Chapter - 2

Financial Accounting with Package

Introduction
Tally is versatile and massive software package being used by
various types of trade and industry. To take advantage of full potential
of Tally, the user has to understand its features, their implications and
how to implement them in business scenario.
Flexible Classification of Accounts
Tally by default creates 28 predefined (15 Primary and 13
Secondary level) Groups as per mercantile accounting convention. Of
these 9 Primary Groups are for Balance Sheet Items and 6 groups
are for P & L A/c. You can alter the nomenclature of any groups and
further create any number of primary or sub-groups as per
requirements.
Control Ledger Groups
Tally does not have any concept of sub-ledgers, so you are
able to organize the accounts quite-efficiently. You may need to
create several hundred ledgers (of Sundry Debtors, Sundry Creditors,
Advances, Employees etc.) which may clutter the final accounts.
General Ledger
Tally maintains details of all ledgers as defined by you, it
follows the concept of single ledger systems, which includes Real,
Nominal and Personal Accounts.
Credit Control
You can maintain outstanding reports, get age-wise analysis in
slabs defined by you. You can also get. Credit Limits for each party
ensure that credit is not granted beyond the specified limit.

Accounts Receivables Payables
Tally provides complete bill-wise information of amounts
Receivables from Sundry Debtors as well as Payable to Sundry
Creditors - Party or Groups wise. Tally can track bills, bill history,
payments/receipts and advance as well on account.
Voucher Type and Numbering Scheme
Tally provides 23 pre-defined voucher types that are currently
active for voucher entry, allows to create now voucher. Types based
on system generated voucher types, opt different voucher numbering
scheme for each type. You can set the voucher numbering as per
your need-automatic, manual or none.
Audit Drill down Display
Tally allows users to drill down from any report to lower levels
till the actual voucher that contributed to the Report arid Trace back
the same way. During Display, Tally permits to Modify, Add, Delete,
Cancel a Voucher and any changes made in the voucher is reflected
real time at all.
Date Based Reporting
Tally allows selecting any report for a particular date or date,
range. As you alter the date/date range, on the Tally generates
repeat for the specified period in flash of a second. Reports are
generated on the transaction date instead of the date of entry.
Voucher & Cheque Printing
You can print all vouchers while entering or later. You can print
formal receipt (Money Receipt) and also Cheque.
Columnar Reports
Tally provides columnar reports in Sales, Purchases and
Journals registers as well as Ledgers, Cash/Bank Books. You can
define the column in your own way.
Report Extracts
You can get extracts for Sales or Purchases Registers that gets
the consolidated Figures of all Groups and Ledgers. Helpful for filing
Tax and Duties Returns
Financial Management
Concurrent Open Companies
You can create several, companies at a time so that you can
get any report from one or several companies.
Group Companies
To get consolidated report of a group of companies, you can
place several companies under a Group Co., making it convenient to
get consolidated reports for the Group.
Multiple Currencies
Tally allows you to use multiple currencies, useful for Importers,
Exporters and Multinational companies. You can selectively maintain
individual ledger accounts in the desired currency, define the
symbols, maintain exchange rate with base currency on day to day
basis.
Multi-Columnar Reporting for Comparison
Tally gives you facility to dynamically make columns to view
data of any Company, Group, Period or other parameters. You can
randomly insert, delete or re-organize the columns on-the-fly and go
to any depth of the Report. Coupled with versatile query building
options. You may get virtually any kind of information you need.
Provisional Vouchers
Tally provides 3 voucher options to keep a transaction out of
regular books of Accounts namely Memorandum, Reversing Journal
and any vouchers marked as optional.
Voucher Class
Voucher class may give a lot of convenience to customize your
vouchers, particularly Invoices. You can create several classes of
Invoice like Cash Memo, Export Bill, Credit Bill etc.
Daily Balances and Transactions Value
You can get Daily break-up of transactions, balance, high/low
and average for many reports.
Cash & Fund Flows
Tally provides Cash and Funds Flow statements to track
movement of cash & Funds in the Co.
Interest Computation
Tally provides various methods of Interest Computation. You
can configure the options and get Interest Computation Statement on
Overdue Bills, Loan etc.
Percentage Based Reporting
Tally also provides % based reporting on all financial statements.
Party Payment Performance
Tally tracks payment performance of parties, generates report
where you get to know the average time taken by the debtors to pay
back their debts, calculated in two ways-Receivables formula and
using actual bill clearance dates. .
Budgeting & Control
Tally provides excellent Budgeting option to get goals. You can
compare actual performance with budgeted Figures and also get a
variance report.
Cost Centre & Cost Category
Cost Centers and Cost Categories provide you various means
to allocate the amount for selected ledger accounts, in your own way.
Cost Centers
While Accounts ledger and Groups provides information about
the nature of transaction, it does not identify the departments or
divisions involved with it. Cost centers give additional dimension to
the transaction, Cost Centre may be any unit to which costs can be
allocated e.g. -Branches, Departments, projects, Products, Persons
and so on.
Cost Category
Tally gives substantial flexibility to allocate ledger account
Figures to Cost Centers. However, some organization may need to
allocate. In more than one dimension. If your requirement of
allocation of cost centre is more demanding, then you may use cost
categories. Cost categories allow many parallel sets of cost centers
for allocation.
Working with Tally 5.4
Upon absorbing the basic concepts, it's time that you start
working with Tally.
Starting Tally
You can start/launch Tally in any of the following manner:
1. Double click the Tally icon on desktop.
2. Select Run from Start Menu and enter the command:
Type the drive and path name and then the executable file
name (The EXE file for Tally 5.4 is W'9S Tally).Thus if Tally 5.4 is
installed at C: \ Tally 5.4 folder, enter C: \ Tally 5.4: \ W'9S Tally and
click OK button.
At start Menu, select program @Ta1ly for Win'9S@Tally for
Win'9S. . Explore the Tally Program folder (either through Windows
Explorer or My Computer), double click the program file. (W'9S
Tally). A Tally gets loaded; a splash screen appears, on loading,
Gateway of Tally would appear.
Tally Screen
Tally screen can be divided into following 4 broad parts as
marked


(1) Product Info, (2) Work Area, (3) Button. Bar, (4) Calculator

Software Version. Release
Every time a new release of Tally is made, it is identified with a
different release name. You need, to install new release of the S/W to
up to date.
Single or Multi-User
Displays the capability whether you can work Tally on a single
system or multiple systems simultaneously. (Through Networking).
Tally silver stands for Single User version. You can upgrade from
Tally silver to Tally Gold.
System Day, Date & Time
System Day, Date & Time is appeared in Product info area.
Button Bar
Buttons appearing in the Button bar (at right of the screen)
provide quick access to different options. Buttons on the Button bar is
context sensitive different buttons appear at different screens. When
Co. Info menu appears at Gateway but a Co. has not been selected,
the button bar shows:
Fl: Select Company.
F12: Con Figure When you install Tally for first time,
Fl: Select Company.
Button would remain inactive since no Co. exists for selection.
Once you have created one or more Co., the button would be
activated.
F12: Con Figure allows configuring different options. To launch the
following button instead of clicking the button, you can press hotkeys:
Calculator
By default, calculator remains inactive, While working with
Tally, at any given moment you can either work at work area or with
Calculator. Press Ctr1+N to active, you can enter values and
operators. E.g.- +, -, j-, *, (,), %.
(You can also activate calculator by pressing < Alt > + < C > at any
numeric field.)
Work Area
The work area at Gateway is broadly separated into 2 sections.
The right hand side contains the menu popup. Where you would
select your instructions to Tally and left hand side displays list of
selected companies.
Left Part of Screen
Current Period
Financial Period with which you are working is displayed for
reference. To change the Financial Period press F2: Period button
(or.< Alt > + < F2 > Key).
Current Date
It is not the calendar date but the date you worked last during
the current period. Vouchers will have the same date as of current
date. To change current date, click F2: Date button (or press F2 Key).
List of Selected Companies
Name of all selected (loaded) companies with last date voucher
entry is displayed here. In the Figure ABC ltd. is the active company
which is appearing at top and in bold face. Company creation screen
is divided in two sections. In top section, you enter information related
to the Co. and at bottom section information related to base currency
in which accounts of the Co. would be maintained.
Right Part of the Screen
Gateway of Tally menu
Primary choices of the menu are displayed. The menu options
are dependent on selection/activation of options.
Selection of Menu Options
You can select a menu in either of the following mode:
1. Press the highlighted character. For Ex., to select Create Co.
Press C. This is the fastest way of selection.
2. Move highlight bar on the option with Up/Down arrow key and
press <Enter>.
3. Double click the option.
Company Information Menu
On loading Tally, by default, Company Info menu appear to
select a Co. You wish to work with, if you are installing Tally first time,
select Company option would remain-inactive and by default cursor
would appear on Create Company selection. We should know what
the Term Company means in the context of Tally.
Company
The term Company is a generic term and in context of Tally
stands for any entity for which a separate set of books of accounts is
maintained: It may be Co., Firm, HUF, Individual, NGO etc. For each
entity (Company), you create a profile which is termed as Company in
Tally.
Creation of Company
To create a company, select Create Company option from
Company info menu that brings Company creation screen as show in
Figure' 2.6.
Field Name Particulars
Directory : This option has been added in Tally 5.4. By
default cursor skips this field displaying the
default date drive and path.
Name : Enter Name of the Company. The name you
enter here would appear in List of Companies
for selection of a Co. and in all internal reports.
Information in this field in mandatory and you
cannot leave this field blank.
Mailing Name : By default the name entered in previous field
is carried as in most cases.
Address : Enter address for the Co. On pressing <Enter>
at a line, Tally would prompt another line. To
terminate further entry, press <Enter> on blank
line to move cursor to next field.
Income Tax No : Enter your Company's Income Tax Permanent
Account Number. e.g. ACUPB7330A. This field
is also optional, you can leave it blank by
pressing <Enter>.
Local Sales-Tax No.: Enter your Company's Registration No. with
Sales Tax authorities, you can print in inventory
documents. This field is also optional.
Inter S. S. No.. : If your Company's is registered under central
sales tax also, enter here the Registration
certificate number. This field is optional.
Currency Symbol: Enter here symbol for the currency in which
books of accounts for the company is to be
maintained.
Maintain : Tally Provides option to maintain
(1) Accounts only
(2) Inventory only,
(3) Accounts cum inventory as can be seen in the
pop-up.
If you wish to maintain financial accounts only,
select accounts only from pop-up.
Financial Year From: Enter here beginning date of financial year. If
you follow April- March Financial year, enter 1 st April of the
beginning year i.e. 1-4-2002.
Books beginning from: Enter here the date from which your books
beginning from. Normally books beginning from
and financial year from would be same.
Use Security Control: If you wish to restrict access to Company's data
to authorized users only, respond yes to get
prompts to enter Name of Administration
Password & Confirm the same at next prompt.

The next Section deals with the Currency, which becomes base
currency for the Co.
Base Currency Symbol
The currency symbol entered in top section is displayed here
for Information which is treated as Base Currency by Tally. Enter here
the formal name for the currency. Example: Indian Rupees. Enter
here the number of decimal places for the currency. Tally uses 2
formats to show large amount separated by separators (normally a
comma - you can. customize it) for better readability. To get large
amount formatted in Million, respond Yes. In many currencies first
symbol appear than the amount, e.g. Rupees where symbol is pre-fix
to amount Rs. 1000. If you prefer amounts like Rs.I000, respond no.
If you prefer amounts like Rs. 1000, -respond Yes;
On completing the information, Tally seeks your confirmation to
save the Company's profile by asking accepts? Yes or No.
If you find everything in order, click Yes (or press Y) that would
save the information and create necessary' folder & data files for the
company.
In case you wish to alter any information in the screen, Click No
(or press N) that would move cursor to the Name field, you can press
<enter> or <tab> to move to the desired field, alternatively click the
data field you wish to modify upon modification, press ctrl+A to save
the information to create a company.

1: Period: To change/financial period, enter from & to
for the accounting period which can span
to any period. .
2: Company: To make any other company as active
Company (from the list of selected companies).
3: Create Company: To bring up company info menu which allows to
select, 'shut, create or alter companies, group
company as shown in Figure.
Data Folder.
As you create a new company, Tally assigns a 4-digit numeric
number for the company (starting from 0001) and creates a folder by
same name under which data files for the company is created. Tally
will assign next number to another created company.
When you create a. new company to maintain accounts only.
Tally creates following files under the folder named after the
company.
Gateway of Tally



Classification of Accounts
Groups of Accounts
All accounting heads are broadly classified into 4 entitles,
liabilities Assets, Income & Expenditure. The accounting groups are
sub-classification of these four entitles, they will fall under any of
them.
In manual accounting, accounts (ledger) are grouped upon
preparation of Trial Balance to prepare Final Accounts, namely Profit
& Loss AI c & Balance Sheet, so you don't get final Accounts until
Trial Balance is prepared. In Tally at the time of creation of Ledger
Accounts, you place it under appropriate Account Group. Accounts
Groups provide you the ability to classify your accounts. To get all the
reports instantly & properly classified.
Tally allows a flexible pattern of Group & Subgroups and
number of Ledger Accounts that can be placed under any group.
The hierarchical Structure of Accounts Groups & Ledger
Accounts are given in example below:
Expenditure Account
Establishment Expenses
Salaries & W ages
Salaries
Managerial Salary
Technical Staff of Salary
Wages
Permanent Workers Wages
Time Rated Workers wages
Piece Rated Workers wages
Temporary Workers wages
Apprentice wages
Bonus
Statutory Bonus

Ex Gratia
Incentive
Production Incentive
Attendance Incentive
Administrative Expenses
In the above example, while you get total of Expenditure
Accounts, you also break-up into establishment expenses &
Administrative expenses again split into various sub-groups &
ledgers.
Accounts Groups
Tally automatically creates a set of pre-defined accounts
groups called reserved groups (which cannot be deleted or altered -
except the name) for each company while creating a company to
maintain consistency and integrity based on mercantile accounting
systems representing Assets, Liabilities, Income & Expenditure.
Some of the Reserved Groups are Primary while some are sub-
groups to the primary groups.
Reserved Group that goes into Balance Sheet
Liabilities Side:
Capital Account
Reserve & Surplus (Retained Earnings)
Loans (Liabilities) .
Bank % Accounts/Bank Occ Accounts.
Secured Loans. Unsecured Loans
Current Liabilities
Duties & Taxes Provisions
Sundry Creditors
Assets Side
Fixed Assets (Plant, Machineries, Vehicles etc.)
Investments
Current Assets
Bank Accounts Cash-in-hand
Deposits (Assets)
Loans & Advances (Assets) Stock-in-Trade
Sundry Debtors
Branch / Divisions
Misc. Expenses (Assets) Suspense Account
Reserved Groups that goes into Profit Loss Account:
Income Side
Sales Accounts
Direct Income (Income Direct)
Indirect Income (Income Indirect)
Expenses Side
Purchase Account
Direct Expenses (Expenses Direct)
Indirect Expenses (Expenses Indirect)
These grownups and sub-ledgers can be explained. According
to their nature.
Explanations
Capital Account: This is a primary group that contains the Capital &
Reserves & Surplus of the company.
Capital: Capital accounts may be directly placed under capital group
or a sub-group may be created for them.
Reserve & Surplus: The Group Reserves & Surplus. is a subgroup
to Capital A/c. All reserve accounts such as General Reserve, Capital
Reserve, Share Premium Account etc. are placed under this group.
(Applicable for companies limited by shares).
Loans (Liabilities): All loans taken should be placed here.
Bank OlD/Bank Acc: Normally a business house has two types of
Bank A/Cs: Current A/Cs & Bank Loan A/c. While Current A/c should
place under Current Assets, and the Bank O/D/Occ A/ c should place
here as loan (liabilities).
Secured Loans: Term loans and other Medium/ Long Tern1 Loans
should be put under Secured loans. Loans taken From Banks, Other
Financial Organization etc.
Unsecured Loans: All unsecured loans e.g. loans from friends 6e
relatives should come under the sub-group.
Current Liabilities: This group normally constitutes a large number
of ledger accounts and sub-groups. This primary group has further
been sub-divided into 3 reserved sub-groups.
Duties & Taxes.
Provisions
Sundry Creditors
Duties & Taxes: This is for all excise, sales & other trade taxes.
This head normally constitutes all the duties & taxes that you
collect or pay through Sales & Purchases transactions and the
balance will appear in Balance Sheet.
Provisions: It is a place for all provisions e.g. Income Tax, Provision
for Bad Debts, outstanding expenses etc.
Sundry Creditors: All Trade Creditors/Suppliers of the Company
placed here.
Current Liabilities: All such liability accounts which are not
candidates of any the above-3 sub-groups can be placed either
directly under current liabilities group or under self created sub-
groups.
Fixed Assets: This constitutes all the fixed Assets, Immovable
Properties, Patents, Trade Copyrights, Good will etc. Create separate
sub-groups for work-in-progress for capital projects etc. under this
group.
Investments: Place here accounts related to investments in shares,
bonds, Govt. securities & investments in other organizations.
Current Assets: It constitutes of 6 sub groups as given in format
earlier.
Stock-in-hand: It's a special group and needs careful study &
understanding as it is differently treated than normal ledger account.
This group is not permitted any transaction. The opening balance of
these accounts gives the opening stock of the company while the
closing balance gives the closing stock. The closing Balance under
these accounts appear in P/L A/c & B/S.
Deposits: Place all fixed deposits, security deposits, rental deposits,
recurring deposits etc.
Loans and Advances: Place an advances of non-trading nature e.g.
advance to suppliers, advance to employees, work-contractor etc.
Sundry Debtors: Place all the parties accounts (customers) (even if
opening balance is credit). For recording transactions, the system
makes inter changeable at any time allowing you to make purchase &
sales transactions through same account.
Cash-in-hand: A cash ledger account is created by the system itself
and placed under this group. You can open no. of additional cash
accounts or place sub-groups under this.
Bank Accounts: All the Banks Accounts like Current Accounts,
Saving Account and other Bank Accounts (except Cash Credit or 0/
D) should be placed here.
Branch/Division: This group may be used for convenience by multi-
branch companies for inter-branch reconciliation and consolidation.
Create ledger for all branches.
Misc. Expenses (Assets): A rarely used group, Expenses that have
been capitalized as per the schedule VI of companies Act.
Suspense Account: This is a primary Group that appears in B / s. If
you create any suspense ledger to record temporarily nature
transactions which is unknown.
Now we discuss Groups of Revenue nature Sales.
This is a primary group; all sets of sales should constitute this
groups. You may have multiple sales accounts for sales according to:
Product lines
Geographical Area
Nature i.e. cash, credit, etc.
Sales tax nature.
Purchases: Similarly, all sorts of trade Purchases should constitute
this group. You may have multiple purchasers account per purchases
according to:
Product lines
Nature
Sales tax nature.
Direct Income: This primary group is the place to hold all such
ledger accounts for income which will be considered for computation
of gross profit.
Indirect Income: Normally; all non-major revenues like receipts on
account of Rent, interest Commission, Dividend etc. should be placed
here. These are not considered for computation of gross profit but are
considered for computation of Net Profit only.
Direct Expenses: This primary group holds all ledger accounts of
direct expenses. In case of traders, normally, carriage inwards should
be placed under this group.
All expenses which are considered. For computing Gross profitless
are to be placed here.
Indirect Expenses: All expenses considered for computation of Net
Profit/ Loss only should be place here. For ex, Depreciation A/C falls
under this group Apart from the above pre-defined reserved groups,
you can create new groups that may be primary or sub-groups to any
existing group sub-groups.
Ledger Accounts
Tally automatically creates two ledger accounts.
1. Cash (under cash-in-hand group). 2. Profit & Loss Account (Direct
Primary Account)
Apart from these ledgers, you have to' create all other ledgers
accounts and place them under: proper groups as explained above
under accounts groups.
Note:
The Profit & Loss Ledger A/c can be transacted through journal
voucher only. You should never make a journal entry to adjust the
Revenue Accounts with Profit and Loss Aj c. The system.
automatically computes Net Profit Loss and reflects it into this
account without any action from you. This is one of the 2 accounts
which is reflected in both Primary, Secondary Aj c and Balance Sheet
(other is stock in-hand).
Creation of New Individuals Ledgers
You can create new ledgers also.
Field Name Particulars
Name: Enter name of the Ledgers. This is mandatory.
Tally will not accept name similar to an existing
ledger.
Alias: You can enter Alias for any ledger. To
terminate further entry for Alias, press <enter>
on a blank line to move to the next field.
Under: Select the parent group for the ledger from list
of groups. You can also create new groups if
group is non-existent.
Opening Balance: Enter opening balance as at the date of Books
beginning from. When you enter amount, also
enter the sign. D(for Dr.), C (For Cr.). However
the opening balance may be having NIL
balance then press enter to move to the next
field.
On pressing Enter 'at the sign field, accept Yes or No is asked,
respond Yes to accept the new ledger to save.
Select create from single ledger or option to create A/c ledgers
individually. Ledger creation entry screen would appear to create a
new ledger A/c.