 What is Bookkeeping & Accounting

Portrait of the Italian Luca Pacioli, painted by Jacopo de' Barbari, 1495, (Museo di Capodimonte). Pacioli
is regarded as the Father of Accounting and Bookkeeping.

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in
business.[1] It is the only word in the English language with three consecutive groups of a repeating letter.
Transactions include purchases, sales, receipts, and payments by an individual person or an
organization/corporation. There are several standard methods of bookkeeping, such as the single-entry
bookkeeping system and the double-entry bookkeeping system, but, while they may be thought of as "real"
bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process.

Bookkeeping is usually performed by a bookkeeper. A bookkeeper (or book-keeper) is a person who

records the day-to-day financial transactions of a business. He or she is usually responsible for writing the
daybooks, which contain records of purchases, sales, receipts, and payments. The bookkeeper is
responsible for ensuring that all transactions whether it is cash transaction or credit transaction are recorded
in the correct daybook, supplier's ledger, customer ledger, and general ledger; an accountant can then create
reports from the information concerning the financial transactions recorded by the bookkeeper.

The bookkeeper brings the books to the trial balance stage: an accountant may prepare the income
statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.

Process
The bookkeeping process primarily records the financial effects of transactions. The difference between a
manual and any electronic accounting system results from the former's latency between the recording of a
financial transaction and its posting in the relevant account. This delay—absent in electronic accounting
systems due to nearly instantaneous posting into relevant accounts—is a basic characteristic of manual
systems, thus giving rise to primary books of accounts such as Cash Book, Bank Book, Purchase Book, and
Sales Book for recording the immediate effect of a financial transaction.

In the normal course of business, a document is produced each time a transaction occurs. Sales and
purchases usually have invoices or receipts. Deposit slips are produced when lodgements (deposits) are
made to a bank account. Checks (spelled "cheques" in the UK and several other countries) are written to
pay money out of the account. Bookkeeping first involves recording the details of all of these source
documents into multi-column journals (also known as books of first entry or daybooks). For example, all
credit sales are recorded in the sales journal; all cash payments are recorded in the cash payments journal.
Each column in a journal normally corresponds to an account. In the single entry system, each transaction
is recorded only once. Most individuals who balance their check-book each month are using such a system,
and most personal-finance software follows this approach.

As a partial check that the posting process was done correctly, a working document called an unadjusted
trial balance is created. In its simplest form, this is a three-column list. Column One contains the names of
those accounts in the ledger which have a non-zero balance. If an account has a debit balance, the balance
amount is copied into Column Two (the debit column); if an account has a credit balance, the amount is
copied into Column Three (the credit column). The debit column is then totalled, and then the credit
column is totalled. The two totals must agree—which is not by chance—because under the double-entry
rules, whenever there is a posting, the debits of the posting equal the credits of the posting. If the two totals
do not agree, an error has been made, either in the journals or during the posting process. The error must be
located and rectified, and the totals of the debit column and the credit column recalculated to check for
agreement before any further processing can take place.

Once the accounts balance, the accountant makes a number of adjustments and changes the balance
amounts of some of the accounts. These adjustments must still obey the double-entry rule: for example, the
inventory account and asset account might be changed to bring them into line with the actual numbers
counted during a stocktake. At the same time, the expense account associated with usage of inventory is
adjusted by an equal and opposite amount. Other adjustments such as posting depreciation and
prepayments are also done at this time. This results in a listing called the adjusted trial balance. It is the
accounts in this list, and their corresponding debit or credit balances, that are used to prepare the financial
statements.

Finally financial statements are drawn from the trial balance, which may include:

 the income statement, also known as the statement of financial results, profit and loss account, or
P&L
 the balance sheet, also known as the statement of financial position
 the cash flow statement
 the Statement of changes in equity, also known as the statement of total recognised gains and losses

Entry systems
Two common bookkeeping systems used by businesses and other organizations are the single-entry
bookkeeping system and the double-entry bookkeeping system. Single-entry bookkeeping uses only
income and expense accounts, recorded primarily in a revenue and expense journal. Single-entry
bookkeeping is adequate for many small businesses. In the double-entry accounting system, at least two
accounting entries are required to record each financial transaction. These entries may occur in asset,
liability, equity, expense, or revenue accounts.

Single-entry system

single-entry bookkeeping system

The primary bookkeeping record in single-entry bookkeeping is the cash book, which is similar to a
checking account (UK: cheque account, current account) register, but allocates the income and expenses to
various income and expense accounts. Separate account records are maintained for petty cash, accounts
payable and receivable, and other relevant transactions such as inventory and travel expenses. These days,
single-entry bookkeeping can be done with DIY bookkeeping software to speed up manual calculations.

Double-entry system[edit]

double-entry bookkeeping system

A double-entry bookkeeping system is a set of rules for recording financial information in a financial
accounting system in which every transaction or event changes at least two different nominal ledger
accounts.

Double-entry bookkeeping system

Double-entry bookkeeping, in accounting, is a system of bookkeeping so named because every entry to
an account requires a corresponding and opposite entry to a different account. For instance, recording
earnings of $100 would require making two entries: a debit entry of $100 to an account called "Cash" and a
credit entry to an account called "Revenue."

In deciding which account has to be debited and which account has to be credited, the golden rules of
accounting are used. This is also accomplished using the accounting equation: Equity = Assets - Liabilities.
The accounting equation serves as an error detection tool. If at any point the sum of debits for all accounts
does not equal the corresponding sum of credits for all accounts, an error has occurred. It follows that the
sum of debits and the sum of the credits must be equal in value.

Double-entry bookkeeping is not a guarantee that no errors have been made—for example, the wrong
ledger account may have been debited or credited, or the entries completely reversed.

 Account (accountancy)
Accounting entries
In the double-entry accounting system, at least two accounting entries are required to record each financial
transaction. These entries may occur in asset, liability, equity, expense, or revenue accounts. Recording of a
debit amount to one or more accounts and an equal credit amount to one or more accounts results in total
debits being equal to total credits for all accounts in the general ledger. If the accounting entries are
recorded without error, the aggregate balance of all accounts having Debit balances will be equal to the
aggregate balance of all accounts having Credit balances. Accounting entries that debit and credit related
accounts typically include the same date and identifying code in both accounts, so that in case of error,
each debit and credit can be traced back to a journal and transaction source document, thus preserving an
audit trail. The rules for formulating accounting entries are known as "Golden Rules of Accounting".[1] The
accounting entries are recorded in the "Books of Accounts". Regardless of which accounts and how many
are impacted by a given transaction, the fundamental accounting equation A = L + C will hold, i.e. assets
equals liabilities plus capital. Note that capital is at times, used interchangeably with owners' equity.

An account (in book-keeping) refers to assets, liabilities, income, expenses, and equity, as represented by
individual ledger pages, to which changes in value are chronologically recorded with debit and credit
entries. These entries, referred to as postings, become part of a book of final entry or ledger. Examples of
common financial accounts are sales, accounts receivable, mortgages, loans, PP&E, common stock, sales,
services, wages, and payroll.
A chart of accounts provides a listing of all financial accounts used by particular business, organization, or
government agency.

The system of recording, verifying, and reporting such information is called accounting. Practitioners of
accounting are called accountants.[1]

Classification of Accounts
Based on nature

An account may be classified as real, personal or as a nominal account

Type Represent Examples

Tangibles - Plant and Machinery, Furniture and
Physically tangible things in the real world and
Fixtures, Computers and Information Processing
Real certain intangible things not having any
Equipment,Cash Accounts etc. Intangibles -
physical existence
Goodwill, Patents and Copyrights
Individuals, Partnership Firms, Corporate entities,
Non-Profit Organizations, any local or statutory
Personal Business and Legal Entities,Bank Accounts
bodies including governments at country, state or
local levels
Temporary Income and Expenditure Accounts
for recognition of the implications of the
Nominal Sales, Purchases, Electricity Charges
financial transactions during each fiscal year
till finalisation of accounts at the end

Example: A sales account is opened for recording the sales of goods or services and at the end of the
financial period the total sales are transferred to the revenue statement account (Profit and Loss Account or
Income and Expenditure Account).

Similarly expenses during the financial period are recorded using the respective Expense accounts, which
are also transferred to the revenue statement account. The net positive or negative balance (profit or loss) of
the revenue statement account is transferred to reserves or capital account as the case may be.

Based on periodicity of flow[edit]

The classification of accounts into real, personal and nominal is based on their nature i.e. physical asset,
liability, juristic entity or financial transaction.

The further classification of accounts is based on the periodicity of their inflows or outflows in the context
of the fiscal year.

Income is immediate inflow during the fiscal year.

Expense is the immediate outflow during the fiscal year.

An asset is a long-term inflow with implications extending beyond the financial period and by the
traditional view could represent unclaimed income. Alternatively, an asset could be valued at the present
value of its future inflows.

Liability is long term outflow with implications extending beyond the financial period and by the
traditional view could represent unamortised expense. Alternatively, a liability could be valued at the
present value of future outflows.

Type of accounts Long term inflows Long term outflows Short term inflows Short term outflows
Real accounts Assets
Personal accounts Assets Liability
Nominal accounts Incomes Expenses

Items in accounts are classified into five broad groups, also known as the elements of the accounts:[2] Asset,
Liability, Equity, Revenue, Expense.

The classification of Equity as a distinctive element for classification of accounts is disputable on account
of the "Entity concept", since for the objective analysis of the financial results of any entity the external
liabilities of the entity should not be distinguished from any contribution by the shareholders.
 Voucher
A voucher can also be used online in the form of an e-voucher. These types of vouchers can be entered
when shopping online and the relevant vouchers value added to your order. It can take the form of any
code. Many companies have opted to use voucher codes for the last few years but with a massive incline in
use towards late 2008 and early 2009. There are many Internet websites devoted to promoting these deals
and vouchers online, as well as Facebook groups offering items such as student discounts and 2-for-1
restaurant voucher deals. Many companies have started their business around coupons. It comes under
affiliate marketing. Companies like RetailMeNot, Fatwallet, CouponRani deals with online as well as
offline coupons.

There are a small number of sites that use a disreputable method of click to reveal method for dropping
cookies on the consumer's computer, which has led to the introduction of guidelines for voucher use in
Internet marketing.

Most video game special editions come with a voucher for exclusive content in-game. Also, pre-ordering
games at certain shops may entitle the purchaser to vouchers to content only available if you pre-order at
that store.

A voucher is a bond of the redeemable transaction type which is worth a certain monetary value and which
may be spent only for specific reasons or on specific goods. Examples include housing, travel, and food
vouchers. The term voucher is also a synonym for receipt and is often used to refer to receipts used as
evidence of, for example, the declaration that a service has been performed or that an expenditure has been
made.

The term is also commonly used for school vouchers, which are somewhat different.

In tourism
Vouchers are used in the tourism sector primarily as proof of a named customer's right to take a service at a
specific time and place. Service providers collect them to return to the tour operator or travel agent that has
sent that customer, to prove they have given the service. So, the life of a voucher is as below:

1. Customer receives vouchers from tour operator or travel agent for the services purchased
2. Customer goes to vacation site and forwards the voucher to related provider and asks for the service
to be provided
3. Provider sends collected vouchers to the agent or operator that sends customers from time to time,
and asks for payment for those services
4. Uncollected vouchers do not deserve payment

This approach is most suitable for free individual tourist activities where pre-allocation for services are not
necessary, feasible or applicable. It was customary before the information era when communication was
limited and expensive, but now has been given quite a different role by B2C applications. When a
reservation is made through the internet, customers are often provided a voucher through email or a web
site that can be printed. Providers customarily require this voucher be presented prior to providing the
service.

Account voucher
A voucher is an accounting document representing an internal intent to make a payment to an external
entity, such as a vendor or service provider. A voucher is produced usually after receiving a vendor invoice,
after the invoice is successfully matched to a purchase order. A voucher will contain detailed information
regarding the payee, the monetary amount of the payment, a description of the transaction, and more. In
accounts payable systems, a process called a "payment run" is executed to generate payments
corresponding to the unpaid vouchers. These payments can then be released or held at the discretion of an
accounts payable supervisor or the company controller.

The term can also be used with reference to accounts receivable, where it is also a document representing
intent to make an adjustment to an account, and for the general ledger where there is need to adjust the
accounts within that ledger; in that case it is referred to as a journal voucher.

Any documentary evidence supporting the entries recorded in the books of accounts, establishing the
arithmetic accuracy of the transaction, may also be referred to as a voucher—for example, a bill, invoice,
receipt, salary and wages sheet, memorandum of association, counterfoil of paying-in slip, counterfoil of
cheque book, or trust deed.

Mobile phones[edit]
A voucher is a recharge number sold to a customer to recharge their SIM card with money and to extend
the card's availability period. Vouchers are typically sold at retail outlets, such as phone stores run by the
mobile operator or by distributors, grocery stores, and gas stations.

Vouchers are the prevalent form of recharge for prepaid mobile phones in many countries such as Italy and
Spain where well over 90% of consumers use vouchers, and the UK where over 60% buy vouchers at
retail.[1] In other countries such as the United States, Ireland, and many Nordic countries, there is a growing
trend of customers using Card Not Present recharge options such as online payments, or by using their
mobile handsets to call the operator and recharge with a representative (CSR) or through their IVR
(Interactive Voice Response) system.[1] A growing number of prepaid mobile operators such as Meteor in
Ireland and T-Mobile USA are offering the option to send an SMS (text to pay), or use handset applications
such as WAP or BREW technology.[1]

Types of vouchers:-
1) Primary vouchers:- a primary voucher is written evident in original
.Purchase invoice, cash memos for goods purchased etc. are examples.
2) Collateral or secondary vouchers:- even evidences in original are not
available, copies of the evidences are produced in support. Again, sometimes,
subsidiary evidences are also provided for the purpose of audit. Such vouchers
are usually known as collateral or secondary vouchers.
Voucher Types
You can prepare several prefixed Voucher Types as per your requirement of the Business. For example, you want
to define separate types of vouchers to record your Credit Card Sales and Credit Card Purchase with different types
of Number Schemes and Options.
 Report
Example of a front page of a report

A report or account is any informational work (usually of writing, speech, television, or film) made with
the specific intention of relaying information or recounting certain events in a widely presentable form.[1]

Description
A report is an informational work made with the specific intention of relaying information or recounting
certain events in a widely presentable and scrutinized form. Reports are often conveyed in writing, speech,
television, or film.

Use
Reports fill a vast array of informational needs for many of society's important organizations. Reports are
used for keeping track of information, which may be used to make decisions. Written reports are
documents which present focused, salient content, generally to a specific audience. Reports are used in
government, business, education, science, and other fields, are often to display the result of an experiment,
investigation, or inquiry.

Attributes
Reports use features such as graphics, images, voice, or specialized vocabulary in order to persuade that
specific audience to undertake an action. One of the most common formats for presenting reports is
IMRAD: Introduction, Methods, Results and Discussion. This structure is standard for the genre because it
mirrors the traditional publication of scientific research and summons the ethos and credibility of that
discipline. Reports are not required to follow this pattern, and may use alternative patterns like the
problem-solution format.

Additional elements often used to persuade readers include: headings to indicate topics, to more complex
formats including charts, tables, figures, pictures, tables of contents, abstracts,and nouns summaries,
appendices, footnotes, hyperlinks, and references.
 How to create company in tally
To start accounting with tally the first and foremost thing you should know is , how
to create company in tally ERP9 .For users operating multiple business can
create several companies in Tally erp 9 software at single cost. Nowadays Tally erp 9
has outgrown from the concept just an accounting software. it helps you for better
statutory compliance by updating statutory files available at tally solution website.You
can operate tally remotely using tally.net features, process payroll and many more
features are updating regularly by tally solutions.

Quick Guide to create company

1. Open Tally Software by double clicking on the Tally.ERP 9 icon.

2. If you are opening Tally ERP 9,First time after installation, you will be landed to a menu called
company info menu. ( If you are in Gateway of Tally Press Alt+F3 to get that menu).

3. Select Create Company option in the menu and press enter key.

4. The screen displayed in-front of you is company creation screen.

5. Type the name of the company ,address,Financial year begins and all other details asked by the
creation screen.

6. Press Enter Key, Finally the program will ask you the confirmation to Save ,Yes or No.

7. To save and create company do Press Enter Key, Press Y Key or click on Yes.The program will
create a company and you will be entered into it.

How to create company in Tally ERP9? an elaborate tutorial

Lets start from the very beginning.

double click on tally icon from your desktop.

If you are using Tally first time after installation,will have a screen like below.Inside company info
menu on the right side of the screen like below.

Step II

You are in company info menu.Now,How to create company in Tally erp9?. To do that Select Create
company from the menu and Hit Enter Key.
Company Creation screen will be displayed.

In this company creation screen, you should enter all the details of the company

Ledger creation is the preliminary steps to start with Tally ERP 9. Before creating a ledger you should know
what is a ledger according to accounting concepts a group of account is called a ledger. Where as an account
is a device used to record the effect of transactions on the assets,liabilities and capital of an enterprise. In
accounting concepts a book with many account is called a ledger.
In Tally perspective an account itself is called ledger. In Tally ERP 9 Account = Ledger. As per their help
documentation says as “A ledger is the actual account head to identify your transactions and are used in all
accounting vouchers. For example, purchase, payments, sales, receipts, and others accounts heads are ledger
accounts”.

For reporting purpose a ledger is grouped according to its nature. This will help you to know the summary of a
specific types of ledger. For example

Tea expense grouped under Indirect expense. Purchase expense grouped under purchase account which is a sub
group of direct expense. This will help you to understand the total of Indirect expenses as well as individual
ledger total.

Here is the examples of grouping of ledger compared with actual accounting groups.

Ledger Group in Tally ERP 9 Group as per accounitng

Tea expense Indirect Expense Indirect expense

Purchase A/c Purchase Account Direct expense

ICICI Bank Loan Secured Loan Liabilities

Furniture Fixed Asset Fixed Asset

Customer A Sundry Debtors Debtor

 Commission Received Indirect Income Income Indirect

In the above example you can find the purchase account is grouped under a new group called Purchase
Account in Tally. But in Reporting ( profit and loss account) this will show as direct expense in Trading
Account. Which means the purchase group is the sub group of Direct expense.

Read more about types of account.

Predefined Ledgers

Tally create a company with two pre-defined ledger

1. Cash Account – Grouped under cash-in hand

2. Profit & Loss Account -Grouped under Primary

How to create ledger in tally

Go to Gateway of Tally> Accounts info>Ledger>Create

Ledger creation screen will displayed.

The options in ledger creation screen will vary in accordance with the features selected in F11 features and F12
Configuration screen.

Let’s fill the required details

Name: Name of the ledger account for example ‘Local conveyance’

Alias: This is an alternative name; you can enter an alternative name or code number for this ledger account.
For Example (IE001)

Under: The group in which the ledger accounts comes under. This is selected in accordance with the nature of
account, whether it is an income, expense, asset, liability account. Here this Local conveyance comes under
“Indirect expense”.

Opening balance: – Enter the opening balance at the time of entering accounts in tally, leave blank if there is
no opening balance. Now save the screen you are successfully created a ledger.
Difference between Manual Accounting
and Computerized Accounting
Aim of both manual and computerized accounting is to record, classify and summarize the accounting
transactions. Both are used for preparing financial statements but the difference in the system. We can write
the difference between manual accounting and computerized accounting on the following basis.

Basis of
Manual Accounting Computerized Accounting
Difference

Manual accounting is the

1. Definition system in which we keep In this system of accounting, we
physical register of use computer and different
journal and ledger for accounting software for digital
keeping the records of record of each transaction.
each transaction.

2. In manual accounting,
In computerized accounting, our
Calculation all calculation of adding
duty is to record the transactions
and subtracting are done
manually in the database. All the
manually. For example,
calculations are done by computer
we find the balance of
system. We need not to calculate
any ledger account. We
each account's balance, it is
will calculate the debit
calculated automatically by
and credit side and then
computerized accounting system
we will find its difference
for showing balance.

3. Ledger In manual accounting, Computerized accounting system

Accounts we check the journal and will automatically process the
then we transfer figures system and will make all the
 to related accounts' accounts ledgers because we have
debit or credit side pass the voucher entries under its
through manual posting. respected ledger account.

In this system of
accounting, we have to Our computerized accounting
4. Trial collect the information of system will produce trial balance
Balance the balances of all automatically.
accounts in our ledger,
on this basis, we have
prepared the trial
balance manually.

5.
Both adjustment journal Only adjustment entries will pass
Adjustment
entries and its posting in in the computerized accounting
Entries
the ledger accounts will system, posting in the ledger
Record
be done manually one by accounts will be done
one. automatically.

We have to make the

We need not prepare financial
financial statements
statement manually, financial
6. Financial manually by careful
statements will become
Statements transferring trial
automatically. It will also change
balance's figures in
after each voucher entry in the
income statement and
system which facility is not
balance sheet.
available in the manual accounting
system.