This document provides an overview of financial accounting and taxation concepts. It discusses the characteristics of businesses and different types of businesses. It then defines accounting and bookkeeping, and explains the different types of accounts used in accounting. The document outlines the main branches of accounting including financial, cost, and management accounting. It also describes the accounting entry systems of single and double entry. Finally, it provides explanations of key taxation concepts such as VAT, TDS, service tax, and CST that are handled in accounting software like Tally.

1. FINANCIAL ACCOUNTING
AND
TAXATION

2. BUSINESS

Businesses are everywhere. They are the units that perform
most of the economic activity in our economy. Businesses exist
to generate a profit. The traditional definition of a business is an
entity that brings together time, effort and capital in order to
produce a profit.
Following are the characteristics of a business:
 Human Activity
 Financial Nature
 Profit Motive 
Continuously

3. TYPE OF
BUSINESS
Industry( Manufacturing)
Trade( sale/ Purchase)
Commerce(Service Sector)

4. WHAT IS
ACCOUNTING
Up to 1974, accounting was done the same way that the Egyptians did
it 3,000 years before. Accounting is the art of systematic recording,
reporting, and analysis of financial transactions of a business. The
person in charge of accounting is known as an accountant.
WHAT IS BOOK
KEEPING
Bookkeeping is the recording of financial transactions. Transactions include

5. sales, purchases, income, receipts and payments by an individual or
organization. Bookkeeping is usually performed by a bookkeeper.

6. TYPE OF
ACCOUNTS
Real Accounts
Personal Accounts
Nominal Accounts

7. Real Accounts(Assets A/c)
Cash, Stock, Purchase, Sales, Building, Machine,
Furniture, Goodwill, Patent, Copy-Right, Trade Mark,
Investments, Motor Cars etc

8. Personal Accounts( A/c)
Ram, Rajesh, X, Y, Z, Capital, Drawing, Outstanding Expenses,
Prepaid Expenses, Accrued, Income, Un-accrued Incomes A/c,
Debtors A/c, Creditors A/c, Bank A/c, Reliance, TATA, IMT, DMC
Career Academy, Shantosh Hospital, BSNL, Railway etc.

9. Nominal Accounts
Salary,
Wages,
Discount,
Rent,
Commission,
Postage,
Refreshment,
Carriage, Depreciation, Interest, Bank
Charges
.

10. BRANCHES OF ACCOUNTING

11. Financial Accounting

It is the original form of accounting.

It is mainly confined to the preparation of financial
statements for the use of outsiders like creditors,
banks and financial institutions etc.

The chief purpose of financial accounting is to
calculate profit or loss made by the business during
the year and exhibit financial position of the business
as on a particular date.

12. Cost Accounting
 Function
of cost accounting is to ascertain
the cost of the product and to help the
management in the control of cost.

13. Management Accounting
 It
is accounting for management.
 Accounting which provides necessary
information to the management for
discharging its functions.
 It is the reproduction of financial accounts in
such a way as will enable the management to
take decisions and to control various
business activities

14. ACCOUNTING ENTRY
SYSTEM
Single Entry System
Double Entry System

15. Single Entry System
 It
means to record one side of entry.
 Suppose, we sell our furniture, we have not
to record furniture sale but we just record
total cash received from furniture. So, in
single entry accounting, we records cash,
account receivables,

16. Double Entry System
Invented by
of
In
. "Lucas Pasioli"
'Italy'
'1494'
[ He said that every transaction have two sides
Transactions:
Receiver
.. . Giver
Comes in
. .Goes Out
Expenses/ Losses . Incomes/ Gains
.. ]

17. Double Entry System

In this system, both cash and credit transactions are recognized.

The double entry system was first used in Genoa, Italy around the 13th
century and was further polished in Venice.

all transactions will have dual aspects (debit and credit) and that is
why it's called Double Entry System.

The word Debit comes from the Latin word "debita" (Italian "debito").

The word Credit comes from the Latin word "credo" (Italian "credito").

18. What is Tally




Tally is used to store and maintain daily business transactions
like purchases, sales, receipts, payments, purchase returns,
sales returns, deposits and withdrawals etc.
popular FA software packages are Tally, Busy etc.
Tally is the number one financial accounting package in India
and is also used abroad.
With tally you could be the owner, the financial controller,
accountant, manager, auditor or anyone connected with
accounts. The fundamentals behind tally are simple enough for
learn accounting

19. Essential Feature
Tally is the software of
Tally Solution Pvt Ltd.Co.
The initial name of Tally
Peutronics Pvt. Ltd.
developer of tally software
Late Shri S. S. Goenka
finishing touch to the tally
Bharat (son of S.S. Goenka)
tally software launched
In 1986 In
double entry system is started
1494
double entry system Inventor
Benedetto Cotrugli, Lucas
Pacioli
defaults groups in tally
Item- wise detail of goods
28 Groups
Inventory

20. 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.

Choosing a correct group for a ledger account help
in viewing the financial position in a better way
otherwise the financial statements will not give a true
and correct picture.

21. Classification of Asset
Asset
Tangible
Fixed
Intangible
Current
Definite
Indefinite

22. Tangible Asset
Fixed Asset
Assets that have a physical form.
Tangible assets include both fixed assets, such as machinery, buildings and
land, and current assets, such as inventory.
Assets are property or economic resources that are expected to provide a
future benefit to a business
Current Asset
Definition of Current Assets: assets in the form of cash (or easily
convertible into cash)

23. Intangible Asset
 An asset that is not physical in nature.
 Corporate intellectual property (items such as patents, trademarks,
copyrights, business methodologies)
 Goodwill and brand recognition are all common intangible assets in
today's marketplace.
 An intangible asset can be classified as either indefinite or definite
depending on the specifics of that asset. A company brand name is
considered to be an indefinite asset, as it stays with the company
as long as the company continues operations.

24. Liability

Current liabilities — these liabilities are reasonably expected to be
liquidated within a year. They usually include payables such as
wages, accounts, taxes, and accounts payables, unearned revenue when adjusting entries,
portions of long-term bonds to be paid this year,
short-term obligations.

Long-term liabilities — these liabilities are reasonably expected not to be
liquidated within a year. They usually include issued long-term bonds,
notes payables, long term leases, pension obligations, and long-term
product warranties.

25. TYPE OF DISCOUNT
Trade Discount
It is rebate or allowance from the scheduled price granted by the seller to the
buyer. Trade discount is usually granted in the following circumstances:
When selling to a fellow trader.
When the buyer is an old customer.
When sales are made in bulk.
As the Custom of trade
Cash Discount
It is deduction or allowance allowed by creditor to a debtor. If a person pays
his debit before the due date of payment the recipient may grant him an
allowance for doing so. This allowance is known as cash discount

26. Primary and Subgroups
15 Primary Groups
Branch / Divisions
Capital Account
Current Assets
Current Liabilities
Direct Expenses
Direct Incomes
Fixed Assets
Indirect Expenses
Indirect Incomes
Investments
Loans (Liability)
Misc. Expenses (ASSET)
Purchase Accounts
Sales Accounts
Suspense A/c
13 Sub Groups
Bank Accounts
Bank OD A/c
Cash-in-hand
Deposits (Asset)
Duties & Taxes
Loans & Advances (Asset)
Provisions
Reserves & Surplus
Secured Loans
Stock-in-hand
Sundry Creditors
Sundry Debtors
Unsecured Loans

27. Pre defined Groups
Pre defined Sub Groups
Under
Bank Accounts
Current Assets
Bank OD A/c
Loans (Liability)
Cash-in-hand
Current Assets
Deposits (Asset)
Current Assets
Duties & Taxes
Current Liabilities
Loans & Advances (Asset)
Current Assets
Provisions
Current Liabilities
Reserves & Surplus
Capital Account
Secured Loans
Loans (Liability)
Stock-in-hand
Current Assets
Sundry Creditors
Current Liabilities
Sundry Debtors
Current Assets
Unsecured Loans
Loans (Liability)

28. Cash Flows

During the business cycle, you will have more money flowing in
than flowing out.

This will allow you to build up cash balances with which to plug
cash flow gaps, seek expansion and reassure lenders and
investors about the health of your business.

Your aim must be to speed up the inflows and slow down the
outflows

29. Cash Flows
Cash Inflows





Payment for goods or services from your customers.
Receipt of a bank loan.
Interest on savings and investments.
Shareholder investments.
Increased bank overdrafts or loans.
Cash Outflows






Purchase of stock, raw materials or tools.
Wages, rents and daily operating expenses.
Purchase of fixed assets - PCs, machinery, office furniture, etc.
Loan repayments.
Dividend payments.
Income tax, corporation tax, VAT and other taxes.

30. OVERSTATED
Overstated is that amount which is more than correct
amount in the account.
It is error of commission and it can rectify by passing
rectify entry. For instance, if outstanding wages are
wrongly written Rs. 12000 but actual outstanding
wages are Rs. 10,000, then Rs. 2000 is overstated
and its bad effect will be on wages account because
wage account will also overstated with Rs. 2000 and
our profit will reduce with Rs. 2000. So, to rectify to
overstated error is must.

31. What is Tax

A fee charged by a government on a product, income, or
activity.

If tax is levied directly on personal or corporate income, then it
is a direct tax.

If tax is levied on the price of a good or service, then it is called
an indirect tax.

The purpose of taxation is to finance government expenditure.
One of the most important uses of taxes is to finance public
goods and services, such as street lighting and street cleaning.

32. Taxes in Tally

Value Added Tax

Tax Deducted at Source

Service tax

Tax Collected at Source

Central sales tax

Fringe benefit Tax

Excise tax

33. Value Added Tax

Value added tax is a consumption tax.

This is a simple method of multiple taxes on an individual product.

VAT system levies tax on every level of value addition to the product or
goods.

This is the new system being implemented from April 1, 2005.

VAT is calculated based on Input & Output variation.

Input tax is paid on purchases.

Output tax is paid on sales.

Input credit is the excess amount of input tax over output tax

34. VAT rates

There are three main rates for Input and Output Vat
tax.

0% for Agriculture products.

1% for Jewellery

4% for Pharma, Computers, Soaps etc.

12.5% for Cement, Automobile

35. Tax Deducted at Source

Tax deducted at source (TDS) is one of the modes of
collecting income tax.

The buyer (deductor) deducts the tax from the payment made
to the seller (deductee) and remits the tax to the Income Tax
Department within the stipulated time.

The buyer makes payments (such as salary, rent, Interest on
securities, dividends, insurance, commission, Professional
fees, commission on brokerage, commission on lottery tickets,
etc) to the seller.

36. TDS Deduction Chart
Seller ( Deductee)
Bills/
Services
Form No.16 A
Buyer (Deducter)
Files Quarterly Returns
electronically in Form
26 and Form 27A
Buyer deducts
TDS and deposit to
the authorized
bank
Bank (Treasury)
Income Tax Department

37. Electronic TDS (E-TDS)

E-TDS return is a TDS return prepared in form No.24, 26 or 27 in
electronic media as per prescribed data structure in either a floppy or a
CD ROM.

The floppy or CD ROM prepared should be accompanied by a signed
verification in Form No.27A. As per Section 206 of Income Tax Act all
corporate and government deductors are compulsorily required to file
their TDS return on electronic media.

38. Service Tax

Service tax is indirect tax on services provided. Service tax is
paid by buyer of services to seller of services, who in turn,
deposits the tax with the government.

Some Service Tax categories are- Advertising Agency, Cable
operators, Maintenance and Repair service, Courier , Life
insurance Services, Telephone services, Banking and Financial
Services.

39. Credit Adjustment in Service Tax

The Service Tax paid by you on input services to your business
can be adjusted to the Service Tax payable by you. This is
called 'adjustment of Service Tax Credit.

If your input service (purchase) can be directly related to the
output service (sale) then you can use 100% credit adjustment
on the service tax payable.

If the input service is not solely used for the output service, then
20% credit adjustment is applicable.

40. What is ERP


ERP is an abbreviation for Enterprise Resource Planning.
It is principally an integration of business management
practices and modern technology.

The term ERP originally referred to the way a large organization
planned to use its organizational wide resources.

It is a company-wide computer software system used to
manage and coordinate all the resources, information, and
functions of a business from shared data stores.

41. Enterprise Resource Planning
Purchase
Production
Planning
Inventory
ERP
Payroll
Process
Taxation
Sales
Accounting

42. Tax Collected at Source

TCS is Tax Collected at source by the seller on sale of some
specified goods .

Goods are defined under section 206C of the Income Tax Act, 1961
.

Some specific goods under TCS are Tendu leaves, Timber
obtained under a forest lease, Scrap, etc.
Nature Of Goods
Percentage/Rate Of Tax
Alcoholic Liquor
1
Timber Obtained Under Forest Lease
2.5 2.5
Timber obtained by any other mode
5
Tender Leaves
2.5
Other Forest Produce, excluding Tender leaves and Timber
1
Scrap

43. Exemption

A buyer who purchases specified goods for
manufacturing, processing or production of
goods/article or thing and not for trading, no tax
would be deducted. In such cases the buyer would
declare it in Form 27C to the seller.

The seller in turn would deliver one copy of Form
27C
collected
from
buyer
to
Chief
Commissioner/Commissioner of Income tax.

44. Central Sales Tax

This is the system being implemented from 1956.

Central state tax (CST) is Sales Tax arising from Inter-state sales
(when goods sold move from one state to another).

In case of any Inter state sales between two registered dealers, a
prescribed CST declaration Form must be issued to buyers/sellers.

Every dealer who effects inter-state sale is required to register with
State sales tax authorities who are empowered to grant registration
under CST Act. Application should be in form 'A'. Security has to be
furnished. Certificate of registration will be in form 'B'.

45. Forms Under CST

Form C, E-I/E-II, F, G, H, I and J have been
prescribed to avail concessional rate of CST.

Form C and E-I/E-II and F are required to be
collected and submitted on quarterly basis.

In case of forms H, I and J, no time limit has been
prescribed.

F form is to be obtained on monthly basis

46. CST (C Form)

A Form issued by the sales tax department to the registered
sales tax payer.

If Person buys any good from another registered sales tax
payer and issues a C form to him. Than that other sales tax
payer will not charge sales tax from him and sales tax will be
collected and deposited by the c form issuer and deposited in
the treasury of the govt.

If C form is lost, indemnity bond in form G is to be given and
then duplicate C form can be issued.

47. Fringe Benefit Tax

Fringe benefit tax (FBT) is a tax on benefits that
employees receive as a result of their employment,
including those benefits provided through someone
other than an employer.

Fringe benefits (perks) include most benefits given to
employees in addition to their salary or wages.

48. Category of FBT









Entertainment
Festival celebrations
Gifts
Use of club facilities
Employee welfare
Use of health club, sports and similar facilities
Sales promotion, including publicity
Use of telephone
Scholarship to the children of the employees.

49. Excise Tax

An excise or excise tax (sometimes called a duty of excise or a
special tax).

It is commonly understood to refer to an inland tax on the sale, or
production for sale, of specific goods within a country.

Excises are distinguished from customs duties.

An excise is considered an indirect tax, meaning that the producer
or seller who pays the tax to the government is expected to try to
recover or shift the tax by raising the price paid by the buyer.

50. Payroll Processing

Having access to employees pay, bonus, and other
special income records can be crucial for managers.

Businesses may even consider choosing a payroll
service systems that offers financial advise and one
that can analyze payroll records.
l

51. Process of payroll
Employee
Group
Salary
detail
Employee
Payroll
processing
Pay head
Type
Unit (Work)
Attendance
/Production