GST stand for Goods and Services Tax which is levied on almost all the good and services supplied in India. Generally, a business is required to charge GST on all the goods and services supplied by it if its turnover is over the limit as prescribed by respective GST laws. We can also do accounting fRead more
GST stand for Goods and Services Tax which is levied on almost all the good and services supplied in India. Generally, a business is required to charge GST on all the goods and services supplied by it if its turnover is over the limit as prescribed by respective GST laws.
We can also do accounting for GST in Tally by enabling it from the company features.
The steps to enable GST and perform GST accounting in Tally are as given below.
Enabling GST in Tally
GST can be enabled in Tally from the ‘Company features’ menu which opens just after the creation of a company. There is an option called ‘Enable Goods and Services Tax (GST)’. You have to enter ‘Yes’.
If the company is already created and the GST was not enabled earlier, then just press F11 and select the company for which you want to enable GST. The ‘company features’ menu will open again, from there you have to enter ‘Yes’ beside the ‘Enable Goods and Services Tax (GST)’ option.
In both cases, this menu will open:
Do have look at the details I have filled in. You have to:
Select the State in which your business is.
Registration type is Regular in most cases.
Keep the ‘Assessee of another territory’ option at ‘No’, if your business operated from one state only.
Enter your 19-digit GST number.
Periodicity can be set to ‘Monthly’ or ‘Quarterly’ as per the turnover of the business. ‘Quarterly’ preferred.
Keep the E-way bill option at ‘No’ if the E-way bill is not required.
Keep the ‘Set/Alter GST rate details’ option at ‘No’ if you want to charge different goods at different GST rates. If GST rates are set up from here, it will be uniform for all goods and services.
Keep the rest of the options as shown in the above image.
These settings are enough if you are to just practice GST in Tally.
Ledger is the book where the transaction related to a particular account is recorded. For example, the Sales ledger will only record the transactions related to sales. Ledgers in Tally also serve the same purpose. Posting in the ledger is automatically done when the transactions are entered in the vRead more
Ledger is the book where the transaction related to a particular account is recorded. For example, the Sales ledger will only record the transactions related to sales.
Ledgers in Tally also serve the same purpose. Posting in the ledger is automatically done when the transactions are entered in the vouchers.
Now, if you want to delete a ledger, you can easily do by following some simple steps.
I have shared the steps of deleting a ledger in Tally Prime and Tally ERP 9 both.
Deleting a ledger in Tally Prime
To delete a ledger in Tally Prime, the steps are as follows:
Gateway of Tally → Alter → Ledger → Click on the ledger you want to delete.
Upon clicking the ledger, the ledger alteration menu will open.
At the bottom, there is a ‘Delete’ option. Either click on it or simply press Alt + D and click on ‘Yes’. Your ledger will be deleted.
Deleting a ledger in Tally ERP 9
To delete a ledger in Tally ERP 9, the steps are as follows:
Gateway of Tally → Accounts Info → Ledger → Alter → Select the ledger you want to delete.
Steps are almost similar in both versions of Tally. Little difference is there due to the different interfaces of the two versions.
Just like Tally Prime, you can click on the ‘Delete’ option at the bottom or press Alt + D to delete the ledger.
Tally ERP does not have a voucher for recording closing stock journal entries. It automatically calculates closing stock and reports it in the Profit and Loss account and Balance sheet. However, Tally do have vouchers through which you can adjust the closing stock to be shown at the end of the year.Read more
Tally ERP does not have a voucher for recording closing stock journal entries. It automatically calculates closing stock and reports it in the Profit and Loss account and Balance sheet.
However, Tally do have vouchers through which you can adjust the closing stock to be shown at the end of the year.
Explanation
Tally, as we know is an ERP which can automate many aspects of accounting like calculation of ledger balance, creation of trial balance, financial statements and other reports. Only the data entry in vouchers is done manually.
Tally also calculates closing stock automatically because it already has the required data to do so.
Using the above formula, Tally automatically calculates the closing stock.
But it may happen that the closing stock as per Tally and closing stock as per physical verification of stock do not match.
This may be due to damaged caused to some items of inventory or even theft of inventory items which is usually discovered when stock is physically checked and counted at the end of the financial year.
In that case, we can use the Physical Stock voucher to correct our closing stock in Tally.
Physical Stock Voucher
A physical Stock voucher is an inventory voucher which is used to adjust the amount of closing stock as per the physical stock verified at the end of the year.
Suppose, if the closing stock for Bricks is 500pcs. Like in my stock summary, the item ‘Bricks’ is shown in the image below:
But after physical verification, it was found that there around there are only 450pcs of whole bricks are there. The rest of the bricks were broken.
To rectify this, we will open a Physical Stock voucher.
The steps to open a Physical stock voucher are as follows:
In Tally ERP 9 : Gateway of Tally → Accounting Vouchers → Press Alt + F10
In the physical stock voucher, we will select the stock item and enter the correct quantity, which is 450pcs.
After entering the details above, accept the voucher and open the stock summary again from Gateway of Tally. It will show the Bricks at 450pcs.
Hence, this is how we can adjust our closing stock in Tally.
Credit Note A credit note is a document which generally evidences a sales return. It is created by the seller and sent to the buyer acknowledging the receipt of goods returned by the buyer. On the basis of it, the seller promises to pay back the buyer for the goods returned to him or adjust the amouRead more
Credit Note
A credit note is a document which generally evidences a sales return. It is created by the seller and sent to the buyer acknowledging the receipt of goods returned by the buyer. On the basis of it, the seller promises to pay back the buyer for the goods returned to him or adjust the amount in future transactions.
A credit note is also created when the buyer has sent excess money by mistake against the goods delivered to him.
In Tally, a credit note is created using a credit note voucher. Now, a credit note can only be created only if a sales entry has been made.
Hence first, we will be creating a sales entry and then the credit note.
Creation of sales entry in sales voucher ( If not done before)
The step to create a sale entry in Tally prime is as follows:
Gateway of Tally –> Vouchers –> Press F8 to open sales voucher
Enter the details of sales in the sales voucher like I have entered in my sale voucher and accept.
Here, my debtor is Rama and I have sold 1000pcs of Linc pens@Rs. 10 to him
Important things to consider:
If no ledger accounts, stock items and stock units are created in your company, you can easily create them while in the voucher creation menu itself. Just press Alt + C in the field where you need to enter party name, stock item name or stock unit name and the respective creation menus will open.
After entering the item details, a new menu will open which will ask for which account to be credited for the sale entry. As we know, a sales account is credited, so you have select the sales account from the menu or simply create a Sales account if not created by pressing Alt + C. Below is that menu:
#2 Creation of credit note
If already in the voucher creation menu, just press Alt + F6 to open the credit note voucher.
Enter the party name and a menu will open, asking for a tracking number. No need to enter any details there.
Next, another menu will open asking for party details. Select the name of the respective debtor.
Next enter the details of stock items returned as I have done:
I have made a credit note for 100pcs of Linc pens returned by Rama.
After entering all the details, press Enter and accept.
You can verify the effect of this sales voucher by performing the following steps.
Gateway of Tally –> Display more reports –> Account Books –> Ledger –>Select the debtor account from the list of ledgers.
After opening the ledger, if you see that the debtor account is credited by an amount through a credit note voucher, then it can be said that you have performed the steps correctly.
Deleting a company in Tally Prime Tally prime is the latest version of Tally ERP software. In its functionality, it is slightly different from its previous version Tally ERP 9. Hence, the process of deleting a company in Tally Prime is different from that in Tally ERP 9. To delete a company in TallRead more
Deleting a company in Tally Prime
Tally prime is the latest version of Tally ERP software. In its functionality, it is slightly different from its previous version Tally ERP 9. Hence, the process of deleting a company in Tally Prime is different from that in Tally ERP 9.
To delete a company in Tally Prime, you need to be in the Gateway of Tally window which looks the following:
On the right-hand side, there is a menu where is an option named ‘F3: Company’. You can either click on it or simply press F3.
After clicking on the option, the Company menu where a list of names of the companies created in the Tally is there, along with some options above the company name list.
You have to select the option named, ‘Shut Company’. After clicking the option, the screen will display a ‘Shut Company’ menu.
From there, you have to select the company you want to delete. Like in the example given, I have selected the company named Rain Ltd.
After selecting the name of the company you want to delete, a confirmation dialog box will appear.
You have to click OK and the company will be shut down or deleted.
In short, the steps to delete a company in Tally Prime are as follows:
Gateway of Tally –> Press F3 –> Select ‘Shut Company’ option –> Select the name of the company –> Confirm and press OK
20 Journal Entries Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries. Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is creditedRead more
20 Journal Entries
Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries.
Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is credited.
In the case of compound journal entries, one set of accounts is debited and one set of accounts is credited.
The amount of debit and credit always remains the same.
For example, when cash is introduced into a business, it affects two accounts: Cash A/c and Capital A/c. The accounts are debited and. credited as per the golden rules of accounting.
The journal entries which I have provided are based on the following transactions and events:
The business started with Rs. 1,00,000
Bought machinery for Rs. 15,000 and furniture for Rs. 10,000
Purchased goods of Rs. 20,000 with cash
Bought Stationery for Rs. 500
Cash deposited into bank Rs. 40,000
Goods sold to Matt for Rs. 15,000
Purchased goods from Uday of Rs. 30,000
Being Rs. 5,000 rent paid for premises
Cheque received from Matt of Rs. 15,000
Defective goods returned to Uday returned of Rs. 2,000
Cash sales of Rs. 25,000
Carriage Inward paid Rs. 700
Cash withdrawn from bank Rs. 15,000
Full payment made to Uday in cash. Discount received from Uday Rs. 1000.
Refreshments given to customers of Rs. 200
Goods sold to Shyam for Rs. 7,500
Goods purchased from Ram of Rs. 50,000
Salaries paid to employees by bank Rs. 5,000
Good sold to Suri for Rs. 25,000
Insurance premium paid of Rs. 1,500 by the bank.
Journal Entries
The journal entries based on the above are as follows:
Ledgers
Ledger is known as the book of final entry. It is the book where the transactions related to a specific account are posted. This posting of transactions is done from journal entries.
The posting of journal entries into the ledger is performed in the following way:
The journal entry of cash sales is :
Cash A/c Dr.
Amt
To Sales A/c
Amt
Here, Cash A/c is debited to Sales A/c. So, in the Cash A/c ledger, posting will be made on the debit side as “To Sales A/c”
In the Sales A/c ledger, the posting will be made on the credit as “By Cash A/c” because Sales A/c is credited to Cash A/c
For creating ledgers, journal entries are a prerequisite.
Now, the ledgers to be created as per the journal entries made above are as follows:
Cash A/c
Bank A/c
Capital A/c
Furniture A/c
Machinery A/c
Purchase a/c
Sales A/c
Matt A/c (Debtor)
Uday A/c (Creditor)
Rent A/c
Purchase Return A/c
Stationery A/c
Carriage Inward A/c
Refreshment A/c
Shyam A/c (Debtor)
Ram A/c (Creditor)
Suri A/c (Debtor)
Refreshment A/c
Discount Received A/c
The account ledgers are as follows:
Trial Balance
A trial balance is a statement that is prepared to check the arithmetical accuracy of books of accounts.
In this statement, the total of all accounts having debit balance and the total of all accounts having credit balance is computed. If the total of debit and credit matches, then it can be said that the books of accounts are arithmetically accurate.
Here also we have prepared the trial balance by computing the total of accounts having debit balances and the total of accounts having credit balances
The debit column total and credit column total are matching. Hence, we can say that the books of accounts we have prepared are arithmetically accurate.
Note: Matt A/c and Uday A/c have not appeared in the trial balance because they do not have any carrying balance.
Meaning of Workmen's Compensation Reserve Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on thRead more
Meaning of Workmen’s Compensation Reserve
Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on the premises of the firm, then they will be compensated from the money kept aside in the workmen’s compensation reserve.
Workmen’s compensation reserve is created using the profits of a business. The journal entry for the creation of workmen compensation reserve is as follows:
When a claim arises, the claim amount is transferred to Provision for workmen compensation claim A/c
Treatment of workmen compensation reserve in revaluation account
At the time of admission, retirement or death of partner or change in profit sharing ratio, the reserve is distributed among the old or existing partners or kept intact.
Workmen’s compensation reserve is also distributed among the old or existing partners subject to the claim arising on the reserve.
Here are the three situations:
The revaluation account comes into the picture only when the claim is more than the amount available in the reserve. For example, the claim is Rs. 20,000 but the amount in the reserve is only Rs. 15,000.
In such a case, the excess claim will be met by debiting the revaluation account.
The journal will as given below:
Since the revaluation account is debited, it is a loss and this loss will be written from old or existing partners’ capital in the old profit sharing ratio. The journal entry is given below:
Meaning The term ‘Sundry creditors’ consist of two words: ‘Sundry’ and ‘creditors’. The word ‘sundry’ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items. Creditors are the person from whom money is borrowed or goods are puRead more
Meaning
The term ‘Sundry creditors’ consist of two words: ‘Sundry’ and ‘creditors’.
The word ‘sundry’ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items.
Creditors are the person from whom money is borrowed or goods are purchased on credit by a business or a non-business entity. They have to be repaid after a period of time which is usually less than or up to one year.
By combining the meaning of both words, ’sundry’ and ‘creditor’, the term ‘sundry creditor’ will refer to the collection of insignificant creditors of an entity.
Back in the days when accounting records were maintained on paper, only the records of those creditors were maintained separately, from whom goods are purchased regularly and in large amounts.
But there used to be numerous other creditors with whom the transactions were occasional and insignificant. To reduce the paperwork, records of all such creditors were maintained on a single page or book under the head ‘Sundry Creditors’
Nowadays, as accounting records are maintained digitally, hence maintaining records of each and every creditor is not a problem.
Hence, every creditor whether small or big, is grouped under the head ‘Sundry creditor’ or ‘Trade Creditor’.
Accounting Treatment
Sundry creditors are the persons to whom a business owes money.
Hence, as per golden rules of accounting, Sundry creditor is a personal account and the golden rule for personal account is, ‘Debit the receiver and credit the giver’
We know sundry creditors are liabilities, hence, as per modern rule of accounting, sundry creditors are credited in case of increase and debited in case of decrease.
Example, a business purchased goods for Rs. 10,000 from ABC & Co. The journal entry will as follows:
Here, ABC & Co is the creditor. It is credited as it is a personal account and the creditor has given the goods to the business, hence the giver is credited.
From point of view of modern rules of accounting, ABC & Co. is a creditor, a liability. On purchase of goods on credit, a liability is created. Hence, ABC & Co A/c is credited.
Balance sheet
Sundry creditor is a current liability, so it is shown on the liabilities side of a balance sheet. Trade payable and accounts payable mean sundry creditors only.
Accounting Concepts Accounting concepts are the rules, assumptions and methods generally accepted by accountants in the preparation and presentation of financial statements of an entity. These concepts have been developed by the accounting profession for a long period. These concepts constitute theRead more
Accounting Concepts
Accounting concepts are the rules, assumptions and methods generally accepted by accountants in the preparation and presentation of financial statements of an entity. These concepts have been developed by the accounting profession for a long period.
These concepts constitute the foundation of accounting and one has to be aware of them to maintain correct and uniform financial statements.
I have listed and briefly explained the following accounting concepts.
Entity Concept
Money Measurement concept
Going on concern
Periodicity concept
Accrual concept
Cost concept
Realisation concept
Matching concept
Dual aspect concept
Conservatism concept
Materiality concept
Consistency concept
#1 Entity Concept
As per this concept, the business and its owner are separate entities from the point of view of accounting. It means the assets and liabilities of the business and owner are not the same.
However, in the eyes of law, the business and its owner may be a single entity.
#2 Money measurement concept
This concept states that the transaction which can be measured in terms of money shall only be recorded in the books of accounts.
Any transaction which cannot be measured in terms of money shall not be recorded.
#3 Going concern concept
Going concern concept is also a fundamental accounting assumption. It assumes that an enterprise will continue to be in business for the foreseeable future.
It means its accounts will also be prepared to take such assumptions that the business will continue in future.
#4 Periodicity concept
The periodicity concept states an entity needs to carry out accounting for a definite period, generally for a year known as the accounting period. The period can also be half-year or a quarter.
The cycle of accounting restarts at the start of every accounting period.
#5 Accrual concept
The word accrual comes from the word
As per the accrual concept, the expense and incomes are recorded in the books of accounts in the period in which they are expected to incur whether payment in cash is made or cash is received or not.
For example, the salary to be paid by a business is to be recorded as an expense in the year in which it is expected or liable to be paid.
#6 Cost concept
It is concerned with the purchase of the assets of a business. As per the cost concept, a business shall record any asset in its books at the acquisition cost or purchase cost.
#7 Realisation concept
This concept is concerned with the sale of assets. A business shall record the sale of the assets in its books only at the realised cost.
#8 Matching concept
As per this concept, revenue earned during a period should be matched with the expenses incurred in that period. In short, an entity needs to record the income and the expenses of the same period.
#9 Dual concept
This concept is the foundation of double-entry accounting. Dual concepts state that every transaction has two effects, debit and credit.
One or more accounts may be debited and other one or more accounts are credited so that the total amount of debit and credit equals.
#10 Conservatism concept
The conservatism concept states that an entity has to account for expected losses and expenses but not for future expected profits and gains.
#11 Materiality concept
As per this concept, only those items which are material should be shown in the financial statements of an entity. It says that items which are immaterial or insignificant in terms of value or importance to stakeholders can be ignored.
#12 Consistency concept
It says that an entity should follow consistent accounting policies every accounting period so that a comparison can be made among the financial statements of different accounting periods.
GAAP
Generally Accepted Accounting Principles or GAAP is a combination of authoritative standards which are set by policy boards and commonly accepted methods of recording and presenting accounting information.
GAAP or US GAAP is formulated by the Financial Accounting Standards Board or FASB and almost state in the USA is compliant with GAAP.
The main goal of the GAAP is to ensure that the financial statements of an entity are complete, consistent and comparable.
It can be said accounting concepts are part of GAAP.
Ten key principles of GAAP
#1 Principle of regularity
It states that an accountant has to comply with GAAP regulations as a standard.
#2 Principle of Consistency
Accountants should be committed to applying the same set of standards throughout the accounting and reporting process, from one period to another. This is to be done to ensure comparability of financial statements between periods.
Also, the accountants have to fully disclose and explain the reason behind any changed or updated standards in the note of accounts of financial statements.
#3 Principle of sincerity
It states that the accountant should strive to provide an accurate and unbiased view of the financial situation of a company.
#4 Principle of Permanence of Methods
As per this principle, a company should be consistent in procedures used in financial statements so that it allows the comparison of the company’s financial information.
#5 Principle of Non-Compensation
Both negative and positive should be reported with full transparency. There should be no debt compensation i.e. debt should not be set off against any asset or expenses against revenue.
#6 Principle of Prudence
It states that financial data presentation should be fact-based. This principle is similar to the conservatism concept.
#7 Principle of Continuity
This is as same the going concern concept. It states that while valuing assets, it should assume that the business will continue for the foreseeable future.
#8 Principle of Periodicity
It is the same as the matching concept. It states that the revenue and expenses should be recorded in the period in which they occur.
#9 Principle of Materiality
Accountants should disclose all the financial information that is significant in the decision-making of the users of financial statements.
#10 Principle of Utmost Good Faith
It states that all parties to a transaction should act honestly and not mislead or hide crucial information from one another.
Journal entry for goods purchased by cheque The journal entry for goods purchased by cheque is as follows: In this journal entry, purchase account and bank account are involved. The explanation is given below. Explanation Purchase Whenever there is a purchase of goods, the purchase account is debiteRead more
Journal entry for goods purchased by cheque
The journal entry for goods purchased by cheque is as follows:
In this journal entry, purchase account and bank account are involved. The explanation is given below.
Explanation
Purchase
Whenever there is a purchase of goods, the purchase account is debited.
Goods refer to the items which an enterprise manufactures or purchases and sells to generate its business revenue.
If there is a purchase of any other item which does not satisfy the above definition of goods, then the purchase account is not involved.
For example, if stationery is purchased and the enterprise does not trade in stationery items, then the purchase account will not appear in the journal entry.
Payment by cheque
Payment by cheque means the payment amount will be deducted from the bank account balance. Hence, in the given journal entry, the bank account is involved.
The logic behind the debit and credit
The golden rules of accounting
Purchase is an expense hence it is a nominal account. The golden rule for nominal accounts is “Debit all expense and loss and credit all incomes and gains”
Hence, the purchase account is debited.
Bank is a real account and the golden rule of accounting for real accounts is, “Debit what comes in, credit what goes out”.
Hence, the bank account is credited as money is going out of the bank.
Modern rules of accounting
Purchase is an expense account, and expenses are debited when increased and credited when decreased.
Hence, the purchase account is debited here.
A bank account is an asset account. Asset accounts are debited in case of an increase and credited in case of a decrease. Hence, the bank account is credited here.
How to enable GST in tally?
GST stand for Goods and Services Tax which is levied on almost all the good and services supplied in India. Generally, a business is required to charge GST on all the goods and services supplied by it if its turnover is over the limit as prescribed by respective GST laws. We can also do accounting fRead more
GST stand for Goods and Services Tax which is levied on almost all the good and services supplied in India. Generally, a business is required to charge GST on all the goods and services supplied by it if its turnover is over the limit as prescribed by respective GST laws.
We can also do accounting for GST in Tally by enabling it from the company features.
The steps to enable GST and perform GST accounting in Tally are as given below.
Enabling GST in Tally
GST can be enabled in Tally from the ‘Company features’ menu which opens just after the creation of a company. There is an option called ‘Enable Goods and Services Tax (GST)’. You have to enter ‘Yes’.
If the company is already created and the GST was not enabled earlier, then just press F11 and select the company for which you want to enable GST. The ‘company features’ menu will open again, from there you have to enter ‘Yes’ beside the ‘Enable Goods and Services Tax (GST)’ option.
In both cases, this menu will open:
Do have look at the details I have filled in. You have to:
These settings are enough if you are to just practice GST in Tally.
See lessHow to delete ledger in tally?
Ledger is the book where the transaction related to a particular account is recorded. For example, the Sales ledger will only record the transactions related to sales. Ledgers in Tally also serve the same purpose. Posting in the ledger is automatically done when the transactions are entered in the vRead more
Ledger is the book where the transaction related to a particular account is recorded. For example, the Sales ledger will only record the transactions related to sales.
Ledgers in Tally also serve the same purpose. Posting in the ledger is automatically done when the transactions are entered in the vouchers.
Now, if you want to delete a ledger, you can easily do by following some simple steps.
I have shared the steps of deleting a ledger in Tally Prime and Tally ERP 9 both.
Deleting a ledger in Tally Prime
To delete a ledger in Tally Prime, the steps are as follows:
Gateway of Tally → Alter → Ledger → Click on the ledger you want to delete.
Upon clicking the ledger, the ledger alteration menu will open.
At the bottom, there is a ‘Delete’ option. Either click on it or simply press Alt + D and click on ‘Yes’. Your ledger will be deleted.
Deleting a ledger in Tally ERP 9
To delete a ledger in Tally ERP 9, the steps are as follows:
Gateway of Tally → Accounts Info → Ledger → Alter → Select the ledger you want to delete.
Steps are almost similar in both versions of Tally. Little difference is there due to the different interfaces of the two versions.
Just like Tally Prime, you can click on the ‘Delete’ option at the bottom or press Alt + D to delete the ledger.
See lessHow to do closing stock journal entry in Tally?
Tally ERP does not have a voucher for recording closing stock journal entries. It automatically calculates closing stock and reports it in the Profit and Loss account and Balance sheet. However, Tally do have vouchers through which you can adjust the closing stock to be shown at the end of the year.Read more
Tally ERP does not have a voucher for recording closing stock journal entries. It automatically calculates closing stock and reports it in the Profit and Loss account and Balance sheet.
However, Tally do have vouchers through which you can adjust the closing stock to be shown at the end of the year.
Explanation
Tally, as we know is an ERP which can automate many aspects of accounting like calculation of ledger balance, creation of trial balance, financial statements and other reports. Only the data entry in vouchers is done manually.
Tally also calculates closing stock automatically because it already has the required data to do so.
Closing stock = Opening stock + Purchase – Cost of goods sold.
Using the above formula, Tally automatically calculates the closing stock.
But it may happen that the closing stock as per Tally and closing stock as per physical verification of stock do not match.
This may be due to damaged caused to some items of inventory or even theft of inventory items which is usually discovered when stock is physically checked and counted at the end of the financial year.
In that case, we can use the Physical Stock voucher to correct our closing stock in Tally.
Physical Stock Voucher
A physical Stock voucher is an inventory voucher which is used to adjust the amount of closing stock as per the physical stock verified at the end of the year.
Suppose, if the closing stock for Bricks is 500pcs. Like in my stock summary, the item ‘Bricks’ is shown in the image below:
But after physical verification, it was found that there around there are only 450pcs of whole bricks are there. The rest of the bricks were broken.
To rectify this, we will open a Physical Stock voucher.
The steps to open a Physical stock voucher are as follows:
In Tally ERP 9 : Gateway of Tally → Accounting Vouchers → Press Alt + F10
In the physical stock voucher, we will select the stock item and enter the correct quantity, which is 450pcs.
After entering the details above, accept the voucher and open the stock summary again from Gateway of Tally. It will show the Bricks at 450pcs.
Hence, this is how we can adjust our closing stock in Tally.
See lessHow to make credit note in tally prime?
Credit Note A credit note is a document which generally evidences a sales return. It is created by the seller and sent to the buyer acknowledging the receipt of goods returned by the buyer. On the basis of it, the seller promises to pay back the buyer for the goods returned to him or adjust the amouRead more
Credit Note
A credit note is a document which generally evidences a sales return. It is created by the seller and sent to the buyer acknowledging the receipt of goods returned by the buyer. On the basis of it, the seller promises to pay back the buyer for the goods returned to him or adjust the amount in future transactions.
A credit note is also created when the buyer has sent excess money by mistake against the goods delivered to him.
In Tally, a credit note is created using a credit note voucher. Now, a credit note can only be created only if a sales entry has been made.
Hence first, we will be creating a sales entry and then the credit note.
Creation of sales entry in sales voucher ( If not done before)
The step to create a sale entry in Tally prime is as follows:
Gateway of Tally –> Vouchers –> Press F8 to open sales voucher
Enter the details of sales in the sales voucher like I have entered in my sale voucher and accept.
Here, my debtor is Rama and I have sold 1000pcs of Linc pens@Rs. 10 to him
Important things to consider:
#2 Creation of credit note
If already in the voucher creation menu, just press Alt + F6 to open the credit note voucher.
Enter the party name and a menu will open, asking for a tracking number. No need to enter any details there.
Next, another menu will open asking for party details. Select the name of the respective debtor.
Next enter the details of stock items returned as I have done:
I have made a credit note for 100pcs of Linc pens returned by Rama.
After entering all the details, press Enter and accept.
You can verify the effect of this sales voucher by performing the following steps.
Gateway of Tally –> Display more reports –> Account Books –> Ledger –>Select the debtor account from the list of ledgers.
After opening the ledger, if you see that the debtor account is credited by an amount through a credit note voucher, then it can be said that you have performed the steps correctly.
See lessHow to delete company in tally?
Deleting a company in Tally Prime Tally prime is the latest version of Tally ERP software. In its functionality, it is slightly different from its previous version Tally ERP 9. Hence, the process of deleting a company in Tally Prime is different from that in Tally ERP 9. To delete a company in TallRead more
Deleting a company in Tally Prime
Tally prime is the latest version of Tally ERP software. In its functionality, it is slightly different from its previous version Tally ERP 9. Hence, the process of deleting a company in Tally Prime is different from that in Tally ERP 9.
To delete a company in Tally Prime, you need to be in the Gateway of Tally window which looks the following:
On the right-hand side, there is a menu where is an option named ‘F3: Company’. You can either click on it or simply press F3.
After clicking on the option, the Company menu where a list of names of the companies created in the Tally is there, along with some options above the company name list.
You have to select the option named, ‘Shut Company’. After clicking the option, the screen will display a ‘Shut Company’ menu.
From there, you have to select the company you want to delete. Like in the example given, I have selected the company named Rain Ltd.
After selecting the name of the company you want to delete, a confirmation dialog box will appear.
You have to click OK and the company will be shut down or deleted.
In short, the steps to delete a company in Tally Prime are as follows:
Gateway of Tally –> Press F3 –> Select ‘Shut Company’ option –> Select the name of the company –> Confirm and press OK
See lessI need 20 journal entries with ledger and trial balance?
20 Journal Entries Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries. Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is creditedRead more
20 Journal Entries
Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries.
Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is credited.
In the case of compound journal entries, one set of accounts is debited and one set of accounts is credited.
The amount of debit and credit always remains the same.
For example, when cash is introduced into a business, it affects two accounts: Cash A/c and Capital A/c. The accounts are debited and. credited as per the golden rules of accounting.
The journal entries which I have provided are based on the following transactions and events:
Journal Entries
The journal entries based on the above are as follows:
Ledgers
Ledger is known as the book of final entry. It is the book where the transactions related to a specific account are posted. This posting of transactions is done from journal entries.
The posting of journal entries into the ledger is performed in the following way:
The journal entry of cash sales is :
Here, Cash A/c is debited to Sales A/c. So, in the Cash A/c ledger, posting will be made on the debit side as “To Sales A/c”
In the Sales A/c ledger, the posting will be made on the credit as “By Cash A/c” because Sales A/c is credited to Cash A/c
For creating ledgers, journal entries are a prerequisite.
Now, the ledgers to be created as per the journal entries made above are as follows:
The account ledgers are as follows:
Trial Balance
A trial balance is a statement that is prepared to check the arithmetical accuracy of books of accounts.
In this statement, the total of all accounts having debit balance and the total of all accounts having credit balance is computed. If the total of debit and credit matches, then it can be said that the books of accounts are arithmetically accurate.
Here also we have prepared the trial balance by computing the total of accounts having debit balances and the total of accounts having credit balances
The debit column total and credit column total are matching. Hence, we can say that the books of accounts we have prepared are arithmetically accurate.
Note: Matt A/c and Uday A/c have not appeared in the trial balance because they do not have any carrying balance.
See lessHow to treat workmen compensation claim in revaluation account?
Meaning of Workmen's Compensation Reserve Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on thRead more
Meaning of Workmen’s Compensation Reserve
Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on the premises of the firm, then they will be compensated from the money kept aside in the workmen’s compensation reserve.
Workmen’s compensation reserve is created using the profits of a business. The journal entry for the creation of workmen compensation reserve is as follows:
When a claim arises, the claim amount is transferred to Provision for workmen compensation claim A/c
Treatment of workmen compensation reserve in revaluation account
At the time of admission, retirement or death of partner or change in profit sharing ratio, the reserve is distributed among the old or existing partners or kept intact.
Workmen’s compensation reserve is also distributed among the old or existing partners subject to the claim arising on the reserve.
Here are the three situations:
The revaluation account comes into the picture only when the claim is more than the amount available in the reserve. For example, the claim is Rs. 20,000 but the amount in the reserve is only Rs. 15,000.
In such a case, the excess claim will be met by debiting the revaluation account.
The journal will as given below:
Since the revaluation account is debited, it is a loss and this loss will be written from old or existing partners’ capital in the old profit sharing ratio. The journal entry is given below:
See lessWhat is the meaning of sundry creditors?
Meaning The term ‘Sundry creditors’ consist of two words: ‘Sundry’ and ‘creditors’. The word ‘sundry’ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items. Creditors are the person from whom money is borrowed or goods are puRead more
Meaning
The term ‘Sundry creditors’ consist of two words: ‘Sundry’ and ‘creditors’.
The word ‘sundry’ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items.
Creditors are the person from whom money is borrowed or goods are purchased on credit by a business or a non-business entity. They have to be repaid after a period of time which is usually less than or up to one year.
By combining the meaning of both words, ’sundry’ and ‘creditor’, the term ‘sundry creditor’ will refer to the collection of insignificant creditors of an entity.
Back in the days when accounting records were maintained on paper, only the records of those creditors were maintained separately, from whom goods are purchased regularly and in large amounts.
But there used to be numerous other creditors with whom the transactions were occasional and insignificant. To reduce the paperwork, records of all such creditors were maintained on a single page or book under the head ‘Sundry Creditors’
Nowadays, as accounting records are maintained digitally, hence maintaining records of each and every creditor is not a problem.
Hence, every creditor whether small or big, is grouped under the head ‘Sundry creditor’ or ‘Trade Creditor’.
Accounting Treatment
Sundry creditors are the persons to whom a business owes money.
Hence, as per golden rules of accounting, Sundry creditor is a personal account and the golden rule for personal account is, ‘Debit the receiver and credit the giver’
We know sundry creditors are liabilities, hence, as per modern rule of accounting, sundry creditors are credited in case of increase and debited in case of decrease.
Example, a business purchased goods for Rs. 10,000 from ABC & Co. The journal entry will as follows:
Here, ABC & Co is the creditor. It is credited as it is a personal account and the creditor has given the goods to the business, hence the giver is credited.
From point of view of modern rules of accounting, ABC & Co. is a creditor, a liability. On purchase of goods on credit, a liability is created. Hence, ABC & Co A/c is credited.
Balance sheet
Sundry creditor is a current liability, so it is shown on the liabilities side of a balance sheet. Trade payable and accounts payable mean sundry creditors only.
See lessWhat do you mean by Accounting concepts? What do you mean by GAAP? Explain briefly.
Accounting Concepts Accounting concepts are the rules, assumptions and methods generally accepted by accountants in the preparation and presentation of financial statements of an entity. These concepts have been developed by the accounting profession for a long period. These concepts constitute theRead more
Accounting Concepts
Accounting concepts are the rules, assumptions and methods generally accepted by accountants in the preparation and presentation of financial statements of an entity. These concepts have been developed by the accounting profession for a long period.
These concepts constitute the foundation of accounting and one has to be aware of them to maintain correct and uniform financial statements.
I have listed and briefly explained the following accounting concepts.
#1 Entity Concept
As per this concept, the business and its owner are separate entities from the point of view of accounting. It means the assets and liabilities of the business and owner are not the same.
However, in the eyes of law, the business and its owner may be a single entity.
#2 Money measurement concept
This concept states that the transaction which can be measured in terms of money shall only be recorded in the books of accounts.
Any transaction which cannot be measured in terms of money shall not be recorded.
#3 Going concern concept
Going concern concept is also a fundamental accounting assumption. It assumes that an enterprise will continue to be in business for the foreseeable future.
It means its accounts will also be prepared to take such assumptions that the business will continue in future.
#4 Periodicity concept
The periodicity concept states an entity needs to carry out accounting for a definite period, generally for a year known as the accounting period. The period can also be half-year or a quarter.
The cycle of accounting restarts at the start of every accounting period.
#5 Accrual concept
The word accrual comes from the word
As per the accrual concept, the expense and incomes are recorded in the books of accounts in the period in which they are expected to incur whether payment in cash is made or cash is received or not.
For example, the salary to be paid by a business is to be recorded as an expense in the year in which it is expected or liable to be paid.
#6 Cost concept
It is concerned with the purchase of the assets of a business. As per the cost concept, a business shall record any asset in its books at the acquisition cost or purchase cost.
#7 Realisation concept
This concept is concerned with the sale of assets. A business shall record the sale of the assets in its books only at the realised cost.
#8 Matching concept
As per this concept, revenue earned during a period should be matched with the expenses incurred in that period. In short, an entity needs to record the income and the expenses of the same period.
#9 Dual concept
This concept is the foundation of double-entry accounting. Dual concepts state that every transaction has two effects, debit and credit.
One or more accounts may be debited and other one or more accounts are credited so that the total amount of debit and credit equals.
#10 Conservatism concept
The conservatism concept states that an entity has to account for expected losses and expenses but not for future expected profits and gains.
#11 Materiality concept
As per this concept, only those items which are material should be shown in the financial statements of an entity. It says that items which are immaterial or insignificant in terms of value or importance to stakeholders can be ignored.
#12 Consistency concept
It says that an entity should follow consistent accounting policies every accounting period so that a comparison can be made among the financial statements of different accounting periods.
GAAP
Generally Accepted Accounting Principles or GAAP is a combination of authoritative standards which are set by policy boards and commonly accepted methods of recording and presenting accounting information.
GAAP or US GAAP is formulated by the Financial Accounting Standards Board or FASB and almost state in the USA is compliant with GAAP.
The main goal of the GAAP is to ensure that the financial statements of an entity are complete, consistent and comparable.
It can be said accounting concepts are part of GAAP.
Ten key principles of GAAP
#1 Principle of regularity
It states that an accountant has to comply with GAAP regulations as a standard.
#2 Principle of Consistency
Accountants should be committed to applying the same set of standards throughout the accounting and reporting process, from one period to another. This is to be done to ensure comparability of financial statements between periods.
Also, the accountants have to fully disclose and explain the reason behind any changed or updated standards in the note of accounts of financial statements.
#3 Principle of sincerity
It states that the accountant should strive to provide an accurate and unbiased view of the financial situation of a company.
#4 Principle of Permanence of Methods
As per this principle, a company should be consistent in procedures used in financial statements so that it allows the comparison of the company’s financial information.
#5 Principle of Non-Compensation
Both negative and positive should be reported with full transparency. There should be no debt compensation i.e. debt should not be set off against any asset or expenses against revenue.
#6 Principle of Prudence
It states that financial data presentation should be fact-based. This principle is similar to the conservatism concept.
#7 Principle of Continuity
This is as same the going concern concept. It states that while valuing assets, it should assume that the business will continue for the foreseeable future.
#8 Principle of Periodicity
It is the same as the matching concept. It states that the revenue and expenses should be recorded in the period in which they occur.
#9 Principle of Materiality
Accountants should disclose all the financial information that is significant in the decision-making of the users of financial statements.
#10 Principle of Utmost Good Faith
It states that all parties to a transaction should act honestly and not mislead or hide crucial information from one another.
See lessWhat is the journal entry for goods purchased by cheque?
Journal entry for goods purchased by cheque The journal entry for goods purchased by cheque is as follows: In this journal entry, purchase account and bank account are involved. The explanation is given below. Explanation Purchase Whenever there is a purchase of goods, the purchase account is debiteRead more
Journal entry for goods purchased by cheque
The journal entry for goods purchased by cheque is as follows:
In this journal entry, purchase account and bank account are involved. The explanation is given below.
Explanation
Purchase
Whenever there is a purchase of goods, the purchase account is debited.
Goods refer to the items which an enterprise manufactures or purchases and sells to generate its business revenue.
If there is a purchase of any other item which does not satisfy the above definition of goods, then the purchase account is not involved.
For example, if stationery is purchased and the enterprise does not trade in stationery items, then the purchase account will not appear in the journal entry.
Payment by cheque
Payment by cheque means the payment amount will be deducted from the bank account balance. Hence, in the given journal entry, the bank account is involved.
The logic behind the debit and credit
The golden rules of accounting
Purchase is an expense hence it is a nominal account. The golden rule for nominal accounts is “Debit all expense and loss and credit all incomes and gains”
Hence, the purchase account is debited.
Bank is a real account and the golden rule of accounting for real accounts is, “Debit what comes in, credit what goes out”.
Hence, the bank account is credited as money is going out of the bank.
Modern rules of accounting
Purchase is an expense account, and expenses are debited when increased and credited when decreased.
Hence, the purchase account is debited here.
A bank account is an asset account. Asset accounts are debited in case of an increase and credited in case of a decrease. Hence, the bank account is credited here.
See less