Download - Accounting ppt
FINANCIAL ACCOUNTING AND
TAXATION
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
TYPE OF BUSINESS
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 ACCOUNTING
Bookkeeping is the recording of financial transactions. Transactions include
sales, purchases, income, receipts and payments by an individual or
organization. Bookkeeping is usually performed by a bookkeeper.
WHAT IS BOOK KEEPING
TYPE OF ACCOUNTS
Real Accounts(Assets A/c)
Cash, Stock, Purchase, Sales, Building, Machine,
Furniture, Goodwill, Patent, Copy-Right, Trade Mark, Investments, Motor Cars etc……
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.
Nominal Accounts
Salary, Wages, Discount, Rent, Commission, Postage, Refreshment, Carriage, Depreciation, Interest, Bank Charges……….
BRANCHES OF ACCOUNTING
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.
Cost Accounting
Function of cost accounting is to ascertain the cost of the product and to help the management in the control of cost.
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
ACCOUNTING ENTRY SYSTEM
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,
Double Entry System
Invented by………………. “Lucas Pasioli”
of………………………… ‘Italy’
In …………………………’1494’[ He said that every transaction have two sides……….. ]
Transactions:
Receiver……..…. Giver
Comes in………….….Goes Out
Expenses/ Losses …. Incomes/ Gains
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“).
Double Entry System
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
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
double entry system is started In 1494
double entry system Inventor Benedetto Cotrugli, Lucas Pacioli
defaults groups in tally 28 Groups
Item- wise detail of goods Inventory
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.
Classification of Asset
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)
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.
Intangible Asset
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.
TYPE OF DISCOUNT
Cash 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
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
Primary and Subgroups 15 Primary Groups 13 Sub Groups
Branch / Divisions Bank Accounts
Capital Account Bank OD A/c
Current Assets Cash-in-hand
Current Liabilities Deposits (Asset)
Direct Expenses Duties & Taxes
Direct Incomes Loans & Advances (Asset)
Fixed Assets Provisions
Indirect Expenses Reserves & Surplus
Indirect Incomes Secured Loans
Investments Stock-in-hand
Loans (Liability) Sundry Creditors
Misc. Expenses (ASSET) Sundry Debtors
Purchase Accounts Unsecured Loans
Sales Accounts
Suspense A/c
Pre defined GroupsPre 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)
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
Cash Outflows
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.
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.
Cash Flows
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.
OVERSTATED
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.
Taxes in Tally
Value Added Tax
Tax Deducted at Source
Service tax
Tax Collected at Source
Central sales tax
Fringe benefit Tax
Excise tax
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
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
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.
TDS Deduction Chart
Seller ( Deductee)
Buyer (Deducter)
Bank (Treasury)
Income Tax Department
Form No.16 A
Bills/Services
Buyer deducts TDS and deposit to the authorized bank
Files Quarterly Returns electronically in Form 26 and Form 27A
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.
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.
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.
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.
Enterprise Resource Planning
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
Timber obtained by any other mode 2.5
Tender Leaves 5
Other Forest Produce, excluding Tender leaves and Timber 2.5
Scrap 1
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.
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’.
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
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.
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.
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.
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.
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.
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Process of payroll