Financial Statements

credit, the total of the debit balances and credit balances should agree. A detailed trial balance has columns for 

• Account name 
• Debit balance 
• Credit balance 

1.1.6 Financial Statements 

Financial statements are final result of accounting work done during the accounting period. Financial statement serves a significant purpose to users of accounting information in knowing about the profitability and financial position of the organisation. Financial statements normally include 

• Trading 
• Profit and Loss Account 
• Balance Sheet 

Trading Account 

Trading refers to buying and selling of goods. The tracing account displays the transactions pertaining to buying and selling of goods 

The difference between the two sides of the Trading Account indicates either Gross Profit or Gross Loss. If the credit side total is in excess of the debit side total, the difference represents Gross Profit. On the other hand, if the total of the debit side is in excess of the credit side total, the difference represents Gross Loss. Such Gross Profit Gross Loss is transferred to Profit & Loss Account. The Gross Profit is expressed as. 

                                   Gross Profit-Net Sales Cost of Sales 

Profit and Loss Account 

The profit and loss account helps to ascertain the net profit earned or net loss suffered during a particular period, after considering all other incomes and expenses incurred over a period. This helps the company to monitor and control the costs incurred and improve its efficiency, In other words, the profit and loss statement shows the performance of the company in terms of profits or losses over a specified period

The Net Profit is expressed as 

Net Profit (Gross Profit Other Income)-(Selling and Administrative Expenses Depreciation + Interest + Taxes Other Expenses)

 A key element of the Profit and Loss Account, and one that distinguishes it from a balance sheet, is that the amounts shown on the statement represent transactions over a period of time, while the items represented on the balance sheet show information as on a specific date



All revenue and exp Revenue and Expenses period ense accounts are closed once the profit and loss account is prepared. The accounts will not have an opening balance for the next accounting period

Balance Sheet 

The Balance sheet is a statement that summaries the assets and liabilities of a business. The assets over liabilities is the net worth of a business. The balance sheet provides info excess of nation that helps in assessing 

• A company's Long-term financial strength 
• A company's Efficient day-to-day working capital management 
• A company's Asset portfolio 
• A company's Sustainable long-term performance 

The balances of all the real, personal and nominal (capital in nature) accounts are transferred from trial balance to balance sheet and grouped under the major heads of assets and liabilities The balance sheet is complete when the net profit/ loss is transferred from the Profit and Loss account 

1.1.7 Transactions 

A transaction is a financial event that takes places in the course or furtherance of business and effects the financial position of the company, For example, when you deposit cash in the bank your cash balance reduces and bank balance increases or when you sell goods for cash, your cash balance increases and your stock reduces 

• Transactions can be classified as follows: 
• Receipts-cash or bank 
• Payments-cash or bank 
• Purchases n Sales 

1.1.8 Recording Transactions

The important aspect of accounting is to record transactions promptly and correctly to ascertain the financial status of a company as on a particular date. 

Generally, the business transactions may be of the following nature 

• Purchase of goods either as rew materials for processing or as finished goods for resale
• Payment of expenses incurred towards business 
• Sale of goods or services 
• Receipts (in Cash or by Cheques) 
• Payments (in Cash or Cheques) 

The Accounting information is useful to various interested parties, both internal and external viz. 

• Suppliers, who supply goods and services for cash or on credit 
• Customers, who buy goods or services for cash or on credit  
• Employees, who provide services and wages. 
• Banks, with whom accounts are maintained 
• Suppliers of equipment, buildings and other assets needed to carry on the business 
• Lenders from whom, you borrow money to finance your business 
• Owners, who hold a share in the capital of your business 

Points to Remember

Accounting is a comprehensive system to collect, analyse and communicate financial information 
Double Entry accounting is a system of recording transactions in a way that maintains the equality of the accounting equation 
The three types of accounts maintained for transactions are real accounts, personal accounts and nominal accounts.
Entity is the organisational unit for which accounting records are main tained 
Journal entry is a record single business transaction. 
Voucher is a document evidencing the details of a financial transaction. 
Ledger is a book in which accounts are maintained. 
Trait balance is a list of the balances of all the ledger accounts o 
Profit and loss statement shows the performance of the company in terms of profits or losses made by it over a specified period. 
Balance sheet gives an overview of the financial position of a company as on a specific date.

Tally ERP 9 Accounting Period

Accounting Period

The users of financial statements required periodical reports to ascertain the operational and the financial position of the business concern.Thus, it is essential to close the accounts at regular intervals, viz, 365 days or 52 weeks or 1 year is considered as the accounting period .

Accounting Entity

According to this assumption, a business is considered as a unit or entity apart from its owners creditors and others.
For example, in case of a Sole Proprietor concern, the proprietor is treated to be separate and distinct from the business, which he controls.
The proprietor is treated as creditor to the extent of his capita and all the business transactions are recorded in the books of accounts from the business stand point.

Money Measurement 

In accounting, only business transactions and events of financial nature are recorded.Only trans- actions that can be expressed terms of money are recorded.

1.1.4 Double Entry System of Book Keeping 

As per Double Entry System of book-keeping, all the business transactions recorded in accounts have two aspects Debit aspect (receiving) and Credit aspect (giving).For example, when a business acquires an asset (receiving) and pays cash (giving) for it.This accounting technique records each transaction as debt and credit, where every debit has a corresponding credit and vice versa 

Features of Double Entry System of Book Keeping

The Double entry system of book keeping comprises of the following features:

• Every business transaction affects two accounts  
• Each transaction has two aspects, i.e, debit and credit a 
• Maintains a complete record of all business transactions 
• Helps to check the accuracy of the accounting transactions, by preparation of rial balance 
• Helps ascertaining profit earned or loss occured during a period, by preparation of Profit Loss Account 
• Helps ascertaining financial position of the concern at the end of each period, by preparation of Balance Sheet  
• Helps timely decision making based on sufficient information  
• Minimises the possibilities of fraud due to its systematic and scientific recording of business transactions

The following chart the way in which accounting transactions are recorded in the double entry system and financial statements are prepared.

1.1.5 Mode of Accounting 

Accounting process begins with identifying and recording the transactions in the books c accounts ie, the first step in the Accounting Process is recording of transactions in the books c accounts.Accounting identifies only those transactions and events which involves money and sorted based on various source documents.

The following are the most common source documents. 

• Cash Memo 
• Invoice or Bill 
• Vouchers 
• Receipt 
• Debit Note 
• Credit Note

Voucher

A voucher is a document in support of a business transaction, containing the details of such transaction. 

Receipt

When a trader receives cash from a customer against goods sold by him, issues a receipt containing the name of such customer, details of amount received with date 

Invoice or Bill 

When a trader sells goods to a buyer, he prepares a sales invoice containing the details of name and address of buyer name of goods, amount and terms of paymente and so on Similarly, when the trader purchases goods on credit receives a invoice/bill from the supplier of such goods 

Journals and Ledgers 

A journal is a recorc in which all business transactions are entered in a chronological order. A record of a single business transaction is called a journal entry. Every journal entry is supported by a voucher, evidencing the related transaction. 

Account 

An account is a statement of transactions affecting any particular asset, liability, xpense or income 

Ledger 

A Ledger is book which contans teredccounts whether persainal, real or nominal which ara in journal or subsidiary books. 

Chart of Accounts 

A chart of accounts is a list of all accounts used by an organisation. The chart of accounts. also displays the categorisation and grouping of its accounts 

Posting 

Posting is the process of transferring the entries recorded in the journal or subsidiary books to the respective accounts opened in the ledger ie., grouping of all the transactions relating to a par ticular account to a sngle place. 

Accounting Period 

Generally, the financial statements are generated for a regular period such as a quarter or a year for timely and accurate ascertainment of operating and financial position of the organisation. 

Trial Balance 

Trial balance is a statement which shows debit balances and credit balances of all L accounts. As per the rules of double entry system, every detit should have a edger corresponding

Tally erp 9 Accounting Principles Concepts and Conventions

Accounting Principles, Concepts and Conventions

The Accounting Principles, concepts and conventions form the basis for hcw business transactions are recorded. A number of principles, concepts and conventions are developed lo ensure that accounting information is presented accurately and consistently. Some of these concepts are briefly described in the following sections.

Revenue Realization 

According to Revenue Realization concept, revenue is considered as the income earned on the date, when it is realized. As per this concept, unearned or unrealized revenue is not taken into account This concept is vital for determining income pertaining to an accounting period. It reduces the possibilities of inflating incomes and profits 

Matching Concept 

As per this concept. Matching of the revenues earned during an accounting period with the cost associated ed with the respective period to ascertain the result of the business concern is carried out This concept serves as the basis for finding accurate profit for a period which can be distributed to the owners 

Accrual 

Under Accrual method of accounting, the transactions are recorded when earned o incurred rather when collected or paid i.e, transactions are recorded on the basis of income earned or expense incurred irrespective of actual receipt or payment. For example, a seller bills the buyer at the time of sale and treats the bill amount as revenue, even though the payment may be received later 
   

N.B- (The cash basis of accounting is a method wherein revenue is recognized when it is actually revenged, rather he when its reined Expenses are booked when they are actually paid, rather than when incurred This method is usually not considered to be in conformity with accounting principles and is, therefore, used only in select stations such as for very small businesses) 

Going Concern 

As per this assumption, the business will exist for a long period and transactions are recorded from this point of view.

Tally ERP 9 Accounting Rules & Basics Of Accounting 2021

1.1 Introduction

Accounting is a process of identifying, recording, summering and reporting economic information to decision makers in the form of financial statements. Financial statements will be useful to the following parties: Basics Of Accounting

• Suppliers

• Customers

• Employees

• Banks

• Suppliers of equipment,  buildings and other assets 

• Lenders 

• Owners                                                                                                                                                                                                                                                         

1.1.1 Types of Accounts  

   

There are basically three  of  Accounts maintained for transaction :

• Real Accounts 

• Personal Accounts 

• Nominal Accounts  

,.

Real accounts are accounts relating to properties and assets, which are owned by the business concern. Real accounts include tangible and intangible accounts. For example. Basics Of Accounting 

• Land a Building 
• Goodwill 
• Purchases 
• Cash

Personal Accounts 

Personal Accounts are Accounts which relate to persons. Personal Accounts include the follow ing. Basics Of Accounting

• Suppliers 

• Customers 

• Lenders 

Nominal Accounts are Accounts which relate to incomes and expenses and gains and losses o business concern. For example 

• Salary Account 

• Dividend Account 

• Sales 

Accounts can be broadly classified under he following four groups. 

• Assets 

• Liabilities 

• Income 

• Expenses 

The above classification is the basis for generating various financial statements viz., Balance Sheet, Profit & Loss A/c and other MIS reports. The Assets and liabilities are taken to Balance sheet and the Income and Expenses accounts are posted to Profit and Loss Account. Basics Of Accounting

1.1.2 Golden Rules of Accounting

                   Real Accounts      Personal Accounts   Nominal Accounts

Debit          What comes in           The Receiver                   Expenses and Losses

Credit         What Goes                 The Giver                        Incomes  and Gains