Business transactions are an integral part of running any business. This transaction can be with other business entities or B2B, or with customers or B2C. This transaction can be on a Credit or Cash basis. The business owner needs to determine where and how the money flows from and into your business. It is important to track the details for urgencies and determine the business's overall performance. Understanding journal entry in Tallyprime helps to keep track of all necessary transactions.
Did you know? From the accounting voucher interface on the Tally Gateway, you have to click the shortcut key "F7" to deliver entries via journal vouchers.
What is Journal Entry in Accounting?
To ensure that you are informed about day-to-day business transactions, it is necessary to capture the details of each transaction. Basic information such as the date of transaction, the purpose of the business transaction with careful insertion of a brief explanation and the amount of the transaction is quite necessary to keep track of the expenditure and income of your business.
While handling accounting, the first step is to track the journal entry of a transaction by going through a double-entry system and maintaining a chronological order. Every transaction can impact two accounts as one is debited and another with an equal amount of the transaction is credited. Some terms related to journal entry account are-
- Assets Account carries a debit balance, so an increment in the Asset account value would be debited and vice-versa.
- The liabilities account has a credit balance, so in case of any increase in this account value, the liability account is credited and vice-versa.
- The expenses Account carries a Debit balance. In case of an account value increase, it is debited and vice-versa.
- The income Account carries a credit balance. So in case of an increase in the value of this account, it is credited and vice-versa.
Debits are generally added to assets and expense accounts and are subtracted from liability, equity balances, and revenue. Credits are subtracted from asset and expense balances and are added to revenue, liability, and equity accounts.
Why do we need Journal Entries?
Journal Entries are essential for a business entity in many ways -
- Journal entry ensures digitally and physically recorded business transactions with accuracy. It shows the information if a transaction affects multiple accounts. For example, If a catering purchase incurs local and state taxes, the compound journal entry will look like this.
Catering for ABC Corp.
Local meals tax
- Journal entries for tally practice keep a genuine record of all transactions conducted by a business and are a detailed document of balances and accounts.
- The information plays a big role in reporting the company's financial statement.
- Adjusting the accounting journal entry helps to defer or accrue expenses and revenue, estimate non-cash transactions like written-off allowances for debt and make necessary corrections in previous entries.
- Journal entries are sorted into charts of accounts and posted to a ledger after verification, which helps come up with financial reports.
- Auditors look for adjustments or entries that do not have proper documentation or approvals. Accurate journals help in the auditing process.
What is Included in a Journal Entry?
Journal entries have numerous data points, yet the general outlay includes-
- A header defines the entry type and the date of the journal.
- A reference number is a unique identifier.
- Accounts and amounts to be debited via transaction and the dates of debits.
- Accounts and amounts to be credited via transaction and the dates of those credits.
- Brief information about the transaction.
Journal entries might also include specific data for the business, such as the subsidiaries involved or the currencies used in the transaction.
Also Read: How to use GST in Tally ERP 9?
How to Write Journal Entries?
A manufacturing company buys ₹100,000 worth of raw materials where ₹10,000 is paid in cash and the rest is taken on credit. The enterprise’s purchase account will show a debit which is an increase of ₹100,000 in raw materials. The cash account will enter a credit or decrease of ₹10,000. The accounts payable amount will show a credit or increase of ₹90,000 since that amount has to be paid. In this case, the company will make payments on this transaction and the cash account will show a corresponding credit. The accounts payable section will show a corresponding debit.
Types of Journal Entries
There are six types of active journal entries in tally. We choose not to consider the vague, archaic single entry. Standard accounting uses double-entry; thus, a single entry is rarely used. Single journal entries are ideal for chequebook balancing, which does not include many accounts. The entries are:
1. Opening Entries
It accounts for the ending balance of the last accounting period as the starting balance for the ongoing accounting period. If the cash account balance from the last accounting period was ₹1 Lakh, that amount would be considered the beginning entry for the current period.
2. Transfer Entries
It allocates an income or expense from one account to another. For example, if a manufacturing company transfers money to a subsidiary from its main account, it will be recorded in transfer entries. In this case, the transfers have to be net-zero and no third party should be involved.
3. Closing Entries
It accounts for the end of an accounting period with a balance that can be transferred from a temporary to a permanent account or from one accounting period to the next. The closing entries are zeroed out and the remaining balance is transferred to a permanent account to close that temporary account.
4. Adjusting Entries
These record changes to accounts that are not considered in journals to comply with the accrual method. These entries are recorded as per revenue recognition principles in a general ledger at the end of the accounting year. Expense accrual, revenue accruals, and expense deferrals are some of the adjusting entries.
5. Compound Entries
These multiple record accounts are to be debited or credited. The total credits and debits need to be equal, but the number of debits and credits can differ. There may be one debit but four credits or one credit and three debits.
6. Reversing Entries
Reversing entries accounts for undoing or reversing an adjusting entry of the previous accounting year. It ensures a reduction in errors made due to double-counting income or expenses and increases credibility in creating invoices in the current accounting period. They can simplify bookkeeping. For example: If an accrued expense is reported in the last accounting period, it can be reversed to count the expenses of the previous accounting period during which the payment was made, ensuring no double reporting of expense.
How to Prepare Journal Entries for Business?
To prepare accurate journal entries in tally, you must ensure that the transaction is accurately entered. You need to decide where to enter the transaction. With the help of accounting software, fewer journal entries for tally practice need to be made due to automation in the software to provide needful data to required accounts and reportings made. For manual bookkeeping, every aspect of transactions impacting the company books needs to be recorded.
1. Identify the accounts to be impacted
Find out which accounts will lose or gain something due to the transaction.
2. Sort transactions
Sort the transactions per bank deposits, expenses, and quarterly taxes to record genuine transactions.
3. Follow the Money
After sorting transactions, consider their effect on values in terms of credits and debits in accounts. Consider the source of the money and where the expenditure was. What was the impact of the transaction on the business? Ensure that you consider all the actions and reactions generated by the transaction.
4. Define Your Account Type
Here are some tips for figuring out the trickier transactions in terms of debits and credits in different accounts.
- All journal entries have one basic account type among assets, expense, liability, equity and revenue. Get familiar with these to easily recognise what each account entails, how they are related to other accounts, and how they are affected by the transactions.
- Try understanding the accounting rules to know where and how to apply for the debits and credits. Learn the basics of journal entries and financial reports and follow the rules depicting where to apply credits and debits in a journal entry.
5. Prepare the Journal Entry
After identifying the transaction type and the affected accounts, you can start your journal entry.
- Enter the exact date: The dates are necessary to identify the accounting period of the given data.
- Assign code and account name: Note the account name and unique ledger code. For accurate reporting, transactions need to be coded to related accounts.
- Enter the credits and debits: Accounting software like TallyPrime partially automates the debited and credited amount in the journal entry.
How to Track Journal Entries?
Journal entries need to be trackable to move genuine information to an accurate place in the ledger. Numerous journal entries can be tracked, recorded and copied in T-accounts to ensure that the finance teams can visualise entries to review as needed.
What is TallyPrime?
TallyPrime is software manufactured for business management of medium and small businesses. It helps manage accounting, banking, payroll, taxation, inventory and other complexities to help grow a business. To set up TallyPrime, a user needs to download the set-up file from any download centre and allow to run the external file to install TallyPrime in minutes. You can then activate the user license. As a new user, you need to create a company to initiate recording all transactions. In the case of existing customers of Tally.ERP 9, one with active TSS, can choose to upgrade to TallyPrime without any additional cost. You have to download and install and finally reactivate the user license.
Features of TallyPrime
TallyPrime comes up with a wide range of features to cater to your business needs.
- Invoicing and Accounting: TallyPrime facilitates creating and recording invoices with optimised components, different billing modes and other methodologies.
- Inventory Management: It helps in godown management, batch manufacturing, expiry date, stock valuation and job costing.
- GST/Taxation: GST invoices like tax invoices, supply bill generation and filing accurate GST returns can be done with the help of TallyPrime.
- Insightful Business Reports: Readily available more than 400 reports help you to make important business decisions.
- Credit and Cash Flow Management: TallyPrime optimises Cashflows by increasing the efficiency of receivables and payable accounts, inventories and other business areas.
- Multi-task Capabilities: You can switch between multiple tasks without losing any progress.
- Banking: Different banking features help to manage auto bank reconciliation, check management, cheque formats, e-payments etc.
- Go to Feature: You can search for new insights to improve your business.
- Secure Data: TallyPrime takes care of your sensitive business data with multiple user control and security levels to ensure the data is restricted as per your choice.
- Access Business Data Online: TallyPrime allows you to analyse business reports online in a web browser.
How to do a Journal Entry in TallyPrime?
To have in-depth knowledge regarding journal entry in TallyPrime, follow these guidelines.
1. Record Transactions
- Gateway of Tally> Vouchers> press F5 for Payment
- Press F2 to change the date
- Select the payment mode
- Account> Cash Ledger
- Particulars> Expense Ledger/ press Alt+C to create Ledger> Ledger Creation (Secondary)> Give Ledger name> Under> Indirect Expense> Amount
- Provide narration to accept the voucher. You can also use Ctrl+A to accept it.
2. Edit Log for Transactions
If you want to view the edit log for transactions, you can-
- Open the transaction from Day Book. Alt+G > Day book> Select transaction> Voucher Alteration Screen> Edit log report.
- Edit log> Related Reports > Edit Log > Enter > View version, username, activity and date & time.
- Select version > Enter > Difference between edit log versions
- Press Configure > Show altered values only: Yes> Show configuration-based value (Yes/No, or change from blank to Not Applicable/ Primary): Yes > Show internal fields updated by the application: No.
3. Impact of Re-numbering Voucher Number
The impact of Deleting a voucher is as follows-
While deleting a voucher, the message reads: "This activity may lead to renumbering the subsequent vouchers if the voucher numbering method is automatic. Edit log will get created for all the affected vouchers. Continue? Yes or No." Select yes. To view the impact of inserting, adding or duplicating a transaction selected from Add, Duplicate or Insert a Transaction.
The impact of other activities is as follows-
When you change the date in a voucher, the message reads: "This activity may lead to renumbering of the subsequent vouchers if the voucher numbering method is automatic. Edit Log will get created for all the affected vouchers. Press any key to continue."
If the date changes, the voucher number subsequently changes. This leads to creating logs for other changed vouchers. Other activities that can create a log for other vouchers are:
- When a voucher is made optional
- Changing an optional voucher to a regular voucher
- Changing the type of voucher
- Creation of back-dated transaction.
- Gateway of Tally> Display more reports > account books > journal-register
- Select the month > Enter
- Columnar> Set "Show voucher reference number" and "show voucher reference date" to yes > Accept
- Change voucher type to your required voucher type.
Apart from these activities, you can choose to make purchases, sales, payments, and create receipts in TallyPrime. Biz Analyst helps you with the entire tally integration procedure with simple steps. You can choose a favourable plan to get help in transforming your business.
Also Read: How to do Payroll Management in Tally ERP 9
Hopefully, you are fully informed about journal entries in tally and how you can do it manually or through TallyPrime. Journal Entry is an important part of any business. TallyPrime ensures you get the utmost help managing your transactions and provides new-age features.
Tally users can also use the Biz Analyst application to manage your business effectively. It syncs with Tally data making it easy to access even if you’re offline or on the go. You can manage the accounts, create ledger entries, access business reports, and more to keep your business on the right track.