Introduction In Tally, journal entries are made in the vouchers. For each type of journal entry, there is a specific voucher. It is the vouchers where the transactions are recorded along with all the relevant details. Hence, when we speak of journal entries in tally, it is the vouchers which we haveRead more
Introduction
In Tally, journal entries are made in the vouchers. For each type of journal entry, there is a specific voucher. It is the vouchers where the transactions are recorded along with all the relevant details. Hence, when we speak of journal entries in tally, it is the vouchers which we have to master.
In Tally, vouchers are of four types:
Accounting vouchers
Inventory vouchers
Order voucher
Payroll voucher
The vouchers under the above voucher types are as shown below:
To open the voucher creation menu follow these steps:
In Tally ERP 9: Gateway of Tally→ Accounting Vouchers→ Voucher creation menu will open
In Tally Prime: Gateway of Tally→ Vouchers→ Voucher creation menu will open
Out of the above vouchers, the vouchers which I would suggest you practice are as follows (along with their short-cut keys):
Contra Voucher – F4
Payment Voucher – F5
Receipt Voucher – F6
Journal Voucher – F7
Sales Voucher – F8
Purchase Voucher – F9
Credit note – Alt + F6
Debit note – Alt + F5
All of the above are accounting vouchers. You can simply press the short-cut keys to open the respective voucher while in the voucher creation menu
If you are new to tally, I would suggest you practice only the accounting vouchers.
Here, I have discussed only the accounting vouchers:
Payment Voucher – F5
A payment voucher is used to record payments of cash or by the bank. Payment can be to creditors or for expenses.
There are two modes to this voucher which you can change by clicking the ‘Change Mode’ option on the right-hand side menu or simply pressing Ctrl + H. This menu will open.
Select the ‘Double Entry’ mode for sake of simplicity. In this mode, the entry will be just like the conventional journal entry as in the double entry system of accounting.
You have to just select the account you want debit which can be an expense, creditor etc. and you can credit only the cash or bank accounts as it is a payment voucher. Below there is a narration field which you can fill too. After entering all the necessary details you have to accept the voucher.
Here, is a filled payment voucher in which I have recorded an expense payment entry.
The journal entries which you can practice on payment vouchers are as follows:
Payment of expenses like rent, electricity, wages, salaries, carriage, interest etc
Payment to trade creditors.
Purchase of Assets
Receipt Voucher – F6
A receipt voucher is used for the recorded receipt of cash in the business. Just like a payment voucher, I recommend you to use it in Double Entry mode. In Tally prime, it looks this:
The receipt voucher given above is already filled. I have passed a ‘collection from the debtor’ entry here.
The journal entries you can practice in the receipt voucher are as follows:
Receipt of cash from trade debtors.
Receipt of interest from the bank.
Commission received
Sale of Assets.
Purchase Voucher – F7
A purchase voucher is a voucher for exclusively recording purchase of goods entries. Purchase whether cash or credit should be recorded in the purchase voucher only as it allows recording of additional details related to purchase as well as tracking with purchase order and receipt note.
The purchase voucher looks like this:
Here, the purchase voucher is opened in ‘Item invoice’ mode. Item invoice is easier to understand hence I advise you to this mode to use the purchase voucher. You can change the mode by pressing Ctrl + H.
If you wish to record transactions like journal entries then you can choose the ‘As Voucher’ mode.
The details which you have to fill in are as follows:
Reference number or Bill number
Party A/c Name or the name of the creditor. (If the creditor is not created, press Alt + C to create)
Name of item purchased ( Press Alt + C to create the stock item if not created)
Enter the quantity and rate of the item and the total amount will be auto-populated.
The accounting details menu will open asking for the account to be debited for the purchase. Select the purchase account you want to debit or create a purchase account by pressing Alt + C if not created.
Enter a narration if you want and accept the voucher.
Below is a complete purchase voucher where a credit sale transaction is passed:
Sales Voucher – F8
A sales voucher is a voucher for exclusively recording sales of goods entries. Sales, whether cash or credit, should be recorded in the sales voucher only as it allows recording of additional details related to sales as well as tracking with Sales orders and Delivery notes.
Here also, I recommend you to use the sales voucher in Invoice mode
Filling up of details in sales voucher is same as in purchase voucher. The difference here is that in the ‘Accounting details’ section you have selected a sales account to be credited.
Here is a completed sales voucher where I have recorded a credit sale transaction:
Contra Voucher – F4
A Contra voucher is used to record contra transactions. Contra transactions are those transactions which take place between:
A Bank account and cash account
Two different bank accounts
The journal entries which can be practised on contra voucher are as follows:
Withdrawal of cash from the bank.
Deposit from cash into the bank.
Transfer of amount from one bank to another.
Given below is a completed Contra voucher in which ‘cash deposited into bank’ transaction is recorded:
Journal Voucher – F7
There are many transactions which cannot be passed in any of the vouchers discussed above. The examples of such transactions or journal entries are as follows:
Depreciation of assets
Entries related to the provision
Prepaid Expenses
Outstanding expenses
Rectification of error entries
Accrued income entries
Any other entry which cannot be passed in any other voucher.
It is an important voucher in Tally as many crucial entries are recorded in it. The journal voucher looks like this:
It looks like a journal book and it does not have any different mode like voucher discussed above:
The journal entries to practice on journal vouchers are many. You can refer to the examples of transactions I have mentioned above.
Debit Note Voucher – Alt + F5
A debit note voucher is to record purchase return transactions in Tally. Hence, the only transaction you can record here is of purchase return. The debit note voucher looks like this:
Credit Note Voucher– Alt + F5
In credit note vouchers, the sale return transactions are recorded. The credit note voucher looks like this:
That’s all. These are vouchers I would recommend one to practice on Tally.
Introduction Working capital refers to the capital which is required by an enterprise to smoothly run its daily operations. It is the measure of the short-term liquidity of a business. Working capital is the total of the current assets of a business, net of its current liabilities. Working capitalRead more
Introduction
Working capital refers to the capital which is required by an enterprise to smoothly run its daily operations.
It is the measure of the short-term liquidity of a business.
Working capital is the total of the current assets of a business, net of its current liabilities.
Working capital = Current Assets – Current Liabilities
The working capital consists of cash, accounts receivable and inventory of raw materials and finished goods fewer accounts payable and other short-term liabilities.
Without a proper level of working capital, a business cannot maintain regular production and pay its creditors and expenses.
Hence, for proper management of working capital, it is divided into types:
Permanent working capital
Temporary working capital
I have discussed them below:
Permanent Working Capital
It is the fixed level or minimum level of working capital that an enterprise needs to maintain to ensure production at the normal capacity and pay for its daily expenses. It is independent of the level of production.
It is also known as fixed working capital.
By ‘permanent’, it does not mean that it will forever remain at the same level or amount but it may change if the overall production capacity changes. But such changes in permanent working capital are not often.
Temporary Working Capital
It is the level of working capital that depends upon the level of production of a business. It is the excess working capital over the permanent capital that is required to meet seasonal high demand.
It is also known as fluctuating working capital because it tends to change often depending on the level of production.
Temporary working capital is required when high production is required to meet seasonal demands.
For example, a bakery will need more working capital to meet the increased demand for cakes and pastry during Christmas season
Graph showing permanent and temporary working capital
Here, the temporary working capital is fluctuating whereas the permanent working capital is gradually increasing with time.
Introduction The term 'gain ratio' is related to partnership accounting. Gain ratio refers to the ratio in which existing partners of a partnership firm, divide among themselves, the share of profit and loss of the outgoing partners. There is a method of calculating this gain ratio. The method alongRead more
Introduction
The term ‘gain ratio’ is related to partnership accounting. Gain ratio refers to the ratio in which existing partners of a partnership firm, divide among themselves, the share of profit and loss of the outgoing partners.
There is a method of calculating this gain ratio. The method along with the concept behind gain ration is discussed below.
Concept behind gain ratio
A partnership firm is a form of business organisation which is conducted and carried on by members known as partners. It requires at least two partners to start a firm and the maximum limit is 50.
The partners share the profit and loss of a business in a ratio known as Profit and loss sharing ratio.
For example, Amanda, Bill and Chang are partners, having a P/L sharing ratio of 3:2:1 i.e. Amanda is getting 3/6, Bill is getting 2/6 of the same and Chang is getting ⅓ of the profit and loss
If the profit is $6,000 , then Amanda will get $3,000 (3/6 of $6,000) and Bill will get $2,000 (2/6 of $6,000) and Chang will get $1,000 (1/6 of $6,000).
Now if Amanda retires from the firm, then naturally, Bill and Chang’s share of profit will increase.
The profit and loss sharing ratio will now be 2:1 (earlier it was 3:2:1) and the share of profit of Bill will be $4,000 and of Chang will be $2,000.
Calculation of gain ratio
The formula for calculating gain ratio = New ratio – Old Ratio
As per the above case:
Gain ratio of Bill = 2/3 – 2/6 = 2/6
Gain ratio of Chang = 1/3 – 1/6 = 1/6
Therefore the gain ratio in which Bill and Chang gained the share of profit of Amanda is 2/6 : 1/6 or simply 2:1
This is how we can calculate the gain ratio. But one thing to notice is that the gain ratio is equal to the P/L sharing ratio of the partnership between Bill and Chang.
Hence, whenever a partner retires and the existing partner keep the P/L sharing ratio unchanged among themselves then, the gain ratio will be equal to their P/L sharing ratio. In that case, there is no need to calculate the gain ratio from the formula given above.
But, when the remaining partners change the P/L sharing ratio among themselves after a partner retires, then the gain ratio is to be calculated using the formula given above.
Suppose, upon retirement of Amanda, Bill and Chang change the P/L sharing between them to from 2:1 to 3:2
In that case,
The gain ratio of Bill = 3/5 – 2/6 = 8/30
The gain ratio of Chang = 2/5 – 1/6 = 7/30
Therefore the gain ratio in which Bill and Chang will gain the share of profit of Amanda is 8/30 : 7/30 or simply 8:7
The accounting equation for a non-profit organisation is almost the same as in the case of the profit-oriented organisation. Let's first briefly understand what accounting equation and non-profit organisation are: Accounting Equation Accounting equation is an equation that depicts the relationship bRead more
The accounting equation for a non-profit organisation is almost the same as in the case of the profit-oriented organisation. Let’s first briefly understand what accounting equation and non-profit organisation are:
Accounting Equation
Accounting equation is an equation that depicts the relationship between assets, liabilities and capital of an entity.
Assets = Liabilities + Capital
As per this equation, the total assets of an entity are equal to the sum of its total liabilities and total capital. This equation holds good in every situation.
Non-Profit Organisation
A Non-Profit Organisation is an entity which exists for purposes other than for profit. Such organizations exist and operate for charitable purposes, promotion of culture and sports and welfare of society. The accounting for Non-profit organisation is slightly different from For-profit organisations. In the case of a non-profit organisation, the capital account is known as the capital fund.
Accounting Equation for non-profit organisations
The Accounting equation for a non-profit organisation is as follows:
Assets = Liabilities + Capital fund.
The difference is only in name. In the case of non-profit organizations, the capital is known as a capital fund. Rest everything is the same. The accounting equation will be prepared as normally prepared for business concerns.
Changing a Ledger name in Tally is an easy process. The requirement of changing the name of a ledger may arise in three situations: Situation 1: When we need to change a ledger's name, right after its creation while being in the ledger creation menu Situation 2: When we realize the need to change aRead more
Changing a Ledger name in Tally is an easy process. The requirement of changing the name of a ledger may arise in three situations:
Situation 1: When we need to change a ledger’s name, right after its creation while being in the ledger creation menu
Situation 2: When we realize the need to change a ledger’s name during passing an entry in any voucher.
Situation 3: Other situations where we are not on the Voucher Creation window or ledger creation window.
In Tally, there are plenty of shortcut keys that can ease the way we work on it. My methods will be based on such shortcuts on Tally ERP 9.0.
Situation 1
Often just after ledger creation, we realize that we have made mistake in entering the name of the ledger.
Many opt to choose this long path to alter the ledger’s name.
Exiting Voucher creation menu → Gateway of Tally menu → Accounts Info → Ledger option → Alter option → Select the ledger → Ledger alteration window opens.
Instead of it, you can choose to use Page Up key while on the ledger creation window. Press the Page-up key till you reach that ledger. Then you can edit its name or any other details.
Pressing the page up key automatically opens the ledger alteration mode and lets the user scroll through the ledgers available.
The ledger alteration window looks like this:
Situation 2
Sometimes, while performing entries into vouchers, we feel the need to alter a ledger’s name.
This can be done by pressing Ctrl + Enter key with the cursor on the ledger’s name in the voucher creation menu.
On pressing Ctrl + Enter Key, the ledger alteration window will open, from where the user can alter the ledger name or any other details.
Situation 3
When the user is not either on the voucher creation menu or on the ledger creation menu, then the ledger’s name has to be altered by going through the following steps:
Gateway of Tally menu → Accounts Info → Ledger option → Alter option → Select the required ledger → ledger alteration window opens.
That’s it. These are different approaches to changing a ledger’s name.
One thing that is common among all approaches is the opening of the Ledger alteration window at the end. Hence, it is only through the Ledger alteration window we can change a ledger’s details including its name.
In Tally, it is possible to record credit sales entry in the following accounting vouchers: Sales Voucher Journal Voucher Generally, sale entries whether credit sales or cash sales are recorded in the Sales vouchers. Also, I strongly recommend you to record sales entries in the Sales voucher only aRead more
In Tally, it is possible to record credit sales entry in the following accounting vouchers:
Sales Voucher
Journal Voucher
Generally, sale entries whether credit sales or cash sales are recorded in the Sales vouchers. Also, I strongly recommend you to record sales entries in the Sales voucher only as it can record various aspects related to credit sales like the sales order number, delivery note number, particulars of creditor and much more.
In this answer, I have shown the steps to record a credit sales entry into the Sale voucher. My answer is based on Tally Prime, the latest version of Tally. If you are using Tally ERP 9, there will be only a few areas of differences which are not that significant.
Steps to record credit sales in Sales voucher
To record credit sales entry, you have to first open the Sales voucher creation window. To open the Sales creation window, the steps are as follows:
Gateway of Tally → Voucher → Press F8
The Sales voucher creation window will open and will look like this:
Now, there are three modes to the sales voucher which you can be accessed and changed from the ‘Change mode’ option in the right-hand side menu or by simply pressing Ctrl + H. Upon pressing Ctrl + H, the Change mode option will open.
I will recommend you to use ‘Item Invoice’ mode. It looks like an invoice and it is easier to use and understand. The image of the sale voucher given is in the item invoice only.
Now to have to fill in the following details:
Reference number of the sale entry if there is any
Select the Party name or the name of the debtor (Press ALT + C if you want to create a new debtor)
The dispatch details menu will open. Enter the details if you want otherwise leave them blank.
The party details menu will open asking again for the party name and party’s other details.
Select the name of the item to be sold (Create stock item if not created before by pressing Alt + C when in Name of Item field)
Enter the quantity and rate of the item and the total amount will be auto-populated.
After it, the accounting details menu will open where you have selected the sales account you want to credit. If a sales account is not created, press ALT + C to create it.
Enter narration if you desire and finally accept the voucher.
This is a completed sales voucher:
Hence, this is how you have recorded a credit sales entry in the sales voucher.
Meaning of lease A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments. There are two parties in a lease agreRead more
Meaning of lease
A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments.
There are two parties in a lease agreement:
Lessor: The party who gives the right to use its asset in return for a series of payments or a single payment.
Lessee: The party who receives the right to use the asset from the Lessor.
This is similar to a rent agreement or contract. The only difference between lease and rent is duration. A rent agreement is generally for less than 12 months while a lease agreement is for more than 12 months like 5 years or 10 years, sometimes even for like 99years.
Type of lease
There are two types of lease:
Operating lease
Finance Lease
Operating lease
An operating lease is a type of lease in which the possession of the leased asset is transferred back from the lessee to the lessor at the end of the lease period.
Here, all the risk and rewards incident to ownership remains with the lessor, not the lessee.
The depreciation on the leased asset in case of operating lease is not charged by the lessee to its profit and loss account as the leased asset is not shown in the balance sheet. A leased asset is an off-balance sheet item in the case of an operating lease.
Finance lease
Unlike an operating lease, the ownership of the leased asset is transferred to the lessee at the end of the leased period.
Thus, at the inception of the lease agreement, all the risk and rewards incident to ownership is transferred from the lessor to the lessee.
The depreciation on the leased asset is charged by the lessee to its profit and loss account as the leased asset is shown in the balance sheet. A leased asset is a balance sheet item in the case of an operating lease.
Along with the leased asset, the obligation to pay the future lease payment is also shown in the balance sheet as a non-current liability or current liability as the case may be.
Difference between operating lease and finance lease in tabular format
Introduction Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged. Excise duty is charged when any specified good is manRead more
Introduction
Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged.
Excise duty is charged when any specified good is manufactured, GST is charged when any good or service is supplied.
Definition of Supply
The concept of supply is of great significance to the GST architecture. It can be called the ‘bones to the body of GST’.
Section 7 of the CGST defines ‘supply’.
At first, I have provided the whole Section 7 which consists of four sub-sections:
7(1)
7(1A)
7(2)
7(3).
Thereafter will be the explanation of each sub-section in simple language.
Section 7
Section 7(1) of the CGST Act, 2017 defines ‘supply’. As per section 7(1) of the CGST Act, 2017, the supply includes:
All forms of supply of goods and services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made for a consideration by a person in the course or furtherance of business
Importation of service, for a consideration whether or not in the course or furtherance of business and
The activities specified in Schedule I, made or agreed to be made with or without consideration.
Section 7(1A) states, ‘where certain activities or transaction constitute as supply in accordance of with the provisions of sub-section (1), they shall be treated either as a supply of good or supply of services as referred to Schedule II.
Section 7(2) states, ‘notwithstanding with anything contained in sub-section (1).
Activities and transactions stated specified in Schedule III or
Such activities and transactions undertaken by the Central government, state government or local authority in which they are engaged as public authorities, as may be notified by the government on the recommendation of the Council
shall not be treated neither as a supply of goods nor a supply of services.
Section 7(3) states ‘subject to sub-section (1), (1A) and (2), the government may, on the recommendation of the council specify, by the notification, the transaction that is treated as :
a supply of goods and not as a supply of services
a supply of services and not as a supply of goods.
Explanation of Section 7 in simple terms.
Section 7(1) (a) sets three parameters of an activity or transaction to be a supply.
Supply should be only of goods and services. Supply of anything other than goods or services like money, securities do not attract GST.
Supply should be made for a consideration
Supply should be made in the course or furtherance of business
Any activity or transaction will be treated as a supply if the above parameters are fulfilled as per sub-section (1) clause (a).
Section 7(1)(b) is actually an exception to the 3rd parameter of supply. Import of service for a consideration will be considered a supply even if it is not made in furtherance of business,
Section 7(1)(c) states that item in the schedule I will be treated as supply whether there is consideration or not. This is an exception to the 2nd parameter.
Section 7(1A) states any activity which is a supply as per sub-section (1), shall be classified either as a supply of goods or as a supply of service as per schedule II. There are many activities and transactions which have the characteristics of both goods and services.
For example, dining in a restaurant. Schedule II helps to eliminate this confusion and helps to classify such activities or transactions as either supply of goods or supply of services. As per Schedule II, dining or take-away from a restaurant is a supply of service.
Section 7(2) states the activities which are neither supply of goods nor neither of services even if they fulfilled the condition of the sub-section (1).
Section 7(3) says that the central government have the power to notify transactions that are to be treated as supply of goods nor as a supply of service or supply of services not as a supply of services
Introduction A capital reduction account is an account used to pass entries related to the internal reconstruction of a company. During reconstruction, paid-up capital reduced is credited to this account; hence its name is capital reduction account. It is also known as the reconstruction account. TyRead more
Introduction
A capital reduction account is an account used to pass entries related to the internal reconstruction of a company. During reconstruction, paid-up capital reduced is credited to this account; hence its name is capital reduction account. It is also known as the reconstruction account.
Type of account
A capital reduction account is a temporary account open just to carry out internal reconstruction. It represents the sacrifices made by the shareholders, debenture holders and creditors. Also, any appreciation in the value of assets is credited to this account. It is closed to capital reduction when internal reconstruction is completed.
Entries passed through capital reduction account
When paid-up capital is cancelled.
When paid-up capital is cancelled, the share capital account is debited and the capital reduction account is debited as share capital is getting reduced.
Share Capital A/c
Dr.
Amt
To Capital Reduction A/c
Cr.
Amt
When assets and liabilities are revalued
At the time of internal reconstruction, the gain or loss on revaluation is transferred to the capital reduction account instead of the revaluation reserve.
Writing off of accumulated losses and intangible assets
The credit balance of the capital reduction account is used to write off the accumulated losses and intangible assets like goodwill, patents etc which are unrepresented by capital. The capital reduction account is debited and profit and loss account and intangible assets accounts are credited.
Capital Reduction A/c
Dr.
Amt
To Profit and loss A/c
Cr.
Amt
To Goodwill/ Patents A/c
Cr.
Amt
Treatment in books of account
The balance in the capital reduction account, whether debit or credit, it is transferred to the capital reduction account. Hence, it doesn’t appear on the balance sheet.
Introduction Internal reconstruction refers to the process of restructuring a sick company’s balance sheet by certain methods to turn it financially healthy, thus saving it from potential liquidation. Explanation When a company has been making losses for many years, it has a huge amount of accumulatRead more
Introduction
Internal reconstruction refers to the process of restructuring a sick company’s balance sheet by certain methods to turn it financially healthy, thus saving it from potential liquidation.
Explanation
When a company has been making losses for many years, it has a huge amount of accumulated losses due to which the reserve and surplus appear at a very low or negative amount in the balance sheet.
Also, such a company is said to be overcapitalised as it is not able to generate enough returns to its capital.
As the company is overcapitalised, the assets are also overvalued. The balance sheet also contains many fictitious assets and unrepresented intangible assets.
The balance sheet of such a ‘sick’ company looks like the following:
Hence, to save the company from liquidation,
its assets and liabilities are revalued and reassessed,
its capital is reduced by paying off part of paid-up capital to shareholders or cancelling the paid-up capital.
the right of shareholders related to preference dividends is altered,
agreements are made with creditors to reduce their claims and
fictitious assets and accumulated losses are written off.
In this way, its balance sheet gets rid of all undesirable elements and the company gets a new life without being liquidated. This process is known as internal reconstruction.
Legal compliance
The internal reconstruction of a company is governed by the provisions of the Companies Act, 2013.
Can you share journal entries for tally practice?
Introduction In Tally, journal entries are made in the vouchers. For each type of journal entry, there is a specific voucher. It is the vouchers where the transactions are recorded along with all the relevant details. Hence, when we speak of journal entries in tally, it is the vouchers which we haveRead more
Introduction
In Tally, journal entries are made in the vouchers. For each type of journal entry, there is a specific voucher. It is the vouchers where the transactions are recorded along with all the relevant details. Hence, when we speak of journal entries in tally, it is the vouchers which we have to master.
In Tally, vouchers are of four types:
The vouchers under the above voucher types are as shown below:
To open the voucher creation menu follow these steps:
In Tally ERP 9: Gateway of Tally→ Accounting Vouchers→ Voucher creation menu will open
In Tally Prime: Gateway of Tally→ Vouchers→ Voucher creation menu will open
Out of the above vouchers, the vouchers which I would suggest you practice are as follows (along with their short-cut keys):
All of the above are accounting vouchers. You can simply press the short-cut keys to open the respective voucher while in the voucher creation menu
If you are new to tally, I would suggest you practice only the accounting vouchers.
Here, I have discussed only the accounting vouchers:
Payment Voucher – F5
A payment voucher is used to record payments of cash or by the bank. Payment can be to creditors or for expenses.
There are two modes to this voucher which you can change by clicking the ‘Change Mode’ option on the right-hand side menu or simply pressing Ctrl + H. This menu will open.
Select the ‘Double Entry’ mode for sake of simplicity. In this mode, the entry will be just like the conventional journal entry as in the double entry system of accounting.
You have to just select the account you want debit which can be an expense, creditor etc. and you can credit only the cash or bank accounts as it is a payment voucher. Below there is a narration field which you can fill too. After entering all the necessary details you have to accept the voucher.
Here, is a filled payment voucher in which I have recorded an expense payment entry.
The journal entries which you can practice on payment vouchers are as follows:
Receipt Voucher – F6
A receipt voucher is used for the recorded receipt of cash in the business. Just like a payment voucher, I recommend you to use it in Double Entry mode. In Tally prime, it looks this:
The receipt voucher given above is already filled. I have passed a ‘collection from the debtor’ entry here.
The journal entries you can practice in the receipt voucher are as follows:
Purchase Voucher – F7
A purchase voucher is a voucher for exclusively recording purchase of goods entries. Purchase whether cash or credit should be recorded in the purchase voucher only as it allows recording of additional details related to purchase as well as tracking with purchase order and receipt note.
The purchase voucher looks like this:
Here, the purchase voucher is opened in ‘Item invoice’ mode. Item invoice is easier to understand hence I advise you to this mode to use the purchase voucher. You can change the mode by pressing Ctrl + H.
If you wish to record transactions like journal entries then you can choose the ‘As Voucher’ mode.
The details which you have to fill in are as follows:
Below is a complete purchase voucher where a credit sale transaction is passed:
Sales Voucher – F8
A sales voucher is a voucher for exclusively recording sales of goods entries. Sales, whether cash or credit, should be recorded in the sales voucher only as it allows recording of additional details related to sales as well as tracking with Sales orders and Delivery notes.
Here also, I recommend you to use the sales voucher in Invoice mode
Filling up of details in sales voucher is same as in purchase voucher. The difference here is that in the ‘Accounting details’ section you have selected a sales account to be credited.
Here is a completed sales voucher where I have recorded a credit sale transaction:
Contra Voucher – F4
A Contra voucher is used to record contra transactions. Contra transactions are those transactions which take place between:
The journal entries which can be practised on contra voucher are as follows:
Given below is a completed Contra voucher in which ‘cash deposited into bank’ transaction is recorded:
Journal Voucher – F7
There are many transactions which cannot be passed in any of the vouchers discussed above. The examples of such transactions or journal entries are as follows:
It is an important voucher in Tally as many crucial entries are recorded in it.
The journal voucher looks like this:
It looks like a journal book and it does not have any different mode like voucher discussed above:
The journal entries to practice on journal vouchers are many. You can refer to the examples of transactions I have mentioned above.
Debit Note Voucher – Alt + F5
A debit note voucher is to record purchase return transactions in Tally. Hence, the only transaction you can record here is of purchase return. The debit note voucher looks like this:
Credit Note Voucher– Alt + F5
In credit note vouchers, the sale return transactions are recorded. The credit note voucher looks like this:
That’s all. These are vouchers I would recommend one to practice on Tally.
See lessWhat is permanent working capital and temporary working capital?
Introduction Working capital refers to the capital which is required by an enterprise to smoothly run its daily operations. It is the measure of the short-term liquidity of a business. Working capital is the total of the current assets of a business, net of its current liabilities. Working capitalRead more
Introduction
Working capital refers to the capital which is required by an enterprise to smoothly run its daily operations.
It is the measure of the short-term liquidity of a business.
Working capital is the total of the current assets of a business, net of its current liabilities.
Working capital = Current Assets – Current Liabilities
The working capital consists of cash, accounts receivable and inventory of raw materials and finished goods fewer accounts payable and other short-term liabilities.
Without a proper level of working capital, a business cannot maintain regular production and pay its creditors and expenses.
Hence, for proper management of working capital, it is divided into types:
I have discussed them below:
Permanent Working Capital
It is the fixed level or minimum level of working capital that an enterprise needs to maintain to ensure production at the normal capacity and pay for its daily expenses. It is independent of the level of production.
It is also known as fixed working capital.
By ‘permanent’, it does not mean that it will forever remain at the same level or amount but it may change if the overall production capacity changes. But such changes in permanent working capital are not often.
Temporary Working Capital
It is the level of working capital that depends upon the level of production of a business. It is the excess working capital over the permanent capital that is required to meet seasonal high demand.
It is also known as fluctuating working capital because it tends to change often depending on the level of production.
Temporary working capital is required when high production is required to meet seasonal demands.
For example, a bakery will need more working capital to meet the increased demand for cakes and pastry during Christmas season
Graph showing permanent and temporary working capital
Here, the temporary working capital is fluctuating whereas the permanent working capital is gradually increasing with time.
See lessWhat is gain ratio formula?
Introduction The term 'gain ratio' is related to partnership accounting. Gain ratio refers to the ratio in which existing partners of a partnership firm, divide among themselves, the share of profit and loss of the outgoing partners. There is a method of calculating this gain ratio. The method alongRead more
Introduction
The term ‘gain ratio’ is related to partnership accounting. Gain ratio refers to the ratio in which existing partners of a partnership firm, divide among themselves, the share of profit and loss of the outgoing partners.
There is a method of calculating this gain ratio. The method along with the concept behind gain ration is discussed below.
Concept behind gain ratio
A partnership firm is a form of business organisation which is conducted and carried on by members known as partners. It requires at least two partners to start a firm and the maximum limit is 50.
The partners share the profit and loss of a business in a ratio known as Profit and loss sharing ratio.
For example, Amanda, Bill and Chang are partners, having a P/L sharing ratio of 3:2:1 i.e. Amanda is getting 3/6, Bill is getting 2/6 of the same and Chang is getting ⅓ of the profit and loss
If the profit is $6,000 , then Amanda will get $3,000 (3/6 of $6,000) and Bill will get $2,000 (2/6 of $6,000) and Chang will get $1,000 (1/6 of $6,000).
Now if Amanda retires from the firm, then naturally, Bill and Chang’s share of profit will increase.
The profit and loss sharing ratio will now be 2:1 (earlier it was 3:2:1) and the share of profit of Bill will be $4,000 and of Chang will be $2,000.
Calculation of gain ratio
The formula for calculating gain ratio = New ratio – Old Ratio
As per the above case:
Therefore the gain ratio in which Bill and Chang gained the share of profit of Amanda is 2/6 : 1/6 or simply 2:1
This is how we can calculate the gain ratio. But one thing to notice is that the gain ratio is equal to the P/L sharing ratio of the partnership between Bill and Chang.
Hence, whenever a partner retires and the existing partner keep the P/L sharing ratio unchanged among themselves then, the gain ratio will be equal to their P/L sharing ratio. In that case, there is no need to calculate the gain ratio from the formula given above.
But, when the remaining partners change the P/L sharing ratio among themselves after a partner retires, then the gain ratio is to be calculated using the formula given above.
Suppose, upon retirement of Amanda, Bill and Chang change the P/L sharing between them to from 2:1 to 3:2
In that case,
Therefore the gain ratio in which Bill and Chang will gain the share of profit of Amanda is 8/30 : 7/30 or simply 8:7
See lessWhat is the accounting equation for non profit organisation?
The accounting equation for a non-profit organisation is almost the same as in the case of the profit-oriented organisation. Let's first briefly understand what accounting equation and non-profit organisation are: Accounting Equation Accounting equation is an equation that depicts the relationship bRead more
The accounting equation for a non-profit organisation is almost the same as in the case of the profit-oriented organisation. Let’s first briefly understand what accounting equation and non-profit organisation are:
Accounting Equation
Accounting equation is an equation that depicts the relationship between assets, liabilities and capital of an entity.
Assets = Liabilities + Capital
As per this equation, the total assets of an entity are equal to the sum of its total liabilities and total capital. This equation holds good in every situation.
Non-Profit Organisation
A Non-Profit Organisation is an entity which exists for purposes other than for profit. Such organizations exist and operate for charitable purposes, promotion of culture and sports and welfare of society. The accounting for Non-profit organisation is slightly different from For-profit organisations. In the case of a non-profit organisation, the capital account is known as the capital fund.
Accounting Equation for non-profit organisations
The Accounting equation for a non-profit organisation is as follows:
Assets = Liabilities + Capital fund.
The difference is only in name. In the case of non-profit organizations, the capital is known as a capital fund. Rest everything is the same. The accounting equation will be prepared as normally prepared for business concerns.
See lessHow to change ledger name in tally?
Changing a Ledger name in Tally is an easy process. The requirement of changing the name of a ledger may arise in three situations: Situation 1: When we need to change a ledger's name, right after its creation while being in the ledger creation menu Situation 2: When we realize the need to change aRead more
Changing a Ledger name in Tally is an easy process. The requirement of changing the name of a ledger may arise in three situations:
In Tally, there are plenty of shortcut keys that can ease the way we work on it. My methods will be based on such shortcuts on Tally ERP 9.0.
Situation 1
Often just after ledger creation, we realize that we have made mistake in entering the name of the ledger.
Many opt to choose this long path to alter the ledger’s name.
Exiting Voucher creation menu → Gateway of Tally menu → Accounts Info → Ledger option → Alter option → Select the ledger → Ledger alteration window opens.
Instead of it, you can choose to use Page Up key while on the ledger creation window. Press the Page-up key till you reach that ledger. Then you can edit its name or any other details.
Pressing the page up key automatically opens the ledger alteration mode and lets the user scroll through the ledgers available.
The ledger alteration window looks like this:
Situation 2
Sometimes, while performing entries into vouchers, we feel the need to alter a ledger’s name.
This can be done by pressing Ctrl + Enter key with the cursor on the ledger’s name in the voucher creation menu.
On pressing Ctrl + Enter Key, the ledger alteration window will open, from where the user can alter the ledger name or any other details.
Situation 3
When the user is not either on the voucher creation menu or on the ledger creation menu, then the ledger’s name has to be altered by going through the following steps:
Gateway of Tally menu → Accounts Info → Ledger option → Alter option → Select the required ledger → ledger alteration window opens.
That’s it. These are different approaches to changing a ledger’s name.
One thing that is common among all approaches is the opening of the Ledger alteration window at the end. Hence, it is only through the Ledger alteration window we can change a ledger’s details including its name.
See lessIn which voucher type credit sales is recorded in tally?
In Tally, it is possible to record credit sales entry in the following accounting vouchers: Sales Voucher Journal Voucher Generally, sale entries whether credit sales or cash sales are recorded in the Sales vouchers. Also, I strongly recommend you to record sales entries in the Sales voucher only aRead more
In Tally, it is possible to record credit sales entry in the following accounting vouchers:
Generally, sale entries whether credit sales or cash sales are recorded in the Sales vouchers. Also, I strongly recommend you to record sales entries in the Sales voucher only as it can record various aspects related to credit sales like the sales order number, delivery note number, particulars of creditor and much more.
In this answer, I have shown the steps to record a credit sales entry into the Sale voucher. My answer is based on Tally Prime, the latest version of Tally. If you are using Tally ERP 9, there will be only a few areas of differences which are not that significant.
Steps to record credit sales in Sales voucher
To record credit sales entry, you have to first open the Sales voucher creation window. To open the Sales creation window, the steps are as follows:
Gateway of Tally → Voucher → Press F8
The Sales voucher creation window will open and will look like this:
Now, there are three modes to the sales voucher which you can be accessed and changed from the ‘Change mode’ option in the right-hand side menu or by simply pressing Ctrl + H. Upon pressing Ctrl + H, the Change mode option will open.
I will recommend you to use ‘Item Invoice’ mode. It looks like an invoice and it is easier to use and understand. The image of the sale voucher given is in the item invoice only.
Now to have to fill in the following details:
This is a completed sales voucher:
Hence, this is how you have recorded a credit sales entry in the sales voucher.
See lessWhat is the difference between operating lease and finance lease?
Meaning of lease A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments. There are two parties in a lease agreRead more
Meaning of lease
A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments.
There are two parties in a lease agreement:
This is similar to a rent agreement or contract. The only difference between lease and rent is duration. A rent agreement is generally for less than 12 months while a lease agreement is for more than 12 months like 5 years or 10 years, sometimes even for like 99years.
Type of lease
There are two types of lease:
Operating lease
Finance lease
Difference between operating lease and finance lease in tabular format
See lessWhat is the concept of supply in GST?
Introduction Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged. Excise duty is charged when any specified good is manRead more
Introduction
Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged.
Excise duty is charged when any specified good is manufactured, GST is charged when any good or service is supplied.
Definition of Supply
The concept of supply is of great significance to the GST architecture. It can be called the ‘bones to the body of GST’.
Section 7 of the CGST defines ‘supply’.
At first, I have provided the whole Section 7 which consists of four sub-sections:
Thereafter will be the explanation of each sub-section in simple language.
Section 7
Section 7(1) of the CGST Act, 2017 defines ‘supply’. As per section 7(1) of the CGST Act, 2017, the supply includes:
Section 7(1A) states, ‘where certain activities or transaction constitute as supply in accordance of with the provisions of sub-section (1), they shall be treated either as a supply of good or supply of services as referred to Schedule II.
Section 7(2) states, ‘notwithstanding with anything contained in sub-section (1).
shall not be treated neither as a supply of goods nor a supply of services.
Section 7(3) states ‘subject to sub-section (1), (1A) and (2), the government may, on the recommendation of the council specify, by the notification, the transaction that is treated as :
Explanation of Section 7 in simple terms.
Section 7(1) (a) sets three parameters of an activity or transaction to be a supply.
Any activity or transaction will be treated as a supply if the above parameters are fulfilled as per sub-section (1) clause (a).
Section 7(1)(b) is actually an exception to the 3rd parameter of supply. Import of service for a consideration will be considered a supply even if it is not made in furtherance of business,
Section 7(1)(c) states that item in the schedule I will be treated as supply whether there is consideration or not. This is an exception to the 2nd parameter.
Section 7(1A) states any activity which is a supply as per sub-section (1), shall be classified either as a supply of goods or as a supply of service as per schedule II. There are many activities and transactions which have the characteristics of both goods and services.
For example, dining in a restaurant. Schedule II helps to eliminate this confusion and helps to classify such activities or transactions as either supply of goods or supply of services. As per Schedule II, dining or take-away from a restaurant is a supply of service.
Section 7(2) states the activities which are neither supply of goods nor neither of services even if they fulfilled the condition of the sub-section (1).
Section 7(3) says that the central government have the power to notify transactions that are to be treated as supply of goods nor as a supply of service or supply of services not as a supply of services
See lessWhat is capital reduction account?
Introduction A capital reduction account is an account used to pass entries related to the internal reconstruction of a company. During reconstruction, paid-up capital reduced is credited to this account; hence its name is capital reduction account. It is also known as the reconstruction account. TyRead more
Introduction
A capital reduction account is an account used to pass entries related to the internal reconstruction of a company. During reconstruction, paid-up capital reduced is credited to this account; hence its name is capital reduction account. It is also known as the reconstruction account.
Type of account
A capital reduction account is a temporary account open just to carry out internal reconstruction. It represents the sacrifices made by the shareholders, debenture holders and creditors. Also, any appreciation in the value of assets is credited to this account. It is closed to capital reduction when internal reconstruction is completed.
Entries passed through capital reduction account
When paid-up capital is cancelled.
When paid-up capital is cancelled, the share capital account is debited and the capital reduction account is debited as share capital is getting reduced.
When assets and liabilities are revalued
At the time of internal reconstruction, the gain or loss on revaluation is transferred to the capital reduction account instead of the revaluation reserve.
Writing off of accumulated losses and intangible assets
The credit balance of the capital reduction account is used to write off the accumulated losses and intangible assets like goodwill, patents etc which are unrepresented by capital. The capital reduction account is debited and profit and loss account and intangible assets accounts are credited.
Treatment in books of account
The balance in the capital reduction account, whether debit or credit, it is transferred to the capital reduction account. Hence, it doesn’t appear on the balance sheet.
See lessWhat is internal reconstruction?
Introduction Internal reconstruction refers to the process of restructuring a sick company’s balance sheet by certain methods to turn it financially healthy, thus saving it from potential liquidation. Explanation When a company has been making losses for many years, it has a huge amount of accumulatRead more
Introduction
Internal reconstruction refers to the process of restructuring a sick company’s balance sheet by certain methods to turn it financially healthy, thus saving it from potential liquidation.
Explanation
When a company has been making losses for many years, it has a huge amount of accumulated losses due to which the reserve and surplus appear at a very low or negative amount in the balance sheet.
Also, such a company is said to be overcapitalised as it is not able to generate enough returns to its capital.
As the company is overcapitalised, the assets are also overvalued. The balance sheet also contains many fictitious assets and unrepresented intangible assets.
The balance sheet of such a ‘sick’ company looks like the following:
Hence, to save the company from liquidation,
In this way, its balance sheet gets rid of all undesirable elements and the company gets a new life without being liquidated. This process is known as internal reconstruction.
Legal compliance
The internal reconstruction of a company is governed by the provisions of the Companies Act, 2013.
See less