Tally/Accounting

1. Introduction of Basic of Accounts

2. Tally Basics

3. Tally Advanced Features

4. Inventory Management

5. Banking & Finances

6. Book / Record Keeping

 Introduction of Basic of Accounts
What is Accounting ?
Accounting is the practice of recording and reporting on business transactions. The
resulting information is an essential feedback loop for management, so that they can see
how well a business is performing against expectations. The following discussion of
accounting basics is needed to give you a firm grounding from which to understand how
an accounting system works and how it is used to generate financial reports .

Accounting is the process of recording financial transactions pertaining to a business. The

accounting process includes summarizing, analyzing, and reporting these transactions to
oversight agencies, regulators, and tax collection entities. The financial statements used in
accounting are a concise summary of financial transactions over an accounting period,
summarizing a company's operations, financial position, and cash flows.

How Accounting Works ?

Accounting is one of the key functions of almost any business. It may be handled by a
bookkeeper or an accountant at a small firm, or by sizable finance departments with dozens
of employees at larger companies. The reports generated by various streams of accounting,
such as cost accounting and managerial accounting, are invaluable in helping management
make informed business decisions.

The financial statements that summarize a large company's operations, financial position,
and cash flows over a particular period are concise and consolidated reports based on
thousands of individual financial transactions. As a result, all accounting designations are
the culmination of years of study and rigorous examinations combined with a minimum
number of years of practical accounting experience.

While basic accounting functions can be handled by a bookkeeper, advanced accounting is

typically handled by qualified accountants who possess designations such as Certified Public
Accountant (CPA) or Certified Management Accountant (CMA) in the United States.2 3 In
Canada, the three legacy designations—the Chartered Accountant (CA), Certified General
Accountant (CGA), and Certified Management Accountant (CMA)—have been unified
under the Chartered Professional Accountant (CPA) designation.
 Tally Basics

What is Tally ?
Tally is an ERP accounting software package used for recording day to day business data of a
company. The latest version of Tally is Tally ERP 9.
Tally ERP 9 Software is one acclaimed financial accounting system and inventory
management system with power computer.
Tally.ERP 9 is one best accounting software that can integrated with other business
applications such as Sales, finance, Purchasing, Payroll, Inventory, etc.
Tally software stores all the business transactions of each account in detail. Tally ERP 9
follows double entry accounting system and hence eliminates and rectifies possible errors.

Versions of Tally
1. The first version of Tally was Tally 4.5 and it was released in 1990‘s. It is a MS-Dos
based software.
2. The second version of Tally was Tally 5.4 and it was released in 1996. It was a
graphic interface version.
3. The next version of Tally was Tally 6.3 and this Tally version was released in 2001. It
is a window based version and supports in printing and implemented with VAT
(Value Added Tax).
4. The next version of Tally was Tally 7.2 and it was released in 2005. This version was
added with a new features of Statutory complimentary version and VAT rules as per
state wise.
5. The next version of Tally was Tally 8.1 and it was developed with a new data
structure. This version was added with new features of POS (Point Of Sale) and
Payroll.
6. Due to bugs and errors, a new version of Tally 9 was released in 2006. It has
maximum features like Payroll, TDS, FBT, E-TDS filling, etc.
7. Tally.ERP 9 is the latest version of Tally and released in 2009. This latest Tally ERP
9 package offering maximum features for small business industries to large business
industries. It also updated with new features of GST (Goods & Services Tax).
Advantages of Tally ERP 9
1. Tally ERP 9 software is a low cost of ownership and it can be easily implement and
customize.
2. Supports multi operating systems such as Windows & Linux and can be installed on
multiple systems.
3. Tally software utilizes very low space for installation and the installation of tally is an
easy method.
4. It is built in back up and restore, so the user can easily backup all companies data in a
single directory, in a local system disk.
5. Supports all types of protocols such as HTTP, HTTPS, FTP, SMTP, ODBC, etc.
6. Supports multi languages including 9 Indian language. The data can be entered in one
language and you can generate invoices, Po‘s, delivery notes, etc in other language.

Creating a Company in Tally.ERP 9

The first step towards working with Tally.ERP 9 is to create a ‗company‘. A
‗company‘ in Tally.ERP 9 is a central repository where you can maintain all the
financial records of your business, and from where you can extract the required
financial reports and statements.
The procedure to create a company is explained below. To facilitate easier
understanding, we have illustrated the creation of a company named Vridhi
Traders:

Go to Gateway of Tally > Company Info. > Create Company

The fields in the company creation screen and the information to be filled in
each of them are explained below. To navigate between the fields, use the
Enter/Tab/Arrow Keys, or Mouse clicks.

 Directory: The path to the location of Tally.ERP 9 data is displayed here.

By default, the path provided while installing Tally.ERP 9 will be
displayed. However, you can press backspace and specify the location in
which you want the data to be stored.
 Name: Provide a name for the company that is being created. In this
example, we are creating a companynamed Vridhi Traders.
 Primary Mailing details: The mailing name and address details are
picked from here for any report such as balance sheet and statements of
accounts.
o Mailing Name: The name provided for the company in the name
field is automatically displayed here. However, you can change it as
per requirements. The name specified here will be used for mailing
purposes. In this example, Vridhi Traders is retained.
o Fill in the company‘s address.
o Country: Select the country in which the company is located. This
will allow users to choose the statutory capabilities available for that
country. In this example, the country selected is India.
o Fill in the relevant numbers in the Telephone No. and Mobile No. fields.
o E-Mail: Fill in the company‘s official e-mail ID here. This will be
used while e-mailing reports and statements from Tally.ERP 9.

Books and Financial Year Details:

 Financial Year from: This refers to the twelve-month accounting
period of the company. For Vridhi Traders, the financial year begins on
1-7-2016.
 Books beginning from: The date provided in the aforesaid field will be
automatically displayed here. In the example, the date is retained.
However, if you have started with maintaining your books of accounts
with Tally.ERP 9 mid-year, the required date can be set accordingly.
Tally will not allow you to record the transactions for dates preceding the
date entered in the books beginning from field.

Security Control:
 TallyVault Password (if any): Once you enter a password here, you
will need it to open your company each time. The name of a company
that is locked using TallyVault will be hidden with the asterisk ‗*‘
symbol. You need to provide the TallyVault password to open and
access the company.
 Repeat Password: Here, enter the password entered in the TallyVault field, as a
confirmation.
  Use Security Control?: Setting this option to Yes will allow you to
define the access rights for each user who will access your company. This
feature is explained in forthcoming chapters.

Base Currency Information:

 Base Currency Symbol: The base currency symbol will be filled as per the country
selected.
 Formal Name: The currency‘s formal name will be filled here. In this example, it is
INR (Indian Rupees).
 Suffix Symbol to Amount: For some countries, the currency symbol is
specified after the amount. This option can be enabled for such countries,
so that the currency symbol may be printed after the amount. However,
Vridhi Traders is an Indian company and hence this option is set to No.
 Add Space between Amount and Symbol?: Tally.ERP 9 will provide
a single space between the amount and the currency symbol, if this
option is set to Yes. For e.g.: KSh 5,000. Notice the space between
symbol and the amount.
 Show amounts in Millions?: If the company‘s financial statements need
to have their values expressedin terms of millions, set this option to Yes.
 Number of Decimal Places: By default, the number of decimal places for the base
currency is set to 2. However, you can have up to 4 decimal places. The Indian
currency has 2 decimal places whereas certain other countries require 3 decimal
places and so on.
 Word representing amount after decimal: The symbol for amounts
expressed in decimals will be setby default. For India, it is Paise.
 Decimal Places for printing amounts in Words: You can specify the
number of decimal places for printing the amount in words. This
number should be equal to or lesser than the number specified in
number of decimal Places field. For example, if the currency has up to 3
decimal places, the value to be printed in words can be restricted to 2
decimal places.
 NOTE:
Base currency information is set to the default based on the country selected.
The Completed Company Creation screen

The message Accept? Yes

or No will be displayed.
Press Y or Enter to save the
details.

Notice that Indus Enterprises is highlighted. This indicates that it is the

currently selected company from the list of open companies. You can click on the
name of another company to make it as the currently open company.

 Select a Company
By ‗selecting‘ a company, you are essentially opening the company it in Tally.ERP 9.
1. Go to Gateway of Tally > F3: Company Info. (Alt+F3)
2. Click Select Company, or press S. Tally.ERP 9 displays the Select Company screen,
with a List of Companies
that are available in the location specified. You can also press F1 to get to the Select
Company screen.

 Shut a Company
By ‗shutting‘ a company, you are essentially closing a company.
Go to Gateway of Tally > F3: Company Info. (Alt+F3)
1. Click Shut Company. Tally.ERP 9 displays the Close Company screen, with the
List of Companies that areopen. You can also use Alt+F1 from the Gateway of Tally
 to get to this screen.

 Alter Company Details

By ‗altering‘ a company, you are modifying the details which you have provided in the
Company Creation screen.
Go to Gateway of Tally > F3: Company Info. (Alt+F3)
1. Click Alter or press A. Tally.ERP 9 displays the Select Item screen, with
a List of Companies that are availablein the location specified. Select the
company which you need to alter and press Enter to view the Company
Alteration screen. Alter the company details as required and accept the
screen.

Uses of Tally ERP 9

A trading accounting software helps maintain accounts and perform other accounting and
other analytical operations to manage an organization. The following are the features of the
accounting Software:

 Multi Lingual Software– It is a software that supports multi-languages including 9

Indfian language. In the software, accounts can be maintained in one language and
view transaction reports in different languages without extra effort.
 Numerous Accounts: In tally, one can create up to 99,999 companies and create
multiple accounts. It can manage single or multiple groups as well.
 Popular Software: It is the best accounting software since it has easy to use methods,
no codes, is robust and powerful, executes in real-time, operates at high speed, and
has full-proof online help.
 Synchronization: Tally can maintain transactions created in multiple locations
offices and update them automatically.
 Financial statements: Tally can generate consolidated financial statements in one
click as per the company‘s requirements.
 Payroll: This feature in ERP 9 allows a business to automate employee records
management.
 Accounting software is also used to handle financial and inventory management,
invoicing, sales and purchase management, reporting, and MIS for a business.
 The feature of software accounting customization makes the software suitable for
distinctive business functions.
 It has a low cost of ownership and can be quickly implemented and customize
according to business needs.
 The software supports multi-operating systems, for example, Windows & Linux. It
can also be installed on various systems at the same time.
 It has a straightforward download method that utilizes common space for installation.
 It supports all types of protocols: HTTP, HTTPS, FTP, SMTP, ODBC, etc.
 It is also used for Generating different report files for tax filing, invoices, etc.
 While using the software the number of human errors can be reduced. And the
automated calculations of the software help and play a significant role in maintaining
the financial transparency audit.
 Tally Advanced Features
Introduction
The ‘Features’ in Tally.ERP 9 are a set of capabilities, provided as options, that enable you to
maintain financial records as per your business needs. The company features menu can be found by
clicking F11: Features on the vertical button bar. The effect of these options will be reflected only
in the company for which they are enabled.

The ‗Configurations‘ in Tally.ERP 9 are options that help you modify the way a feature
works. The configuration menu can be found by clicking F12: Configure on the vertical
button bar. The options when enabled, will have aneffect on all the companies in the data
directory.

Once you have created a company in Tally.ERP 9, the next step would be to setup Tally.ERP
9‘s ‗Features‘ and ‗Configurations‘.

There are sets of options that help you optimise your usage of Tally.ERP 9.

Features
The Company Features section in Tally.ERP 9 is divided into the following major categories:

 Accounting Features
 Inventory Features
 Statutory & Taxation
 TSS Features
 Add-On Features

You can press F11: Features from any screen of Tally.ERP 9 or you may also click the F11:
Features button available in the vertical button bar, to enable the required features. The
features are specific only to the company currently in use (for which the said feature is
enabled), thereby allowing flexibility of independently enabling differentfeatures for each of
the companies.

Load the company by name Vridhi Traders and go to Gateway of Tally > press F11:
Company Features
The Company Features Screen appears as per Figure

F11 Company Features Menu Screen

There are various settings available under accounting features, inventory features and statutory
& taxation features,which facilitate the entry of additional information during voucher entry.

Note : TSS Features option is not active, to activate the same you need to enable the Security Control option
inCompany Alteration screen.

Accounting Features
The Accounting Features consists of configurations/functionalities, which generally affect
accounting transactionsand reports.

The Accounting features section is further divided into six sub-sections, namely:

 General
 Outstandings Management
 Cost/Profit Centres Management
 Invoicing
 Budgets and Scenario Management
 Banking Features
 Other Feature
Go to Gateway of Tally > F11: Company Features > Accounting Features or click F1:
Accounting FeaturesThe Accounting Features Screen appears as per Figure
 F11: Accounting Features screen

Enable the required features

Press Enter to accept

Inventory Features
The Inventory features comprise of configurations/functionalities pertaining to inventory
transactions and reports. The Inventory features section is further divided into seven sub-
sections, namely:

 General
 Storage & Classification
 Order Processing
 Invoicing
 Purchase Management
 Sales Management
 Other Features

Go to Gateway of Tally > F11: Company Features > Inventory Features or click F2: Inventory
The Inventory Feature screen appears as per Figure
 F11: Inventory Features Screen

Enable the required featuresPress Enter to accept

Statutory & Taxation Features

The Statutory & Taxation features comprise of configurations/functionalities pertaining to
statutory compliances available in Tally.ERP 9. The Statutory features are country specific
and strictly depend upon the country selectedin the Company Creation screen.

TSS Features
The Tally Software Services (TSS) screen comprises information about Connection,
Remote Access and SMSAccess details of a company. The TSS Features will be available
only when Use Security Control is set to Yes in Company Creation screen.

Go to Gateway of Tally > F11: Company Features > TSS Features or click F4: TSS

Add-On Features
Customers, to meet their accounting requirements, may purchase customised solutions from
Tally Partners. Depending on the customer requirement, the solution provider formulates the
solution. In some cases, a solution may require the introduction of a new feature in Tally.ERP
9 to support the functionality. F6: Add-On Features is aplace holder for the features provided
in the Add-ons/Local TDLs loaded.

Go to Gateway of Tally > F11: Company Features > F6: Add-On Features
Data Management and Security Features
The data management and security features comprises of configurations/functionalities
pertaining to:

 Taking backup of a company

 Restoring the backup of a company
 Splitting a company
 Exporting and importing data using Tally.ERP 9
 E-Mailing
 Data Security

Payroll Features
Tally.ERP 9 integrates payroll features with accounting features, and simplifies payroll
processing. Tally.ERP 9 enables users to set up and implement salary structures, ranging
from simple to complex, as perthe organisation‘s requirements. Users can also align and
automate payroll processes and integrate the same with other accounting applications.
Tally.ERP 9 also supports payslip printing, recording of attendance, leave, and overtime.
Users can also generate gratuity and expat reports.

Configurations
In Tally.ERP 9, F12: Configurations are provided for Accounting, Inventory & printing
options and are user- definable as per the business‘ requirements.

The F12: Configurations are applicable to all the companies residing in the Tally.ERP 9 data
Directory. The F12:Configuration options vary depending upon the context, i.e., if you press
F12: Configure from voucher entry screen, the respective F12: Configurations screen is
displayed.

Go to Gateway of Tally > F12: Configure

 Inventory Management
What is Inventory management ?
There are two ways of how one can consider inventory management. From one perspective
(the most common one), it is the art of sorting and labeling within your physical warehouse.
How you divide shelves, how you barcode your products, what process you install above
these tasks. But that‘s just the basics.

The second view of inventory management (and the one we are going to discuss) is much
more about the big picture and the ultimate goal of keeping a lean inventory. A large
inventory is expensive in so many ways. It holds operational cash. It holds warehouse space,
and it requires more staff to handle. And at the same time. A large inventory doesn‘t bring
benefits. It‘s a pure business pain.

But keeping a lean inventory is extremely complicated. It requires maths and extended
computer power to get it right. The possibilities of everything are so vast that finding ways to
reduce inventory is far beyond the limits of a human brain. Think of it as weather forecasts.
There is no way to create accurate weather forecasts by looking at clouds and trusting human
intuition.

How to reduce inventory ?

Clever inventory management leads to the ultimate goal – small inventory. Obviously, this
goal cannot and must not stand in the way of your business and customer satisfaction. The
trick is to reduce inventory while keeping your product items available for sale.

This is done by searching for the perfect balance between too much inventory and not enough
inventory. Finding the ideal middle spot is the holy grail of retail, and it should be every
shopowner‘s goal.

Inventory management is the last and most significant discipline in retail, reducing your costs
by a substantial portion. You cannot really significantly reduce your staff pay; you can‘t
negotiate substantially different prices with suppliers overnight. But you can reduce your
inventory by tens of percentage points. It can push your business form a ―positive zero‖ to a
profitable, sustainable enterprise. No other retail discipline has this opportunity.

Inventory management tools

As said above, inventory management and its ultimate goal of reducing inventory size require
more computational power than the human brain can comprehend. Luckily enough, finding
the perfect sweet spot between too much inventory and not enough inventory is all about
analyzing numbers and making extensive calculations above these numbers.

This requires a lot of computational power, but it is possible and proven in time.
Understanding numbers is much easier for a computer than understanding human language,
for example.
It is no wonder that supply chain management has been among the first fields where AI and
deep learning have been industrially applied. After all, algorithms need data, and inventory
management creates billions of data every day. Making it the perfect field for automation.

Even Inventory was born from an industrial solution. It‘s a typical story of IT solutions,
which were first created and adopted for the biggest companies on the planet. As technology
advanced and got cheaper, inventory management became a possibility for all. Cheep, yet
still reliable.

What Are the Advantages of Inventory Management?

Accurate inventory management is key to running a successful product business. Tracking
stock regularly can help avoid stock errors and other problems. The following are the benefits
of strong inventory management:

Better Inventory Accuracy: With solid inventory management, you know what‘s in stock
and order only the amount of inventory you need to meet demand.

Reduced Risk of Overselling: Inventory management helps track what‘s in stock and what‘s
on backorder, so you don‘t oversell products.

Cost Savings: Stock costs money until it sells. Carrying costs include storage handling and
transportation fees, insurance and employee salaries. Inventory is also at risk of theft, loss
from natural disasters or obsolescence.

Avoiding Stockouts and Excess Stock: Better planning and management helps a business
minimize the number of days, if any, that an item is out of stock and avoid carrying too much
inventory. Learn more about solving for stockouts in our ―Essential Guide to Inventory
Control.‖

Greater Insights: With inventory tracking and stock control, you can also easily spot sales
trends or track recalled products or expiry dates.

Better Terms With Vendors and Suppliers: Inventory management also provides insights
about which products sell and in what volume. Use that knowledge as leverage to negotiate
better prices and terms with suppliers.

More Productivity: Good inventory management solutions save time that could be spent on
other activities.

Increased Profits: A better understanding of both availability and demand leads to higher
inventory turnover, which leads to greater profits.

A More Organized Warehouse: An efficient warehouse with items organized based on

demand, which items are often sold together and other factors reduces labor costs and speeds
order fulfillment.
Better Customer Experience: Customers that receive what they order on time are more
loyal.

Benefits of Inventory Management Software Integrated with ERP

Inventory management practices can help you save money and keep an accurate stock count.
However, you can see more benefits when you add an ERP system with inventory
management capabilities. With this type of system in place, you‘ll be able to:

Understand Inventory Levels Across the Business: ERP systems can provide an end-to-
end view into orders through all departments, from sales to accounting to fulfillment.
Centralized purchasing reduces duplication when replenishing stock, and having the ability to
purchase in bulk saves money. Further benefits abound when you integrate your inventory
software with accounting and back-office processes.

Automate Manual Tasks: Barcode and RFID scanning can speed stock-taking, receiving
and fulfillment. Using software reduces errors from manual entries and frees staff from
repetitive tasks.

Greater Visibility with Real-Time Data: The right inventory management software will
give you access to real-time information on all SKUs, in all facilities. It will deliver this data
to all devices, no matter where you are.

Improve Forecasting: Software that handles data collection and analytics can provide
insights into trends. And when you understand trends, you can improve your stock
forecasting.

Data-Driven Decision Making: Leverage the analytics capabilities of inventory

management software to make data-driven stock decisions. Save money by reducing
inventory and carrying costs.

Support Uninterrupted Production: By forecasting both demand and lead time, you can
ensure production never experiences a shortage.

Harmonize Multiple Inventory Locations: Get an overview of stock levels in all your
warehouses, distribution centers as well as retail stores and suppliers.

Optimize All Inventory: A robust inventory management software system helps maintain
the right mix of stock and quantities, and at the best carrying costs. It‘ll help you ensure you
never have too much or too little on-hand.

Scale Inventory as Your Business Grows: You can‘t accurately track 1,000 SKUs in 15
facilities manually. Inventory management software can handle that task for you.

Ensure Compliance With Generally Accepted Accounting Principles (GAAP): Correctly

valuing stock is vital for financial transparency. Inventory management software provides the
accuracy that GAAP requires.
Improve Product Visibility in Recalls: Digital systems allow managers to use lot or serial
number records to trace products by date and location.

What Are the Disadvantages of Inventory Management Systems?

The disadvantages of inventory management systems are the same as for other software.
Solutions can be expensive, hard to learn and subject to hacks. However, simple safeguards
can mitigate weaknesses:

Expensive for Small Businesses: The cost of inventory management software can seem
daunting to a small business, but the investment often pays for itself in increased profits and
improved customer loyalty. Additionally, cloud-based systems have made software that was
once the domain of large enterprises available to smaller businesses.

Complex to Learn: Business software is sometimes tricky to learn. However, managers can
help by investing in online training to quickly bring users up to speed.

Risk of System Crashes: Software does crash. However, you can remove the risk of data
and productivity loss by using cloud-based platforms.

Malicious Hacks: Malicious hacks are a risk to all businesses. The Internet of Things
(IoT) adds even more complexity. Cloud-based software typically has greater security than a
single company would offer on its own because of the risk a breach would have on the
vendor.

Reduced Physical Audits: When you automate some warehouse operations, it‘s easy to skip
a physical inventory check. Solve this by instituting regular audits.
 Banking & Finances
BANKING

What is banking and why is it important?

Banking is defined as the business activity of accepting and safeguarding money owned by
other individuals and entities, and then lending out this money in order to conduct economic
activities such as making profit or simply covering operating expenses.

A bank is a financial institution licensed to receive deposits and make loans. Two of the most
common types of banks are commercial/retail and investment banks. Depending on type, a
bank may also provide various financial services ranging from providing safe deposit boxes
and currency exchange to retirement and wealth management.

In the United States of America banks are regulated by the U.S. Federal Reserve Bank which
is one of the world's major central banks. Above all, central banks are responsible for
currency stability. They control inflation, dictate monetary policies, and oversee money
demand and supply in the market. Commercial or retail banks offer various services
including, but not limited to, managing money deposits and withdrawals, providing basic
checking and saving accounts, certificates of deposit, issuing debit and credit cards to
qualified customers, supplying short-and long-term loans such as car loans, home mortgages
or equity line of credits. Investment banks gear their services toward corporate
clients. They provide services such as merger and acquisition activity and underwriting
among other investment services.
in 2017, the Federal Deposit Insurance Corporation (FDIC) conducted a U.S national
survey to estimate the number of unbanked and underbanked American households. Survey
executive summary revealed that approximately 8.4 million U.S. household or 20.5 million
individuals were unbanked, which means no one in that household had a saving or a checking
account.

Survey also indicated that approximately 24.2 million U.S. households or 64.3 million
individuals were underbanked, which means the household had an account at an insured
institution but also obtained financial products or services outside of the banking system.

But why is this important? because those who are unbanked or underbanked are hindering
their financial lives from enjoying services that lead to financial well-being. Many must
resort to services outside the banking system to cash checks or borrow loans and incur higher
transaction fees and interest unnecessarily. Here are some of the reasons why banking tops
the list of pillars required in financial literacy.

 Safeguard your cash

 Manage your finances – record keeping and budgeting
 Receive your paycheck quickly using direct deposit
 Facilitate financial transactions
 Insure your liquid assets
 Use debit and credit card services
 Earn interest
 Borrow loans
 Invest your money
 Establish a credit history to generate a FICO credit score instrumental in borrowing
funds and building wealth
Different types of banking
An illustration of Northern National Bank as advertised in a 1921 book highlighting the
opportunities available in Toledo, Ohio

Banks' activities can be divided into:

retail banking, dealing directly with individuals and small businesses;

business banking, providing services to mid-market business;

corporate banking, directed at large business entities;

private banking, providing wealth management services to high-net-worth individuals and

families;

investment banking, relating to activities on the financial markets.

Most banks are profit-making, private enterprises. However, some are owned by the
government, or are non-profit organisations.

Types of banks

National Bank of the Republic, Salt Lake City 1908

The BANK of Greenland, Nuuk

An office of Nordea bank in Mariehamn, Åland

ATM Al-Rajhi Bank

National Copper Bank, Salt Lake City 1911

A branch of Union Bank in, Visakhapatnam

Commercial banks: the term used for a normal bank to distinguish it from an investment
bank. After the Great Depression, the U.S. Congress required that banks only engage in
banking activities, whereas investment banks were limited to capital market activities. Since
the two no longer have to be under separate ownership, some use the term "commercial bank"
to refer to a bank or a division of a bank that mostly deals with deposits and loans from
corporations or large businesses.

Community banks: locally operated financial institutions that empower employees to make
local decisions to serve their customers and partners.

Community development banks: regulated banks that provide financial services and credit to
under-served markets or populations.

Land development banks: The special banks providing long-term loans are called land
development banks (LDB). The history of LDB is quite old. The first LDB was started at
Jhang in Punjab in 1920. The main objective of the LDBs is to promote the development of
land, agriculture and increase the agricultural production. The LDBs provide long-term
finance to members directly through their branches.

Credit unions or co-operative banks: not-for-profit cooperatives owned by the depositors and
often offering rates more favourable than for-profit banks. Typically, membership is
restricted to employees of a particular company, residents of a defined area, members of a
certain union or religious organisations, and their immediate families.

Postal savings banks: savings banks associated with national postal systems.

Private banks: banks that manage the assets of high-net-worth individuals. Historically a
minimum of US$1 million was required to open an account, however, over the last years,
many private banks have lowered their entry hurdles to US$350,000 for private investors.

Offshore banks: banks located in jurisdictions with low taxation and regulation. Many
offshore banks are essentially private banks.

Savings banks: in Europe, savings banks took their roots in the 19th or sometimes even in the
18th century. Their original objective was to provide easily accessible savings products to all
strata of the population. In some countries, savings banks were created on public initiative; in
others, socially committed individuals created foundations to put in place the necessary
infrastructure. Nowadays, European savings banks have kept their focus on retail banking:
payments, savings products, credits, and insurances for individuals or small and medium-
sized enterprises. Apart from this retail focus, they also differ from commercial banks by
their broadly decentralised distribution network, providing local and regional outreach – and
by their socially responsible approach to business and society.

Building societies and Landesbanks: institutions that conduct retail banking.

Ethical banks: banks that prioritize the transparency of all operations and make only what
they consider to be socially responsible investments.
A direct or internet-only bank is a banking operation without any physical bank branches.
Transactions are usually accomplished using ATMs and electronic transfers and direct
deposits through an online interface.

Types of investment banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues,
provide investment management, and advise corporations on capital market activities such as
M&A, trade for their own accounts, make markets, provide securities services to institutional
clients.

Merchant banks were traditionally banks which engaged in trade finance. The modern
definition, however, refers to banks which provide capital to firms in the form of shares
rather than loans. Unlike venture caps, they tend not to invest in new companies.

Combination banks

A Banco do Brasil office in São Paulo, Brazil, the bank is the largest financial institution in
Brazil and Latin America.

Universal banks, more commonly known as financial services companies, engage in several
of these activities. These big banks are very diversified groups that, among other services,
also distribute insurance – hence the term bancassurance, a portmanteau word combining
"banque or bank" and "assurance", signifying that both banking and insurance are provided
by the same corporate entity.

Other types of banks

Central banks are normally government-owned and charged with quasi-regulatory

responsibilities, such as supervising commercial banks, or controlling the cash interest rate.
They generally provide liquidity to the banking system and act as the lender of last resort in
event of a crisis.
Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around
several well-established principles based on Islamic laws. All banking activities must avoid
interest, a concept that is forbidden in Islam. Instead, the bank earns profit and fees on the
financing facilities that it extends to customers.

FINANCES
Finance is regarded as the life blood of a business enterprise. This is because in the modern
money-oriented economy, finance is one of the basic foundations of all kinds of economic
activities. Long considered a part of economics, corporation finance emerged as a separate
field of study in the early part of 20th century. At first it dealt with only the instruments,
institutions, and procedural aspects of capital markets. Accounting data and financial records
were not the kind we use today, nor were regulations making it necessary to disclose financial
data. But interest in financial innovations, promotions, consolidations, and mergers has
always been increasing. In a modern company‘s development, the financial manager plays a
dynamic role. Besides records, reports, the firm‘s cash position, and obtaining funds, the
financial manager is concerned with (1) investing funds in short-term as well as in long-term
assets and (2) obtaining the best mix of financing and dividends in relation to the overall
solution of the firm. All of this demands a broad outlook and an alert creativity that will
influence almost all facts of the enterprise and its external environment.

RELATION OF FINANCE FUNCTION WITH OTHER DISCIPLINES

Finance function is not a totally independent area of Business. Being an integral part of the
over-all management, it draws heavily on related disciplines and fields of study, namely,
economics, accounting, marketing, production and operations research. These areas are both
interrelated and different as well. Now, we discuss the relationship among finance function
and the various related disciplines.

Finance and Economics:

Traditionally, finance was not considered a separate input. In the traditional theory, finance
was supposed to take the form of either circulating capital or fixed capital, and the concept of
finance as distinct from capital was not well conceived and developed. In modern theory
finance is different from capital. The field of finance is closely allied to the field of
economics. Finance management is a form of applied economics, which draws heavily on
economic theory. Economics deals with supply and demand, costs and profits, production,
consumption and so on. Finance is closely related to economics, for it is seriously concerned
with 4 supply and demand in the financial markets, including the stock exchange, the money
market, foreign exchange market, etc. It is equally concerned with the policies of the Reserve
Bank of India as they are reflected in commercial banks and financial institutions in general.
When moneymarket is tight, financial environment is hard-hit. In a period of economic
depression, business activity recedes and the financial market is adversely affected. The
importance of economics in the development of finance function and economic theory is
more evident in two areas of economics-macroeconomics and micro-economics.

Macro economics is concerned with the structure of banking system, financial intermediaries,
the public finance system and economic policies of the Government. Since the business firm
has to operate in the macroeconomic environment, the finance manager has to be aware of the
institutional framework it contains. He must be alert to the consequences of the varying levels
of economic activities and changes in economic policies. In the absence of an understanding
of the broad economic environment, the finance manager will not be able to achieve financial
success.

Micro economics is concerned with the determination of optimal operating strategies for
firms as individuals, with the efficient operations and with defining an action that will make it
possible for a firm to achieve financial success. The concepts involved in supply and demand
relationships and profit maximizing strategies are drawn for the micro economic theory. The
theories related to the management of utility preference, risk and determination of value are
rooted in micro economic theory. The rationale of depreciating assets is taken from this area
of economics. Although the finance manager does not directly apply the theories of micro
economics, he must act in conformity with the general principles established by these
theories. Thus, knowledge of both micro and macroeconomics is necessary for a finance
manager so as to understand the financial environment. Stated simply, economics is closely
intertwined with finance.

Finance and Accounting:

Much of modern business management has only been possible by accounting information.
Management is a process of converting information into action; and accounting is a source of
most of the information that is used for this purpose. Accounting has been described by
Richard M. Lynch and Robert W. Williamson as "the measurement and communication of
financial and economic data". It is a discipline which provides information 5 essential to the
efficient conduct and evaluation of the activities of any organization. The endproduct of
accounting is financial statements such as the balance sheet, the income statement and the
statement of changes in financial position (sources and uses of funds statement). The
information contained in these statements and reports assists the financial managers in
assessing the past performance and future directions of the firm and in meeting certain legal
obligations, such as payment of taxes and so on. Thus, accounting and finance are
functionally closely related. However, there are key differences in viewpoint between finance
and accounting. The first difference relates to the treatment of funds while the second relates
to decision-making.

As far as the viewpoint of accounting relating to the treatment of funds is concerned, the
measurement of funds in it is based on the accrual system. For example, revenue is
recognized at the point of sale and not when collected. Similarly, expenses are recognized
when they are incurred rather than when actually paid. The accounting data based on accrual
system do not reflect fully the financial circumstances of the firm. On the other, the
viewpoint of finance relating to the treatment of funds is based on cash flows. The revenues
are recognized only when actually received in cash and expenses are recognized on actual
payment (i.e. cash outflow). This is on account of the fact that the finance manager is
concerned with maintain solvency of the firm by providing the cash flows necessary to satisfy
its obligations and acquiring and financing the assets needed to achieve the goals of the firm.

Regarding the difference in accounting and finance with respect to their purpose, it needs to
be noted that the purpose of accounting is collection and presentation of financial data. The
financial manager uses these data for financial decision-making. But, from this one should
not conclude that accountants never make decisions or financial managers never collect data.
The fact is that the primary focus of the functions of accountants is on collection and
presentation of data while the finance manager‘s major responsibility is concerned to
financial planning, controlling and decision- making.

Finance and other concerned Disciplines

There exists an inseparable relationship between the finance functions on the one hand and
production, marketing and other functions on the other. Almost all kinds of business
activities, directly or indirectly, involve the acquisition and use of money. For instance,
recruitment and promotion of employees in production is clearly a responsibility of the
production department. But 6 it requires payment of wages and salaries and other benefits,
and thus, involves finance. Similarly, buying a machine or replacing an old machine for the
purpose of increasing productive capacity affects the flow of funds. Sales promotion policies
require outlays of cash, and therefore, affect financial resources. How, then, we can separate
production and marketing functions and the finance function of making money available to
meet the costs of production and marketing operations ? We can‘t give precise answer to this
question. In fact, finance policies are devised to fit production marketing and personnel
decisions of a firm in practice.

FUNCTIONS OF FINANCE

Depending upon the nature and size of the firm, the finance manager is required to perform
all or some of the following functions. These functions outline the scope of financial
management.

Investment Decision

Investment decision is the ‗oldest‘ area of the recent thinking in finance. The investment
decision relates to the selection of assets in which funds will be invested by a firm. The assets
which can be acquired fall into two broad groups: (i) long term assets which yield a return
over a period of time in future, (ii) short-term or current assets defined as those assets which
in normal course of business are convertible into cash usually within a year. The decisions
related to the former aspect are called ‘capital budgeting‘ decisions while the latter type of
decisions are termed as working capital decisions. Because of the uncertain future, capital
budgeting decision involves risk. Other major aspect of capital budgeting theory relates to the
selection of a standard or hurdle rate against which the expected return of new investment can
be assayed. This standard is broadly expressed in terms of the cost of capital. The
measurement of the cost of capital is, thus, another major aspect of the capital budgeting
decision. For details of these decisions, please see lesson 5.

Working Capital Management, on the other hand, deals with the management of current
assets of the firm. Though the current assets do not contribute directly to the earnings, yet
their existence is necessitated for the proper, efficient and optimum utilization of fixed assets.
There are dangers of both the excessive as well as the shortage of working capital. A finance
manager has to ensure sufficient and adequate working capital to the firm. A trade-off
between liquidity and profitability is required.

Financing Decision

Provision of funds required at the proper time is one of the primary tasks of the finance
manager. Every business activity requires funds and hence every financial manager is
confronted with this problem. The investment decision is broadly concerned with the asset-
mix or the composition of the assets of a firm. The concern of the financing decision is with
the financing- 9 mix or capital structure or leverage. The term capital structure refers to the
proportion of debt and equity capital. The financing decision of a firm relates to the choice of
the proportion of these sources to finance the investment requirements. There are two aspects
of the financing decision - (i) the theory of capital structure which shows the theoretical
relationship between the employment of debt and the return to the shareholders. The use of
debt implies a higher return to the shareholders as also the financial risk. A judicious mix of
debt and equity to ensure a trade-off between risk and return to the shareholders is necessary.
A finance manager has to evaluate different combinations of debt and equity and adopt one
which is optimum for the firm. Leverage analysis, EBIT-EPS analysis, capital structure
models etc. are some of the tools available to a finance manager for this purpose.

Dividend Decision
Another major area of decision making by a finance manager is known as the Dividend
decisions which deal with the appropriations of after tax profits. The finance manager must
decide whether the firm should distribute all profits, or retain them, or distribute a portion and
retain the balance. Like the debt policy, the dividend should be determined in terms of its
impact on the shareholder‘s value. The optimum dividend policy is one which maximises the
market value of the firm‘s shares. Thus, if shareholders are not indifferent to the firm‘s
dividend policy, the financial manager must determine the optimum dividend pay-out ratio.
The dividend pay-out ratio is equal to the percentage of dividends distributed to earnings
available to shareholders. The financial manager should also consider the questions of
dividend stability, bonus shares and cash dividends.
 Book/Record Keeping
Introduction
Bookkeeping is the recording of financial transactions, and is part of the process
of accounting in business and other organizations. It involves preparing source documents for
all transactions, operations, and other events of a business. Transactions include purchases,
sales, receipts and payments by an individual person or an organization/corporation. There
are several standard methods of bookkeeping, including the single-entry and double-
entry bookkeeping systems. While these may be viewed as "real" bookkeeping, any process
for recording financial transactions is a bookkeeping process.

The person in an organisation who is employed to perform bookkeeping functions is usually

called the bookkeeper (or book-keeper). They usually write the daybooks (which contain
records of sales, purchases, receipts, and payments), and document each financial transaction,
whether cash or credit, into the correct daybook—that is, petty cash book, suppliers ledger,
customer ledger, etc.—and the general ledger. Thereafter, an accountant can create financial
reports from the information recorded by the bookkeeper. The bookkeeper brings the books
to the trial balance stage, from which an accountant may prepare financial reports for the
organisation, such as the income statement and balance sheet.

Process of Book keeping

The primary purpose of bookkeeping is to record the financial effects of transactions. An

important difference between a manual and an electronic accounting system is the former's
latency between the recording of a financial transaction and its posting in the relevant
account. This delay, which is absent in electronic accounting systems due to nearly
instantaneous posting to relevant accounts, is characteristic of manual systems, and gave rise
to the primary books of accounts—cash book, purchase book, sales book, etc.—for
immediately documenting 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.

After a certain period, typically a month, each column in each journal is totalled to give a
summary for that period. Using the rules of double-entry, these journal summaries are then
transferred to their respective accounts in the ledger, or account book. For example, the
entries in the Sales Journal are taken and a debit entry is made in each customer's account
(showing that the customer now owes us money), and a credit entry might be made in the
account for "Sale of class 2 widgets" (showing that this activity has generated revenue for
us). This process of transferring summaries or individual transactions to the ledger is
called posting. Once the posting process is complete, accounts kept using the "T" format
undergo balancing, which is simply a process to Arrive at the balance of the account.

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
Single-entry system

Main article: single-entry bookkeeping

The primary bookkeeping record in single-entry bookkeeping is the cash book, which is
similar to a checking account register (in UK: cheque account, current account), except all
entries are allocated among several categories of income and expense accounts. Separate
account records are maintained for petty cash, accounts payable and accounts receivable, and
other relevant transactions such as inventory and travel expenses. To save time and avoid the
errors of manual calculations, single-entry bookkeeping can be done today with do-it-yourself
bookkeeping software.

Double-entry system

Main article: double-entry bookkeeping

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.

Daybooks

A daybook is a descriptive and chronological (diary-like) record of day-to-day financial

transactions; it is also called a book of original entry. The daybook's details must be
transcribed formally into journals to enable posting to ledgers. Daybooks include:

Sales daybook, for recording sales invoices.

Sales credits daybook, for recording sales credit notes.

Purchases daybook, for recording purchase invoices.

Purchases debits daybook, for recording purchase debit notes.

Cash daybook, usually known as the cash book, for recording all monies received and all
monies paid out. It may be split into two daybooks: a receipts daybook documenting every
money-amount received, and a payments daybook recording every payment made.

General Journal daybook, for recording journal entries.

Petty cash book

A petty cash book is a record of small-value purchases before they are later transferred to the
ledger and final accounts; it is maintained by a petty or junior cashier. This type of cash book
usually uses the imprest system: a certain amount of money is provided to the petty cashier
by the senior cashier. This money is to cater for minor expenditures (hospitality, minor
stationery, casual postage, and so on) and is reimbursed periodically on satisfactory
explanation of how it was spent. And also the balance of petty cash book is Asset.

Journals

Journals are recorded in the general journal daybook. A journal is a formal and chronological
record of financial transactions before their values are accounted for in the general ledger
as debits and credits. A company can maintain one journal for all transactions, or keep
several journals based on similar activity (e.g., sales, cash receipts, revenue, etc.), making
transactions easier to summarize and reference later. For every debit journal entry recorded,
there must be an equivalent credit journal entry to maintain a balanced accounting equation.

Ledgers

A ledger is a record of accounts. The ledger is a permanent summary of all amounts entered
in supporting Journals which list individual transactions by date. These accounts are recorded
separately, showing their beginning/ending balance. A journal lists financial transactions in
chronological order, without showing their balance but showing how much is going to be
charged in each account. A ledger takes each financial transaction from the journal and
records it into the corresponding account for every transaction listed. The ledger also sums up
the total of every account, which is transferred into the balance sheet and the income
statement. There are three different kinds of ledgers that deal with book-keeping:
Sales ledger, which deals mostly with the accounts receivable account. This ledger consists of
the records of the financial transactions made by customers to the business.

Purchase ledger is the record of the purchasing transactions a company does; it goes hand in
hand with the Accounts Payable account.

RECORD KEEPING
Recordkeeping is the act of keeping track of the history of a person‘s or organization‘s
activities, generally by creating and storing consistent, formal records.

Recordkeeping is keeping records, or ‖units of preserved information in some permanent

form (written documents, photographs, recordings, etc.).‖ Record can also refer to a
collection of such items or a history in general. Recordkeeping is typically used in the context
of official accounting, especially for businesses or other organizations.

Example: The company‘s recordkeeping was very extensive, with each employee‘s hiring,
pay, and job performance thoroughly documented.

System of Record Keeping

First, there must be a rational approach to record keeping. This means setting up
accounts in which financial information is stored. Accounts fall into the following
classifications:

Assets. These are items purchased or acquired, but not immediately consumed. Examples
are accounts receivable and inventory.

Liabilities. These are obligations of the business, to be paid at a later date. Examples are
accounts payable and loans payable.

Equity. This is assets minus liabilities, and represents the ownership interest of the
owners of the business. Examples are common stock and preferred stock.

Revenue. This is the amount billed to customers in exchange for the delivery of goods or
provision of services.

Expenses. This is the amount of assets consumed during the measurement period.
Examples are rent expense and wages expense.

Transactions
The accountant is responsible for producing a number of business transactions, while
others are forwarded to the accountant from other parts of the company. As part of these
transactions, they are recorded within the accounts that we noted in the first point. Key
transactions are:
Purchase materials and services. Requires the issuance of purchase orders and the
payment of supplier invoices.

Sell goods and services to customers. Requires the creation of an invoice to be sent to
each customer, documenting the amount owed by the customer.

Receive payments from customers. Requires matching received cash to open invoices.

Pay employees. Requires the collection of time worked information from employees,
which is then used to produce gross wage information, tax deductions, and other
deductions, resulting in net pay to employees.

Reporting
Once all of the transactions related to an accounting period have been completed, the
accountant aggregates the information stored in the accounts and reformats it into three
documents that are collectively called the financial statements. These statements are
noted below.

Income Statement
The income statement presents revenues and subtracts all expenses incurred to arrive at a
net profit or loss for the reporting period. It measures the ability of a business to attract
customers and operate in an efficient manner.

Balance Sheet
The balance sheet presents the assets, liabilities, and equity of a business as of the end of
the reporting period. It presents the financial position of an entity as of a point in time,
and is closely reviewed to determine the ability of an organization to pay its bills.

Statement of Cash Flows

The statement of cash flows presents the sources and uses of cash during the reporting
period. It is especially useful when the amount of net income appearing on the income
statement varies from the net change in cash during the reporting period.