TALLY

An Introduction to Tally & Accountancy Tally is a software for financial accounting. Accountancy is the method by which we maintain records of transactions that involve money, cheques, goods or services on a day to day basis for a certain period of time, usually a year, to help understand the financial status of the business and for taxation purposes. In India the financial year is from 1st April to 31st March. These affairs may be personal or business or banking related. Accountancy is a special field which requires a lot of study and knowledge of methods of maintaining financial records as well as laws (commercial) relating to business, trading and taxation. Very skilled people who are proficient in this are known as Chartered Accountants. They are hired by both Govt. and Private businesses to check their financial records, make suitable corrections and changes and take advantages of suitable concessions to which a business or person is entitled while submitting records for tax purposes to the Govt. Affairs involving money can be of 3 Types: 1. Personal Accounts where usually an individuals income and expense record is maintained, especially a salaried person. 2. Real Accounts usually involve businesses. Like individuals they too have income and expense but in addition they also have sales and purchases to keep records of. 3. Nominal Accounts. Businesses referred to in Real Accounts are often called as a firm or company. These can be of various types: a. b. c. d. e. Proprietorship individual owner Partnership Firm two or more individuals. Private Limited Co. wherein a limited number of investors own shares. Public Limited Co. wherein the public can buy or sell shares. Public Sector Units (PSUs) Govt. owned

Business activity can be of different types such as: i. ii. iii. Manufacturing of goods Trading i.e. sale and purchase of goods Services i.e. providing professional advice and aid eg. Doctors, lawyers etc.

All businesses have to be registered with some or the other Govt. authority, eg. Grampanchyat, Municipal Corporation or Industrial Boards. Registration of a business is based on the size (number of owners involved), location (village, city, industrial area i.e. MIDC) and type of business i.e. whether it is involved in trading or manufacturing or financial etc. Depending upon the type of business involved a firm/company has to obtain Govt. approval/sanction which is granted once they are registered with that authority, only after that can they start the business. On registration they receive an appropriate Registration No. which has to be used in all the transactions of the business and helps in maintaining all the financial records. Based on this and according to the rules and laws on which the business is registered, the Govt. imposes/levies taxes. Some of the important business related Registration Nos. in India are: 1. PAN Permanent Account No. 2. VAT Value Added Tax 3. CST Central Sales Tax

Understanding Accounts As we stated earlier, Accountancy is the method by which we maintain records of transactions that involve money, cheques, goods or services on a day to day basis for a certain period of time, usually a year, to help understand the financial status of the business and for taxation. If you look closely we are asking some questions: i. ii. iii. What: Transactions that involve money Where: In Records known as Journal and Ledgers When: Daily for a financial year (1st April to 31st March)

iv. v.

How: By a method known as Double Entry i.e. Debit & Credit Why: To know the business status i.e. the Report at the end of the year that shows, Profit & Loss and Balance Sheet (Assets & Liabilities) on the basis of which Taxes are paid to Govt.

As we explained earlier any business/firm/company can be started only after registering it with the Government and getting its approval/sanction/permission to start functioning. Once it starts it has to maintain a very systematic record of all transactions daily. These are checked thoroughly once a year, which is known as Audit or Auditing of Accounts which has to be done by experts who are Govt. approved Auditors. Once they are checked and all errors corrected the annual financial report is prepared. This has two parts: 1. Balance Sheet that shows Assets, Liabilites and Capital. 2. Profit Loss Statement that shows Income and Expenses. Together these two reports can give us a true picture of how well a business is performing, which is very important for those whose money is invested in this business. And on the basis of the performance the business has to pay a tax to the Govt. which is finalized on the basis of these reports. It is important to realize that business is not just about profit and loss. Let us take an example: If a Co. ABC says it has made a profit, does that mean it is very good and doing very well? What if the profit is only Rs. 1? Is that fair? Secondly, let us presume that it does make a substantial profit of say Rs. 100,000/-. Now is that very good? You cannot make a good decision or judgment unless you also know what was the state of affairs at the beginning of the year, hence one also needs to see the Balance Sheet apart from the Profit-Loss Statement. There if we find, that the Cos. assets at the start of the year were Rs. 20,000,000/- and now they are only Rs. 400,000/- it certainly does not mean that the business is doing well though it has shown a profit. The nature of this profit is very misleading and Co. seems to be losing a lot of its wealth (Assets) on the basis of which it can perform and this is a very bad sign.