CHAPTER NO -3

Introduction to Tally ERP9 GST

Unit1 : Introduction to Accounting.

Accounting, as an information system is the process of identifying, measuring and communicating

the economic information of an organization to its users who need the information for decision making. It
identifies transactions and events of a specific entity.

American Institute of Certified Public Accountants (AICPA) which defines accounting as “the
art of recording, classifying and summarizing in a significant manner and in terms of money, transactions
and events, which are, in part at least, of a financial character and interpreting the results thereof”.

Objective of Accounting:

Objective of accounting may differ from business to business depending upon their specific requirements.
However, the following are the general objectives of accounting.

i) To keeping systematic record: It is very difficult to remember all the business transactions that
take place. Accounting serves this purpose of record keeping by promptly recording all the business
transactions in the books of account.

ii) To ascertain the results of the operation: Accounting helps in ascertaining result i.e.,
profit earned or loss suffered in business during a particular period. For this purpose, a business entity
prepares either a Trading and Profit and Loss account or an Income and Expenditure account which shows
the profit or loss of the business by matching the items of revenue and expenditure of the some period.

iii) To ascertain the financial position of the business: In addition to profit, a businessman must know
his financial position i.e., availability of cash, position of assets and liabilities etc. This helps the
businessman to know his financial strength. Financial statements are barometers of health of a business
entity.

iv) To know the liquidity position: Financial reporting should provide information about how an
enterprise obtains and spends cash, about its borrowing and repayment of borrowing, about its capital
transactions, cash dividends and other distributions of resources by the enterprise to owners and about
other factors that may affect an enterprise’s liquidity and solvency.

v) To protect business properties: Accounting provides up to date information about the

various assets that the firm possesses and the liabilities the firm owes, so that nobody can claim a payment
which is not due to him.

Users of Accounting Information.

Internal Users:
 • Owners
• Managers
• employees & their representatives

External Users:

• Governments
• Inland revenue (taxation)
• Trade & Industry (companies regulation)
• Environment
• Shareholders/investors
• Potential investors
• Creditors & suppliers
• Debtors & customers
• Competitors.

Accounting information helps users to make better financial decisions. Users of financial
information may be both internal and external to the organization.

Internal users of accounting information include the following:

• Management: for analyzing the organization's performance and position and taking
appropriate measures to improve the company results.
• Employees: for assessing company's profitability and its consequence on their future
remuneration and job security.
• Owners: for analyzing the viability and profitability of their investment and determining
any future course of action.

Accounting information is presented to internal users usually in the form of management accounts,
budgets, forecasts and financial statements.
External users of accounting information include the following:

• Creditor: for determining the credit worthiness of the organization. Terms of credit are set
according to the assessment of their customers' financial health. Creditors include suppliers
as well as lenders of finance such as banks.
• Tax Authourities: for determining the credibility of the tax returns filed on behalf of the
company.
• Investors: for analyzing the feasibility of investing in the company. Investors want to make
sure they can earn a reasonable return on their investment before they commit any financial
resources to the company.
• Customers: for assessing the financial position of its supplier which is necessary for a
stable source of supply in the long term.
• Regulatory Authorities: for ensuring that the company's disclosure of accounting
information is in accordance with the rules and regulations set in order to protect the
interests of the stakeholders who rely on such information in forming their decisions.

External users are communicated accounting information usually in the form of financial
statements.

Basics of Accounting Terms:

2.1 Entity.

ACCOUNTING ENTITY is an organization, institution or being that has its own existence for legal or tax
purposes. An accounting entity is often an organization with an existence separate from its individual
members--for example, a corporation, partnership, trust, etc.
2.2 Event.
External or internal transaction or change that is recorded in the double-entry bookkeeping system as a debit
or credit entry. These are happenings, which are of some relevant important to an entity. For eg: Raw
Materials purchased for use in production process ,goods sold to a customer, salary paid to staff etc.,

2.3 Business Transaction.

An economic event that initiates the accounting process of recording it in a company's accounting system.

Business transactions are the interactions between businesses and their customers, vendors and others with
whom they do business. Transactions can be very simple, like buying a newspaper, or extremely complex,
taking a long time and involving many companies or agencies. New technologies and management
approaches are developing around the management of business transactions.

Definition

The accounting definition of a business transaction, according to the online Business Dictionary, is "an
economic event that initiates the accounting process of recording it in a company's accounting system."
This is the official definition. However, selling an item at a garage sale where no accounting system is in
place also can be a business transaction.

2.4 Voucher.

Written instrument that serves to confirm or witness (vouch) for some fact such as a transaction. Commonly,
a voucher is a document that shows goods have bought or services have been rendered, authorizes payment,
and indicates the ledger account(s) in which these transactions have to be recorded.

2.5 Entry.

A written record of a commercial transaction. This is the record in the books of account in respect of a
business transaction. An entry is made on the basis of a voucher.

2.6 Asset.

"An asset is a resource controlled by the enterprise as a result of past events and from
which future economic benefits are expected to flow to the enterprise."

It is important to understand that in an accounting sense, an asset is not the same as

ownership. Now while the business has control over these assets it is not the ultimate owner of
their inherent monetary value. Because, we also saw that if the business ceased trading and sold
these assets, then the money would be used to first pay out the obligations of the business
(liabilities) with the remaining money going to the owners (Owners equity). This is why the
accounting equation states:
 The accounting equation

Types of assets in accounting

Assets are categorized in different ways. Firstly they can be split between tangible and intangible.
Tangible assets are those you can physically touch (i.e. land, buildings, equipment ...) and
intangible assets you can't touch but they still have a monitory value and a business can control
them. (i.e. patents, trademarks, copyrights, franchises, goodwill, websites ... ). The second way in
which assets are categorized is how they are represented on the Statement of Financial Position
(or Balance Sheet) i.e. as current assets and non-current assets (or fixed assets)

Current assets

Current assets are cash and other assets that are expected to be converted to cash, sold or consumed
either within a year or in the operating cycle (whichever is longer). These asset values continually
change in the normal course of business activity. There are 5 major sub-groups including:
o Cash and cash equivalents — includes currency, petty cash, bank deposit accounts and
negotiable instruments (e.g., money orders, cheque, bank drafts).
o Short-term investments — include securities bought and held for sale in the near future
to generate income on short-term price differences (trading securities).
o Accounts receivables — money owed to the business from its customers who purchased
goods and/or services on account.
o Inventory — merchandise held for the purpose of selling to customers. Also includes
work-in-progress for a manufacturing business.
o Prepaid expenses — expenses paid in advance. They still have asset value because the
value has not yet been exhausted or used.

Non-current/fixed assets

Non-current or fixed assets have value beyond the next 12 months and do not constantly change
in value like the current assets do. They are classified as such, as long as they remain for use within
the business and are not items that are purchased with the intent to sell.

o Fixed asset accounts may include land, buildings, furniture, fixtures, equipment,
vehicles, computers, furniture and appliances, .
o Long-term investments are investments that are held for many years and are not
intended to be disposed of in the near future. i.e. bonds, common stock, or long-
term notes.
o Intangible assets are items of economic value that are not physical in nature i.e.
Patents, goodwill and trademarks.
 Assets in accounting

2.7 Liabilities.

"Liabilities" is the plural of "liability."

In accounting terms, a liability is a debt or obligation that a company must pay.

Liabilities are recorded on a company's balance Sheet and can include accounts payable, taxes,
wages, accrued expenses, and deferred revenues.

Current Liabilities and Long Term Liabilities.

Current Liabilities:

In accounting terms, current liabilities are debts and obligations that a company must pay in the short-term
(within the next twelve months.)

Long term Liabilities:

Long-term liabilities are a category of debts that appear on the company's balance sheet.

Long-term liabilities differ from current liabilities because they are debts that do not need to be
repaid in the current year.

Long-term liabilities are debts that will be repaid in the next year, or longer.

2.8 Capital.

This is the amount which is invested in a business by its owner. Capital is increased by the amount
of profit earned by the business and the fresh amount introduced into the business by the owner.
Capital is decreased by the amount of losses made by the business and the amount withdrawn from
the business by the owner. Capital represents the owner’s claim on the assets of the business. It is
also called Owner’s Equity or Net assets or Net Worth.
2.9 Drawings.

We use drawing many times in financial accounting .Drawing here means any amount
withdraw from business for personal use. Not only cash but if we withdraw any product from
business or any asset of business for personal use that will be drawing.
It surely reduces the capital of any business. So business man must record drawing in his books so
that accountant can calculate correct profit or loss of business man .

2.10 Purchases.

This is the amount of goods bought by a business for being resold to customers. It could also be bought
for ue in production carried out by business. For eg: If 50 kgs of cotton are bought at Rs. 10 per kg for cash,the
amount of cash purchases is Rs.500. Again if 20 Kgs of cotton is bought at Rs.10 per kg on Credit, the amount
of credit purchases is Rs. 200.

2.11 Sales.

This is the amount of goods or services sold by entity to its customers. For e.g. when a business sells 10
kgs of wheat at Rs. 5 per Kg for cash, the total amount of Cash Sales is Rs. 50. Again if 100 Kgs of wheat are
sold at Rs. 5 per Kg on Credit, the amount of credit sales is Rs. 500.

2.12 Inventory.

It is Commonly called Stock. Stock means goods which are held in business for sale to customers or being
used in the production process carried out by the business. Stock consist of Raw Materials, Semi-finished goods
and finished Goods. We should be familiar with the terms Opening Stock and closing Stock.

Opening stock means goods which are lying unsold at the beginning of the accounting period.

Closing stock means goods which are lying unsold at the end of the accounting period.

2.13 Trade Debtors.

A debtor is a person or entity that owes money. In other words, the debtor has a debt or legal obligation to
pay an amount to another person or entity.
This is the person to whom goods have been sold on credit by the business and from whom money is due
to the business.
2.14 Trade Creditors.

A party to whom money is owed. This is the person from whom goods have been purchased on
credit by the business and to whom money is due by the business.

2.15 Expenditure.
Payment of cash or cash-equivalent for goods, or service, or a charge against available funds in settlement
of an obligations evidenced by an invoice, receipt, voucher, or other such document.

This is the cost of buying an asset or goods or service. It results in outflow of assets or creation of a liability.
An expenditure is measured by its cost.

2.16 Incomes.

Accounting income is defined as an estimate of performance in the operations of a company. It is influenced

by financing and investing decisions. Accounting income or loss generally recognizes realized gains and
losses, and does not recognize unrealized gains and losses.

This is the increase in economic benefits during an accounting period. Income could arise in the form of
Inflow of assets into the business or decrease of liabilities of the business.

2.17 Net Profit.

A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting
for the cost of doing business, depreciation, interest, taxes and other expenses. This number is
found on a company's income statement and is an important measure of how profitable the
company is over a period of time.
It means excess of income over expenses. It increases Owner’s Equity.
A net profit is earned if total expenditure is less than the sales figure.

2.18 Net Loss.

The result that occurs when expenses exceed the income or total revenue produced for a given
period of time. For tax purposes, net losses in one time period can be used to counteract the
income/gains generated in another time period. Under tax law, this loss can be carried back as far
as two years.

It means excess of expenses over income. It decreases Owner’s Equity. Amount by which total of costs and
expenses exceeds total revenue in an accounting period.

Unit: 3 Classification of Accounts:

Classification of Accounts:
We can classify accounts in two different ways. These are:

1) Traditional classification of accounts

2) Moden classification of accounts

Traditional Classification of Accounts:

This is very old method of classifying accounts and is not used in most of the advanced countries. Under
this method, accounts are classified into four types. These are:
Personal accounts
Real accounts
 Nominal accounts
Valuation accounts(optional)

These four types of accounts are briefly explained below:

Personal Accounts:

These accounts show the transactions with the customers, suppliers, money lenders, the bank and the owner.
A business may have many credit transactions with the above persons or organizations. A separate account
is to be prepared for each of them. Persons or organizations with whom the business has credit transactions
are either debtors or creditors. If they have to give some money to the firm, they are called debtors.
Conversely, if the firm is to pay them some money they are known as creditors. The main purpose of
preparing personal accounts is to ascertain the balances due to or due from persons or organizations.

Real Accounts:

These accounts are accounts of assets and properties such as land, building, plant, machinery, patent, cash,
investment, inventory, etc. When a machinery is purchased for cash, the two accounts involved are
machinery and cash - both are real accounts. But if the same machine is purchased from Z & Co. on credit,
the two accounts involved will be those of machinery and Z & Co., the former being a real account and the
later being a personal account.

Nominal Accounts:

These are the accounts of incomes, expenses, gains and losses. Examples of nominal accounts are wages
paid, discount allowed or received, purchases, sales, etc. These accounts generally accumulate the data
required for the preparation of income statement or trading and profit and loss account.

Valuation Accounts(optional ):

These are the accounts of provision for depreciation and provision for doubtful debts. Where fixed assets
are maintained in the books of accounts at original cost, to reflect the actual book value of the assets, a
provision for depreciation account on the credit is maintained. In the balance sheet, it is shown as deduction
from the original cost of the asset. Similarly, if the debtors' personal accounts are retained at total amount
due, a valuation account on the credit - provision for doubtful debts is required. In the balance sheet, it is
shown as a reduction from sundry debtors account to reflect estimated realizable value.

Example:

Classify the following into real, nominal, personal and valuation accounts:
Plant and machinery - Real account
Purchases - Nominal account
Investment - Real account
 Bank- Personal account
Provision for bad and doubtful debt - Valuation account
Tata Iron & steel Co. - Personal account
Rent - Nominal account
Land and Building - Real account
Carriage outward - Nominal account
Capital - Personal account
Leasehold - Real account
Trademark - Real account
Return outwards- Nominal account
Import duty - Nominal account
Provision for depreciation - Valuation account

Modern Classification of Accounts:

Modern accountants classify accounts as follows:
o Assets accounts
o Liabilities accounts
o Capital accounts
o Revenue accounts
o Expenditure accounts
o Withdrawal accounts.

Rules of Debit and Credit:

Rules of Debit and Credit When Accounts are Classified According to Traditional Classification of
Accounts:

Debit and credit are simply additions to or subtraction from an account. In accounting, debit refers to the
left hand side of any account and credit refers to the right hand side. Asset, expenses and losses accounts
normally have debit balances; liability, income and capital accounts normally have credit balances.
The term debit is derived from the latin base debere (to owe) which contracts to the "Dr" used in journal
entries to refer to debits. Credit comes from the word credere (that which one believes in, including persons,
like a creditor), which contracts to the "Cr." used in journal entries for a credit.

Personal Accounts:
Debit the account of the person who receives something and credit the account of the person who gives
something.

Real Accounts:
Debit the account of the asset/property which comes into the business or addition to an asset, and credit the
account which goes out of the business. When furniture is purchased for cash, furniture account is debited
(which comes into the business) and cash account is credited (which goes out of the business).
Nominal Accounts:
Debit the accounts of expenses and losses, and credit the accounts of incomes and gains. When wages are
paid, wages account is debited (expense) and cash account is credited (asset goes out).

Valuation Account(optional):
Debit the account when the account is to be reduced and credit the account when the account is to be
increased.

Rules of Debit and Credit at a Glance

Types of Account Account to be Debited Account to be credited

Personal account Receiver Giver
Real account What comes in What goes out
Nominal account Expense and loss Income and gain
Valuation account When account to be be When account to be increase
decrease.
“The Golden Rule”:

GOLDEN RULES OF ACCOUNTING

REAL ACCOUNTS DEBIT WHAT COMES IN
CREDIT WHAT GOES OUT

PERSONAL ACCOUNTS DEBIT THE RECEIVER

CREDIT THE GIVER

NOMINAL ACCOUNTS DEBIT ALL EXPENSES AND LOSSES

CREDIT ALL INCOMES AND REVENUES.

Accounting principles: accounting principles based on certain concepts, conventions and

tradition have been evolved by accounting authorities and regulators and are followed
internationally

Accounting principles

Accounting Concepts Accounting Conventions

1. Business entity concept 1. Conservatism
2. Money measurement concept 2. Consistency
3. Dual aspect concept 3.Materiality
4. Going concern concept 4. Full Disclosure
 5. Cost concept
6. Accounting year concept
7. Matching concept
8. Realisation concept

Accounting Concepts

1. Business entity concept: A business and its owner should be treated separately as far as
their financial transactions are concerned
2. Money measurement concept: only business transactions that can be expressed in terms
of money are recorded in accounting though records of other types of transactions may be
kept separately
3. Dual aspect concept: for every credit, a corresponding debit is made. The recording of a
transaction is complete only with this dual aspect
4. Going concern concept: In accounting a business is expected to continue for a fairly long
time and carry out its commitments and obligations. This assumes that the business will
not be forced to stop functioning and liquidate its assets at low prices.
5. Cost concept: The fixed assets of a business are recorded on the basis of their original cost
in the first year of accounting subsequently these assets are recorded minus depreciation .
6. Accounting year concept: Each business chooses a specific time period to complete a
cycle of the accounting process- Eg: monthly, quarterly, annual.
7. Matching concept: This principle dictates that for every entry of revenue recorded for
correctly calculating profit or loss in a given period.
8. Realisation concept: According to this concept, profit is recognized only when it its
earned. An advance or fee paid is not considered a profit until the goods or service have
been delivered to the buyer.

Accounting Conventions

1. Conservatism: is the convention by which when two values of a transaction are available,
the lower-value transaction is recorded. By this convention, profit should never be
overestimated and there should be a provision for losses.
2. Consistency: prescribed the use of the same accounting principles from one period of an
accounting cycle to the next, so that the same standards are applied to calculate profit and
loss.
3. Materiality: means that all material facts should be recorded in accounting. Accounts
should record important data and leave out insignificant information.
 4. Full Disclosure: entiles the revelation of all information, both favorable and detrimental
to a business enterprise and which are of material value to creditors and debitors.

Advantages of Tally
1. Accounting helps to maintain the business records in a systematic manner
2. It helps in the preparation of financial statements
3. Accounting information is also used to compare the result of current year with the previous
year to analyze the changes.
4. It helps the managers in the decision making process
5. Accounting information can be produced as evidence in the legal matter
6. It helps in valuation of business.
Limitations of accounting
1. The items expressed in monetary terms are recorded in the accountings where as the items
which are nonmonetary(EX: investments, profit making) nature not recorded.
2. Sometimes accounting data are recorded on the basis of estimation and which could be
inaccurate.
3. Value of money does not remain stable so accounting value does not show true financial
results
4. Fixed assets are recorded as the original cost.
5. Accounting can be manipulated and biased.

Fundamentals of Tally.ERP 9:

Introduction and Features of Tally.ERP 9:

Tally.ERP 9 is the world’s fastest and most powerful concurrent multi-lingual business accounting
and inventory Management software. Tally.ERP 9,designed exclusively to meet the needs of the
small and medium businesses, is a fully integrated ,affordable and highly reliable software.
Tally.ERP 9 is easy to buy, quick to install, and easy to learn and use. Tally.ERP 9 is
Designed to automate and integrate all your business operations, such as sales, finance, purchasing,
inventory and manufacturing.

Features of Tally.ERP 9:

1 A leading accounting package: The first version of Tally was released in 1988 and, through
continuous development, is now recognised as one of the leading accounting packages across the
world, with over a quarter million customers. Tallys market share is more than 90%.

2. No accounting codes: Unlike other computerised accounting packages which require numeric
codes, Tally.ERP 9 pioneered the no accounting codes concept. Tally.ERP 9 users have the
freedom to allocate meaningful names in plain English to their data items in the system.
3. Complete business solution: Tally.ERP 9 provides a comprehensive solution to the accounting
and inventory needs of a business. The package comprises financial accounting, book-keeping and
inventory accounting. It also has various tools to extract, interpret and present data.

4. Integrated/ Non-integrated accounting and inventory: With Tally.ERP 9, the user is able to
choose between accounting and accounting with inventory. If accounting with inventory is opted
for, the user can choose whether it should be integrated or not.

5. Flexible and easy to use: Tally.ERP 9 is very flexible. It mimics the human thought process,
which means that Tally.ERP 9 can adapt to any business need. Tally.ERP 9 users need not change
the way their business is run to adapt to the package.

6. Speed : Tally.ERP 9 provides the capability to generate instant and accurate reports, which
assists the management to take timely and correct decisions for the overall productivity and growth
of the company.

7. Power : Tally.ERP 9 allows the user to maintain multiple companies and with unlimited levels
of classification & grouping capabilities. It also allows drill down facility from report level to
transaction level

8. Flexibility : Tally.ERP 9 provides flexiblity to generate instant reports for any given period
(month/year) or at any point of time besides providing the facility to toggle between Accounting
& Inventory reports of the same company or between companies.

9. Concurrent multi-lingual capability : Tally.ERP 9 offers you the exclusive capability of

maintaining your accounts in any Indian language, viewing them in another language and printing
them in yet another Indian language.

10. Real time processing : Immediate posting & updation of books of accounts as soon as the
transactions are entered, thereby facilitating instant statements & Reports. It also faciliaties real-
time multi-user environment.

11. Versatility: Tally.ERP 9 is suitable for a range of organizations, from small grocery stores to
large corporations with international locations and operations.

12. Multi-platform availability: Tally.ERP 9 is available on Windows 95, 98, ME, 2000 and NT.
It runs on a single PC or on a network. On a network, it supports access via any combination of
platforms.

13. Online Help : The Tally.ERP 9 Online Help (Alt+H) provides instant assistance on basic and
advanced features or any other relevant topics of Tally.ERP 9.

14. Tally.NET : is an enabling framework which establishes a connection through which the
remote user can access the Client's data without copying / transferring the data.
15. Remote Access : Tally.ERP 9 provides remote capabilities to access the data from anywhere
and anytime.

16. Control Centre : works as an interface between the user and Tally.ERP 9 installed at different
sites and enables the user to centrally configure and administer Site/User belonging to an account.

17 Support Centre : allows a user to directly post his support queries on the functional and
technical aspects of the Product.

18. Auditor's Edition : Tally.ERP 9 offers a special Auditors' Edition of Tally.ERP 9, which
provides auditing and compliance capabilities exclusively for Chartered Accountants.

Some of the new features in Tally.ERP 9 include,

• Remote Access
• Tally.NET (to be read as Tally.NET)
• Simplified Installation process
• New Licensing Mechanism
• Control Centre
• Support Centre
• Enhanced Look & Feel
• Enhanced Payroll Compliance
• Excise for Manufacturers
• Auditors Edition of Tally.ERP 9 (Auditing Capabilities for Auditors)
• Enhanced Tax Deducted at Source.

Facilities with Tally.ERP 9

Groups and Ledgers:

Tally.ERP 9 allows you to create Account heads and groups as per your requirements. The flexiability and
ease of creating user-defined Account Heads and groups as per nature of business or business practice
makes Tally.ERP 9 suitable for businesses across industries,verticals and geographies, without changing
the way they do their business.

Tally.ERP 9 follows the Double entry system of Accounting. It records accounting information by
debiting and crediting different Ledger Accounts using different voucher types depending upon the nature
of transaction. It automatically collates the debit and credit amounts and arrives at the closing balances of
each Ledger or Group.

Meaning of a Group:
Groups are collection of Ledgers of the same nature. Account Groups are maintained to determine the
hierarchy of Ledger Accounts which is helpful in determining and presenting meaningful and compliant
reports.
Tally.ERP 9 has the flexibility of setting user required chart of accounts. You can group the Ledger
accounts under the required Groups at the time of creating the chart of accounts or you can alter them at
any time.

The Group behavior is classified into Capital or Revenue and more specifically into Assets, Liabilities,
Income and Expenditure. The Groups ascertain whether the same will affect Profit and Loss Account which
is revenue in nature or Balance Sheet which is capital in nature.
A Discussion on Each of the Reserved Groups
Non Revenue Primary Groups

Capital Account
This records the Capital and Reserves of the company. The ledgers that belong to Capital Accounts are
Share Capital, Partners' Capital A/c, Proprietor's Capital Account and so on.
Reserves and Surplus [Retained Earnings]
This contains ledgers like Capital Reserve, General Reserve, Reserve for Depreciation and so on.

Current Assets
Current Assets record the assets that do not belong either to Bank Accounts or to Cash-in-Hand sub-groups.

1. Bank Accounts
Current account, savings account, short term deposit accounts and so on.

2. Cash-in hand
Tally.ERP 9 automatically creates Cash A/c in this group. You can open more than one cash account, if
necessary.
Note: An account under Cash-in-hand group or Bank Accounts/Bank OCC A/c group is printed as a separate
Cash Book in the traditional Cash Book format and does not form part of the Ledger.
3. Deposits (Asset):
Deposits contain Fixed Deposits, Security Deposits or any deposit made by the company (not received by
the company, which is a liability).

4. Loans & Advances (Asset):

This records all loans given by the company and advances of a non-trading nature (example: advance
against salaries) or even for purchase of Fixed Assets. We do not recommend you to open Advances to
Suppliers account under this Group. For further details, please refer to the section on Common Errors.

5. Stock-in-hand:
This group contains accounts like Raw Materials, Work-in-Progress and Finished Goods. The balance
control depends on whether you have selected Integrated Account-cum-Inventory option while creating the
company. (refer to Company creation section for more details)

6. Sundry Debtors: a person who receives goods and services from a business in credit.

7. Loans and Advances (current Asset) group:

The Suspense Account is a Balance Sheet item. Any expense account even if it has 'suspense' in its name,
it should be opened under Revenue group like Indirect Expenses and not under Suspense Account group.

Integrated Accounts-cum-Inventory:
This option has a significant effect on the Balance Sheet and Profit & Loss Account. If set to Yes, it brings
the stock/inventory balance figures from the inventory records and provides a drill down to the Stock
registers from the Balance Sheet.

You are not allowed to directly change the closing balance of an account under this group. You are allowed
to pass transactions in Inventory records and the account balances are automatically reflected in the Balance
Sheet as Closing Stock.

Non-integrated Accounts-cum-Inventory:
If Integrated Account-cum-Inventory option is set to No, it ignores the inventory books figures and picks
up manually entered closing stock balances from the ledger account created. This provides the facility to
maintain accounts separately and inventory separately.

You are not allowed to pass transactions if your accounts that come under this Group. It allows you to hold
opening and closing balances only. Since no vouchers can be passed for these accounts, they are the only
accounts for which the closing balances can be directly altered (by an authorised user only).

Current Liabilities:
Accounts like Outstanding Liabilities, Statutory Liabilities and other minor liabilities can be created directly
under this group. Sub-groups under Current Liabilities are Duties and Taxes, Provisions and Sundry
Creditors

1. Duties and Taxes:

Duties and Taxes contain all tax accounts like VAT, CENVAT, Excise, Sales and other trade taxes and the
total liability (or asset in case of advances paid) and the break-up of individual items.

2. Provisions:
Accounts like Provision for Taxation, Provision for Depreciation and so on are recorded under Provisions.
3. Sundry Creditors:
For trade creditors, refer to common and possible errors in grouping of accounts section.

Loans (Liability):
Loans that a company has borrowed, typically long-terms loans.

1. Bank OD Accounts [Bank OCC Accounts]:

Tally.ERP 9 provides you with distinct types of Bank Accounts,

2. Bank OCC A/c:

To record the company's overdraft accounts with banks. For example, Bill Discounted A/cs and
Hypothecation A/cs etc.

Note: An account under Bank OCC A/c group is printed as a separate Cash Book in the traditional Cash
Book format and does not form part of the Ledger.

3. Secured Loans:
Term loans or other long/medium term loans, which are obtained against security of some asset. does not
verify the existence of the security. Typical accounts are Debentures, Term Loans, and so on.

4. Unsecured Loans:
Loans obtained without any security. Example: Loans from Directors/partners or outside parties.

Suspense Account:
In modern accounting, many large corporations use a Suspense Ledger to track the money paid or recovered,
the nature of which is not yet known. The most common example is money paid for Traveling Advance
whose details will be known only upon submission of the Travelling Allowance bill. Some companies may
prefer to open such accounts under Suspense Account.

Miscellaneous Expenses (Asset):

This group is typically used for legal disclosure requirements such as Schedule VI of the Indian Companies
Act. It should hold incorporation and pre-operative expenses. Companies would write off a permissible
portion of the account every year. A balance remains to an extent that cannot be written off in Profit & Loss
Account. Tally.ERP 9 does not show loss, carried forward in the Profit & Loss Account, under this group.
The Profit & Loss Account balance is displayed separately in the Balance Sheet

Branch/Divisions:
This maintains ledger accounts of all your company's branches, divisions, affiliates, sister concerns,
subsidiaries and so on. Tally.ERP 9 permits Sales and Purchase transactions to take place with accounts
opened here. Remember, these are their accounts in your books and not their books of accounts. Just treat
them as any other party account. If you wish to maintain the books of a branch/division on your computer,
you must open a separate company. (Tally.ERP 9 allows maintenance of multiple company accounts).

Revenue Primary Groups:

Sales Account:
You can classify your sales accounts based on Tax slabs or type of sales. This also becomes a simple
mechanism for preparation of Tax returns.
Examples:
Domestic Sales
Export Sales

Now under Domestic Sales open the following ledgers:

Sales (10%)
Sales (5%)
Sales (exempt)

You can even open an account as Sales Returns under the group Domestic Sales to view your net sales after
returns (or the returns may be directly passed through Journal against the specific Sales account).
Note: Do not create customer accounts under this group. For more details, refer to common and possible
errors in grouping of accounts section.
Purchase Account
This is similar to sales accounts, except for the type of transactions.

Direct Income [Income Direct]:

These are Non-trade income accounts that affect Gross Profit. All trade income accounts fall under Sales
Accounts. You may also use this group for accounts like Servicing, Contract Charges that follow sales of
equipment.
For a professional services company, you may not use Sales Account group at all. Instead, open accounts
like Professional Fees under this group.

Indirect Income [Income Indirect]:

These are miscellaneous non-sale income accounts. Example: Rent Received and Interest Received.

Direct Expenses [Expenses Direct]

These are manufacturing or direct trading expenses. These accounts determine the Gross Profit of the
company

Indirect Expenses [Expenses Indirect]:

All administrative, selling or non-direct expenses.

Profit & Loss Account is a reserved primary account in Tally.ERP 9. You can use this account to pass
adjustment entries through journal vouchers. For example, transfer of profit or loss account to Capital or
Reserve account.

Common and Possible Errors in Grouping and Accou nt Classification:

Debtor/Creditor classification:
Accounts of parties with whom your company is trading should be opened under any of the following
groups (or sub-groups under them):
Sundry Debtors
Sundry Creditors
Branch/Divisions

Sales and Purchase account groups are meant for revenue accounts and are reflected in the Profit & Loss
Account. If you open party accounts under these groups, it becomes difficult to pass sales or purchase
voucher transactions.

For example, in a sales voucher transaction entry, you must debit an account, which can be sundry debtor,
branch/division or even a sundry creditor. Moreover, other facilities like bill-wise allocation and tracking
will not be available unless the accounts belong to one of these groups.

Opening two accounts of the same party:

Tally.ERP 9 classifies debtors, creditors and branch/divisions for convenience. This helps you in the process
of keeping the accounts of a particular group together during display and analysis. Thus you can pass both
sales and purchase entries for a party account placed under Sundry Debtors. Use the classification
depending on the most natural group for the party.

For example, parties from whom you buy frequently can be placed under Sundry Creditors, as that is the
natural place to look for their account. Tally.ERP 9 does not restrict the accounts from having obverse
balances. Thus, a Sundry Debtor can have a credit balance depending on the state of his account.
Therefore, you need not open two accounts for the same party - one under Sundry Debtors and another
under Sundry Creditors. Tally.ERP 9 restricts opening of two identical ledger accounts. In such cases, you
may decide to circumvent by marking one account as "A & Co - S/Dr" and another "A & Co - S/Cr". This
will allow you to have two accounts of the same party under two groups, but you will lose the advantage of
analyzing net position at a single instance. It is always better to maintain a single account to obtain best
benefits.

Expenditure items are entered under Liabilities group. For example, the expenditure item Rates & Taxes
under the group Duties and Taxes.

The group Duties and Taxes is specifically meant to handle taxation liabilities of your company. Rates &
Taxes and other statutory expenses should be placed under Indirect Expenses.

Simply adhering to the reserved groups may be sufficient for many organizations. For greater diversity,
Tally.ERP 9 allows you to create your own groups, either as sub-groups or primary groups. Groups can be
sub-classified to practically an unlimited level, giving you a virtual accounting tree. At the lowest level, of
course, would be the ledger account.

Meaning of a Ledger:
A Ledger is the actual account head to which you identify a transaction and must be used in all Accounting
Vouchers. Without a ledger we cannot record any transactions.
Ex: Purchase, payments, sales, Receipts, etc, all these accounts heads are ledger Accounts.
All Ledgers have to be classified into Groups. Classification of Ledgers to the appropriate groups is very
important. These Groups and Ledgers are classified to Profit & Loss or Balance Sheet. The creation and
usage of Groups in Tally.ERP 9 has been explained earlier. Now you will learn how Tally.ERP 9 works
with Ledgers.

Pre-defined Groups and Ledgers of Accounts:

By default, Tally.ERP 9 provides a list of Groups called pre-defined groups. The user can create any
number of Primary Groups and Sub Groups which are again grouped under a Primary Group/Sub Group.

There are 28 pre-defined Groups in Tally.ERP 9, out of which 15 are Primary Groups and 13 are Sub-
Groups.

15 Primary Groups 13 Sub Groups

Branch/Divisions Bank Accouts.
Capital Account Bank Od A/c
Current Assets Cash-in-hand.
Current Liabilities Deposits (Assests)
Direct Expenses Duties and Taxes.
Direct Incomes Loans and advances(Asset).
Fixed Assets Provisions.
Indirect Expenses Reserves and Surplus.
Indirect Incomes Secured Loans.
Investments Stock-in-hand.
Loans(Liability) Sundry Creditors.
Misc. Expenses(Asset) Sundry Debtors.
Purchases Accounts Unsecured Loans.
 Sales Accounts
Suspense A/c.

Among the 15 predefined groups, 9 groups are Balance Sheet items which are capital in nature and
remaining 6 groups are Profit and Loss a/c items which are Revenue in nature.
13 Sub Groups are classified under the 15 Primary Groups and the appear in the Balance Sheet.
Pre-defined Sub Groups: Under
Bank Accounts Current Assets.
Bank OD a/c Loans (Liability)
Cash in hand Current Assets
Deposits(Asset) Current Assets
Duties and Taxes Current Liabilities
Loans and Advances(Asset) Current Assets
Provisions Current Liabilities
Reserves and Surplus Capital Account
Secured Loans Loans(Liability)
Stock in Hand Current Assets
Sundry Creditors Current Liabilities
Sundry Debtors Current Assets
Unsecured Loans Loans(Liability)

Pre-defined Ledgers in Tally.ERP 9:

There are two pre-defined ledgers available in Tally.ERP 9, they are
Cash:
This Ledger is created under the Group Cash-in-hand. You can enter the opening balance as on the date of
books beginning from. You can also alter the name and even delete the Ledger

Profit and Loss Account:

This Ledger is created under the Group Primary. Previous year’s Profit or Loss is entered as the opening
balance for this ledger. The balance entered here is treated as the opening profit/loss and shown in the
Balance Sheet as opening balance of Profit and Loss account in the Liabilities side.
You cannot delete this ledger, but you can modify the same.

Creating Group:

In Tally.ERP 9 there are two options for creating Groups:

Single Group : We can create only one Group by using Single Group creation screen.
Multiple Groups: We can create multiple Groups by using Multiple Group Creation screen.

Creating a Single Group:

Group is a collection of Ledgers of the same nature, Tally.ERP 9 allows you to create groups as per your
requirements.
Go to Gateway of Tally > Accounts Info. > Groups > Create under Single Group