions. Journal is a book of original entry because transactions is first written in the journal from which it is posted to ledger at any convenient time.

Ledger

The ledger is the main book of account. The Journal is a subsidiary book. The word subsidiary means ‘giving additional help to.’ The journal helps a businessman to take the various transactions to the right place. i.e. to the appropriate accounts. The journal is the base, the ledger is the middle. The Balance sheet and Profit and loss account can be prepared from the main book of account, namely Ledger.

The entries are posted under appropriate accounts. All similar transactions must be brought together. Transactions relating to cash are grouped under cash account. Similarly the transactions with customers and suppliers (debtors and creditors) are grouped under appropriate personal accounts. Ledger is the main book of the business containing personal, Real and Nominal accounts of the business.

Trial Balance

The balances standing in the various accounts in the ledger at the end of a period are listed down in the form of a statement, showing debit balances in one column and credit balances in the other, known as a Trial balance.

The Trial Balance is nothing but a summary of the various transactions entered in the books of accounts and its preparation is based on the rule that ‘for every debit there is a corresponding and equal credit’.

Trial balance is automatically Calculated in Tally!

Rectification of errors

Error is a mistake done in book keeping. The mistake may be done while entering the transactions in the subsidiary books or while posting in the ledger accounts. It becomes of utmost important for the book-keeper and the accountant to locate such errors and rectify them. So that correct profit and financial position of the concern may be ascertained.

Types of errors

1. Errors of principle

An error of principle is an error committed disregarding the fundamentals of book-keeping. An error of principle take place in the following cases.
Treating and expense as an asset – Amount paid for repairing the machinery may be debited to Machinery A/c instead of Repairs A/c
Treating as asset as an expense: Purchase of furniture for office use may be debited to office expenses A/c instead of Furniture A/c
Treating an income as liability: For instance, commission Rs. 10000 received from ABC & Co. may be credited to ABC & Co. A/c instead of commission A/c.

Clerical Errors

Error of omission

Error of omission may be either complete omission or partial omission. A partial omission is making entry in the subsidiary book but not posting in the ledger. When a transaction is completely omitted from the books, it is called complete omission.

Error of commission

It is another type of clerical error. This type of error take place in the following ways;

Errors relating to subsidiary books, they are

Entering wrong amount in the subsidiary books
Entering the transaction in a wrong subsidiary book
Wrong totaling of subsidiary books (Tally won’t do this mistake!)

Errors relating to postings they are

Posting wrong amount on the correct side of an account
Posting the same amount twice to an account
Posting the correct amount tot the wrong side of the correct account
Posting the wrong amount to the wrong side of the correct account
Posting the correct amount to the wrong account but on the correct side.
Posting correct amount to the wrong account and on wrong side.
Posting wrong amount to the wrong account and on the wrong side.
Error in Balancing.

Note: Most of these errors are avoided when using Tally software.

Compensating Errors

These are errors which make up for one another. This means one error canceling the other. For example, a wrong debit may get cancelled by wrong credit.

Rectifying the Errors

Errors are always corrected in the books of accounts by means of suitable journal entries. If the correction involves transfer of an amount from one account to another, a journal entry is given. If it is not so, the concerned account may be corrected by debiting or crediting the amount to be corrected.

Suspense Account

There are errors which affect the agreement of the debit balances and credit balances. When such errors are committed, the trial balance does not agree. In such cases, the suspense account is opened. If the debit balances are short, then suspense account will have debit balance and vice versa.

FINAL ACCOUNTS

Trading account

This account is prepared to know the trading results of the business. i.e. how much gross profit the business has earned from buying and selling during a particular period. The difference between the sales and cost of goods sold is gross profit.

Profit and loss account

This account is prepared to calculate the net profit or net loss of the business. There are certain items of incomes and expenses of the business which must be taken into consideration for calculating net profit of the business.

Balance sheet

A balance sheet is a statement prepared with a view to measure the financial position of a business on a certain fixed date. The financial position of the concern is indicated by its assets on a given date and its liabilities on that date. A Balance sheet is also described as a statement showing the sources and application of capital. It is a statement and not an account.

The liabilities are shown on the left hand side. The assets appear on the right hand side. On the liabilities side, capital and other liabilities to third parties are shown. Since business is different from the businessman, capital is the amount payable to the businessman by the business. So, capital is shown on the liabilities side. On the asset side, cash and anything which is convertible into cash are shown as assets. The totals of the liabilities side and asset side must agree.

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