Unit 1
Theoretical Framework and Accounting Process
6 topics · 1 h 46 min to read · 15% of the marks DU has asked
1.1Accounting as an Information System and Its Users
5 min read
Accounting collects the money facts of a business, processes them, and reports them to the people who need them. Each group of users reads the reports for a different reason.
1.1.1Accounting as an information system
1.1.2Users of accounting information and their needs
1.2Artificial Intelligence and Data Analytics in Accounting
4 min read
Software now does much of the routine recording and checking, and data analytics finds patterns in large volumes of accounting data. The accountant's work moves from entering data towards judgement, review and advice.
1.2.1What the terms mean
1.2.2Uses in accounting, benefits and limits
1.3Conceptual Framework Items
42 min read
This topic covers the ideas that decide what goes into the accounts and how: the qualities good accounting information must have, the scope and branches of accounting, cash and accrual bases, capital and revenue items, and the rules of AS 1, AS 4, AS 5, AS 10 (fair value) and AS 29 on events after the year end, unusual and prior period items, estimates, policies, provisions and contingencies.
1.3.1Qualitative characteristics of accounting information
1.3.2Functions, advantages and limitations of accounting
1.3.3Branches of accounting
1.3.4Basis of accounting: cash and accrual
1.3.5Capital and revenue expenditure and receipts
1.3.6Events occurring after the balance sheet date (AS 4)
1.3.7Net profit, extraordinary, exceptional and prior period items (AS 5)
1.3.8Changes in accounting estimates (AS 5)
1.3.9Accounting policies (AS 1 and AS 5)
1.3.10Fair value
1.3.11Provisions, contingent liabilities and contingent assets (AS 29)
1.4Accounting Concepts & Principles
18 min read
Accounts are useful only if everyone prepares them on the same basic rules. These rules are the generally accepted accounting principles: concepts (the basic assumptions) and conventions (the customs of applying them), with three fundamental assumptions written into AS 1.
1.4.1Accounting principles and GAAP
1.4.2Business entity, money measurement, going concern and accounting period
1.4.3Cost, dual aspect, realisation, accrual and matching
1.4.4Conventions: consistency, conservatism, full disclosure and materiality
1.4.5Fundamental accounting assumptions under AS 1
1.4.6Spotting the principle in a statement
1.5Accounting Standards / IFRS
12 min read
Accounting standards are written rules that turn GAAP into uniform treatments, so that statements can be relied on and compared. India has two sets, AS and the IFRS-converged Ind AS; IFRS are the global standards of the IASB.
1.5.1Accounting standards: meaning, need and benefits
1.5.2How standards are formulated in India
1.5.3Ind AS: IFRS-converged standards; convergence and adoption
1.5.4Which entities apply AS and which apply Ind AS
1.5.5IFRS: meaning, need and scope
1.6The Accounting Process, from Transaction to Trial Balance, with GST
24 min read
Every transaction passes through the same chain: a source document, an entry in a book of original entry, posting to the ledger, and a trial balance; adjusting and closing entries then lead to the final accounts. GST adds input and output tax accounts and a fixed order for setting one against the other.
1.6.1The accounting cycle
1.6.2Double entry, classes of accounts and the rules of debit and credit
1.6.3The journal and subsidiary books
1.6.4The ledger: posting and balancing
1.6.5Trial balance and suspense account
1.6.6Adjustment, transfer and closing entries; GAAP in recording
1.6.7GST in the accounts
Unit 2
Business Income, Accounting for Property, Plant and Equipment, and Valuation of Inventory
5 topics · 1 h 54 min to read · 23% of the marks DU has asked
2.1Business Income
14 min read
Business income is the profit of a period: the revenue earned in it less the costs used up to earn it. Measuring it needs three ideas: cut the life of the business into periods, assume the business will go on, and match each period's expenses with that period's revenue.
2.1.1Revenue and business income
2.1.2Measuring business income: period, continuity and matching
2.1.3Objectives of measuring business income
2.1.4How depreciation and inventory choices change measured income
2.2Revenue Recognition
19 min read
AS 9 decides when revenue from selling goods, rendering services and letting others use the firm's resources enters the Statement of Profit and Loss. The answer turns on when the work is done (performance) and whether the money can reasonably be expected.
2.2.1Revenue under AS 9: meaning and scope
2.2.2Sale of goods: when performance is achieved
2.2.3Rendering of services
2.2.4Interest, royalties and dividends
2.2.5Effect of uncertainties
2.2.6Special cases: a decision table
2.2.7Disclosure
2.3Depreciation & PPE
34 min read
AS 10 (revised 2016) says which long-lived tangible assets are property, plant and equipment, what goes into their cost, and how that cost is spread over the years that use it (depreciation). It also covers disposals, a change of method or estimate (always prospective), revaluation and impairment.
2.3.1Property, plant and equipment: meaning, scope and recognition
2.3.2Cost of an item at recognition
2.3.3Depreciation: meaning, causes and the amount to spread
2.3.4Methods of depreciation
2.3.5The asset account, disposals and losses
2.3.6Change in method, useful life or residual value
2.3.7Cost model and revaluation model
2.3.8Impairment of assets in brief
2.3.9Disclosure
2.4Intangible Assets
19 min read
AS 26 covers assets without physical form, such as patents, copyrights, software and licences. It says when they can be shown as assets (never internally generated goodwill or brands, and never research), at what cost, and how their cost is written off over a life presumed not to exceed ten years.
2.4.1Intangible asset: meaning and scope
2.4.2Recognition and initial measurement
2.4.3Internally generated intangibles: research and development
2.4.4Amortisation
2.4.5Later spending, impairment, retirement and disclosure
2.5Inventory Valuation
28 min read
AS 2 values stock at the lower of cost and net realisable value. Cost covers purchase, conversion and the costs of getting the goods where they are; it is assigned by specific identification, first in, first out (FIFO) or weighted average. The formula chosen changes the cost of goods sold, and so the profit of the year.
2.5.1Inventories: meaning, scope and why valuation matters
2.5.2Measurement: lower of cost and net realisable value
2.5.3Cost of inventories
2.5.4Cost formulas: which one to use
2.5.5Periodic and perpetual inventory systems
2.5.6Working FIFO
2.5.7Working weighted average: periodic and moving
2.5.8Impact of FIFO, LIFO and weighted average on business income
2.5.9Disclosure
Unit 3
Financial Statements of Sole Proprietorship and Not-for-Profit Organisations
2 topics · 1 h 11 min to read · 24% of the marks DU has asked
3.1Sole Proprietorship Final Accounts
42 min read
A sole trader's final accounts turn the year's trial balance into three answers: the gross profit (Trading Account), the net profit (Profit and Loss Account), and what the business owns and owes on the last day (Balance Sheet). Most marks lie in the adjustments. Each adjustment changes two places, and GST balances are set off and shown tax by tax.
3.1.1Final accounts: what they are and the order of work
3.1.2Manufacturing Account
3.1.3Trading Account and Profit and Loss Account
3.1.4Balance Sheet: grouping and marshalling
3.1.5Adjustments, I: stock, outstanding and prepaid items, accruals, depreciation, interest on capital and drawings
3.1.6Adjustments, II: bad debts, provision for doubtful debts, provision for discount
3.1.7Adjustments, III: goods on approval, free samples, drawings in goods, loss by fire, manager's commission
3.1.8GST in final accounts
3.1.9A complete worked example
3.2Not-for-Profit Organisations
29 min read
A club, school or charity keeps accounts to show whether its yearly income covers its yearly spending, not to earn a profit. From the cash summary (Receipts and Payments Account) you build the Income and Expenditure Account on the accrual basis and a Balance Sheet with a capital fund. The marks lie in sorting capital from revenue items and in four workings: subscriptions, consumption, special funds and trading activities.
3.2.1Not-for-profit organisations and the statements they prepare
3.2.2Receipts and Payments Account versus Income and Expenditure Account
3.2.3Capital and revenue items peculiar to NPOs
3.2.4Subscriptions
3.2.5Consumption of stores, sports materials and stationery
3.2.6Special funds: prize, sports, tournament, building and endowment funds
3.2.7Trading activities: bar, restaurant and canteen
3.2.8Preparing the Income and Expenditure Account and Balance Sheet from a Receipts and Payments Account
Unit 4
Accounting for Inland Branches, Departments and Leases
3 topics · 1 h 23 min to read · 37% of the marks DU has asked
4.1Branch Accounting
31 min read
A head office keeps the books of its dependent branches and needs each branch's profit. It uses either the Debtors System (one Branch Account per branch) or the Stock and Debtors System (a set of accounts that also controls stock). When goods go to the branch above cost, the extra (the loading) is taken out so that only real profit is shown.
4.1.1Branches, dependent branches and the two systems
4.1.2Goods sent at cost or at invoice price: loading
4.1.3The Debtors System: the Branch Account
4.1.4Finding missing figures: memorandum accounts
4.1.5The Stock and Debtors System
4.1.6Losses of stock: normal, abnormal, shortage and surplus
4.1.7Special items: transfers, goods in transit, allowances and the manager's commission
4.2Departmental Accounting
18 min read
A business with several departments under one roof finds each department's gross and net profit in one columnar Trading and Profit and Loss Account. Direct items go to their own department, common expenses are shared on a fair basis, and profit on goods passed between departments stays out of the result until those goods are sold outside.
4.2.1Departmental accounts: meaning, objectives and methods
4.2.2Departmental accounting and branch accounting compared
4.2.3The columnar Departmental Trading and Profit and Loss Account
4.2.4Sharing common expenses
4.2.5Goods passed between departments
4.2.6A common gross profit rate
4.2.7From a trial balance to departmental accounts and the Balance Sheet
4.3Leases
33 min read
A lease allows one party to use another's asset for a period in return for rent. Under AS 19 everything turns on one question: does the lease pass substantially all the risks and rewards of owning the asset to the user? If it does (a finance lease), the user shows the asset and a loan, and the owner shows a receivable; if not (an operating lease), the rent is simply an expense and an income.
4.3.1Lease: meaning, AS 19's scope and the key terms
4.3.2Finance lease or operating lease: the AS 19 tests
4.3.3Kinds of finance lease and sale and leaseback
4.3.4Finance lease in the lessee's books
4.3.5Finance lease in the lessor's books: gross investment, net investment and unearned finance income
4.3.6Operating lease in both books
4.3.7AS 19 and Ind AS 116
Unit 5
Computerised Accounting Systems
1 topic · 42 min to read
5.1Computerised Accounting Systems
42 min read
Accounting software keeps the same double-entry books, but you enter each transaction once, as a voucher, and the software posts it and prepares the cash book, ledgers, trial balance and final accounts by itself. The work runs in a fixed order: create the company, set its features, create groups and ledgers, create stock items, enter vouchers, read the reports, and keep a backup.
Not asked yet in the papers we hold
In simple words
Accounting software keeps the same double-entry books you know from hand-kept accounts. What changes is the work. You enter each transaction once, as a voucher. The software posts it and prepares the cash book, ledgers, trial balance and final accounts by itself. These notes use Tally.ERP 9. Every exercise follows one fixed order, from creating the company to taking a backup. In the practical, voucher entry with GST (goods and services tax) and discounts carries the most marks.
- 1Create the company and its financial year.
- 2Switch on the features it needs (F11) and set its configuration (F12).
- 3Create any missing groups, then the ledgers with their opening balances.
- 4If stock is kept, create stock groups, units of measure and stock items.
- 5Enter each transaction in the right voucher.
- 6Read the reports: day book, cash book, ledgers, trial balance, final accounts, cash flow.
- 7Shut the company when done, and take a backup.
5.1.1Computerised accounting: meaning, advantages and limits
In simple words
Think of account books kept by hand. Computerised accounting keeps the same books on a computer, with an accounting package. The rules do not change: every debit still has an equal credit. What changes is the routine work. You record each transaction once, as a voucher entry. The software then posts, balances and totals it all by itself. That makes it fast, accurate and easy to copy. But it cannot judge, so a wrong entry still gives wrong reports.
Computerised accounting
- Advantages
- Speed
- Accuracy
- Books always up to date
- Backup
- Quick analysis and reports
- Less paperwork, quick search
- Limits
- Cannot tell a capital item from a revenue item
- Cannot spot an entry never made
- Needs a computer, power, trained staff and the package's cost
- Data must be guarded against loss and prying eyes
The practical, out of 20 marks
- Handling the machine
- 1 mark
- Creating the company
- 3 marks
- Creating groups and ledgers
- 4 marks
- Voucher entry
- 9 marks
- 15 entries, with compound entries, GST, cash discount and trade discount
- Reports
- 3 marks
- Day book, GST report, profit and loss account, balance sheet
Remember
- Same double-entry rules. You record a transaction once; the software does the posting, balancing and totalling.
- Where an account appears in the final accounts is fixed once, by the group its ledger is placed under.
- In the practical, voucher entry carries the most marks: 9 of 20.
- The software removes slips of arithmetic and posting. Errors of principle, omission and wrong amounts still pass through.
The full notes3 min
Computerised accounting means keeping the books of account on a computer with an accounting package. The syllabus allows any popular package. These notes use Tally.ERP 9, the package DU teaches for this unit. Menu names and keys may differ in other packages and in later versions, but the steps are the same.
The rules of accounting do not change. Every entry still has a debit and an equal credit, and the concepts of U1 still apply. What changes is who does the routine work. You record a transaction once; the software does the posting, balancing and totalling.
| Point | Manual accounting | Computerised accounting |
|---|---|---|
| First record | Journal entry or subsidiary book | Voucher entry on screen |
| Posting to the ledger | By hand, entry by entry | Automatic, the moment the voucher is saved |
| Trial balance and final accounts | Prepared by hand at the end | Produced at any time, in short or in detail |
| Where an account appears in the final accounts | Decided each time the accounts are drawn up | Decided once, by the group the ledger is placed under |
| Copies of the books | Paper only; one fire or loss and they are gone | A backup can be taken and restored |
| Finding an old entry | Search through the books | Search by date, party or ledger on screen |
Advantages.
- Speed: information is ready almost at once.
- Accuracy: totals, balances and postings are worked out by the machine, so slips of arithmetic disappear.
- Up to date: each voucher is posted the moment it is saved, so every book is current.
- Backup: the data can be copied and brought back when needed.
- Quick analysis and reports: any report can be seen at once, for any period.
- Less paperwork, and information can be searched quickly.
Limits. The software does not judge. It cannot tell a capital item from a revenue item, or spot a transaction that was never entered: a wrong entry gives wrong reports, quickly and neatly. It also needs a computer, power, trained staff and the cost of the package, and the data must be guarded against loss and against people who should not see it. That is why the software offers passwords, security control and backup (sub-topics 2 and 9).
Exam trap
"Computerised accounts cannot contain errors" is wrong. The software removes errors of arithmetic and posting. Errors of principle, omission and wrong amounts still pass through, as they do in a trial balance kept by hand.
The order of work. Every exercise on this unit follows the same steps, and the notes follow them too:
- Create the company and its financial year (sub-topic 2).
- Switch on the features it needs and set its configuration (sub-topic 3).
- Create the groups, if any are missing, and the ledgers with opening balances (sub-topic 4).
- Create stock groups, units of measure and stock items, if inventory is kept (sub-topic 5).
- Enter each transaction in the right voucher (sub-topic 6).
- Read the reports: day book, cash book, ledgers, trial balance, final accounts, cash flow (sub-topic 7).
- Shut the company when done, and take a backup (sub-topics 8 and 9).
The practical examination. The B.Com (Prog) guideline of 16 November 2022 marks the computerised practical out of 20:
| Head | Marks |
|---|---|
| Handling the machine | 1 |
| Creating the company: accounts with inventory, GST switched on, security control, features and configuration | 3 |
| Creating groups and ledgers, one at a time and several at once | 4 |
| Voucher entry: 15 entries, with compound entries, GST, cash discount and trade discount | 9 |
| Reports: day book, GST report, profit and loss account and balance sheet | 3 |
Rule
In this practical, voucher entry carries the most marks (9 of 20). Practise choosing the right voucher and entering GST and discounts until it is automatic.
5.1.2Starting the software and creating a company
In simple words
In the software, each business you keep books for is a separate company. It has its own ledgers and vouchers. Students open Tally.ERP 9 in educational mode and choose Create Company. The screen asks for the company's name, what it will maintain, and two dates. The financial year date is the first day of the year. The books beginning date is the day entries start. For a new business the two are the same. Once a company is loaded, its main menu opens: the Gateway of Tally.
- 1Open Tally.ERP 9 and choose Work in Educational Mode (Alt + W).
- 2Choose Create Company.
- 3Give the name, which must be filled in, and the contact details and currency symbol ₹.
- 4Maintain: Accounts only, or Accounts with Inventory when stock items are to be kept.
- 5Enter "Financial year from" and "Books beginning from": the same day for a new business, later if books start mid-year.
- 6Tally Vault password and security control: No by default; Yes locks the data or names the users allowed in.
- 7Accept to save the company.
Keys at the Gateway of Tally
- Companies
- F1 select
- Alt + F1 shut
- F3 switch between open ones
- Alt + F3 Company Info menu
- Dates
- F2 current date
- Alt + F2 period
- Set-up
- F11 features
- F12 configuration
- Tally.NET
- F4 connect
- Alt + F4 disconnect
Remember
- Each business is a separate company with its own ledgers and vouchers.
- Choose Accounts with Inventory when stock items are kept; otherwise Accounts only.
- A new business: books begin on the first day of the financial year. Books started mid-year: a later date.
- Change a company's details later through Company Info (Alt + F3), Alter.
- Never change "Financial year from" once a company has entries: it can upset the earlier years' books.
The full notes3 min
In the software, a company is the set of books of one business. Each business you keep accounts for is created as a separate company, with its own ledgers and vouchers.
Starting. When Tally.ERP 9 opens, its first screen offers three ways in: a licensed copy, a login as a remote Tally.NET user, and Work in Educational Mode. Students use the educational mode (shortcut Alt + W). The next screen lists the company options; choose Create Company.
The company creation screen asks for these details:
| Field | What you enter |
|---|---|
| Directory | The folder in which the company's data is saved; a default folder is filled in and can be changed |
| Name | The company's name. It must be given; it appears in the list of companies and on every report |
| Mailing name | The name printed on documents; it starts as the company's name and can be changed |
| Address, State, telephone, e-mail | Contact details, printed on reports; optional |
| Currency symbol | ₹ for a business in India |
| Maintain | Accounts only, or Accounts with Inventory when stock items are to be kept |
| Financial year from | The first day of the financial year, such as 1 April |
| Books beginning from | The date from which entries start. For a new business it is the same as the financial year date; it is later if the books start in the middle of a year |
| Tally Vault password | No by default. Set to Yes, it locks the company's data so that only those with the password can open it |
| Use security control | No by default. Set to Yes, it asks for the names and passwords of the users who may open the company |
The lower half of the screen sets the base currency: its formal name (INR), the number of decimal places (2 for the rupee), whether the symbol comes after the amount, whether amounts show in millions, and whether a space separates the symbol from the amount. Press Enter and accept to save the company.
Worked example
Mehta Electricals, a trader in fans and lights, starts business on 1 April and wants stock kept item by item, but no password.
Name: Mehta Electricals; State: its own State; currency symbol: ₹.
Maintain: Accounts with Inventory, because stock items will be kept.
Financial year from: 1 April; books beginning from: 1 April, the same day, because the business is new.
Tally Vault password: No; use security control: No.
Altering a company. The details can be changed later through the Company Info menu (Alt + F3), option Alter.
Exam trap
Do not change the "Financial year from" date of a company that already has entries. The software's own advice is to leave it alone, because the change can upset the books of the earlier years.
The Company Info menu (Alt + F3) holds every action on a company as a whole:
| Option | What it does |
|---|---|
| Select Company | Opens a company from the list of companies created |
| Shut Company | Closes (unloads) an open company; its data is kept |
| Create Company | Creates a new company |
| Alter | Changes the details of the company |
| Create Group Company | Creates a company that brings several companies together |
| Security Control | Changes the administrator and the password |
| Change Tally Vault | Puts a password on the company's data |
| Split Company Data | Splits the data into two periods at a date |
| Backup and Restore | Copies the data out, and brings it back (sub-topic 9) |
Keys at the Gateway of Tally. The Gateway of Tally is the main menu that opens once a company is loaded. The keys used for companies:
| Key | Use |
|---|---|
| F1 | Select a company |
| Alt + F1 | Shut a company |
| F2 | Change the current date |
| Alt + F2 | Change the period (the first and last dates) |
| F3 | Switch between companies when more than one is open |
| Alt + F3 | Company Info menu |
| F4 and Alt + F4 | Connect to and disconnect from Tally.NET |
| F11 | Features of the company |
| F12 | Configuration of the company |
5.1.3Features (F11) and configuration (F12)
In simple words
Once the company exists, you decide what it will use and how it will look. F11 (Features) switches facilities on or off, for this company only. F12 (Configure) sets how its screens and figures look: dates, numbers, names. Both can be changed at any time. Most exercises keep the defaults and change only what the question asks. Two switches to know well: GST, which the practical expects on, and debit and credit notes, needed for returns.
F11: Features (what the company can do)
- Accounting features
- General
- Outstanding management
- Cost and profit centres
- Invoicing
- Budgets and scenarios
- Banking and others
- F2
- inventory features
- F3
- statutory and taxation features, where GST is switched on
- F6
- add-on features
F12: Configure (how screens and figures look)
- General
- Country details
- Naming style
- Date style
- Numbers
- Tables
- Import, export and other options
- Accounts and inventory masters
- Aliases
- Advanced entries
- Addresses for ledgers
- Contact details and notes
- Part numbers and descriptions for stock items
Remember
- F11 decides what the company can do; F12 decides how its screens and figures look.
- Both can be changed at any time; most exercises keep the defaults.
- GST is switched on among the statutory and taxation features (F3 inside the features screen).
- Set Use Debit/Credit Notes to Yes in the invoicing features before entering any purchase or sales return.
- Integrate accounts and inventory: the Balance Sheet then takes its stock figure from the stock records.
The full notes3 min
After creating a company you decide what it will use. Two buttons do this, and both can be changed at any time as needs change.
F11: Features switches facilities on or off for the current company only. The accounting features fall into seven groups:
| Group | Main options and what they do |
|---|---|
| General | Integrate accounts and inventory: the stock figure in the Balance Sheet is taken from the stock records. Income and expense statement instead of profit and loss: for a non-trading body such as a club (U3, C10). Multi-currency: record transactions in foreign currency |
| Outstanding management | Maintain bill-wise details: keep each party's balance bill by bill, so a payment is set against the right invoice. Interest calculation on overdue bills and balances |
| Cost and profit centres | Payroll; cost centres for departments; cost centres for job costing |
| Invoicing | Allow invoicing (taxes worked out on the invoice); enter purchases in invoice form; use debit and credit notes |
| Budgets and scenarios | Keep budgets; use reversing journals and optional vouchers, entries kept outside the books |
| Banking | Cheque printing and other banking options |
| Others | Allow vouchers with a zero amount; several mailing addresses; the company logo on invoices and reports |
Inside the features screen, F2 opens the inventory features, F3 the statutory and taxation features, and F6 the add-on features. GST is switched on among the statutory and taxation features, and the practical expects it to be on.
Exam trap
Debit Note and Credit Note vouchers are not available until Use Debit/Credit Notes is set to Yes in the invoicing features. Turn it on before entering any purchase or sales return.
F12: Configure sets how the company's screens and figures look. The general configuration covers:
- Country details: the tax words used for the country.
- Naming style: how names appear in reports and ledgers.
- Date style: Indian (dd-mm-yy), American (mm-dd-yy) or Japanese (yy-mm-dd), and the separator (hyphen, dot, colon or slash).
- Numbers: the decimal separator (a dot by default), the thousands separator (a comma by default), whether a negative figure shows in brackets (the default) or with a minus sign, and whether figures are grouped in millions instead of lakhs.
- Tables: how lists are shown and searched while you type.
- Import and export: options for bringing data in and sending it out in XML form.
- Other options: monthly reports with graphs, a separate menu for the final accounts, a beep on saving, the information panel.
Accounts and inventory masters (also under F12) decide what the creation screens ask for:
- Allow aliases: a second, short name for a ledger or stock item.
- Allow advanced entries: extra questions on the group, ledger or stock item screen.
- Use addresses for ledger accounts: name, address, State, PIN and PAN of a party, which then print on documents.
- Contact details and notes for ledgers.
- For stock items: part numbers and descriptions.
Rule
F11 decides what the company can do (features); F12 decides how its screens and figures look (configuration). Most exercises use the defaults and change only what the question asks.
5.1.4Accounting groups and ledgers
In simple words
Every account is, at bottom, a liability, an asset, an income or an expense. A group is a class inside one of these, such as Fixed Assets. A ledger is the actual account amounts are posted to, such as Rent or Bank. You place each ledger under a group. That tells the software whether it belongs in the Balance Sheet or the Profit and Loss Account, and where. Put every ledger in the right group, and the final accounts need no further work.
The 15 primary groups
- Balance Sheet, liabilities
- Capital Account
- Loans (Liability)
- Current Liabilities
- Balance Sheet, assets
- Fixed Assets
- Investments
- Current Assets
- Miscellaneous Expenses (Asset)
- Balance Sheet, others
- Branch / Divisions
- Suspense Account
- Profit and Loss, income
- Sales Accounts
- Direct Incomes
- Indirect Incomes
- Profit and Loss, expenses
- Purchase Accounts
- Direct Expenses
- Indirect Expenses
- 1List the accounts you need on paper, and decide the group of each.
- 2Create any missing group: Accounts Info. → Groups → Single or Multiple Groups → Create.
- 3Create the ledgers: Accounts Info. → Ledgers → Single Ledger or Multiple Ledgers → Create.
- 4Give each Balance Sheet ledger its opening balance, debit (Dr) or credit (Cr). Profit and Loss ledgers start at zero.
- 5Put the opening cash in the Cash ledger the software already made.
- 6Accept (Ctrl + A) to save.
Where common ledgers go
- Direct Expenses
- Wages
- Carriage inwards
- Freight on purchases
- Power
- Indirect Expenses
- Office salaries
- Rent
- Carriage outwards
- Discount allowed
- Depreciation
- Bad debts
- Indirect Incomes
- Discount received
- Interest received
- Bad debts recovered
- Rent received
- Duties and Taxes
- CGST, SGST and IGST ledgers
- TDS
- Capital Account
- Capital
- Drawings
- Sundry Debtors and Sundry Creditors
- Debtors
- Creditors for goods
Remember
- The group fixes where a ledger lands in the final accounts. A wrong group means the wrong place.
- 34 reserved groups come with the software and cannot be deleted. The top 15 are primary: 9 Balance Sheet, 6 Profit and Loss.
- Cash and Profit and Loss A/c are created by the software with every company.
- A missing group can be made on the spot with Alt + C. In Multiple Ledgers, F8 skips the opening balance.
- Direct items affect gross profit; indirect ones only net profit.
- Carriage inwards and wages are Direct Expenses, carriage outwards Indirect. A direct cost under Indirect leaves net profit right but overstates gross profit.
The full notes6 min
Groups. Every account is, at bottom, a liability, an asset, an income or an expense. A group is a class within one of these four, such as Fixed Assets or Indirect Expenses. Groups stand in a ladder: a group can hold sub-groups, and the lowest level holds the ledgers. Placing a ledger under a group tells the software two things: whether it is a capital item (Balance Sheet) or a revenue item (Profit and Loss Account), and where in that statement it appears. That is how the final accounts are drawn up without any further work.
The software comes with 34 predefined groups, called reserved groups, which cannot be deleted. The top 15 are the primary groups: nine go to the Balance Sheet and six to the Profit and Loss Account.
| Primary group | Statement | Main sub-groups under it |
|---|---|---|
| Capital Account | Balance Sheet, liabilities | Reserves and Surplus (retained earnings) |
| Loans (Liability) | Balance Sheet, liabilities | Bank OD Accounts; Secured Loans; Unsecured Loans |
| Current Liabilities | Balance Sheet, liabilities | Duties and Taxes; Provisions; Sundry Creditors |
| Fixed Assets | Balance Sheet, assets | (none) |
| Investments | Balance Sheet, assets | (none) |
| Current Assets | Balance Sheet, assets | Sundry Debtors; Stock-in-hand; Cash-in-hand; Bank Accounts; Loans and Advances (Asset); Deposits (Asset) |
| Branch / Divisions | Balance Sheet | (none) |
| Miscellaneous Expenses (Asset) | Balance Sheet, assets | (none) |
| Suspense Account | Balance Sheet | (none) |
| Sales Accounts | Profit and Loss, income | (none) |
| Direct Incomes | Profit and Loss, income | (none) |
| Indirect Incomes | Profit and Loss, income | (none) |
| Purchase Accounts | Profit and Loss, expenses | (none) |
| Direct Expenses | Profit and Loss, expenses | (none) |
| Indirect Expenses | Profit and Loss, expenses | (none) |
Direct expenses and incomes are those of buying, making and selling the goods, so they affect gross profit; indirect ones affect only net profit. This is the line between the Trading Account and the Profit and Loss Account in U3.
Creating groups. The predefined groups are usually enough, and most exercises use only them. When a new group is needed:
- One group: Gateway of Tally → Accounts Info. → Groups → Single Group → Create. Give the Name, an alias if wanted, and the group it falls Under. For example, "Advertising Expenses" under Indirect Expenses.
- Several groups under one parent: Gateway of Tally → Accounts Info. → Groups → Multiple Groups → Create. Pick the parent group once at the top, then type the names one below the other. For example, "Prepaid Expenses" and "Accrued Income", both under Current Assets.
- Display shows the groups; Alter changes a group's details.
Ledgers. A ledger is the actual account to which amounts are posted: Rent, Sales, Ramesh, Bank. Two ledgers are created by the software with every company: Cash and Profit and Loss A/c. You create all the others. List the accounts you will need on paper first and decide the group of each; a ledger in the wrong group cannot be used properly in vouchers and lands in the wrong place in the final accounts.
For a new company whose books begin on the first day of the financial year, create every Balance Sheet item of the previous date with its opening balance, and the Profit and Loss items with a zero opening balance.
One ledger at a time: Gateway of Tally → Accounts Info. → Ledgers → Single Ledger → Create. The screen asks for:
| Field | What you enter |
|---|---|
| Name and alias | The ledger's name, which appears in every list and report, and a second name if wanted |
| Under | The group. A missing group can be made on the spot with Alt + C |
| Maintain balances bill-by-bill | Shown for debtors and creditors only. Yes keeps their balances invoice by invoice |
| Effective date for reconciliation | Shown for a bank ledger: the date from which the cash book is to be matched with the pass book |
| Opening balance | The amount on the books-beginning date, with Dr or Cr |
| Mailing name, address, State, PIN | The party's details, printed on invoices, reminders and confirmations (the address appears only if addresses are switched on in F12) |
| Bank details, income-tax number (PAN), tax registration number | The party's details for payments and documents |
Accept the screen (Ctrl + A, or Yes) to save the ledger. Esc leaves with a question to confirm; Ctrl + Q leaves without one. Display shows a ledger; Alter changes it.
Several ledgers at once: Gateway of Tally → Accounts Info. → Ledgers → Multiple Ledgers → Create. Choose the group at the top ("Under Group"), or choose All Items to pick a group for each line. Each line takes a name, a group (when All Items is chosen) and an opening balance with Dr or Cr; the Tab key moves along the line. On this screen F4 (Parent) changes the group at the top, and F8 (Skip details) skips the opening balance, which is useful when ledgers are created in the middle of a year.
Which group a ledger goes under.
| Ledger | Group |
|---|---|
| Capital; Drawings | Capital Account |
| General reserve | Reserves and Surplus |
| Loan from a bank against security; debentures | Secured Loans |
| Loan taken from others without security | Unsecured Loans |
| Creditors for goods | Sundry Creditors |
| Bills payable; outstanding salary; advance received from a customer | Current Liabilities |
| CGST, SGST and IGST ledgers; TDS | Duties and Taxes |
| Furniture; machinery; computer | Fixed Assets |
| Shares and bonds held | Investments |
| Debtors | Sundry Debtors |
| Bills receivable; prepaid insurance; accrued income | Current Assets |
| Security deposit paid | Deposits (Asset) |
| Opening stock | Stock-in-hand |
| Purchases; purchase returns | Purchase Accounts |
| Sales; sales returns | Sales Accounts |
| Wages; carriage inwards; freight on purchases; power | Direct Expenses |
| Office salaries; rent; insurance; printing and stationery; advertisement; carriage outwards; discount allowed; depreciation; bad debts | Indirect Expenses |
| Discount received; interest received; bad debts recovered; rent received | Indirect Incomes |
Exam trap
Carriage inwards and wages go under Direct Expenses, carriage outwards under Indirect Expenses. Put a direct cost under Indirect Expenses and the net profit is unchanged, but the gross profit is overstated.
Worked example
Kavya Textiles starts its books on 1 April with: capital ₹3,00,000, bank balance ₹1,80,000, cash ₹20,000, furniture ₹60,000 and stock ₹40,000.
Capital ₹3,00,000 Cr, under Capital Account.
Bank ₹1,80,000 Dr, under Bank Accounts; furniture ₹60,000 Dr, under Fixed Assets; stock ₹40,000 Dr, under Stock-in-hand.
Cash ₹20,000 Dr goes into the Cash ledger the software has already created, so no new ledger is needed.
Debit balances = ₹1,80,000 + ₹20,000 + ₹60,000 + ₹40,000 = ₹3,00,000, equal to the credit balance of capital.
Ledgers for Sales, Purchases, Rent, Depreciation, Discount Allowed, the GST accounts and the parties are created with nil opening balances.
5.1.5Stock groups, units of measure and stock items
In simple words
When a company keeps accounts with inventory, each kind of goods is set up once as a stock item. The software then tracks its quantity and value as goods are bought and sold. Three things are created, in a fixed order. First the stock groups, the classes of goods. Then the units of measure, how an item is counted. Last the stock items themselves, each with its group, unit and opening stock.
- 1Stock Groups → Create: classes of goods, such as Fans and Lights.
- 2Units of Measure → Create: such as Nos., Pcs or Kg.
- 3Stock Items → Create: name, stock group (Under), unit, and opening quantity, rate and value.
Remember
- Create the units of measure before the stock items, because each item asks for its unit. A missing unit can be made on the spot with Alt + C.
- Many items: Multiple Stock Items with All Items, so each line can take its own group.
- Goods kept in more than one place: each place is a godown, and quantities are recorded godown by godown.
- With accounts and inventory integrated, the opening stock items give the Balance Sheet its stock figure.
The full notes2 min
When the company keeps accounts with inventory, each kind of goods is set up once as a stock item, so that quantities and values are tracked as goods are bought and sold. Three masters are created, in this order:
- Stock groups: classes of goods, such as Fans and Lights. Path: Gateway of Tally → Inventory Info. → Stock Groups → Single Stock Group → Create. Type the name and save. Several can be made at once with the multiple option.
- Units of measure: how an item is counted, such as Nos., Pcs or Kg. Path: Gateway of Tally → Inventory Info. → Units of Measure → Create. Create the units before the items, because each item asks for one.
- Stock items: each article sold. Path: Gateway of Tally → Inventory Info. → Stock Items → Single Create or Multiple Create. Each item takes its name, its stock group (Under), its unit, and its opening quantity, rate and value.
With many items, use Multiple Stock Items and choose All Items under "Under Group", so a different group can be picked on each line.
Where goods are kept in more than one place, each place is a godown (a store or shop), and the items' quantities are recorded godown by godown. The stock reports can then be read for each godown separately.
Worked example
Mehta Electricals opens with 12 ceiling fans at ₹1,500 each and 40 LED bulbs at ₹90 each.
Stock groups: Fans; Lights. Unit of measure: Nos.
Stock item Ceiling Fan, under Fans: 12 Nos. at ₹1,500 = ₹18,000.
Stock item LED Bulb, under Lights: 40 Nos. at ₹90 = ₹3,600.
Opening stock = ₹18,000 + ₹3,600 = ₹21,600, which is the stock figure the Balance Sheet shows when accounts and inventory are integrated.
Exam trap
Create the units of measure before the stock items, because each item asks for its unit. Working the other way round means leaving the item screen to make a unit, or making it on the spot with Alt + C.
5.1.6Vouchers and voucher entry, with GST and discounts
In simple words
In hand-kept books you first write a journal entry. In the software you fill in a voucher instead: one screen for one transaction. Each source document, such as a bill or a cheque counterfoil, gives one voucher. There is a voucher type for each kind of transaction, each opened by its own key. Pick the right type, enter the ledgers as Dr and Cr, and save once the debits equal the credits. GST and cash discount go in as extra lines. Trade discount does not go in at all.
1Is it a sale of goods or services, for cash or on credit?
- YesSales (F8)
- Nogo to 2
2Is it a purchase of goods or services, other than a fixed asset, for cash or on credit?
- YesPurchase (F9)
- Nogo to 3
3Does money only move between cash and bank, or between two bank accounts?
- YesContra (F4)
- Nogo to 4
4Is cash or bank money paid out to someone?
- YesPayment (F5)
- Nogo to 5
5Is cash or bank money received from someone?
- YesReceipt (F6)
- Nogo to 6
6Is it goods returned, or an allowance, between the firm and a customer or supplier?
- CustomerCredit Note
- SupplierDebit Note
- NeitherJournal (F7)
GST in vouchers (tax ledgers under Duties and Taxes)
- Purchase
- Purchases Dr
- Input CGST Dr and Input SGST Dr
- Input IGST Dr instead, for goods from another State
- Supplier Cr, the total
- Sales
- Customer Dr, the total
- Sales Cr
- Output CGST Cr and Output SGST Cr
- Output IGST Cr instead, for a sale to another State
- Set-off, in a Journal
- Output tax Dr
- Input tax Cr
- Paying the balance
- a Payment voucher
- List price
- −Trade discount, which goes in no ledger
- =Invoice price: the amount of the Sales or Purchase voucher
- −Cash discount, for prompt payment, worked on the invoice price
- =Amount actually paid
Remember
- One source document, one voucher: two withdrawals resting on two documents are two vouchers.
- Contra is only for moves between cash and bank ledgers. Money paid to or received from anyone else is a Payment or a Receipt.
- A cash sale or cash purchase goes in the Sales or Purchase voucher, with Cash or Bank in place of a party.
- A voucher may have many lines, but it is complete only when debits equal credits.
- Credit Note and Debit Note vouchers appear only once Use Debit/Credit Notes is switched on.
- Trade discount goes in no ledger; cash discount does. Discount Allowed is debited in a receipt, Discount Received credited in a payment.
The full notes6 min
What a voucher is. In manual books a transaction is first written as a journal entry. In the software it is entered as a voucher: one screen that records one transaction. The word also means the document behind the transaction: a bill, a cheque counterfoil, a pay-in slip, a receipt or a wage sheet. One source document gives one voucher. Two cash withdrawals from the same bank on the same day, one from an overdraft account and one from a current account, rest on two documents, so they are two vouchers.
The voucher types. The software provides a voucher for each kind of transaction, matching the books of original entry of manual accounting. Choose Voucher Entry on the Gateway of Tally, then press the key of the voucher type.
| Voucher | Key | What it records | Usual entry |
|---|---|---|---|
| Contra | F4 | Money moved between cash and bank, or between two bank accounts; nothing comes in or goes out of the business | Bank Dr, Cash Cr (cash deposited) |
| Payment | F5 | Every payment in cash or by cheque: expenses, cash purchases, paying creditors, buying assets, loans given or repaid | Expense or party Dr, Cash or Bank Cr |
| Receipt | F6 | Every receipt in cash or by cheque: from debtors, incomes, loans taken, refunds | Cash or Bank Dr, party or income Cr |
| Journal | F7 | Adjustments with no cash or bank: depreciation, provisions, outstanding and accrued items, transfers between ledgers | Any two or more ledgers other than cash and bank |
| Sales | F8 | Every sale of goods or services, on credit or for cash | Party (or Cash) Dr, Sales Cr, GST Cr |
| Purchase | F9 | Every purchase of goods or services, on credit or for cash | Purchases Dr, GST Dr, party (or Cash) Cr |
| Credit Note | from F7 or F8 once switched on | Goods returned by a customer, or an allowance given to a customer | Sales (returns) Dr, Output GST Dr, customer Cr |
| Debit Note | from F7 or F9 once switched on | Goods returned to a supplier, or an allowance received | Supplier Dr, Purchases (returns) Cr, Input GST Cr |
Two more types, the memo voucher and the reversing journal, are special journals kept for particular purposes. An entry in a reversing journal does not affect the books.
Rule
Contra is only for movements between cash and bank ledgers (those under Cash-in-hand, Bank Accounts and Bank OCC Accounts). Money paid to or received from anyone else is a Payment or a Receipt.
Choosing the voucher.
| Transaction | Voucher |
|---|---|
| Cash withdrawn from the bank for office use | Contra |
| Cheque issued to a creditor | Payment |
| Rent paid in cash | Payment |
| Cheque received from a debtor | Receipt |
| Interest received in cash | Receipt |
| Goods sold on credit | Sales |
| Goods sold for cash | Sales |
| Goods bought on credit | Purchase |
| Depreciation charged on machinery | Journal |
| Salary outstanding at the year end | Journal |
| Goods returned by a customer | Credit Note |
| Goods returned to a supplier | Debit Note |
The voucher screen. The top (the header) shows the voucher type, its number (given by the software or by you), a reference for sales, purchase and note vouchers, the date and the day. The date is the current date unless you change it with F2; the new date then stays for the next vouchers. The body has four fields:
- Dr or Cr (To or By): fixed for the first line; chosen for later lines.
- Ledger: type the first letters and pick from the list. A ledger not yet made can be created on the spot with Alt + C.
- Amount: Ctrl + N opens a calculator whose answer goes into the amount field. The voucher is complete only when the debit and credit totals are equal.
- Narration: a short description of the transaction.
Accept the voucher to save it. A voucher saved in the wrong type can be changed: open it in alteration mode and choose the right voucher type from the button bar.
Cash sales and cash purchases. A cash sale is entered in the Sales voucher with the Cash or Bank ledger in place of a party. One voucher then records it in both the Sales Register and the Cash Book, and no ledger needs to be opened for a buyer who paid at once. A cash purchase is entered the same way in the Purchase voucher.
Compound entries. A voucher may have more than two lines, as long as debits equal credits: for example a receipt from a debtor with cash discount, or a purchase with CGST and SGST.
GST in vouchers. Switch GST on in the company's statutory features, then create the tax ledgers (Input CGST, Input SGST, Input IGST and the output ones) under Duties and Taxes. The accounting is the same as in U1 (C16): input tax on purchases is debited, output tax on sales is credited, and the two are set off before the balance is paid.
- In a Purchase voucher: Purchases Dr (value of goods), Input CGST Dr and Input SGST Dr (or Input IGST Dr for goods from another State), Supplier Cr (the total).
- In a Sales voucher: Customer Dr (the total), Sales Cr (value of goods), Output CGST Cr and Output SGST Cr (or Output IGST Cr for a sale to another State).
- The set-off is a Journal voucher (Output tax Dr, Input tax Cr). Paying the balance is a Payment voucher.
Worked example
Kavya Textiles, registered in one State, enters six transactions: it buys goods on credit from Sen Brothers for ₹50,000 plus CGST 9% and SGST 9%; sells goods on credit to Uma for ₹80,000 plus CGST 9% and SGST 9%; deposits cash ₹15,000 in the bank; receives a cheque of ₹94,000 from Uma in full settlement; pays rent ₹12,000 by cheque; and charges depreciation of ₹6,000 on furniture.
Purchase (F9): Purchases Dr ₹50,000, Input CGST Dr ₹4,500, Input SGST Dr ₹4,500, Sen Brothers Cr ₹59,000.
Sales (F8): Uma Dr ₹94,400, Sales Cr ₹80,000, Output CGST Cr ₹7,200, Output SGST Cr ₹7,200.
Contra (F4): Bank Dr ₹15,000, Cash Cr ₹15,000.
Receipt (F6): Bank Dr ₹94,000, Discount Allowed Dr ₹400, Uma Cr ₹94,400, the discount being ₹94,400 − ₹94,000.
Payment (F5): Rent Dr ₹12,000, Bank Cr ₹12,000.
Journal (F7): Depreciation Dr ₹6,000, Furniture Cr ₹6,000.
Discounts.
- Trade discount is a reduction from the list (catalogue) price, given on the invoice itself. It is never entered as a separate ledger. Enter the sale or purchase at the price after trade discount.
- Cash discount is allowed for prompt payment, and it is worked out on the price after trade discount. It is entered in the Receipt or Payment voucher as an extra line: Discount Allowed (Indirect Expenses) is debited in a receipt; Discount Received (Indirect Incomes) is credited in a payment.
Worked example
Goods listed at ₹40,000 are sold on credit to Uma with a 10% trade discount and 2% cash discount for payment within a week. She pays within the week by cheque.
Trade discount = ₹40,000 × 10% = ₹4,000, so the invoice is for ₹36,000.
Sales voucher: Uma Dr ₹36,000, Sales Cr ₹36,000; the ₹4,000 is not entered anywhere.
Cash discount = ₹36,000 × 2% = ₹720, worked on the invoice price.
Receipt voucher: Bank Dr ₹35,280, Discount Allowed Dr ₹720, Uma Cr ₹36,000.
Exam trap
Trade discount does not appear in any ledger; cash discount does. A student who debits Discount Allowed with the trade discount overstates both sales and expenses.
5.1.7Generating reports
In simple words
Once the vouchers are in, the software prepares every book and statement by itself. You only open them. Each can be seen at any date, in short (condensed) or in detail. Nothing is posted or totalled by hand. So to correct a figure in a report, you alter the voucher behind it. Two reports explain a change between two dates: the cash flow statement explains the change in cash, the funds flow statement the change in working capital.
Reports, from the Gateway of Tally
- Display → Account Books
- Cash/Bank Book(s)
- Ledger
- Display
- Trial Balance
- On the Gateway itself
- Profit & Loss A/c
- Balance Sheet
- Display → Cash/Funds Flow
- Cash Flow
- Funds Flow
- Also given
- Day Book
- GST reports
- Stock Summary
- Outstanding bills
Cash flow or funds flow
- Cash flow statement
- "Cash" means cash and bank balances together
- Explains the change in cash
- Operating, investing and financing activities
- Bars for inflow and outflow
- Funds flow statement
- "Funds" means working capital
- Explains the change in working capital
- Sources and applications of funds
- Bars above and below the axis
1Does it change cash and bank balances, taken together?
- Nogo to 3
- Yesgo to 2
2Does it change working capital?
- YesBoth statements
- NoCash flow statement only
3Does it change working capital?
- YesFunds flow statement only
- NoNeither statement
Remember
- Every report comes from the vouchers. To correct a report, alter the voucher behind it.
- The Trial Balance's debit total must equal its credit total, and it does when every voucher balances.
- The Profit and Loss Account comes from the revenue groups, the Balance Sheet from the capital groups.
- Detailed (F1) opens the item-by-item view; Enter on a line opens the accounts behind it.
- The practical asks for the Day Book, a GST report, the Profit and Loss Account and the Balance Sheet.
- Cash flow and funds flow differ. Buying stock for cash is a cash outflow, but working capital is unchanged, so funds flow leaves it out.
The full notes3 min
Once vouchers are entered, the software prepares every book and statement by itself, at any date, both in short (condensed) and in detail. Nothing is posted or totalled by hand. To correct a figure in a report, go back to the voucher behind it and alter that.
| Report | Path from the Gateway of Tally | What it shows |
|---|---|---|
| Cash and bank books | Display → Account Books → Cash/Bank Book(s) | All receipts and payments of each cash and bank ledger |
| Ledger account | Display → Account Books → Ledger, then pick the ledger | Every entry in one account and its balance |
| Trial Balance | Display → Trial Balance | All ledger balances; the debit total must equal the credit total |
| Profit and Loss Account | Profit & Loss A/c on the Gateway | Gross and net profit for the period, from the revenue groups |
| Balance Sheet | Balance Sheet on the Gateway | Assets and liabilities, from the capital groups |
| Cash Flow | Display → Cash/Funds Flow → Cash Flow | Cash coming in and going out, month by month |
| Funds Flow | Display → Cash/Funds Flow → Funds Flow | Changes in working capital, its sources and uses |
The software also gives a Day Book, which lists every voucher entered, in date order, for the day or period chosen; GST reports of the tax charged on sales and paid on purchases; a Stock Summary of the quantity and value of each stock item, also godown by godown; and a report of outstanding bills. The practical asks for the Day Book, a GST report, the Profit and Loss Account and the Balance Sheet.
In a report, the Detailed button (F1) opens the item-by-item view; pressing Enter on a line opens the accounts behind it.
Worked example
After the opening balances of sub-topic 4 and the six vouchers of sub-topic 6, Kavya Textiles opens its Trial Balance.
Bank = ₹1,80,000 + ₹15,000 + ₹94,000 − ₹12,000 = ₹2,77,000; Cash = ₹20,000 − ₹15,000 = ₹5,000; Furniture = ₹60,000 − ₹6,000 = ₹54,000.
Debits: Bank ₹2,77,000, Cash ₹5,000, Furniture ₹54,000, Stock ₹40,000, Purchases ₹50,000, Input CGST ₹4,500, Input SGST ₹4,500, Rent ₹12,000, Depreciation ₹6,000, Discount Allowed ₹400; total ₹4,53,400.
Credits: Capital ₹3,00,000, Sen Brothers ₹59,000, Sales ₹80,000, Output CGST ₹7,200, Output SGST ₹7,200; total ₹4,53,400.
The totals agree, as they always do when every voucher balances.
Cash flow statement. A cash flow statement explains how the cash position changed between two balance sheet dates. Here cash means cash and bank balances together. It deals only with transactions that move cash, and it sorts them into three kinds of activity: operating, investing and financing. A business may report operating cash flows by the direct method (actual receipts and payments) or the indirect method (starting from profit). A cash flow summary can also serve as a receipts and payments statement, which suits a not-for-profit body. The software shows the cash flow month by month, with a bar chart of inflows and outflows.
Funds flow statement. Here funds means working capital. The statement has two parts, sources of funds and applications of funds, and their difference is the change in working capital for the period. A transaction appears in it only if it changes working capital. It supplements the Balance Sheet and the Profit and Loss Account.
| Point | Cash flow statement | Funds flow statement |
|---|---|---|
| Meaning of the word | Cash and bank balances | Working capital |
| What it explains | The change in cash between two dates | The change in working capital between two dates |
| Parts | Operating, investing and financing activities | Sources and applications of funds |
| Chart in the software | Bars for inflow and for outflow | Bars above and below the axis for the net flow |
Exam trap
The cash flow statement and the funds flow statement are not the same. Buying stock for cash lowers cash, so it is a cash outflow. It leaves working capital unchanged, because one current asset (stock) replaces another (cash), so it does not appear in the funds flow statement.
5.1.8Selecting and shutting a company
In simple words
The software can hold many companies, but you work in one at a time. Selecting a company opens it, ready for work. If only one company exists, it opens by itself. Shutting a company closes it: the software unloads it from memory. Its data stays safe on the disk. Select it again later and every ledger and voucher is there.
Working with companies
- Select (F1)
- opens a company from the list
- with only one company, it opens by itself
- Shut (Alt + F1)
- unloads an open company
- its data stays on the disk
- used when more than one is open
Remember
- F1 selects a company; Alt + F1 shuts one.
- Shutting does not delete. The ledgers and vouchers are all there when the company is selected again.
- A shut company is opened again with Select Company, exactly as before.
The full notes1 min
The software can hold many companies, and you work in one at a time.
Selecting (F1). If only one company has been created, the software opens it by itself. With several, press F1 (or choose Select Company), pick the company from the list and press Enter. Its Gateway of Tally opens, ready for work.
Shutting (Alt + F1). Shutting closes an open company: the software unloads it from memory, and its data stays safe on the disk. Press Alt + F1, pick the company and press Enter. It is used when more than one company is open. A shut company is opened again with Select Company, exactly as before.
Exam trap
Shutting a company does not delete it. Some keyboard lists describe Alt + F1 as "delete the company", but shutting only unloads it; its ledgers and vouchers are all there when it is selected again.
5.1.9Backup and restore of company data
In simple words
A backup is a spare copy of the company's data, kept somewhere else: a pen drive, an external hard disk or another folder. If the data is damaged or lost, you restore the copy, that is, bring it back into the software. A restore gives back the data only as it stood on the backup day. Anything entered after that must be entered again. So take backups regularly.
- 1Open the Company Info menu (Alt + F3) and choose Backup, or Restore.
- 2Give the place: the destination for a backup, the source for a restore.
- 3Pick the company (a backup can take several), then choose End of List.
- 4Accept (Yes).
Remember
- Backup copies the data out to a destination; restore brings it back in from a source.
- Both start from the Company Info menu (Alt + F3).
- A restore gives the data as it stood on the backup day. Vouchers entered later must be entered again.
- Shutting a company is neither a backup nor a restore: it copies nothing.
The full notes1 min
A backup is a copy of the company's data kept somewhere else: on a pen drive, an external hard disk or another folder. If the data is damaged or lost, the copy is restored, that is, brought back into the software. Backups should be taken regularly.
Taking a backup.
- Open the Company Info menu (Alt + F3) and choose Backup.
- Give the destination: the drive or folder where the copy is to go.
- Pick the company (or companies) to copy, then choose End of List.
- Accept (Yes) to take the backup.
Restoring data.
- Open the Company Info menu (Alt + F3) and choose Restore.
- Give the source: the drive or folder where the backup was kept.
- Pick the company to restore, then choose End of List.
- Accept (Yes) to restore it.
Rule
Restoring brings back the data only as it stood on the day the backup was taken. Vouchers entered after that day are not in the backup and must be entered again.
Exam trap
Backup and restore are opposites. Backup copies data out to a destination; restore brings it back in from a source. Shutting a company is neither: it copies nothing.