Business accounting
In this chapter we will cover the following topics
Book of accounts and Journal Entries
Depreciation and stock valuation
Accounts Documents and BRS
Final Accounts
E-transactions & Misc Banking operations
Real life project on Business accounting
Accounting Module
In modern business, accounting is no longer done only manually. Today, most companies use computerized accounting software like Tally, ERP systems, Busy, QuickBooks, and other financial applications.
The core part of these software systems is called the Accounting Module.
The Accounting Module helps businesses:
Record financial transactions
Manage income and expenses
Track assets and liabilities
Generate financial reports automatically
What is an Accounting Module?
An Accounting Module is a section of accounting software that handles all financial transactions and accounting processes of a business.
In simple words:
“Accounting Module is the part of software that manages all financial records of a business.”
Importance of Accounting Module
The Accounting Module is important because it:
Automates financial calculations
Reduces manual errors
Saves time
Generates instant reports
Maintains accurate financial records
Improves business decision-making
Main Features of Accounting Module
1. Journal Entries
Record daily business transactions.
2. Ledger Creation
Create and manage different accounts like:
Cash
Bank
Debtors
Creditors
Expenses
3. Voucher Entry
Record transactions such as:
Payment Voucher
Receipt Voucher
Sales Voucher
Purchase Voucher
Contra Voucher
4. Trial Balance
Shows summary of all ledger balances.
5. Final Accounts
Includes:
Trading Account
Profit & Loss Account
Balance Sheet
6. Bank Reconciliation
Matches bank statement with company records.
Accounting Module in Tally ERP
In Tally ERP:
Go to Gateway of Tally
Select Accounting Vouchers
Enter transactions
View Reports:
Trial Balance
Profit & Loss
Balance Sheet
Tally’s accounting module automatically calculates totals and prepares reports.
Advantages of Accounting Module
Fast transaction recording
Real-time financial reporting
Accurate calculations
Secure data storage
Easy audit process
Multi-user access
Disadvantages of Accounting Module
Requires computer knowledge
Software cost
Risk of data loss without backup
Needs regular updates
Components of Accounting Module
The accounting module generally includes:
Chart of Accounts
Accounts Payable (Creditors)
Accounts Receivable (Debtors)
General Ledger
Financial Reporting System
Accounting Module vs Manual Accounting
Accounting Module
Manual Accounting
Computer-based
Paper-based
Fast processing
Time-consuming
Less errors
More chances of errors
Automatic reports
Manual preparation
Benefits for Business
The Accounting Module helps businesses to:
Monitor financial performance
Control expenses
Track outstanding payments
Plan future investments
Prepare tax reports
Business Accounting
Accounting is the art of recording, summarizing, reporting, and analyzing financial transactions. An accounting system can be a simple, utilitarian check register, or, as with Microsoft Office Accounting, it can be a complete record of all the activities of a business, providing details of every aspect of the business, allowing the analysis of business trends, and providing insight into future prospect.
1. Books of Accounts and Journal Entries
Bookkeeping is the practice of recording transactions. Bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, and they may or may not see the overall picture
Accountants use the work done by bookkeepers to produce and analyze financial reports. Although accounting follows the same principles and rules as bookkeeping, an accountant can design a system that will capture all of the details necessary to satisfy the needs of the business managerial, financial reporting, projection, analysis, and tax reporting.
The Journal is used to be an actual book that the bookkeeper would use to make accounting entries. These days bookkeepers enter transactions on the computer using accounting software like Tally ERP Journals are simply debits and credits in chronological (date) order. The purpose of journals is to keep a day to day record of a business and its transactions.
Each journal can also be matched to the relevant supporting document (such as invoice or a receipt) by use of a cross-referencing code or folio number. This code or folio number simply cross-references between one document and another. If the first transaction is Rs. 15,000 capital was made by issuing check number 38, then one could write 'Ch-38' (for example) under the folio number.
2. Depreciation and Stock Valuation
Stocks consist of all materials held for eventual resale, whether these be raw materials, work in progress or stocks of finished goods. The accounting standard SSAP 9 sets out that stocks should be valued at whichever is the lower of cost or net realisable values. The standard defines cost as that expenditure which has been incurred in the normal course of business in bringing the product or service to its present location and condition. For a trading business such as a retailer, cost will therefore be the purchase price plus the cost of delivery to the retail store. For a manufacturing business, the cost of finished goods will be the direct costs of labour, materials and expenses, and in addition will include factory overheads absorbed into the product. Net realisable value is the selling price of the stock less all further costs to be incurred before a sale is completed. There are a number of ways of determining the cost of a stock itern. Stock may be valued on a "first-in first-out' or average cost basis, or a reasonable approximation of these. Depreciation is a measure of the wearing out, consumption or other reduction in the useful economic life of a fixed asset. The useful economic life is the period over which the present owner will derive economic benefits from its use. Residual value is the net realisable value of the asset at the end of its potential economic life, ie, disposal proceeds less selling costs. Another helpful term is net book value which is the cost of an asset less the amount it has depreciated at a moment in time. Net book value original cost-accumulated depreciation to date.
Methods of Calculating Depreciation
The most common methods of calculating depreciation are the straight line method and the reducing balance method, Using the straight line method, the asset's value is depreciated in equal amounts over its economic life. This is calculated by: Depreciation charge per year Cost-residual value - Estimated life in years. For example, a taxi costing Rs. 40,000 with an estimated life of ten years and a Rs. 10,000 residual value would be depreciated as follows: Depreciation charge per year Rs. 40,000-Rs. 10,000 divided by 10 Rs. 3,000 per year. The reducing balance method does not depreciate assets evenly over their useful economic life, but instead charges more for depreciation in the early years of an asset's life. The method is appropriate where the relative benefits of owning the asset reduce as the asset ages-eg. motor vehicles and computers. It is calculated by applying a percentage rate to the asset's net book value (ie. cost less depreciation to date). Depreciation per year net book value X depreciation rate.
3. Accounts documents and BRS (Bank Reconciliation Statement)
A Bank reconciliation is a process that explains the difference between the bank balance shown in an organization's bank statement, as supplied by the bank, and the corresponding amount shown in the organization's own accounting records at a particular point in time.
Such differences may occur, for example, because a cheque or a list of cheques issued by the organization has not been presented to the bank, a banking transaction, such as a credit received, or a charge made by the bank, has not yet been recorded in the organization's books, or either the bank or the organization itself has made an error.
It may be easy to reconcile the difference by looking at very recent transactions in either the bank statement or the organization's own accounting records (cash book) and sering if some combination of them tallies with the difference to be explained. Otherwise it may be necessary to go through and match every single transaction in both sets of records since the last reconciliation, and see what transactions remain unmatched. The necessary adjustments should then be made in the cash book, or any timing differences recorded to assist with future reconciliations.
For this reason, and to minimise the amount of work involved, it is good practice to carry out such reconciliations at reasonably frequent intervals. Reconciliations are generally performed by specialised accounting software though the understanding of what occurs is important for a successful reconciliation. Also, Bank reconciliation statement is a statement prepared on a particular day to reconcile the bank balance as per Cash book or Bank statement showing entries causing difference between the two balances.
System used for Bank Reconciliation - Tally ERP 9
This software is used in doing bank reconciliation. Tally ERP 9 is accounting software in which all the entries are done.
Documents required for Bank Reconciliation
1. Bank Statement
2. Bank Book
Activities to be perform for Bank Reconciliation
Bank Reconciliation involves the following activities:
(i) Receipt of Bank statements.
We receive the bank statements regularly from the bank in hard form.
(ii) Review of Bank statements.
case any We review the bank statements to find out if bank has charged any interest/ bank charges etc., In discrepancy is noticed in the bank statement the same is brought to the notice of Manager Finance/AM-Banking/Officer Banking verbally for rectification.
(iii)Accounting of Bank Charges/ Interest charged by bank.
In case the bank has debited any interest/ charges then a financial entry is posted in outgoing expense account of relevant bank account in Tally ERP 9. The documentary evidence of bank charges/ interest i.e. bank advise is also collected from bank
(iv) Performing Bank Reconciliation
a. Through the bank statements, we cleared the cheque/transaction in Tally ERP 9 as per bank cheque clearing date
b. Updating the bank reconciliation statement in Tally ERP 9, it completes the bank reconciliation process.
(v) Reconciled bank statements & bank advises for bank charges/ interest etc. is filed in the respective bank file.
4. Final Accounts
All business transactions are first recorded in Journal or Subsidiary Books. They are transferred to Ledger and balanced it. The main object of keeping the books of accounts is to ascertain the profit or loss of business and to assess the financial position of the business at the end of the year. The object is better served if the businessman first satisfies himself that the accounts written up during the year are correct or at least arithmetically accurate.
When the transactions are recorded under double entry system, there is a credit for every debit, when on a/c is debited; another a/c is credited with equal amount.
If a Statement is prepared with debit balances on one side and credit balances on the other side, the totals of the two sides will be equal. Such a Statement is called Trial Balance.
Trial Balance can be defined as "a list of all balances standing in the Ledger Accounts and Cash Book of a concern at any given time.
Advantages
1. It is the shortest method of verifying the arithmetical accuracy of entries made in the Ledger. If the Trial balances agree, it is an indication that the Accounts are correctly written up; but it is not a conclusive proof.
2. It helps to prepare the Trading A/c, Profit & Loss a/c and Balance Sheet.
3. It presents to the businessman consolidated lists of all Ledger Balances.
There are two methods for preparing the Trial Balance
First Method:
In this method, Ledger Accounts are not balanced. They are totaled. The debit side totals and the credit side totals are entered in a separate sheet. The grand total of Debit Column will be equal to the grand total of the Credit Column
Second Method:
This method is more widely used. In this method, Ledger accounts are balanced. The brought down balances are then brought to a sheet as given bellow.
Assets, Sundry Debtors, Losses, Expenses and Drawings and debit balances.
Capital, Liabilities, Sundry Creditors, Gains, Incomes and capital, revenues are credit balances.
SUNDRY DEBTORS
In business and accounting, the term Sundry Debtors is very important. Every business sells goods or services. Sometimes customers do not pay immediately and purchase goods on credit. These customers are known as Sundry Debtors.
Sundry Debtors play a major role in accounting and computerized accounting systems like:
Tally
Busy Accounting Software
ERP Systems
Accounting Databases
What are Sundry Debtors?
Sundry Debtors are individuals or businesses who purchase goods or services on credit and are required to pay the amount later.
In simple words:
“Sundry Debtors are customers who owe money to the business.”
Definition of Sundry Debtors
In accounting terms:
Sundry Debtors are persons or entities to whom goods or services have been sold on credit and from whom money is receivable.
They are shown as Current Assets in the Balance Sheet.
Why Sundry Debtors are Important
Sundry Debtors are important because they:
Increase business sales
Represent future income
Help in business growth
Improve customer relationships
Show receivable amount in accounts
Example of Sundry Debtors
Suppose a company sells goods worth ₹10,000 to Mr. Rahul on credit.
Rahul becomes a Sundry Debtor
The business will receive ₹10,000 later
In accounting entry:
Rahul A/C Dr. 10,000
To Sales A/C 10,000
Sundry Debtors in Balance Sheet
Sundry Debtors are shown under:
Assets → Current Assets → Sundry Debtors
Because the amount is expected to be received within one year.
Sundry Debtors in Computerized Accounting (Tally ERP Example)
In Tally:
Go to Gateway of Tally
Select Accounts Info
Create Ledger
Choose Group → Sundry Debtors
Enter customer details
This helps manage:
Credit sales
Outstanding payments
Customer balances
Difference Between Sundry Debtors and Sundry Creditors
Sundry Debtors
Sundry Creditors
Money to receive
Money to pay
Customer
Supplier
Current Asset
Current Liability
Business will get money
Business will give money
Advantages of Sundry Debtors
Increases sales volume
Builds customer trust
Improves business relationships
Helps in expanding market
Disadvantages of Sundry Debtors
Risk of bad debts
Delay in cash flow
Possibility of non-payment
Extra follow-up required
Related Terms
1. Accounts Receivable
Another name for Sundry Debtors.
2. Bad Debts
When debtor fails to pay the amount.
3. Provision for Doubtful Debts
Estimated amount that may not be received.
How to Manage Sundry Debtors Properly
Maintain proper records
Check customer credit history
Send payment reminders
Use accounting software
Monitor outstanding reports
SUNDRY CREDITORS
In every business, goods and services are not always purchased by paying cash immediately. Many times, businesses purchase goods on credit and promise to pay later. The persons or companies from whom goods are purchased on credit are called Sundry Creditors.
Sundry Creditors are very important in:
Financial Accounting
Balance Sheet Preparation
Tally ERP
Busy Accounting Software
ERP Systems
Computerized Accounting
What are Sundry Creditors?
Sundry Creditors are individuals or businesses to whom money is owed for goods or services purchased on credit.
In simple words:
“Sundry Creditors are suppliers to whom the business has to pay money.”
Definition of Sundry Creditors
In accounting terms:
Sundry Creditors are persons or entities from whom goods or services have been purchased on credit and payment is due.
They are shown as Current Liabilities in the Balance Sheet.
Example of Sundry Creditors
Suppose a company purchases goods worth ₹20,000 from Mr. Aman on credit.
Aman becomes a Sundry Creditor
The business must pay ₹20,000 later
Accounting Entry:
Purchases A/C Dr. 20,000
To Aman A/C 20,000
This shows that Aman is a creditor of the business.
Sundry Creditors in Balance Sheet
Sundry Creditors are shown under:
Liabilities → Current Liabilities → Sundry Creditors
Because the amount must be paid within one year.
Sundry Creditors in Computerized Accounting (Tally ERP Example)
In Tally:
Go to Gateway of Tally
Select Accounts Info
Choose Create Ledger
Select Group → Sundry Creditors
Enter supplier details
This helps in managing:
Credit purchases
Outstanding payments
Supplier balances
Due dates
Difference Between Sundry Debtors and Sundry Creditors
Sundry Debtors
Sundry Creditors
Money to receive
Money to pay
Customers
Suppliers
Current Asset
Current Liability
Business will get money
Business will give money
Importance of Sundry Creditors in Business
Sundry Creditors help business by:
Allowing credit purchases
Improving cash flow
Supporting business expansion
Maintaining supplier relationships
Advantages of Sundry Creditors
Improves short-term cash management
Builds trust with suppliers
Helps maintain stock without immediate payment
Supports business growth
Disadvantages of Sundry Creditors
Payment pressure
Risk of late payment penalties
Damaged supplier relationships
Legal action if unpaid
Related Terms
1. Accounts Payable
Another name for Sundry Creditors.
2. Trade Credit
Credit given by suppliers.
3. Outstanding Liabilities
Amounts due but not yet paid.
How to Manage Sundry Creditors Effectively
Keep proper purchase records
Track due dates
Use accounting software
Make timely payments
Maintain supplier communication
Format:
In computer terminology, the word Format is very important. Formatting helps organize, design, and prepare data properly. Whether you are working in MS Word, MS Excel, PowerPoint, or storage devices, formatting plays a major role.
Formatting improves:
Appearance
Structure
Readability
Data organization
In simple words, formatting makes your work look clean, professional, and organized.
What is Format in Computer?
Format means arranging or designing text, data, or storage in a specific structure.
In simple words:
“Formatting means changing the appearance or structure of data in a computer.”
Types of Formatting in Computer
There are mainly two types of formatting:
1. Text Formatting
Used in MS Word and other word processing software.
Includes:
Font style
Font size
Bold, Italic, Underline
Text color
Alignment
Line spacing
2. Disk Formatting
Used to prepare storage devices like:
Hard Disk
Pen Drive
Memory Card
Disk formatting removes all data and prepares the device for use.
Formatting in MS Word
Formatting in MS Word improves document presentation.
Common Formatting Options:
Change font style (Arial, Times New Roman)
Adjust font size
Apply Bold, Italic, Underline
Change text color
Set paragraph alignment (Left, Center, Right, Justify)
Add bullets and numbering
Shortcut examples:
Ctrl + B → Bold
Ctrl + I → Italic
Ctrl + U → Underline
Formatting in MS Excel
In Excel, formatting helps organize data clearly.
Common Excel Formatting:
Number formatting (Currency, Percentage, Date)
Cell color
Borders
Conditional formatting
Text alignment
Example: Currency format shows ₹ or $ automatically.
Formatting in PowerPoint
Formatting in PowerPoint improves slide design.
Includes:
Font design
Background style
Theme selection
Slide layout
Text alignment
Disk Formatting in Computer
Disk formatting prepares a storage device for use.
Types of Disk Formatting:
Quick Format
Removes file system
Faster process
Full Format
Deletes all data
Checks bad sectors
⚠ Important: Disk formatting deletes all data permanently.
Importance of Formatting
Formatting is important because it:
Makes documents professional
Improves readability
Organizes data properly
Helps in presentation
Prepares storage devices
Advantages of Proper Formatting
Better visual appearance
Easy understanding
Error reduction
Improved productivity
Professional look
Disadvantages of Incorrect Formatting
Messy document
Hard to read
Confusion in data
Unprofessional presentation
Difference Between Formatting and Editing
Formatting
Editing
Changes appearance
Changes content
Design focused
Content focused
Improves look
Improves accuracy
FINAL ACCOUNTS
So far, we have seen that how the business transactions are recorded in Joumal and ledger and how to detect and rectify the errors and how to prepare Trial Balance. Is quite natural that the businessman is interested in knowing whether his business is running on Profit or Loss and also the mae financial position of his business. The main aim of Bookdeeping is to inform the Proprietot, about the business progress and the financial position at the right time and in the right way. Preparation of Final accounts is highly posible only after the preparation of Trial Balance.
1. Trading and Profit and Loss Alc is prepared to find out Profit or Loss.
2. Balance Sheet is prepared to find out financial position a if concem.
Trading and P&L Aic and Balance sheet ane prepared at the end of the year or at end of the part. So it is called Final Account.
Revenue account of trading concem is divided into two-pert l.e.
1. Trading Account and
2. Profit and Loss Account
TRADING ACCOUNT
Trading refers buying and selling of goods. Trading Ave shows the result of buying and selling of goods. This account is prepared to find out the difference between the Selling prices and Cost price. If the selling price exceeds the cost price, it will bring Gross Profit. For example, if the cost price of Rs. 50.000 worth of goods ane sold for Rs 60,000 that will bring in Grass Profit of Rs. 10,000. If the cost price exceeds the selling price, the result will be Gross Loss. For example, if the cost price Rs. 60.000 worth of goods are sold for Rs. 50,000 that will result in Gross Loss of Rs. 10,000. Thus the Gross Profit or Gross Loss is indicated in Trading Account.
Items appearing in the Debit side of Trading Account
1. Opening Stock: Stock on hand at the commencement of the year or period is termed as the Opening Stock
2. Purchases: It indicates total purchases both cash and credit made during the year.
3. Purchases Returns or Returns out words Purchases Returns must be subtracted from the total purchases to get the net purchases. Net purchases will be shown in the trading account.
4. Direct Expenses on Purchases: Some of the Direct Expenses are:
i. Wages: It is also known as productive wages or manufacturing wages
ii Carriage or Carriage Inwards
iii. Octroi Duty: Duty paid on goods for bringing them within municipal limits
iv. Customs duty, dock dues, clearing charges, Import duty etc.
v. Fuel, Power, Lighting charges related to production
vi. Oil, Grease and Waste
vii. Packing charges: Such expenses are incurred with a view to put the goods in the Saleable Condition.
Items appearing on the Credit Side of Trading Account
1. Sales: Total Sales (Including both cash and credit) made during the year.
2. Sales Returns or Return Inwards: Sales Returns must be subtracted from the Total Sales to get Net sales. Net Sales will be shown.
3. Closing stock: Generally, Closing stock does not appear in the Trial Balance. It appears outside the Trial balance. It represents the value of goods at the end of the trading period.
BALANCING OF TRADING ACCOUNT
In accounting, the Trading Account is prepared to calculate the Gross Profit or Gross Loss of a business.
When we talk about Balancing of Trading Account, it means calculating the difference between the debit side (expenses & purchases) and the credit side (sales & closing stock) and then transferring the result to the Profit & Loss Account.
In computerized accounting software like Tally ERP, Busy, and other ERP systems, balancing is done automatically.
What is Trading Account?
A Trading Account is prepared to determine the profit or loss from buying and selling goods.
Simple Meaning:
Trading Account shows whether the business made Gross Profit or Gross Loss from its trading activities.
Items Included in Trading Account
Debit Side (Expenses & Cost)
Opening Stock
Purchases
Purchase Returns (less)
Direct Expenses (Carriage Inward, Wages, Freight, etc.)
Credit Side (Income)
Sales
Sales Returns (less)
Closing Stock
What is Balancing of Trading Account?
Balancing of Trading Account means:
Total both sides (Debit & Credit)
Compare the totals
Find the difference
If Credit side > Debit side → Gross Profit
If Debit side > Credit side → Gross Loss
The difference is transferred to the Profit & Loss Account.
Formula for Gross Profit
Gross Profit = Net Sales – Cost of Goods Sold
Where,
Cost of Goods Sold (COGS) =
Opening Stock + Purchases + Direct Expenses – Closing Stock
Example of Balancing Trading Account
Opening Stock = ₹20,000
Purchases = ₹50,000
Direct Expenses = ₹10,000
Sales = ₹1,00,000
Closing Stock = ₹30,000
COGS = 20,000 + 50,000 + 10,000 – 30,000
COGS = ₹50,000
Gross Profit = 1,00,000 – 50,000
Gross Profit = ₹50,000
This ₹50,000 will be transferred to Profit & Loss Account.
Balancing of Trading Account in Tally ERP
In Tally:
Go to Gateway of Tally
Select Profit & Loss Account
Tally automatically prepares Trading Account
Gross Profit or Loss is shown automatically
No manual balancing is required in computerized accounting systems.
Importance of Balancing Trading Account
Balancing of Trading Account helps to:
Know business performance
Calculate gross profit
Control purchase and sales
Maintain accurate financial records
Prepare final accounts
Trading Account in Computerized Accounting
In modern accounting software:
Automatic calculation
Error-free balancing
Real-time reports
Instant gross profit analysis
This is why trading account balancing is an important part of the Accounting Module in computer systems.
Common Mistakes in Balancing
Ignoring closing stock
Wrong purchase entry
Forgetting direct expenses
Mixing indirect expenses
PROFIT AND LOSS ACCOUNT
The Profit and Loss Account (P&L Account) is one of the most important financial statements in accounting. It shows the net profit or net loss of a business during a specific accounting period.
In computerized accounting systems like Tally ERP, Busy, QuickBooks, and ERP software, the Profit and Loss Account is generated automatically from recorded transactions.
What is Profit and Loss Account?
The Profit and Loss Account is prepared after the Trading Account.
Simple Meaning:
It shows the final result of the business after deducting all indirect expenses and adding other incomes.
While the Trading Account calculates Gross Profit, the Profit and Loss Account calculates Net Profit or Net Loss.
Purpose of Profit and Loss Account
The main objectives are:
To calculate Net Profit or Net Loss
To know overall business performance
To control indirect expenses
To help in financial planning
To prepare Balance Sheet
Structure of Profit and Loss Account
Debit Side (Indirect Expenses)
Salary
Rent
Electricity Bill
Office Expenses
Advertisement
Depreciation
Insurance
Interest Paid
Credit Side (Indirect Incomes)
Gross Profit (from Trading Account)
Commission Received
Discount Received
Interest Received
Other Income
Formula for Net Profit
Net Profit = Gross Profit + Other Income – Indirect Expenses
If Expenses > Income → Net Loss
If Income > Expenses → Net Profit
Example of Profit and Loss Account
Gross Profit = ₹50,000
Other Income = ₹10,000
Total Indirect Expenses = ₹30,000
Net Profit = 50,000 + 10,000 – 30,000
Net Profit = ₹30,000
This Net Profit is transferred to the Capital Account in the Balance Sheet.
Profit and Loss Account in Tally ERP
In Tally:
Go to Gateway of Tally
Select Profit & Loss Account
Tally automatically shows:
Gross Profit
Indirect Expenses
Other Income
Net Profit
No manual calculation required in computerized accounting.
Importance in Computerized Accounting
In modern computer accounting systems:
Automatic report generation
Accurate calculation
Real-time financial monitoring
Easy tax calculation
Data security
The Profit and Loss Account is a major part of the Accounting Module in ERP software.
Difference Between Trading Account and Profit & Loss Account
Trading Account
Profit & Loss Account
Calculates Gross Profit
Calculates Net Profit
Includes direct expenses
Includes indirect expenses
First stage of final accounts
Second stage of final accounts
Advantages of Profit and Loss Account
Shows true financial position
Helps in cost control
Supports business decisions
Important for tax filing
Useful for investors and banks
Common Mistakes
Including direct expenses in P&L
Ignoring depreciation
Not recording indirect income
Wrong expense classification
BALANCE SHEET
The Balance Sheet is one of the most important financial statements in accounting. It shows the financial position of a business on a particular date.
In computerized accounting systems like Tally ERP, Busy, QuickBooks, and other ERP software, the Balance Sheet is generated automatically based on recorded transactions.
The Balance Sheet tells us what the business owns (Assets) and what it owes (Liabilities).
What is a Balance Sheet?
A Balance Sheet is a financial statement that shows:
Assets
Liabilities
Capital
at a specific date.
It is prepared after the Profit and Loss Account.
Basic Formula of Balance Sheet
Assets = Liabilities + Capital
This equation must always balance.
That is why it is called a Balance Sheet.
Structure of Balance Sheet
1. Liabilities Side
Liabilities represent what the business owes to others.
Examples:
Capital
Sundry Creditors
Bank Loan
Outstanding Expenses
Bills Payable
2. Assets Side
Assets represent what the business owns.
Examples:
Cash in Hand
Cash at Bank
Sundry Debtors
Furniture
Building
Machinery
Stock
Types of Assets
Current Assets
Cash
Bank Balance
Debtors
Stock
Fixed Assets
Land
Building
Machinery
Furniture
Types of Liabilities
Current Liabilities
Creditors
Bills Payable
Outstanding Expenses
Long-Term Liabilities
Bank Loan
Mortgage
Example of Balance Sheet
Capital = ₹1,00,000
Loan = ₹50,000
Creditors = ₹20,000
Total Liabilities = ₹1,70,000
Cash = ₹40,000
Stock = ₹50,000
Furniture = ₹30,000
Debtors = ₹50,000
Total Assets = ₹1,70,000
Both sides are equal → Balance Sheet is correct.
Balance Sheet in Tally ERP
In Tally:
Go to Gateway of Tally
Select Balance Sheet
The system automatically shows:
Assets
Liabilities
Net Profit
No manual balancing required in computerized accounting.
Importance of Balance Sheet
The Balance Sheet helps to:
Know financial position
Check business stability
Apply for bank loans
Attract investors
Plan business growth
It is a major part of the Accounting Module in computer systems.
Advantages of Computerized Balance Sheet
Automatic calculation
Error-free reporting
Real-time financial updates
Easy comparison of years
Secure data storage
Common Mistakes in Balance Sheet
Wrong asset classification
Missing liabilities
Incorrect capital adjustment
Ignoring depreciation
Difference Between P&L and Balance Sheet
Profit & Loss Account
Balance Sheet
Shows profit or loss
Shows financial position
Prepared for a period
Prepared on a specific date
Income & Expenses
Assets & Liabilities
OBJECTIVES OF BALANCE SHEET:
1. It shows accurate financial position of a firm.
2. It is a gist of various transactions at a given period
3. It dearly indicates, whether the firm has sufficient assents to repay its liabilities.
4. The accuracy of final accounts is verified by this statement
5. It shows the profit or Loss arrived through Profit & Loss Avc.
Specimen
The Balance sheet contains two parts Le.
1. Left hand side Le the Liabilities
2. Right hand side Le. the Assets
ASSETS:
Assets represent everything which a business owns and has money value. Assets are always shown as debit balance in the ledger. Assets are classified as follows.
1. Tangible Assets:
Assets which can be seen and felt by touch are called Tangible Assets. Tangible Assets are classified into twor
a. Fixed Assets: Assets which are durable in nature and used in business over and again are known as Fixed Assets eg, land and Building, Machinery, Trucks, etc.
b. Floating Assets or Current Assets: Current Assets are i. Meant to be converted into cash, ii. Meant for resale, Likely to undergo change eg. Cash, Balance, stock, Sundry Debtors.
2. Intangible Assets:
Assets which cannot be seen and has no fixed shape. E.g., goodwill, Patent.
3. Fictitious Assets:
Assets which have no real value and will appear on the Assets side of B/S are known as fictitious assets. Eg. Preliminary expenses, Discount or creditors.
LIABILITIES:
All that the business owes to others are called Liabilities. It also includes Proprietor's Capital. They are known as credit balances in ledger.
Classification of Liabilities:
1 Long Term Liabilities: Liabilities will be redeemed after a long period of time 10 to 15 years E.g. Capital, Long
Term Loans.
2. Current Liabilities: Liabilities, which are redeemed within a year, are called Current Liabilities or short-term liabilities Eg. Trade creditors, B/P Bank Loan.
3. Contingent Liabilities: Liabilities, which have the following features, are called contingent liabilities. They are
Not actual liability at present
b. Might become a liability in future on condition that the contemplated event occurs. E.g. Liability in respect of pending suit.
Equation of Balance Sheet:
Capital Assets-Liabilities
Liabilities Assets-Capital
Assets Liabilities + Capital
DIFFERENCE BETWEEN A TRIAL BALANCE AND A BALANCE SHEET
5. E-Transactions & Misc. Banking operations
Online banking (or Internet banking or E-banking) allows customers of a financial institution to conduct financial transactions on a secured website operated by the institution, which can be a retail bank, virtual bank, credit union or building society.
To access a financial institution's online banking facility, a customer having personal Internet access must register with the institution for the service, and set up some password (under various names) for customer verification. The password for online banking is normally not the same as for telephone banking. Financial institutions now routinely allocate customers numbers (also under various names), whether or not customers intend to access their online banking facility Customers numbers are normally not the same as account numbers, because number of accounts can be linked to the one customer number. The customer will link to the customer number any of those accounts which the customer controls, which may be cheque, savings, loan, credit card and other accounts. Customer numbers will also not be the same as any debit or credit card issued by the financial institution to the customer.
To access online banking, the customer would go to the financial institution's website, and enter the online banking facility using the customer number and password. Some financial institutions have set up additional security steps for access, but there is no consistency to the approach adopted.
Online banking facilities offered by various financial institutions have many features and capabilities in common, but also have some that are application specific.
The common features fall broadly into several categories
A bank customer can perform non-fransactional tasks through online banking, including-
viewing account balances
downloading bank statements, for example in PDF format
viewing recent transactions
viewing images of paid cheques
ordering cheque books
download periodic account statements
Downloading applications for M-banking, E-banking etc.
Bank customers can transact banking tasks through online banking, including -
Funds transfers between the customer's linked accounts
Paying third parties, including bill payments (see, e.g., BPAY) and telegraphic/wire transfers
Investment purchase or sale
Loan applications and transactions, such as repayments of enrollments
Register utility billers and make bill payments
Financial institution administration
Management of multiple users having varying levels of authority
Transaction approval process
The process of banking has become much faster
6. Real Life project on Business Accounting
Illustration 1:
The balances extracted from the books of Sankar are given below. From the prepare Trial Balance on 31st March 2013.
Illustration 2:
Prepare a Trading Account from the following information of a trader
Total Purchases made during the year 2013 Rs. 20,000
Total Sales made during the year 2013 Rs. 25,000
Solution:
Trading Account for the year ending 31st December 2013
Illustration 3:
Prepare Profit and Loss Account, from the following balances of Mr. Murugan for the year ending 31.03.2013.
Gross Profit transferred from the Trading A/c is Rs. 25,000
Solution:
Illustration 4:
From the following trial balance extracted from the books of Madan Associates as on 31.12.13. Prepare (i) Trading and Profit & Loss A/c and (ii) Balance Sheet
Stock as on 31.12.13 to Rs. 1,00,000/-.
Solution:
https://www.youtube.com/@KrishnaDubaiMotivation
Comments
Post a Comment