Computerised Accounting and Tally | Information Technology and Its Application in Business Notes | B.Com (Non CBCS)

Computerised Accounting and Tally

Information Technology and Its Application in Business

B.Com (Non CBCS)

Unit – 4: Computerised Accounting and Tally

Computerized Accounting System:

A computerised accounting system is an accounting information system that processes the financial transactions and events as per Generally Accepted Accounting Principles (GAAP) to produce reports as per user requirements. Every accounting system, manual or computerised, has two aspects. First, it has to work under a set of well-defined concepts called accounting principles. Another, that there is a user-defined framework for maintenance of records and generation of reports. In a computerised accounting system, the framework of storage and processing of data is called operating environment that consists of hardware as well as software in which the accounting system, works. The type of the accounting system used determines the operating environment. Both hardware and software are interdependent. The type of software determines the structure of the hardware. Further, the selection of hardware is dependent upon various factors such as the number of users, level of secrecy and the nature of various activities of functional departments in an organisation.

Advantages of Computerised Accounting System

Computerised accounting system offers various advantages over manual accounting which are stated below:

1)      Speed: The most important advantage of using the computer is the speed with which we can get the work of accounting done. Computer can process a large number of transactions in seconds.

2)      Accuracy: One can expect accurate results with valid data and instructions. Computers do not commit errors.

3)      Versatility: Computers are not only capable of handling complex arithmetical problems, but can perform number of jobs equally well. It can be used to carry out multiple jobs at a time.

4)      Storage capability: A business needs to store different types of data for future reference. A computer can store and recall any information regarding debtors, creditors, assets, liabilities, expenses, incomes, working capital etc. as and when required and can be retained as long as desired by the user.

5)      Reduction of lengthy cycle: In manual accounting system, a transaction has to pass through four stages i.e. journal, ledger, trial balance and final accounts. This process is very lengthy which consumes lot of time also. In computerized accounting system, a transaction has to be recorded once through data entry screen and the computer does the rest of the processing of the transaction automatically.

6)      Reliability: The computer system is well-adapted to performing repetitive operations. They are immune to tiredness, boredom or fatigue. As a result, computers are highly reliable compared to human beings. Since computerised accounting system relies heavily on computers, they are relatively more reliable than manual accounting systems.

7)      Real Time User Interface: Most of the automated accounting systems are inter-linked through a network of computers. This facilitates the availability of information to various users at the same time on a real time basis (that is spontaneously).

8)      Legibility: The data displayed on computer monitor is legible. This is because the characters (alphabets, numerals, etc.) are type written using standard fonts. This helps in avoiding errors caused by untidy written figures in a manual accounting system.

9)      Efficiency: The computer based accounting systems ensure better use of resources and time. This brings about efficiency in generating decisions, useful information’s and reports.

10)   Quality Reports: The inbuilt checks and untouchable features of data handling facilitate hygienic and true accounting reports that are highly objective and can be relied upon.

11)   Quick reporting. The preparation and communication of reports based on the accounting records takes lot of time in manual accounting. In computerized accounting, any kind of reports can be easily prepared and presented. This does not delay the routine accounting work.

Disadvantages of Computerized Accounting

Some of the major limitations of the computerized accounting system are discussed below:

a)      Costly: The computerized accounting is a costly system as it requires number of facilities and attachments to set up the system. This includes the computer, printers, scanner and other related accessories.

b)      Chances of Loss of data: When a computer is used, it is possible that data can be lost because of hardware or software damage.

c)       Fraud and embezzlement: Fraud and embezzlement are usually achieved on a computer system by altering data or programs. There are numerous techniques, varying from additions and deletions to input data, through changing the standing information, files, modifying the behavior of programs, to duplicating or suppressing output.

d)      Obsolescence: Obsolescence is a major problem in computer industry. Information technology industry follows the culture of ‘here today, gone tomorrow.’ Even the latest hardware and software purchased today may become outdated very soon. The latest version of the software provides more facilities as compared to the previous versions. This creates a problem of software up gradation.

e)      Dependence on computer staff: In the computerized accounting system, the organizations depend upon the computer staff for maintaining the accounting. In the absence of computer literates for some reason in the organization, it may pose a problem to run the accounting software.

f)       Inability to Check Unanticipated Errors: Since the computers lack capability to judge, they cannot detect unanticipated errors as human beings commit.

g)      Ill-effects on Health: The extensive use of computers systems may lead to development of various health problems: bad backs, eyestrain, muscular pains, etc.

Manual V/s Computerized Accounting (Similarities and Difference)

Accounts can be maintained either manually or with the help of computers. Most organizations now do their work with an electronic computer rather than the manual methods.  The similarity between the both systems is that regardless of the degree of computerization in the record keeping process, professional accounting judgment is required in analyzing transactions and in creating source documents or machine methods to capture the important information about routine transactions.

Difference between Manual Accounting System and Computerized Accounting

a)      Recording of data: The recording of financial transactions, in manual accounting system is through books of original entries while the data content of such transactions is stored in a well-designed accounting database in computerised accounting system.

b)      Classification and processing of data: In a manual accounting system, transactions recorded in the books of original entry are further classified by posting into ledger accounting. This results in transactions data duplicity. In computerized account, no such data duplication is made to cause classification of transactions.

c)       Summarizing and updating of data: The transactions are summarized to produce trial balance in manual accounting system by ascertaining the balances of various accounts. The generation of ledger accounts is not a necessary condition for producing trial balance in a computerized accounting system because it is done automatically.

d)      Adjusting entries. In a manual accounting system, entries are made to the principle of cost matching revenue. These entries are passed to match the expenses of the accounting period with the revenues generated by them. However, in computerized accounting, journal vouchers are prepared and stored to follow the principle of cost matching revenue, but there is nothing like passing adjusting entries for errors and rectification, except for rectifying an error of principle by having passed a wrong voucher.

e)      Cost of reporting: Since with a manual system, the cost of preparing reports other than the basic financial statements is high. On the other hand, the cost of preparing specialized management reports in computerized systems is usually quite law.

f)       Financial Statements: In a manual system of accounting, the preparation of financial statements pre-supposes the availability of trial balance. However, in computerised accounting, there is no such requirement. The generation of financial statements is independent of producing the trial balance because such statements can be prepared by direct processing of originally stored transaction data.

Accounting Packages

Every Computerised Accounting System is implemented to perform the accounting activity (recording and storing of accounting data) and generate reports as per the requirements of the user. From this perspective, The accounting packages are classified into the following categories :

a)      Ready to use

b)      Customised

c)       Tailored

Each of these categories offers distinctive features. However, the choice of the accounting software would depend upon the suitability to the organisation especially in terms of accounting needs.

a) Ready-to-Use: Ready-to-Use accounting software is suited to organisations running small/ conventional business where the frequency or volume of accounting transactions is very low. This is because the cost of installation is generally low and number of users is limited. Ready-to-use software is relatively easier to learn and people (accountant) adaptability is very high. This also implies that level of secrecy is relatively low and the software is prone to data frauds. The training needs are simple and sometimes the vendor (supplier of software) offers the training on the software free. However, these software offer little scope of linking to other information systems.

b) Customised: Accounting software may be customised to meet the special requirement of the user. Standardised accounting software available in the market may not suit or fulfill the user requirements. For example, standardised accounting software may contain the sales voucher and inventory status as separate options. However, when the user requires that inventory status to be updated immediately upon entry of sales voucher and report be printed, the software needs to be customised. Customised software is suited for large and medium businesses and can be linked to the other information systems. The cost of installation and maintenance is relatively high because the high cost is to be paid to the vendor for customisation. The customisation includes modification and addition to the software contents, provision for the specified number of users and their authentication, etc. Secrecy of data and software can be better maintained in customised software. Since the need to train the software users is important, the training costs are therefore high.

c) Tailored: The accounting software is generally tailored in large business organisations with multi users and geographically scattered locations. These software requires specialised training to the users. The tailored software is designed to meet the specific requirements of the users and form an important part of the organisational MIS. The secrecy and authenticity checks are robust in such softwares and they offer high flexibility in terms of number of users.

Creating and Maintaining a Company

Creating a company in Tally.ERP 9 is a simple, one-time activity. The company data created can be modified, exported, and other company data can be imported into your company at any given point of time. To create a company in Tally.ERP 9

1. Go to Gateway of Tally > Alt+F3 > Create Company. Directory : modify the data path, if required.

2. Enter the following details pertaining to your company:

a)      Primary Mailing and Contact Details

b)      Books and Financial Year Details

c)       Security Control

d)      Base Currency Information

3. Press Enter to create the company.

Altering a Company: To alter details of an existing company

1. Go to Gateway of Tally >click F3 : Cmp Info . > Alter .

2. Press Enter .

3. Select the company from the List of Companies .

4. Press Enter to view the Company Alteration screen.

5. Make necessary changes in the required fields.

6. Press Enter to save.

Deleting a Company: To delete a company

1. Select the company to be deleted.

2. Go to Gateway of Tally > F3: Cmp Info .

3. Select Alter .

4. Press Enter .

5. Select the company to be deleted.

6. Press Alt+D to delete. A confirmation message appears as shown below:

7. Press Enter to delete the company.

Shutting a Company: To shut a company

1. Go to Gateway of Tally > F1: Shut Company .

2. Select company from the List of Primary Companies .

3. Press Enter to shut the company.

Creating Ledgers

Ledger creation is defined by the F11: Features and F12: Configure settings that you have made for a company. To create single ledger in normal mode:

1. Go to Gateway of Tally > Accounts Info. > Ledgers > Create (Single Ledger) .

2. Enter the Name of the ledger account. Duplicate names are not allowed.

3. Enter the alias of the ledger account, if required. You can access the ledgers using the original name or the alias name.

4. Select a group category from the List of Groups. To create a new group from this field, press Alt+C .

You can alter a ledger account to change its group classification at any time. See Importance of Grouping and Accounting Classifications for more details.

5. Enter the Opening Balance. The opening balance is applicable when the ledger is an asset or a liability, and also if it has a balance in the account as on the date of beginning of books. For an existing company, debit balances for assets and credit balances for liabilities are applicable. You can enter balances for accounts that have obverse balances such as revenue accounts. For example, you may have transferred your books to Tally.ERP 9 in the middle of the year and may not have closed them in your earlier system. Hence, you must specify debit or credit for the balance.

Voucher, Voucher Entry and Voucher Types

Voucher: A voucher is a document that contains details of a financial transaction and is required for recording the same into the books of accounts. For every transaction, you can use the appropriate Tally voucher to enter the details into the ledgers and update the financial position of the company.

Voucher Entry: The voucher entry menus options are available under Transactions in the Gateway of Tally . The Accounting and Inventory Vouchers are available as separate options which can be enabled based on the requirements.

Accounting vouchers: Accounting vouchers are used to record all accounts-related transactions in Tally.ERP 9. You can selectively set the configuration for entry to allow only those features, which you require while entering vouchers.

Types of Accounting Vouchers:

a)      Contra entry

b)      Payment voucher

c)       Receipts voucher

d)      Journal

e)      Sales voucher

f)       Credit note

g)      Purchase

h)      Debit note

i)        Reversing journal

j)        Memos

Inventory Vouchers perform the function in the inventory system that accounting vouchers do in the accounting system. Inventory Vouchers are also means of entering transactions. Accounting vouchers will update only Accounts, but Inventory vouchers will update both Accounts and Inventory. Inventory vouchers record the receipt and issue of goods/stock (Movement of goods), the transfer of stock between locations and physical stock adjustments.

Types of Inventory Vouchers:

a)      Receipts note voucher

b)      Rejection in voucher (Sales returns)

c)       Delivery note voucher

d)      Rejection out voucher (Purchase voucher)

e)      Material out

f)       Material in

Meaning of Groups

Groups are collection of ledgers of the same nature. Account groups are maintained to determine the hierarchy of Ledger Accounts, which is helpful in determining and presenting meaningful and compliant reports. Using this you can generate reports, which are meaningful as well as compliant with laws. At the highest level, accounts are classified into Capital or Revenue and more specifically  into Assets , Liabilities , Income and Expenditure .

Tally.ERP 9 provides you with 28 pre-defined Groups . Of these 15 are Primary Groups and 13 are Sub-Groups . You can also create your own groups, either as Sub-groups or Primary groups . Groups can be sub-classified to an unlimited level to give a virtual accounting tree. The lowest level would be the Ledger Account.  All Voucher entries are passed using ledgers. You can create the required chart of accounts. You can group the Ledger accounts under the required Groups at the time of creating the chart of accounts or you can alter them at any time.

Creating a Single Group

You can create a single group in Tally.ERP 9 and configure its details as per your requirement. You can also view, alter or delete single groups that you have created.

To create a single group

1. Go to Gateway of Tally > Accounts Info. > Groups .

2. Click the option Create under Single Group . The Group Creation screen appears.

3. Enter the Name of the group.

4. Enter the Alias name, if required.

5. In the field Under , from the List of Groups displayed, select the parent group under which the group has to be classified. For example, Indirect Expenses .

6. Click Yes to accept the screen.

Displaying a Group: To display a group

1. Go to Gateway of Tally > Accounts Info. > Groups .

2. Click the option Display under Single Group .

3. Select the name of the group required from the List of Groups displayed.

Altering a Group: The details entered in a group can be modified when required. To alter a group

1. Go to Gateway of Tally > Accounts Info. > Groups .

2. Click Alter under Single Group .

3. Select the name of the group required from the List of Groups displayed.

4. Make the necessary changes in the Group Alteration screen.

5. Click Yes to save the changes.

Deleting a Group: Groups can be deleted from the alteration screen. Only one group can be deleted at a time. To delete a group

1. Go to Gateway of Tally > Accounts Info. > Groups .

2. Click the option Alter under Single Group .

3. Select the name of the group required from the List of Groups displayed.

4. Click D : Delete .

5. Click Yes to confirm deletion.

Creating Multiple Groups

You can create, edit or delete multiple groups in Tally.ERP 9. To create multiple groups

1. Go to Gateway of Tally > Accounts Info. > Groups > Create (Multiple Groups).

2. Select the group category in the field Under .

3. Enter the Name of the group.

4. Select All Items in the field Under to create multiple groups of different categories.

Displaying Multiple Groups: To display multiple groups

1. G o to Gateway of Tally > Accounts Info. > Groups.

2. Click Display (Multiple Groups).

3. Select the groups to display from the List of Groups or select All Items to display all groups.

Altering Multiple Groups: To alter groups

1. Go to Gateway of Tally > Accounts Info. > Groups > Alter (Multiple Groups) .

2. Select the group from the List of Groups .

3. Change the details as required and click Yes to save changes.

Trial Balance

A trial balance is a summary of all ledger balances, and helps in checking whether the transactions are correct and balanced. If journal entries are error-free and posted correctly to the general ledger, the total of all debit balances should be equal the total of all credit balances.

Trial Balance in Tally: By default, the Trial Balance report will be generated as on the date of the last voucher entry. You can change the date to view the report for the required period. To view the Trial Balance:

1. Go to Gateway of Tally > Display > Trial Balance .

2. Press F12 to configure the Trial Balance , as required. As per accounting principles, the Trial Balance does not display the closing stock.

3. Press Ctrl+A to accept.

While providing the opening balance in ledgers, equivalent contrary balance will appear as Difference in opening balances in order to tally the assets and liabilities, or debit and credit balances. The entry passed for the difference will affect the closing balance, but the Trial Balance will still display the difference in the amount. To balance the difference in the opening balance, you need to adjust it with the opening balance of another ledger.

Profit & Loss Account

The Profit & Loss A/c is a periodic statement, which shows the net result of business operations for a specified period. All the expenses incurred and incomes earned during the reporting period are recorded here. The Profit and Loss Account in Tally.ERP 9 displays information based on the default primary groups. It is updated with every transaction/voucher that is entered and saved.

You can view the Profit & Loss account details in Tally for a specified period. By default, the Profit & Loss A/c report will be generated as on the date of the last voucher entry. You can change the date to view the report for the required period. To view the Profit & Loss Account

1. Go to Gateway of Tally > Display > Profit & Loss A/c.

2. Click F1: Detailed to view the Profit & Loss Account in detailed format. The Profit & Loss Account appears as shown below:

Balance Sheet

A balance sheet is a financial statement that reports a company's financial position. This report shows the balance between the assets and liabilities of a firm. The balance sheet follows the fundamental accounting equation: Assets = Liabilities + Owner's Equity.

By default, the Balance Sheet report will be generated as on the date of the last voucher entry. You can change the date to view the report for the required period. To view the Balance Sheet:

1. Go to Gateway of Tally > Display > Balance Sheet .

Bank Reconciliation

Bank reconciliation is a process that explains the difference between the bank balance shown in an organization's bank statement, as supplied by the bank, and the corresponding amount shown in the organization's own [accounting] records at a particular point of time. Reconciliation can be done in two ways:

Auto Bank Reconciliation: The Auto Bank Reconciliation option helps to view bank statements, import bank statements, and reconcile transactions. To view, import and reconcile the banking transactions

1. Go to Gateway of Tally > Banking > Bank Reconciliation

2. Select the bank for which BRS is to be prepared.

Manual Bank Reconciliation: The Bank Reconciliation option in the Banking menu enables you to reconcile bank accounts. You can access bank reconciliation to print or configure the reconciliation statements, according to your requirements.

Fund Flow in Tally

A Fund Flow statement is a report, which explains the movement of funds during an accounting period. This statement consists of two parts:

● Sources of funds

● Application of funds

The difference between the two shows the net change in the working capital during the period. Only those transactions that affect the net working capital of the firm, find place in this statement.

The Fund Flow statement is a supplement to the two principal financial statements. While supplementing the position statement, it describes the sources from which additional fund were derived and for which these funds were used. The transactions, which increase working capital, are sources of funds and the transactions, which decrease working capital, are application of funds. To view Funds Flow:

1. Go to Gateway of Tally > Display > Cash/Funds Flow > Funds Flow

2. Press ALT+F2, change period - From: 1-04-2019 to 31-3-2020. The funds flow statement will be displayed.

Cash Flow in Tally

Cash Flow is the inflow and outflow of cash during an accounting period. A cash flow statement concentrates on the transactions that have a direct impact on cash. It deals with the inflow and outflow of cash between two Balance Sheet dates. That is, it explains the changes in cash position between the two periods. Here the term cash stands for cash and bank balances.

Cash flow statements can also be used as receipts and payments statement. This is particularly useful for businesses such as Non Profit Organizations where receipts and payments statements need to be generated. To view Cash Flow:

1. Go to Gateway of Tally > Display > Cash/Funds Flow > Cash Flow .

2. Press Alt+F2, change the period - From: 1-4-2019 to 31-3-2020. The Cash flow statement will be displayed.