Course In Digital Accounting (CDA)

Module - 1 IT Foundation and Digital Tools

 Computer Fundamentals & Operating System

 What is a computer -: A computer is a machine that can store, retrieve, and

process information. It can also perform a series of logical or arithmetic
operations automatically. Computers can come in many sizes, from handheld
phones to supercomputers.
How does a computer work?
 A computer accepts data (input)
 It processes the data according to instructions stored in its memory
 It produces information (output)
 It stores the information for future use
 Characteristics of a Computer- Computers have many characteristics,
including speed, accuracy, versatility, reliability, automation, memory, and
consistency.
Speed
 Computers can perform millions of calculations per second.
 A powerful computer can perform millions of simple instructions per second.
Accuracy
 Computers can perform instructions with a high degree of accuracy and
efficiency.
 The accuracy of a computer depends on its design.
Versatility
 Computers can perform a variety of tasks, such as preparing examination results,
electricity bills, and helping to trace letters.
Reliability
 Computers can give consistent results for similar sets of data.
 Computers can perform tasks automatically without manual intervention.
Automation
 Computers are automatable devices that can perform a task without any user
intervention.
Memory
 Computers can store large amounts of data, including images, videos, text, and
audio.
Consistency
 Computers can be relied upon for critical tasks and applications.
 Consistency minimizes the risk of errors or failures that can disrupt productivity
or cause data loss.
 Basic Applications of Computer- Computers are used for a wide array of tasks,
including creating documents, browsing the internet, sending emails, playing
games, and managing data, making them essential tools in various aspects of
daily life and work.
Here are some basic applications of computers:
 Communication: Sending and receiving emails, video conferencing, instant
messaging, and using social media platforms.
 Information Access: Browsing the internet, searching for information, and
accessing online resources.
 Document Creation: Writing reports, creating presentations, and editing
documents using word processing software.
 Data Management: Organizing and managing files, spreadsheets, and databases.
 Entertainment: Playing games, streaming videos, listening to music, and
accessing online entertainment platforms.
 Shopping and Banking: Making online purchases, managing bank accounts, and
conducting financial transactions
 Advantages and Disadvantages of a Computer- Computers offer advantages
like increased efficiency, vast storage, and global connectivity, but also pose
disadvantages such as health risks, security vulnerabilities, and potential job
displacement.
(Advantages)
 Increased Efficiency and Productivity: Computers can perform tasks quickly
and accurately, saving time and resources.
 Vast Storage and Information Access: They can store and access large
amounts of information, making it easy to retrieve and manage data.
 Global Connectivity: Computers facilitate communication and collaboration
with people worldwide.
 Automation of Tasks: They can automate repetitive tasks, freeing up human
resources for more complex work.
 Learning and Education: Computers provide access to a wealth of educational
resources and tools.
 Enhanced Creativity and Innovation: They can be used to create and explore
new ideas and technologies.
 Accuracy and Reliability: Computers consistently perform tasks accurately,
reducing errors in repetitive operations.
 Multitasking Capabilities: They can run multiple applications simultaneously,
boosting productivity and enabling smooth workflows.
 Resource Sharing: Computers can share resources like printers and files,
improving efficiency and collaboration.
(Disadvantages)
 Health Risks: Prolonged computer use can lead to eye strain, carpal tunnel
syndrome, and poor posture.
 Security Risks: Computers are vulnerable to cyberattacks, malware, and data
breaches.
 Job Displacement: Automation can lead to job losses in certain sectors.
 Privacy Concerns: Personal information can be collected and stored on
computers, raising privacy concerns.
 Environmental Impact: Computer manufacturing and disposal can have
negative environmental impacts.
 Addiction and Time Consumption: Excessive computer use can lead to
addiction and time wastage.
 Cost of Maintenance and Upgrades: Computers require regular maintenance
and upgrades, which can be costly.
 Cybercrimes: Computers can be used for illegal activities, such as hacking and
identity theft.
 Fake News: The internet can be a source of misinformation and fake news.
  E-waste: Discarded computers can contribute to the problem of electronic
waste.
 History of Computer- Generations of computing
The history of computer development is often referred to in reference to the different
generations of computing devices. Each generation of computer is characterized by a
major technological development that fundamentally changed the way computers
operate, resulting in increasingly smaller, cheaper, more powerful, efficient and reliable
devices.
 Generation of Computer- First Generation - 1940-1956:
The first computers used vacuum tubes for circuitry and magnetic drums for memory.
They were often huge (occupying entire rooms), very expensive to operate, using a
great deal of electricity and generated a lot of heat (which was often the cause of
malfunctions). First generation computers only solve one problem at a time. Input was
based on punched cards and paper tape, and output was displayed on printouts.
Charles Babbage was an English inventor and mathematician has earned his place in
history as the "Father of Computing.
Examples of first-Generation computers: UNIVAC (Universal Automatic Computer),
ENIAC (Electronic Numerical Integrator and Computer). The UNIVAC was the first
commercial computer delivered to a business client, the U.S. Census Bureau in 1951.
Second Generation - 1956-1963:
Transistors replaced vacuum tubes and ushered in the second generation of computers.
The transistor was far superior to the vacuum tube, allowing computers to become
smaller, faster, cheaper, more energy-efficient and more reliable than their first-
generation predecessors. Second-generation computers still relied on punched cards
for input and printouts for output. Second-generation computers moved from cryptic
binary machine language to symbolic, or assembly, languages, which allowed
programmers to specify instructions in words. High-level programming languages were
also being developed at this time, such as early versions of COBOL and FORTRAN.
These were also the first computers that stored their instructions in their memory,
which moved from a magnetic drum to magnetic core technology.
The first computers of this generation were developed for the atomic energy industry.
 Third Generation - 1964-1971:
The development of the integrated circuit was the hallmark of the third generation of
computers. Transistors were miniaturized and placed on silicon chips, called
semiconductors, which drastically increased the speed and efficiency of computers.
Instead of punched cards and printouts, users interacted with third generation
computers through keyboards and monitors and interfaced with an operating system,
which allowed the device to run many different applications at one time with a central
program that monitored the memory. Computers for the first time became accessible to
a mass audience because they were smaller and cheaper than their predecessors.
Fourth Generation - 1971-Present:
The microprocessor brought the fourth generation of computers, as thousands of
integrated circuits were built onto a single silicon chip. What in the first generation
filled an entire room could now fit in the palm of the hand. The Intel 4004 chip,
developed in 1971, located all the components of the computer - from the central
processing unit and memory to input/output controls - on a single chip. In 1981, IBM
introduced its first computer for the home user, and in 1984 Apple introduced the
Macintosh. Microprocessors also moved into many areas of life as more and more
everyday products began to use microprocessors. As these small computers became
more powerful, they could be linked together to form networks, which eventually led to
the development of the Internet. Fourth generation computers also saw the
development of GUIs, the mouse and handheld devices.
Fifth Generation - Present and Beyond:
Artificial Intelligence Fifth generation computing devices, based on artificial intelligence,
are still in development, though there are some applications, such as voice recognition,
that are being used today. The use of parallel processing and superconductors is
helping to make artificial intelligence a reality. Quantum computation and molecular
and nanotechnology will radically change the face of computers in years to come. The
goal of fifth-generation computing is to develop devices that respond to natural
language input and are capable of learning and self-organization.
 Classification of Computers-
Computers can be classified based on size, purpose, and architecture, leading to
categories like microcomputers (personal computers), minicomputers, mainframes,
supercomputers, servers, and embedded systems.
 Microcomputers (Personal Computers - PCs): These are the most common
type, designed for individual use and include desktops, laptops, and tablets.
 Minicomputers: These are larger and more powerful than microcomputers,
often used in multi-user environments, but smaller than mainframes.
 Mainframe Computers: These are large, powerful, and expensive computers
used by large organizations for critical applications, like banking or government.
 Supercomputers: These are the most powerful computers, designed for
complex and computationally intensive tasks, like weather forecasting or
scientific simulations.
 Servers: These are dedicated computers that provide services to other
computers on a network, such as web hosting or email.
 Embedded systems: These are specialized computers designed for specific
tasks, often found in devices like cars, appliances, and industrial equipment.
 Analog Computers: These computers use continuous physical quantities (like
voltage or pressure) to model and solve problems.
 Digital Computers: These computers use discrete (binary) numbers to
represent data and perform calculations.
 Hybrid Computers: These computers combine the features of both analog and
digital computers.
 Workstations: These are powerful computers designed for professional tasks,
such as graphics design or scientific research.
 High-performance computing (HPC): This refers to the use of supercomputers
or computer clusters to tackle large-scale computational problems.
 Components of computer-
A computer's components can be broadly categorized into hardware (physical parts)
and software (programs and instructions). Key hardware components include the
motherboard, CPU, RAM, storage devices (like hard drives or SSDs), power supply, and
input/output devices (like keyboard, mouse, and monitor).
Hardware Components:
Motherboard: The main circuit board that connects all other components, acting as the
backbone of the computer.
CPU (Central Processing Unit): The "brain" of the computer, responsible for executing
instructions and processing data.
RAM (Random Access Memory): Temporary storage for data and programs that the CPU
is actively using; data is lost when power is turned off.
Storage Devices: Hard Disk Drive (HDD) or Solid-State Drive (SSD): Used for storing
data and programs permanently.
Power Supply: Provides the necessary electrical power to all the components.
Input/Output Devices: Keyboard: Used to input text and commands.
Mouse: Used for navigation and input.
Monitor: Displays visual information.
Graphics Processing Unit (GPU):
Handles the processing of graphics and visuals, especially important for gaming and
video editing.
Computer Case: The physical enclosure that houses all the internal components.
Software Components
Operating System (OS): Software that manages the computer's hardware and software
resources, allowing users to interact with the computer.
Application Software: Programs designed to perform specific tasks, such as word
processing, web browsing, or image editing
Computer Memory-
In computer memory, data and instructions are stored, and it's broadly categorized into
primary (RAM, ROM, Cache) and secondary (Hard Disk, SSD) memory, with RAM being
volatile and used for active operations, while secondary memory provides persistent
storage.
Here's a more detailed explanation of computer memory and its types:
1. Primary Memory (Main Memory):
 Definition: This is the memory directly accessible by the CPU (Central Processing
Unit) and is used to store data and instructions that the CPU is actively working
with.
 Types: RAM (Random Access Memory):
 Definition: RAM is a volatile type of memory, meaning that data stored in it is
lost when the power is turned off.
 Function: RAM is used to store the operating system, applications, and data that
the computer is currently using.
Types of RAM:
 DRAM (Dynamic RAM): The most common type of RAM, used in most
computers.
 SRAM (Static RAM): Faster than DRAM but more expensive and less common.
 ROM (Read-Only Memory): ROM is a non-volatile type of memory, meaning
that the data stored in it is retained even when the power is turned off.
 Function: ROM typically contains the computer's boot-up instructions and other
essential software.
 Types of ROM:
 PROM (Programmable Read-Only Memory): Can be programmed once by the
user.
 EPROM (Erasable Programmable Read-Only Memory): Can be erased and
reprogrammed using ultraviolet light.
  EEPROM (Electrically Erasable Programmable Read-Only Memory): Can
be erased and reprogrammed electrically.
 Cache Memory:
 Definition: Cache memory is a small, fast memory that stores frequently
accessed data and instructions for quick access by the CPU.
 Function: It acts as a buffer between the CPU and main memory, improving
performance.
 Types of Cache:
 L1 Cache: The fastest and smallest cache, located on the CPU chip.
 L2 Cache: Larger and slower than L1 cache, also located on the CPU chip.
 L3 Cache: The largest and slowest cache, often located on the motherboard.
2.Secondary Memory (Auxiliary Memory):
 Definition: This is the memory used for long-term storage of data and programs,
and it is non-volatile.
 Types:
 Hard Disk Drive (HDD):
 Definition: A traditional storage device that uses magnetic platters to store
data.
 Function: HDDs are used to store operating systems, applications, and user
files.
 Solid State Drive (SSD):
 Definition: A storage device that uses flash memory to store data.
 Function: SSDs are faster and more durable than HDDs.
 Optical Discs (CD, DVD, Blu-ray):
 Definition: Optical discs are a type of removable storage medium that uses laser
technology to store data.
 Function: Optical discs are used to store software, movies, and music.
 USB Flash Drives (Pen Drives):
 Definition: A small, portable storage device that uses flash memory to store
data.
 Function: USB flash drives are used to transfer data between computers.
 Concepts of Hardware and Software-
In computing, hardware refers to the physical components of a computer system
(like the monitor, keyboard, and CPU), while software encompasses the instructions
and programs that tell the hardware what to do.
Hardware: The tangible, physical parts of a computer system that you can touch and
see.
Examples:
 Input devices: Keyboard, mouse, microphone.
Output devices: Monitor, printer, speakers.
Storage devices: Hard drive, SSD, USB drive.
Processing units: CPU, GPU.
Internal components: Motherboard, RAM, power supply.
Function:
Hardware provides the physical foundation for a computer system, enabling it to
perform tasks.
Software: A set of instructions or programs that tell the hardware what to do and
how to do it.
 Examples:
o Operating Systems (OS): Windows, macOS, Linux.
o Application Software: Word processors (like Microsoft Word), web browsers (like
Chrome), image editors (like Photoshop).
o System Software: Utilities that help manage the computer's resources.
 Function: Software is essential for enabling the hardware to perform specific tasks
and interact with users.
 Languages-In the context of computers, languages serve as a way for humans
to communicate instructions to machines. They are categorized into types like
machine, assembly, and high-level languages, each with varying levels of
abstraction and human readability.
Types of Computer Languages:
 Machine Language: The lowest-level language, directly understood by the
computer, consisting of binary code (0s and 1s).
 Assembly Language: A slightly higher-level language that uses mnemonics
(short codes) to represent machine instructions, making it easier for humans to
read and write than machine language.
 High-Level Languages: Languages like Python, Java, and C++ are more
human-readable and use English-like syntax, requiring a compiler or interpreter
to translate them into machine code
 Concepts of data and information-
In computing, data refers to raw, unorganized facts, while information is data that
has been processed, organized, and given context to be meaningful and useful.
Here's a more detailed explanation:
Data: Raw, unorganized facts, figures, and symbols that lack context or meaning on
their own.
 Examples: A single customer's name, a temperature reading, a number, a letter, or a
picture.
 Characteristics:
o Unprocessed and unorganized.
o Can be in various formats (text, numbers, images, audio, etc.).
o Has no inherent meaning or purpose until processed.
 In Computing: Data is the fundamental building block of information processing and
storage.
Information: Data that has been processed, organized, and given context to provide
meaning and understanding.
 Examples: A report showing sales trends, a chart illustrating population growth, or a
summary of customer demographics.
 Characteristics:
o Processed and organized data.
o Provides context and meaning to the data.
o Enables decision-making and problem-solving.
 In Computing: Information is the output of data processing, allowing computers to
perform useful tasks and provide insights
 Type of Number System-
A number system is a way of expressing numbers in a consistent manner using
digits or other symbols. In the context of computers, a number system represents
data and performs operations at the machine level. Computers typically work with
binary, octal, decimal, and hexadecimal systems. These systems serve as the
foundation for data encoding, arithmetic operations, and other computations in
computers.
1. Binary Number System
The binary number system is the most fundamental system used in computers. It
uses only two digits, 0 and 1, to represent all data. This is because the underlying
electronic circuits in a computer can only understand two states on (1) and off (0).
Every bit in binary can represent a single binary digit, making it the building block
for all computer operations.
2 2 2 2
25 4 3 2 1 20

 Example:
For 11010,
= 1 × 2⁴ + 1 × 2³ + 0 × 2² + 1 × 2¹ + 0 × 2⁰
= 16 + 8 + 0 + 2 + 0
= (26)10
2. Octal Number System
The octal number system is a base-8 system that uses digits from 0 to 7. It is used
as a shorthand representation of binary numbers because each octal digit
corresponds to a group of three binary digits (bits).
8 8 8 8
85 4 3 2 1 80

 Example:
For 726,
=7 × 8² + 2 × 8¹ + 6 × 8⁰
= 7 × 64 + 2 × 8 + 6
= 448 + 16 + 6 = (470)10
3.Decimal Number System
The decimal number system is used in everyday life, based on base 10. It uses digits
from 0 to 9. Although computers don't natively use the decimal system, it is
important for human-computer interaction, as users generally interact with
computers using decimal numbers.
10 10 10 10 10 10
5 4 3 2 1 0

 Example:
In 720, the value of 7 is 700 (7 × 10²), the value of 2 is 20 (2 × 10¹), and the value
of 0 is 0 (0 × 10⁰).
4.Hexadecimal Number System
The hexadecimal number system is a base-16 system that uses digits from 0 to 9
and letters A to F (representing values 10 to 15). It is commonly used in computer
programming to represent binary data, as each hexadecimal digit corresponds to
four binary digits.
16 16 16 16 16 16
5 4 3 2 1 0

 Example:
For number 27FB:
2 × 16³ + 7 × 16² + 15 × 16¹ + 11 × 16⁰
= 2 x 4096 + 7 x256 + 15 x 16 + 11
 = 8192 + 1792 + 240 + 11
= (10235)10
Conversion of the Number System in Computer Organization
One important aspect of number systems in computers is their ability to convert
between different bases. Conversion between number systems is crucial for
understanding how data is processed and stored in various formats. Here are some
common conversions:
 Binary to Decimal Conversion: Multiply each binary digit by 2 raised to the
power of its position (starting from 0), and then sum the results.
 Decimal to Binary Conversion: Repeatedly divide the decimal number by 2,
recording the remainder for each step.
 Binary to Hexadecimal Conversion: Group binary digits in sets of four
(starting from the right) and convert each group to its equivalent hexadecimal
digit.
 Hexadecimal to Binary Conversion: Replace each hexadecimal digit with its 4-
bit binary equivalent.
 Binary Arithmetic-
Binary arithmetic uses only 0 and 1, and operations like addition, subtraction, and
multiplication follow specific rules, similar to decimal arithmetic, but with carries and
borrows occurring more frequently.
Binary Addition:
 Rules:
o 0+0=0
o 0+1=1
o 1+0=1
o 1 + 1 = 10 (0 with a carry-over of 1)
Example: 11 + 1 = 100 (3 in decimal)
Binary Subtraction:
 Rules:
o 0-0=0
o 0 - 1 = 1 (borrow 1)
o 1-0=1
o 1-1=0
 Example: 11 - 1 = 10 (2 in decimal)
Binary Multiplication:
Rules:
0*0=0
0*1=0
1*0=0
1*1=1
 Process: Similar to decimal multiplication, multiply each digit of one number
with the other and then add the partial products, shifting them appropriately.
Example: 11 * 11 = 1001 (9 in decimal)
 IECT (Information Electronics and Communication Technology)-
IECT (Information, Electronics, and Communication Technology) applications span
diverse fields, including education, e-governance, business, entertainment, and
transportation, enabling efficient communication, data processing, and service
delivery.
 Here's a more detailed look at the applications of IECT:
 Education:
 E-Learning Platforms: IECT facilitates online courses, tutorials, and educational
resources, offering flexible and accessible learning opportunities.
 Virtual Classrooms: Technology enables interactive and immersive learning
experiences, connecting students and educators remotely.
 Online Libraries: Students can access a vast collection of eBooks and resources
through digital libraries.
 E-Governance:
 Government Services: IECT enables the delivery of government services online,
streamlining processes and improving citizen access.
 Information Dissemination: Governments can use IECT to communicate information
to citizens and vice versa, promoting transparency and engagement.
 Transaction Management: Online platforms facilitate various transactions, including
payments, applications, and permits.
3. Business:
 Data Collection and Analysis: IECT tools help businesses collect, analyse, and
manage data, leading to better decision-making and insights.
Customer Relationship Management (CRM): IECT systems enable businesses to
manage customer interactions, improve customer service, and build stronger
relationships.
Electronic Data Processing (EDP): IECT facilitates various business applications,
including payroll processing, inventory management, and financial reporting.
4. Entertainment:
 Multimedia: IECT enables the creation and distribution of multimedia content,
including text, music, video, graphics, and animation.
 Streaming Services: IECT supports online streaming of movies, music, and other
entertainment content.
 Social media: IECT platforms enable social interaction and content sharing.
5. Transportation:
 Intelligent Transportation Systems (ITS): IECT is used to develop systems that
improve traffic flow, optimize routes, and enhance transportation efficiency.
 Automatic Vehicle Identification: IECT allows for the tracking and identification of
vehicles, improving safety and security.
 Public Transportation: IECT enables real-time tracking of buses and trains, providing
passengers with accurate information
 Operating System and types of operating system-An operating system (OS)
is software that manages computer hardware and software resources, acting as
an interface between the user and the hardware. Types of operating systems
include real-time, network, distributed, multitasking, mobile, and desktop OSs.
 An operating system (OS) is a crucial piece of software that manages a computer's
hardware and software resources.
 It acts as an interface between the user and the hardware, allowing users to interact
with the computer.
 Examples include Windows, macOS, Linux, Android, and iOS.
Types of Operating Systems:
 Real-time Operating System (RTOS): Designed for applications where timing
constraints are critical, such as industrial control systems or medical devices.
  Network Operating System (NOS): Designed to manage and control network
resources, allowing multiple computers to share resources and communicate.
 Distributed Operating System: Manages multiple computers or processors as a
single, unified system, enabling resource sharing and distributed processing.
 Multitasking Operating System: Allows multiple programs or processes to run
concurrently, giving the user the ability to perform multiple tasks simultaneously.
 Mobile Operating System: Designed for mobile devices like smartphones and tablets,
such as Android and iOS.
 Desktop Operating System: Designed for personal computers and laptops, such as
Windows, macOS, and Linux.
Other Types of operating system:
 Unix: A powerful, multi-user, multitasking operating system.
Linux: A popular, open-source, Unix-like operating system.
macOS: A proprietary operating system for Apple computers, based on Unix.
iOS: Apple's mobile operating system for iPhones and iPads.
Android: A mobile operating system developed by Google, based on the Linux
kernel.
 Chrome OS: A lightweight operating system developed by Google, primarily used
on Chromebooks
Functions of Operating System
 Memory Management:
The OS allocates memory to different programs, keeps track of which parts of memory are being used, and
reclaims memory when it's no longer needed.
 Process Management:
The OS oversees all running programs or processes, schedules them, allocates resources (like CPU time
and memory), and ensures they run without interfering with each other.
 Device Management:
The OS controls and coordinates hardware devices, ranging from input/output peripherals like keyboards
and printers to more complex components like disk drives and network adapters.
 Secondary Storage Management:
The OS manages secondary storage devices like hard drives and SSDs, organizing and storing data
effectively
 Security Management:
The OS provides mechanisms to ensure the security of the system, controlling access to system resources
such as files, directories, and hardware devices.
 Error Detection and Handling:
The OS detects and handles errors, both at the hardware and software levels, to ensure system stability.
 Job Accounting: The OS keeps track of system resources used by different users
and processes.
 Networking: The OS facilitates communication between computers on a network.
 Communication: The OS enables processes to communicate with each other.
 Resource Allocation: The OS manages the allocation of system resources, such as CPU time,
memory, and storage, among processes.
 Time-Sharing: The OS allows multiple users to share the computer's resources concurrently
 GUI Operating Systems. A GUI operating system is an operating system that
uses a graphical user interface (GUI). GUIs use icons, windows, and a mouse to
display information and actions a user can take.
Examples of GUI operating systems:
 Windows: Microsoft Windows uses a GUI model of communication.
 Linux: A GUI-based operating system that supports multitasking,
multiprogramming, and timesharing.
Other GUI Operating System- (Window, Linux, Android, Apple IOS, MAC OS)
 Elements of GUI Operating System - (Desktop, Windows, Title Bar, Task Bar, Start
Menu/ Launcher, Icon, Button, Menu, Dialogue Box, Tab, Toolbar, Ribbon)
 How Graphical User Interface Works?
 A GUI (Graphical User Interface) works by presenting users with a visual, interactive
environment using elements like icons, buttons, and menus, enabling them to
interact with a program or website without needing to type commands
 Difference between GUI and CUI Operating System-
The main difference between a Command-Line User Interface (CUI) and a Graphical
User Interface (GUI) lies in how users interact with a computer: CUI uses text-based
commands, while GUI uses visual elements like icons and menus.
 Graphical User Interface (GUI):
Interaction: Users interact with the computer using visual elements like icons,
buttons, menus, and windows.
Usability: Generally considered more user-friendly and easier to learn, especially for
beginners.
Examples: Windows, macOS, iOS, Android.
Resource Usage: GUI applications typically require more system resources (memory,
processing power) because of the need to render and manage visual elements.
Speed: Task execution can be slower in GUI compared to CUI, as GUI applications
have more overhead.
Flexibility: Offers a more flexible and intuitive user interface.
 Command-Line User Interface (CUI):
Interaction: Users interact with the computer by typing commands into a terminal or
console.
Usability: Requires more technical knowledge and familiarity with commands.
Examples: MS-DOS, Linux command line.
Resource Usage: CUI applications generally require fewer system resources as they
don't rely on graphical elements.
Speed: Task execution can be faster in CUI, as there's less overhead involved.
Flexibility: Offers more direct control and flexibility through text-based commands.
 Window Operating System-
Windows is a graphical operating system developed by Microsoft, acting as the
interface between users and computer hardware, allowing users to run software,
manage files, and perform various tasks.
Here's a more detailed explanation: What it is: Windows is a type of software that
manages a computer's hardware and software resources, providing a user interface
for interacting with the computer.
Key Features: Graphical User Interface (GUI): Windows uses a graphical interface
with icons, windows, and menus, making it easier for users to interact with the
computer.
File Management: Users can organize, store, and access files and folders through the
Windows file system.
Software Execution: Windows allows users to run various applications, including
productivity software, games, and multimedia programs.
Hardware Management: Windows manages and controls the computer's hardware
components, such as the CPU, memory, and storage devices
 Managing files and folders in Window Operating System-
In Windows, you manage files and folders primarily using File Explorer, a built-in
application that allows you to navigate, organize, and manipulate files and folders.
 Accessing File Explorer: You can open File Explorer by clicking the File Explorer
icon on the taskbar or by double-clicking any folder on your desktop.
 Navigating Folders: Double-click a folder to open it and view its contents, and
you can use the address bar to see the location of a folder.
 Organizing Files and Folders: Creating New Folders: Right-click in an empty
area within File Explorer, select "New," and then "Folder" to create a new folder.
Moving and Copying: You can move or copy files and folders using the "Move to" or
"Copy to" options in the Home tab, or by simply dragging and dropping them.
  Deleting: Select the file or folder and press the Delete key, or right-click and
select "Delete
 Control Panel-There are eight main areas on the Control Panel, containing
different tools designed to optimize your computer.
 System and Security - A section to check your computer's status, backup and
restore, and others.
 Network and Internet - View network status.
 Hardware and Sound - View which devices are on your computer and add
devices.
 Programs - Uninstall programs.
 User Accounts - Change user accessibility.
 Appearance and Personalization - Change desktop options, like fonts and
screen readers.
 Clock and Region - Change date and time.
 Ease of access - Optimize your display settings.
 Basic Troubleshooting -for common computer issues (power Supply), Handling
issues related to printer (paper jam, printer isn’t printing, paper size mismatch,
Printer error etc.), Handling issues related to scanner (paper jam, poor image
quality etc.)
1. Introduction to Word Processing
 Opening Word Processing Package, Menu Bar Creating, opening and saving
document, Entering and editing text, paragraph creation, moving text (Cut, Copy &
Paste), Undo, Redo, Using, Shortcuts
 Formatting Documents (Setting font styles, size, colour, Typeface (Bold, Italic,
Underline), Font effects, change case, Highlighting, paragraph indenting,
Alignments, Line Spacing, drop cap, Bullets & Numberings, Borders & shadings,
Header & Footer, Footnote & Endnote, Inserting Page break, Page numbering, Date &
Time, Line Break, Word Wrap, Creating Cover page, Page Border, Table of Contents,
Using Page Themes & Colour, Inserting Watermarks)
 Working with Tables (Creating tables, Table Styles, Borders & Shadings, Cell
Alignment, Inserting & Deleting rows or columns, Merging, Splitting, Sorting, Using
formula. Converting table into graphs)
 Inserting Objects- Inserting Pictures, Formatting & editing pictures, picture styles,
Picture borders, effects & layouts, Positioning, grouping & ordering, rotating and
cropping, Adding and Editing Textbox, Shapes & SmartArt, Inserting Various types of
charts, Charts layout and formatting.
 Page Layout & Printing- Page Orientation, Setting page margins, Page size, Columns,
Page Setup & Printing.
 Features & Tools- Find and Replace, Auto Correct, Bookmarks, Hyperlinks, Spell
Check, Thesaurus, Mail Merge.
 Converting document into pdf
2. Typing Skills
 Keyboard basics, Correct way of typing, Alphabet Placement and Positioning, Typing
with Various keys, Speed typing, Using shortcut keys.
3. Introduction to Spreadsheet
 Opening, creating and saving Spreadsheet., Entering & editing data, Selecting
Range, Cell Addressing, creating text, number and date series., Inserting, Deleting or
Hiding a Row & Column.
Changing Cell Height & Width, Formulas & Functions, Cell Referencing (Absolute,
Relative & Mixed)
Hookup & VLOOKUP, Conditional Formatting, Data Sorting & Filtering, Creating Data
List, Data Validation, Consolidation, What-if Analysis., Creating Charts and Graphs-
Adding different types of Charts, Charts layout and formatting., Find & Replace, Spell
Check, Thesaurus, Page Setup & Printing.
4. Introduction to Digital Presentation
 Creating a Presentation using Template, creating a Blank Presentation, Opening and
saving a Presentation, Entering and Editing Text, Inserting and Deleting Slides in a
Presentation, Applying Themes & Background, Adding Pictures, Textbox, Tables,
Charts, Shapes, Word Tables or Excel Worksheets, Adding Text to Shapes,
Group/Ungroup Objects, Adding Header & Footer, Using Slide Master, Setting
Animation & Transition effects, Adding Audio & Video, Running a slide show
Save as PDF, Image or Video file, PowerPoint Views, Printing handouts and slides.
5. Secure Web Access and communication
 Concept of Internet (What is Network, Types of networks, Concept of Client and
Server, Network Topologies, Network communication media, Concept of Internet
and its applications, Advantages and disadvantages of internet, Internet protocol,
Domain Name System, IP Address, URL, Internet Connectivity, Using WIFI &
Bluetooth on digital devices, WWW and Web browsers, Popular Search Engines,
Navigating through web, Uploading & Downloading, Services on web, Using
Online Services (Banking, Using e- governance websites, Shopping, Streaming,
social networking sites))
 Introduction to E-mail (History of Email, E-mail addressing, creating new email
account, Composing & sending email without and with attachments, Email Drafts
and Scheduled sending, Replying & forwarding, Sorting & searching email,
sending email to multiple users, CC and BCC, Email protocol, Signatures
(appended to the end of outgoing messages)

 Basic Internet Security Concepts (Need of Security over internet, security

threats, viruses and malwares, e-mail spam, security and privacy issues related
to online shopping and social networking sites, safety measures- choosing strong
password, Antivirus, Firewalls, safe browsing)

6. Cloud Storage and Online Collaboration

 What is cloud and cloud storage
 Types of cloud storage (Public, private, hybrid and community cloud)
 Cloud Storage Service Providers (Google Drive, OneDrive, Dropbox)
 Benefits of online storage over local storage and portable storage
 Creating and Managing Files on the Cloud
 Sharing and Collaborating on Documents
 Syncing Files Across Devices
 Introduction to Online Collaboration Tools (Google Workspace, Microsoft Office 365)

Module 2 Introduction to Accounting with Tally

1. Basics of Accounting
 Introduction to Accounting-Accounting is consolidating the financial
transactions of a company using a systematic approach. It involves recording,
analysing, reporting, and retrieving financial transactions when required.
Accounting is mandatory for legal reasons, taxes, and to understand business
health. Accounting ensures that every business transaction is accounted for and if
you need to pull out information about any expense you can do so with ease.
Accounting can be divided into two parts; financial accounting and management
accounting.
Financial accounting deals with the proper presentation of the transactions in the
form of financial statements such as income statements which are shared with
people outside the business. Management accounting is a form of accounting
whereby the management department receives financial information so they can
take vital business decisions to ensure efficient business continuity. Management
 accounting is part of the internal process as it is used for improving the overall
business. It includes information such as the budget.
 Important Accounting Terms-
1. Accounts Payable-This is a term for all your unpaid bills and is often written as
"AP." It should be written down and thought of as bills the business owes. This is
quite a standard liability.
2. Accounts Receivable-This is the opposite of owing money. Accounts receivable
(AR) are the amounts of money owed to the business that still need to be paid.
Consider this as an asset.
3. Allocation-On your balance sheet, this is spreading the cost of an expense over
more than one accounting period. Depreciation is an excellent example of this. Let's
say you buy equipment for your business. The equipment cost is typically distributed
over several years.
4. Asset-An asset is anything the company owns that can have a price. This can
include money, property, tools, and stock. Assets can have different levels of
liquidity. This means that some assets, like cash, are straightforward to spend, while
others, like property, are difficult to spend because they have to be sold first (or
liquidated).
5. Balance Sheet-This is the main record of how much money a business has. It
lists the assets, liabilities, and equity and uses a set equation: Assets are equal to
liabilities plus equity.
Read more about balance sheet
6. Capital-Capital refers to the money that your business can use to run and grow.
Liabilities are subtracted from assets to get this number.
Capital = Assets - Liabilities
It can be the cash or other assets that can be sold or liquidated to pay for things.
Capital doesn't indicate current expenditures; it shows the potential spending
capacity.
7. Cash flow-It incorporates the total cash a company expects to receive over a
certain period of time. Monthly cash flow represents the amount you expect to get in
a given month.
8. CPA-The American Institute of Certified Public Accountants is the group that gives
out the title "certified public accountant." CPAs pass a uniform exam and get a
license in the state where they live. The title indicates that the holder has
considerable accounting knowledge and is eligible to work in this sector.
9. Credit-Credit is an accounting entry that can make a company's liabilities or
assets smaller. Whenever a credit is owed to the business, its assets increase A
business's liability will go up if the business owes credit.
10. Debit-The opposite of credit is debit. When a business gets paid back, its assets
go up. When a company pays a debit, its liabilities go down. With double-entry
accounting, every debit and credit in the ledger are paired.
11. Depreciation-Depreciation is a way to determine how much an asset loses in
value over time. A good example is a loss in the value of a company's car. The car's
value depreciates every year.
12. Diversification-Diversification is the act of putting money into different kinds
of assets. The goal is to minimize risk by diversifying the types of assets, thereby
reducing the impact of any single adverse event.
 13. Expenses-These expenses are what your business has to pay for it. Most of the
time, we can divide them into four groups: fixed, variable, accrued, and operation.
Fixed expenses (FE) are payments that are the exact same every time, like rent or a
mortgage.
Variable expenses (VE) are costs that change over time. Typical examples are labor
or inventory stocking.
Accrued expenses (AE) are costs that still need to be paid.
Operation expenses (OE) are indirect costs, and these could include the likes of
taxes or advertising.
14. Equity-On a balance sheet, equity is found by taking the difference between
liabilities and assets. Owner's equity is a different term for how much of something a
person or business actually owns. Property equity shows how much of a mortgage
has been paid off, and stock equity shows how much of a company is owned through
stock.
15. General Ledger-This is a complete record of all the financial transactions
performed by an enterprise.
16. Gross Profit-This is the company's profit minus the costs of running the
business. It is frequently used to figure out how much a company is worth. You will
need to know this value to get a business loan or pitch to investors.
17. Insolvency-When an enterprise or person can't pay its debts, this is called
insolvency. It is often predicted by making comparisons of all expenses to revenue.
The business will go bankrupt if revenue isn't enough to cover costs.
18. Inventory-Inventory lists all the goods a company owns that can be sold.
Usually, inventory is divided into finished goods, which are ready to sell; work-in-
progress goods, which need to be put together; and raw materials.
 Key objectives of accounting
The three key objectives of accounting are as follows.
 Record keeping-The fundamentals of accounting include record keeping which
is the primary function of accounting. A business must use standard forms of
storing and retaining information so it can be retrieved when the need for it
arises. Thorough and accurate storage of records is essential for all transaction-
related purposes. A software package such as TallyPrime can be utilized to store
every transaction that takes place.
 Reporting-Financial reporting is a key accounting objective after record keeping.
Accounting enables businesses to record and report their financial status at the
end of a particular period. It involves putting together transaction details and
reports that are necessary to make sense of a certain aspect of a business during
a specific time period. Financial statements are results of aggregating financial
information of a business and these are useful tools for reporting the financial
parts of a business.
 Analysis-The reports which are based on the business records are analysed in
accounting. When business health needs to be determined then the business
reports are analysed. Analysis in accounting enables accountants to find out ways
to improve business efficiency, upgrade processes, and to see where unnecessary
expenses are being made. Analysis of financial reporting allows your business to
run without problems as it ensures no discrepancies are found.
Accounting process and steps
The accounting process is one of the fundamentals of accounting. Also known as an
accounting cycle, it follows a transaction from the moment it was recorded to when
a report is made using various transactions that occurred in a particular period of
time. Businesses can use single-entry accounting or double-entry accounting. Firms
use accounting software packages such as TallyPrime to automate the accounting
process. The benefits include saving time, effort, and money for storage, analysis,
and retrieval purposes. Companies can fully automate their accounting or they can
leave some aspects to be manually handled.
Steps of the accounting process
There are 8 steps in the accounting process. This is a framework and it can vary
from company to company as each company has an individual model that it works
with.
 Step 1: Transaction identification
You need to identify your business transactions first. Every unique transaction needs
to be recorded so that it is reflected correctly. All expenses such as costs to acquire,
repair, and upgrade need to be accounted for. Additionally, every sale record must
be stored so it all sales transactions are in one place.
 Step 2: Journal creation
This step involves recording each transaction in a journal. You can choose between
two types of accounting; cash accounting and accrual accounting. The difference is
when the transactions are recorded and stored. Cash accounting is recorded the
moment the cash is paid or received. Accrual accounting is when transactions are
recorded as they occur.
 Step 3: General ledger posting
After the entry in the journal, the transaction details need to be reflected in the
general ledger. The general ledger allows the categorization of transactions because
they are saved according to different accounts. That is, transactions of the same
account are recorded in one place and so on. This allows easy monitoring according
to particular accounts.
 Step 4: Trial balance
In this step, the trial balance is calculated. Ideally, the debits must be equal to
credits for every account. The trial balance throws light on the balances which have
not been adjusted yet in every account. When an unadjusted trial balance is found,
it is analysed in the next step of the accounting cycle
 Step 5: Worksheet analysis
Adjustment of the various transaction entries is done in this step of the accounting
process. First, you need to create a worksheet and make sure that the credits and
debits are equal to each other. In the case of accrual accounting, there is an
additional step here which is to adjust the entries for revenue and expense matching
purposes.
 Step 6: Journal entries adjustment
This is the stage in the accounting cycle where adjustments need to be made. Once
the adjustments have been done, the trial balance is prepared again to ensure that
the debits are equal to the credits. Only then can you move on to the next step.
 Step 7: Financial statements
This step involves the financial statements that are generated after all the entries
have been adjusted in the journal. In the majority of the cases, the major financial
statements will include the cash flow statement, income statement, and balance
sheet. These uncover the truth behind how the business is doing financially and how
much profits it is earning.
 Step 8: Closing
The last step of the accounting cycle is when the books are closed. This holds for the
temporary accounts as they are shifted to permanent accounts. For example, the
profit and loss statement is transferred to the retained earnings accounts and so on.
The closing occurs at the end of the reporting period. After this, the cycle starts
again.
Key accounting reports
The critical accounting reports are as follows.
 Balance sheet
The balance sheet contains information about the total liabilities, assets, and
stockholder equity. It gives information about the company’s resources and how
these sources are being financed. A balance sheet can help you make better
business decisions.
 Profit and loss statement
The profit and loss statement is also known as P&L and income statement. It shows
the revenues and expenses of a business over a period of time. A business is going
in the right direction when the profits exceed its losses.
 Statement of cash flows
This report summarizes the cash that is received or paid. It doesn’t reflect the non-
cash transactions that take place such as purchases made on the basis of credit. It
contains three parts; investing, operating, and financing. It gives information about
cash generation.
How accounting software helps businesses
An accounting software tool can take the complexity out of accounting. Whether the
business is small, growing, or enterprise-level, every business needs an accounting
software package. TallyPrime is the best example of accounting software that
handles everything. All you need to do is record the bills and invoices. TallyPrime will
automate the rest. It minimizes human errors, automates management of books of
accounts, generates informative customized reports and financial statements, and
makes tax returns easy. Additionally, it improves inventory management, ensures
tax compliance, streamlines business processes, aids in business forecasting, and
accurately generates financial statements. This ensures you know how your
business is doing at every step of the way.
 Some of the key features of TallyPrime:
 Record and bookkeeping
 Invoicing and billing
 Pre-defined chart of accounts
 Accounts receivable and payable management
 Wide range of accounting and financial reports
 Multi-currency support
 Sales and Purchase Management
 Online business reports
 Inventory Management
 Taxation support
 Recording of Transactions- In accounting, recording transactions involves
systematically documenting a business's financial activities, including sales,
purchases, payments, and receipts, using journals and ledgers, ensuring accuracy
and transparency.
Here's a more detailed explanation:
 What are Accounting Transactions?
An accounting transaction is any event that impacts a business's financial position,
meaning it involves a change in assets, liabilities, or equity.
 Why Record Transactions?
Recording transactions is crucial for maintaining accurate financial records,
preparing financial statements, and making sound business decisions.
 The Process of Recording:
 Identify the Transaction: Determine if the event is a financial transaction that
needs to be recorded.
 Analyse the Transaction: Determine which accounts are affected (e.g., assets,
liabilities, equity) and whether they increase or decrease.
 Record in the Journal: A journal is a chronological record of transactions, where
each transaction is recorded with a debit and a credit.
 Post to the Ledger: The ledger is a collection of accounts where transactions
are classified and summarized.
 Double-Entry Bookkeeping: Every transaction is recorded with equal debits
and credits, ensuring the accounting equation (Assets = Liabilities + Equity)
remains balanced.
 Key Concepts:
 Debit: An entry on the left side of an account.
 Credit: An entry on the right side of an account.
 Journal: A book of original entry where transactions are recorded in chronological
order.
 Ledger: A book of accounts where transactions are classified and summarized.
 Examples of Accounting Transactions:
 Sales: Recording revenue from selling goods or services.
 Purchases: Recording expenses for acquiring goods or services.
 Payments: Recording cash or other assets paid out.
 Receipts: Recording cash or other assets received.
 Subsidiary books-In accounting, subsidiary books, also known as special
journals or daybooks, are detailed records that categorize and record specific
types of transactions, like cash, purchases, or sales, before they are summarized
in the general ledger.
Here's a breakdown:
What are Subsidiary Books?
 Purpose: To organize and record transactions of similar nature, making
bookkeeping more efficient and accurate.
 Relationship to the General Journal: Subsidiary books are essentially a
detailed breakdown of the general journal, where all transactions are initially
recorded.
 Examples:
 Cash Book: Records all cash receipts and payments.
 Purchase Book: Records all credit purchases of goods.
 Sales Book: Records all credit sales of goods.
 Purchase Returns Book: Records goods returned to suppliers.
 Sales Returns Book: Records goods returned by customers.
 Bills Receivable Book: Records bills of exchange and promissory notes received
from debtors.
 Bills Payable Book: Records bills of exchange and promissory notes accepted
by the business in Favor of creditors.
 Journal Proper: Records transactions that don't fit into any of the other
subsidiary books (e.g., opening entries, adjustments).
 Trial balance Meaning and purpose-
A trial balance is a financial statement that lists all ledger account balances at a
specific date to verify the mathematical accuracy of accounting entries, ensuring
total debits equal total credits. Its purpose is to detect and prevent errors in
bookkeeping and to provide a snapshot of a company's financial position, which is
crucial for preparing more formal financial statements.
Here's a more detailed explanation:
 Definition: A trial balance is a list of all ledger accounts, including their debit
and credit balances, at a specific point in time.
 Purpose: Its primary purpose is to ensure that the total of all debit balances
equals the total of all credit balances.
 Internal Tool: It's an internal accounting tool, not a formal financial statement,
and is used by accountants and auditors to check the accuracy of the accounting
records.
 Double-Entry System: It's particularly useful in a double-entry accounting
system, where every transaction affects at least two accounts.
  Snapshot of Financial Position: It provides a snapshot of a company's
financial position at a specific date, including assets, liabilities, equity, revenues,
and expenses.
Why is a Trial Balance Prepared?
 Error Detection: It helps identify potential errors in the accounting records, such
as incorrect postings or omissions.
 Accuracy Verification: It verifies the mathematical accuracy of the accounting
entries.
 Basis for Financial Statements: It serves as a basis for preparing more formal
financial statements, such as the balance sheet and income statement.
 Auditing: Auditors often request a trial balance to verify the accuracy of a
company's financial records.
 Adjusting Entries: It can be used to identify and correct any necessary
adjusting entries.
 Bank Reconciliation Statement –
A bank reconciliation statement (BRS) is a document that compares a company's
internal bank account records (like cash book) with the bank's statement to identify
and explain any discrepancies or differences between the two.
Here's a more detailed explanation:
 Purpose: The primary goal of a BRS is to ensure that the company's financial
records accurately reflect the actual bank balance and to identify any potential
errors, missing transactions, or fraudulent activities.
 Bank Statement: The statement provided by the bank, detailing all transactions
(deposits, withdrawals, fees, etc.) in the account.
 Company's Cash Book/Bank Account Records: The company's internal
records of bank transactions.
 Common Reasons for Discrepancies:
 Timing Differences: Transactions might be recorded in the company's books
before they are processed by the bank, or vice versa.
 Outstanding Checks: Checks issued by the company but not yet cashed by the
recipient are not reflected in the bank statement yet.
 Deposits in Transit: Deposits made by the company but not yet credited by the
bank.
 Bank Fees and Charges: Fees or charges deducted by the bank that might not
be immediately reflected in the company's books.
 Errors or Omissions: Mistakes in recording transactions in either the company's
books or the bank's records.
 Benefits of Bank Reconciliation:
 Improved Accuracy: Ensures that the company's financial records are accurate
and up-to-date.
 Early Error Detection: Helps identify and correct errors or discrepancies early
on.
 Fraud Prevention: Can help detect and prevent fraudulent activities.
 Better Cash Flow Management: Provides a clearer picture of the company's
cash flow.
 How to Prepare a Bank Reconciliation:
 Gather Data: Obtain the bank statement and the company's cash book records.
 Compare Balances: Compare the ending balance on the bank statement with
the ending balance in the cash book.
 Identify Discrepancies: Identify any differences between the two balances.
 Explain Differences: Investigate and explain the reasons for any discrepancies.
 Make Adjustments: Make necessary adjustments to the cash book to reconcile
the balances
 Final Accounts-Final accounts are an integral part of a financial accounting year
for every business. In other words, it is the end product of the accounting process
 carried out the whole year. These need to be prepared by every business on or by
the 31st of March every financial year as it marks the end of the year.
 Meaning of Final Accounts-Final accounts refer to the accounts prepared by a
business entity at the end of every financial year. The final accounts depict a
clear and accurate financial position of the entity. This information is of use to the
management, investors, owners, shareholders, and also to other users of such
information.
The final accounts of an entity consist of the following accounts:
1. Manufacturing and Trading Account
2. Profit and Loss Account
3. Balance Sheet
4. Profit and Loss Appropriation account
The trial balance forms the basis for the preparation of the final accounts. Further,
these are audited by the internal as well as external auditors, usually the Chartered
Accountants. Thus, these need to be prepared in a fair and transparent manner.
 Manufacturing Account-Manufacturing entities need to prepare a
Manufacturing account before preparing the Trading Account. It determines the
Cost of goods sold.
Format of Manufacturing Account
Unit Amou Unit Amou
Particulars Particulars
s nt s nt
By By-products at
To Raw material
net realizable
consumed:
value
By Closing Work-
Opening inventory in-Process

Add: Purchases By Trading A/c

Less: Closing
Cost of production
inventory
To Direct Wages
To Direct expenses
Prime cost
To Factory
overheads:
Royalty
Hire charges
To Indirect
expenses:
Repairs &
Maintenance
Depreciation
Factory cost
To Opening Work-in-
process

Trading Account
It is prepared after the manufacturing account by the manufacturing industries.
However, in case of trading concerns, it is the first account that is prepared. It
determines the gross profit or gross loss of an entity resulting from the trading
activities. Trading activities refer to the buying and selling activities of a business.
Opening stock, Purchases (less returns) and Direct expenses are written on the debit
side of the Trading account while Closing Stock and Sales (less returns) are written on
the credit side of the Trading account. When the credit side exceeds the debit side, it
shows Gross Profit and if the debit side exceeds the credit side, it shows Gross Loss.
The gross profit or loss is transferred to the Profit and Loss A/c. The closing
entries are as follows:
For Gross Profit
Trading A/c Dr.
To Profit and Loss A/c
For Gross Loss
Profit and Loss A/c Dr.
To Trading A/c
Sample Trading Account
Trading Account
Amou Amou
Particulars Particulars
nt nt
To opening stock – By sales (less returns) –
To purchases (less returns) – By closing stock –
By gross loss (transfer to P
To fuel and power – –
& L A/C)
To wages –
To carriage inwards –
To freight and octroi –
To direct expenses
To gross profit (transfer to P &
–
L A/C)
Profit and Loss Account
The profit and loss account determines the net profit or net loss of the business for
the accounting period. It begins with the balance carried down from the Trading
Account. The revenues and expenses that are indirect or that do not form a part of
the Trading account, form a part of the Profit and Loss Account. When the credit side
of the Profit and Loss Account exceeds the debit side, it shows net profit and vice-
versa.
The net profit or loss is then shown as an addition or deduction respectively, from
the Capital account in the Balance Sheet.
Some expenses that form a part of the Profit and Loss Account are:
1. Sales Tax
2. Provisions
3. Maintenance
4. Administrative Expenses
5. Selling and Distribution Expense
6. Depreciation
7. Freight and carriage on sales
 Wages and Salaries
Some revenues that appear on the credit side of the Profit and Loss Account are
Commission received, Discount received, profit obtained on sale of assets, etc.

Closing Entries for Net Loss or Net Profit are as follows:

For Net Loss
Capital A/c – Dr.
To Profit and Loss A/c
For Net Profit
Profit and Loss A/c Dr.
To Capital A/c
Format for Profit and Loss Account
 Profit & Loss Account
Amou Amou
Particulars Particulars
nt nt
To gross loss By gross profit
To salaries By rent received
To rents and taxes By discounts earned
To travelling expenses By interests earned
To stationary/printing By bad debts
expenses recovered
By commissions
To postage
earned
To audit & legal charges By dividends received
By income from other
To telephone expenses
sources
By Net Loss
To insurance premium (transferred to Capital
A/C)
To
marketing/advertisement
To interest paid
To discount allowed
To sundry expenses
To carriage outwards
To bad debts
To depreciation
To loss by fire/theft
To any other expenses
To net profit (transferred to
Capital A/C)
Balance Sheet
The balance sheet is a statement showing the total assets, total liabilities and the
capital of the business. It shows the financial position of the business on the last day of
the financial year i.e. 31st March.
The assets are on the Right-hand side of the Balance sheet while Capital and liabilities
are on the Left-hand side. The total assets need to be equal to the total liabilities and
capital for the Balance sheet to match.
Format of Balance Sheet
Balance Sheet
Balance Sheet
Amou Amou
Liabilities Assets
nt nt
Capital
Land and
(Less: drawings
building
Add: profit)
Reserves and Plant and
surplus machinery
Outstanding
Furniture
expenses
Loans Stock
Trade creditors Sundry debtors
Bills payable Bills receivable
 Misc.
investments
Cash in hand
Total xx Total xx
Adjustments in Final Accounts
When the books are maintained as per the accrual basis of accounting, the incomes
and expenses need to be recorded on an accrual basis. This implies that an income
earned in the current financial year whether received or not and an expense incurred
for the current financial year whether paid or not needs to be accounted for in the
current financial year. This gives rise to the adjustments in final accounts. The
adjustments always appear outside the Trial Balance.
Some common adjustments:
 Closing Stock
 Outstanding Expenses
 Prepaid or Unexpired Expenses
 Accrued or Outstanding Income
 Income Received In Advance or Unearned Income
 Depreciation
 Bad Debts
 Provision for Doubtful Debts
 Provision for Discount on Debtors
 Manager’s Commission
 Interest on Capital
 Goods Distributed among Staff Members for Staff Welfare
 Drawing of Goods for Personal Use
 Abnormal or Accidental Losses

 (Accounting Software-Tally ERP9/Prime

 Fundamentals of Tally.ERP9 (Company Features, Configuration, getting
functions with Tally.ERP9, Creation / setting up of Company in Tally.ERP9/Prime)
 Accounting Masters (Chart of Groups, Groups, Multiple Groups, Ledgers,
Multiple Ledgers)
 Inventory Masters (Stock Groups, Multiple Stock Groups, Stock Categories,
Multiple Stock Categories, Units of Measure, Stock Items)
 Vouchers Entries-
Introduction to Vouchers- vouchers are documents that record financial transactions,
serving as evidence and ensuring accurate financial records. They are categorized
into accounting and inventory vouchers, allowing businesses to separate accounting
and inventory operations.
Types of Vouchers in Tally:
 Accounting Vouchers: Used to record financial transactions like payments,
receipts, purchases, and sales.
 Examples: Contra, Journal, Sales, Receipt, Payment, Purchase.
 Contra Voucher: Used for transactions between cash and bank accounts or
within different cash or bank accounts.
 Journal Voucher: Used for recording transactions that don't fit into other
voucher types, such as adjustments or corrections.
 Payment Voucher: Used to record payments made by the company.
 Receipt Voucher: Used to record money received by the company.
 Purchase Voucher: Used to record purchases made by the company
 Types of Vouchers- vouchers are broadly classified into accounting, inventory,
order, and payroll vouchers, with accounting vouchers including common types
like Sales, Purchase, Payment, Receipt, Journal, Contra, Credit Note, and Debit
Note.
  Contra Voucher: Used for transferring cash between different accounts, like
from cash to bank.
 Payment Voucher: Records payments made to suppliers or for expenses.
 Receipt Voucher: Records money received from customers or other sources.
 Journal Voucher: Used for recording transactions that don't fit into other
voucher types, like adjusting entries or corrections.
 Sales Voucher: Records sales transactions, including invoices and credit sales.
 Purchase Voucher: Records purchases made by the business, including invoices
and credit purchases.
 Credit Note Voucher: Used to record a reduction in the amount owed by a
customer (sales return).
 Debit Note Voucher: Used to record an increase in the amount owed by a
supplier (purchase return)
 Invoicing Definition:
A commercial document that includes an itemized list of goods or services furnished
by a seller to a buyer, specifying the price and terms of sale
 Purpose:
To request payment from a customer.
To serve as a record of the sale for the seller.
To establish a legal agreement for payment.
 Who uses it: Sellers issue invoices to their customers.
 Example: A company sends an invoice to a client after completing a project,
detailing the services rendered and the amount due
 Voucher Definition:
An internal document used by a company's accounts payable department to collect
and organize documentation before paying a vendor invoice
 Purpose:
To track and organize payments.
To provide supporting documentation for payments.
To ensure that all goods ordered by a company are properly received and that all
payments have been made without flaws.
 Who uses it: Companies use vouchers internally to manage their accounts
payable process.
 Example: A company receives an invoice from a supplier, creates a voucher to
attach the invoice, purchase order, and receiving report, and then uses the
voucher to process the payment
 Inventory Vouchers: Used to track inventory items and record stock
movements, such as receipts, issues, transfers, and adjustments.
 Examples: Stock Journal, Material In, Material Out, Delivery Note, Receipt Note.
 Optional/Non-Accounting Vouchers:
optional vouchers, also known as non-accounting vouchers, are used for transactions
that don't affect the accounting records but are still important for tracking and
reporting. They are marked as optional and don't get posted to ledgers or journals.
How to use optional vouchers:
 Enable Optional Vouchers:
Go to Gateway of Tally > F11: Features > F2: Accounting Features and set "Use Rev.
Journals & Optional Vouchers?" to Yes.
 2. Mark a voucher as Optional:
During voucher entry, press Ctrl+L or click on the "Optional" button to toggle
between Regular and Optional.
 Optional Voucher Register:
The optional voucher will be stored in the Optional Voucher Register and won't affect
the accounting records.
 Use Cases:
  Proforma Invoices: Record sales invoices as optional before they are finalized
and posted as regular vouchers.
 Sales Forecasts: Create a new voucher type (e.g., Sales Forecast) and record
future sales projections as optional vouchers.
 Viewing Impact of Transactions: See the effect of potential transactions on
reports and statements without actually posting them.
 Reversing Journals: Use optional vouchers for reversing journal entries How to
Use Vouchers in Tally:
 Navigate to Voucher Entry: Go to "Gateway of Tally" > "Transactions" > "Voucher
Entry".
 Select Voucher Type: Choose the appropriate voucher type based on the
transaction (e.g., F5 for Payment, F6 for Receipt, F8 for Sales).
 Enter Details: Fill in the required information, such as the date, account names,
amounts, and any relevant details.
 Save the Voucher: Accept the voucher to record the transaction in Tally.
 Advance Accounting (Bill wise details, Cost centres and Cost Categories,
Multiple currencies, Interest calculations, Budget and controls, Scenario
management, Bank Reconciliation)
 Advance Inventory (Order Processing, Recorder Levels, Batch-wise details, Bill
of Materials Batch-Wise Details, Different Actual and Billed Quantities, Price Lists,
Zero-Valued Entries, Additional cost details, POS)
 Taxes (TDS, TDS Reports, TDS Online Payment, TDS Returns filing, TDS
Certificate issuing, 26AS Reconciliation, TCS, TCS Reports, GST, GST Returns, EPF,
ESIC, Professional Tax)
 Data Security & Administration (Tally vault, Security controls, Tally Audit,
Backup and restore, Split company data, Import and export of data)
 Payroll Accounting (Employee Creation, Salary Define, Employee Attendance
Register, Pay Heads Creation, Salary Report)
 Generating Reports (Financial Statements, Trading Account, Profit & Loss
Account, Balance Sheet, Accounts Books and Reports, Inventory Books and
Reports, Exception Reports, Statutory Reports, Payroll Reports, Trail balance, Day
Book, List of Accounts, Stock Summary, Outstanding Statement)

Module 3: Forms of Organization and Financial Statement Analysis

 Forms of Business Organizations- The main forms of business organization
include sole proprietorship, partnership, corporation, limited liability company
(LLC), and cooperative, each with varying ownership, liability, and management
structures.
 Sole-Proprietorship and Types- A sole proprietorship is a business structure where a
single individual owns and operates the business, combining the roles of owner and
manager. It's the simplest form of business, easy to set up and manage, and doesn't
require separate registration in many places. The owner has full control but also
unlimited liability, meaning they are personally responsible for all business debts
and obligations.
 Key Characteristics of a Sole Proprietorship:
 Single Ownership: Owned and operated by one person, who is also the
business manager.
 Unincorporated: Not legally separate from the owner, meaning the owner is
personally liable for all business obligations.
 Simplicity: Easy to start and manage, with minimal paperwork and regulations.
 Unlimited Liability: The owner is personally liable for all business debts and
obligations.
 Full Control: The owner retains full decision-making power and keeps all profits.
 Taxation: Business income and expenses are reported on the owner's individual
income tax return.
 No Separate Legal Entity: There is no distinction between the owner and the
business in legal matters.
 Examples of Sole Proprietorships: Independent photographers, Small
landscaping companies, Freelance writers, Personal trainers, Housekeepers,
Plumbers, Consultants, Retailers, and Technicians.
 Advantages of a Sole Proprietorship: Easy to start and manage, Minimal
paperwork and compliance requirements, Full control over the business, and All
profits belong to the owner.
 Disadvantages of a Sole Proprietorship: Unlimited liability, Limited access to
capital, and Business ceases upon the owner's death or incapacity.
 Hindu Undivided Family (HUF) Business- Hindu Undivided Family business is
a precise kind of business structure found only in India. This is one of the classical
methods of business structure in the nation. It is administered by the Hindu Law.
The source of membership in the company is birth in a family and 3 consecutive
generations can be members of the company.
Meaning of Joint Hindu Family Business
It refers to a form of business organization which is owned and carried on jointly by
the members of the Hindu Undivided Family (HUF).
It is also known as Hindu Undivided Family Business.
Characteristics of Joint Hindu Family Business:
 Formation
 There should be at least two male members in the family to form a HUF.
 Ancestral property should have been inherited by members of HUF.
 All of the members enjoy this property and have an equal share in that property.
 Thus, any child taking birth in that family becomes a member of the HUF.
 There is no requirement for an agreement to become a member.
 Liability
 There is limited liability of all the members or co-parceners in the Hindu
Undivided Family business.
 All the co-parceners have equal rights and shares in the property of Hindu
Undivided Family business
 The Karta has unlimited liability.
 Control
 Karta is the person who has full control over the Hindu Undivided Family business.
 Karta can take advice from all the members but he is not bound to accept their
decisions.
 Continuity
 After the “Karta” is deceased, the very next eldest member takes up the position
of Karta in Hindu Undivided Family business.
 The business can be divided and ended up by the mutual consent of the
members.
 Minor Members
  The person who has taken birth in Hindu Undivided Family can be a member of
the family business.
 Therefore, a minor can also be a member of the family.

The business is managed by the head of the family (eldest member) and he is
called Karta. However, all the members hold equal ownership over the property of
an ancestor and they are called as co-parceners.
 Partnership, Types of Partnership- A partnership is a business arrangement
where two or more individuals agree to share in the profits or losses of a
business. There are several types of partnerships, including general, limited, and
limited liability partnerships, each with varying levels of liability protection and
management responsibilities.
Types of Partnerships:
 General Partnership: This is the most common type, where all partners share
in the management, profits, and liabilities of the business.
 Limited Partnership: This type includes both general partners (who manage
the business and have unlimited liability) and limited partners (who invest capital
but have limited liability and minimal control).
 Limited Liability Partnership (LLP): LLPs offer liability protection to all
partners, meaning their personal assets are protected from business debts.
 Partnership at Will: In this type, any partner can dissolve the partnership at
any time without prior notice.
Key Considerations for Choosing a Partnership Type:
 Liability Protection: The level of liability protection for each partner depends
on the type of partnership.
 Management Involvement: Some partnerships require active participation
from all partners, while others allow for limited involvement.
 Tax Implications: Partnerships generally operate on a pass-through tax system,
meaning profits and losses are passed through to the individual partners'
personal tax returns.
 Legal Framework: The Indian Partnership Act of 1932 governs partnerships in
India, outlining the rights, duties, and liabilities of partners.
 Goodwill and its importance- Goodwill represents the intangible value of a
company beyond its tangible assets and liabilities, essentially reflecting its
reputation, brand recognition, and customer loyalty. Goodwill is an intangible asset
that represents the excess value a business has over and above the value of its
identifiable assets and liabilities. It's a reflection of the positive reputation, brand
recognition, strong customer base, and other intangible factors that contribute to a
company's success.
 Business Valuation: Goodwill is a key factor in determining the overall value of
a company, especially for businesses with strong reputations and loyal customer
bases.
 Financial Reporting: In accounting, goodwill is recorded as an intangible asset
and is subject to periodic review to ensure it remains valuable.
 Strategic Planning: Understanding a company's goodwill can inform strategic
decisions regarding growth, diversification, and marketing efforts.
  Customer Relations: Goodwill is closely tied to customer loyalty, satisfaction,
and brand perception, highlighting its importance in building a successful
business.
 Examples: A well-known brand name. Strong customer relationships. Favourable
location.
Proprietary technology or intellectual property. A skilled and loyal workforce.
 Companies and type of companies-
A company is a legal entity formed to conduct business, separate from its owners,
with a specific objective. There are various types of companies, primarily classified
by ownership, liability, and purpose. Key distinctions include public vs. private,
limited by shares vs. guarantee, and sole proprietorships vs. partnerships.
 Types of Companies Under Company Act,2013.
Public vs. Private:
o Public Companies: Offer shares to the general public through a stock exchange.
o Private Companies: Do not offer shares publicly and are usually closely held.
o Limited by Shares: Liability of shareholders is limited to the amount unpaid on
their shares.
o Limited by Guarantee: Liability of members is limited to a fixed amount as
stipulated in the company's constitution, often used by non-profit
organizations.
 Unlimited Companies: Liability of members is unlimited.
 Sole Proprietorship: A business owned and run by one person, with the owner
being personally liable for business debts.
 Partnership: A business owned and run by two or more individuals, with
partners sharing profits and losses.
 One Person Company (OPC): A type of private limited company owned and
controlled by a single person.
 Limited Liability Partnership (LLP): A hybrid structure combining features of
partnerships and limited liability companies, offering limited liability to partners.
Government Companies: Companies where the majority shareholding is held by the
government.
 Listed Companies: Companies whose shares are traded on a stock exchange.
Section 8 Companies: Non-profit companies formed under the Companies Act, 2013.
Foreign Companies: Companies incorporated outside of a specific jurisdiction but
operating within that jurisdiction.
 Limited Liability Companies (LLC): A business structure that offers limited
liability protection to owners, similar to a corporation, but with more flexible
management.
 Financial Statement and Analysis- Financial statement analysis is the process of
reviewing and evaluating a company's financial statements (like the income
statement, balance sheet, and cash flow statement) to assess its financial health,
performance, and future prospects, ultimately aiding in informed decision-making.
 Reviewing Financial Statements: Financial statement analysis involves a
thorough review of a company's financial records, including the income statement,
balance sheet, and cash flow statement.
 Assessing Financial Health: It helps determine a company's profitability, liquidity,
solvency, and overall financial position.
 Making Informed Decisions: The insights gained from this analysis enable
investors, creditors, management, and other stakeholders to make informed
decisions about investing, lending, or managing the business.
 Identifying Strengths and Weaknesses: Financial statement analysis helps
identify a company's strengths and weaknesses, allowing for strategic planning and
improvement.
 Common Techniques & Tools of Analysis
Horizontal Analysis: Comparing financial data across different periods to identify
trends and changes.
Vertical Analysis: Comparing different items within the same financial statement
to assess their relative importance.
Ratio Analysis: Using financial ratios to compare different aspects of a company's
financial performance.
Trend Analysis: Tracking changes in financial data over time to identify patterns
and potential problems.
 Purpose of Financial Statement Analysis-
Profitability: Assessing a company's ability to generate profits from its operations.
Liquidity: Evaluating a company's ability to meet its short-term obligations.
Solvency: Determining a company's ability to meet its long-term obligations.
Efficiency: Evaluating how effectively a company uses its resources.
Growth Potential: Assessing a company's ability to grow and expand.
 Users of Financial Statement Analysis-Financial statement analysis is used by a
wide array of stakeholders, both internal and external, to assess a company's
financial health and performance, including investors, creditors, management,
employees, regulators, and the general public.
Here's a more detailed breakdown of the key users and their purposes:
Internal Users:
 Management: Uses financial statement analysis to track performance, make
operational and strategic decisions, and assess the efficiency of operations.
 Employees: May use financial statements to understand the company's financial
stability and assess their job security.
 Internal Auditors: Use financial statements to verify compliance and ensure
accuracy in financial reporting.
External Users:
 Investors (Current and Potential): Use financial statements to evaluate
investment opportunities, assess risk, and determine the potential for returns.
 Creditors (Banks, Suppliers): Analyse financial statements to assess a
company's ability to repay debts and meet obligations.
Lenders: Evaluate a company's ability to repay loans and make informed
lending decisions.
Suppliers/Trade Creditors:
Assess a company's creditworthiness and ability to settle trade obligations.
 Customers: May analyse financial statements to assess a company's long-term
viability and ability to full fill promises.
Government and Regulatory Agencies:
Use financial statements for tax purposes, regulatory compliance, and economic
analysis.
  The General Public: May use financial statements for research, financial news,
and to understand the financial standing of companies.
 Competitors: May analyse a company's financial statements to gain insight into
its strategies and performance.
 Analysts: Professionals conducting financial research and analysis for
investment recommendations.
 Shareholders: Individuals or entities who own shares in the organization.
 Calculation of Accounting Ratios: - Accounting ratios are an excellent tool to
help us determine the financial health of a company. However, they do not show the
whole picture, and we must always be careful to take them into context. For
example, Amazon is a company that values growth over profitability. Thus, if one
were to analyse Amazon’s profitability ratios historically, it might have misleadingly
indicated that the company was under financial stress at times when, in fact, it was
the total opposite.
Amazon always chooses to reinvest its income into growth instead of taking it as
profit. The online giant retailer, in this instance, is practicing a strategic macro
decision that may affect the micro ratio indicators. Applying accounting ratios to
companies requires background knowledge to ensure they are properly interpreted.
 Type of Accounting Ratios-
 Liquidity Ratios- Liquidity ratio helps in measuring the cash sufficiency of an
enterprise to pay off its short-term liabilities. A High liquidity ratio ensures the
company is in a good position to pay its creditors. The liquid ratio of 2 or more is
considered acceptable. Listed below are some of the commonly used liquidity
ratios:

Current
1 {(Current Assets)/(Current Liabilities)}
Ratio

2 Quick Ratio {(Quick Assets)/(Current Liabilities)}

{(Cash + Marketable securities

3 Cash Ratio
)/(Current Liabilities)}

 Solvency Ratios- Solvency of business is determined by its ability to meet its

contractual
obligations towards stakeholders, particularly towards external stakeholders, and the
ratios
calculated to measure solvency position are known as ‘Solvency Ratios’. These are
essentially long-term in nature.
 Activity Ratios- This refers to the ratios that are calculated for measuring the
efficiency of operations of business based on effective utilisation of resources. Hence,
these
are also known as ‘Efficiency Ratios’.
 Profitability Ratios - It refers to the analysis of profits in relation to revenue
from operations
or funds (or assets) employed in the business and the ratios calculated to meet this
objective
are known as ‘Profitability Ratios
What Are Accounting Ratios?
Accounting ratios are calculations that are used to compare results from period to
period, or between similar companies.
Numbers used in financial ratios are usually found through analysis of your company’s
financial statements, such as your balance sheet and income statement, and in most
cases, the formulas for calculating the ratios are simple.
While useful for internal purposes, accounting ratio metrics are also used by creditors
and potential investors to gain better insight into the financial health of a business.
Common Ratio Categories

There are numerous accounting or financial ratio categories available to choose from.
Below are just a few of the more common ratios that any size business can use.
Individual ratios can be grouped in multiple categories as there is overlap in the
categorization.
Profitability Ratios

Profitability ratios, also known as performance ratios, are easy to calculate and are
used to measure company profitability and expense management.
Gross profit ratio, net profit ratio, variable expense ratio, operational efficiency ratio,
cash flow to sales ratio, and return on investment are some of the more common
profitability ratios.
Activity Ratios

An activity ratio, also known as an efficiency ratio, is used to determine how efficiently
a business uses its assets to generate revenues and manages its liabilities. The asset
turnover ratio, accounts receivables turnover ratio, and working capital turnover ratio
are all activity ratios.
Liquidity Ratios

Liquidity ratios are used to measure a company’s ability to pay its current debt without
additional capital and are used frequently with solvency ratios. Common liquidity ratios
include quick ratio, current ratio, net working capital ratio, and days sales outstanding
ratio.
Leverage Ratios

Leverage ratios, also known as solvency ratios, measure a company’s ability to pay
long-term debt and interest. Leverage ratios are often used by banks and financial
institutions, along with potential investors.
The debt-to-equity ratio, debt-to-income ratio, debt service coverage ratio, and equity
multiplier ratio are all leverage ratios.
Market Ratios

Popular with current and potential investors, market ratios look at stock performance
and are usually used to predict stock performance and future earnings. Price-to-
earnings ratio and a loan-to-value ratio are both market ratios.
1. Gross Profit Margin Ratio

Calculating your gross profit margin ratio is easy and is especially useful for businesses
that sell products. A profitability ratio, the gross profit margin shows you how efficiently
product sales are managed, and more importantly, how much money is left over to
cover operating expenses.
To calculate the gross profit margin ratio, you’ll need your total revenue and cost of
goods sold for the period you’re calculating the ratio for. Both numbers can be obtained
from your income statement.
Gross Profit Margin Ratio = (Total Revenue – Cost of Goods Sold) /
Total Revenue

For example, if your total revenue for 2021 was $6,200,000 while your cost of goods
sold was $3,100,000, your ratio calculation would look like this:
($6,200,000 – $3,100,000) / $6,200,000 = 0.50 or 50%

This result means that you earn $.50 for each dollar of net sales. Though like any ratio,
totals vary from industry to industry, anything less than 5% is considered a low gross
profit margin, while anything over 20% is considered good.
For example, HP Inc. has a gross profit margin ratio of 19.8 as of 7-31-2022, which is
down from its previous quarter, where the profit margin was 20.2.
Because the gross profit margin is tracked quarterly, they can see that they are
trending up from their 5-year low, when the gross profit margin was 18.2% in October
of 2018.
2. Net Profit Margin Ratio

Net profit margin builds off of your gross profit margin ratio by measuring your total
revenue that remains after operating expenses have been paid. A profitability ratio, to
calculate the net profit margin ratio, you’ll need your total revenue and total expenses,
which can be found on your income statement.
Net Profit Margin Ratio = Net Income / Revenue

For example, if your business earned $1,100,000 in revenue and had $610,000 in
expenses for the year, you would calculate your net profit margin ratio as follows:
($1,100,000 – $610,000) / $1,100,000 = 0.44 or 44%

This means after all expenses are paid, your business is earning $.44 for each dollar in
revenue. Generally speaking, a net profit margin of 25% or higher is considered good,
although this will vary by industry.
3. Return on Assets (ROA) Ratio

As a business owner, you know that assets should be used to increase profits. A
profitability ratio, the return on assets ratio allows you to see just how well your
company uses your assets to increase profits.
You’ll need your net income from an income statement and your total assets from a
balance sheet to calculate the return on assets ratio.
Return on Assets Ratio = Operating Income / Total Assets

For this example, let’s say that you have a net income of $750,000 and total assets of
$5,100,000. Your calculation would be:
$750,000 / $5,100,000 = 0.14% or 14%
This means that for every dollar invested in assets, you’ve earned $.14.
Generally, an ROA of 5% is considered good, while one over 20% is considered
excellent. However, to get a better idea of company performance, it’s best to compare
your results with those of similar companies.
For example, In January of 2022, Target posted an ROA of 13.2%, up from a 5-year low
in 2019 of 7.2%. In comparison, Walmart’s ROA for the same time frame was 5.8%,
while Costco’s was 9.6%. This information helps businesses see how their ROA
measures against the competition in their own sector.
 Return on Investment (ROI) Ratio
Particularly useful for startups, the return on investment or ROI ratio is a profitability
ratio that gives you a look at how much in profits your original investment has
generated.
You’ll need to obtain your total earnings from your income statement and the total of
your initial investment from your balance sheet.
Return on Investment Ratio = Net Return / Cost of Investment

For example, you recently ran an aggressive advertising campaign for a new product.
The cost of the campaign was $35,000. At the end of the campaign, sales for the new
product totaled $280,000, you would calculate your return on investment as follows:
(280,000 – $35,000) / $35,000 = 7
Conventional wisdom states that an ROI of 7% or more is good, while others believe
that an ROI of at least 10% is needed to fund proper business growth.

A return on equity (ROE) ratio can also be calculated, which measures a company’s net
income divided by shareholder’s equity.
5. Quick Ratio

If you’re wondering if your business is able to meet its short-term debt obligations, you
may want to calculate the quick ratio, also known as the acid test ratio. A liquidity ratio,
to get started, you’ll need to obtain your current liquid assets, inventory, and current
liability totals, all found on your balance sheet.
Quick Ratio = (Current Assets – Inventory) / Current Liabilities
 For example, your current assets, including accounts receivable, total $7,500,000,
with inventory of $3,500,000 and liabilities of $1,750,000.
Using these numbers, let’s calculate your quick ratio.

($7,500,000 – $3,500,000) / $1,750,000 = 2.28

This result indicates that for every dollar of liabilities your business has $2.28 in
assets. A one-to-one ratio is necessary to cover all of your liabilities, but anything
more is excess cash. But be careful not to let it get too high. Some investors view a
high quick ratio as a business not using its assets aggressively enough.
6. Current Ratio

Similar to the quick ratio, the current ratio is a liquidity ratio used to determine how
well you’re in position to pay off debt, including interest expense.

First, obtain your asset and liability totals from your balance sheet.

Current Ratio = Current Assets / Current Liabilities

Using the same totals used in the quick ratio, minus inventory, here’s how you would
calculate the current ratio:

$7,500,000 / $1,750,000 = 4.28

This means that for every dollar of liabilities, your business has $4.28 in assets. Again,
a one-to-one result is necessary, and like the quick ratio, too high of a current ratio can
indicate that you’re not using your assets aggressively enough.
7. Inventory Turnover Ratio

If you don’t carry inventory, you can skip this ratio, but for those that do, calculating
the inventory turnover ratio, an activity ratio, can provide good insight into how quickly
your inventory moves.
You’ll need to track down a few numbers before calculating this ratio, including both
beginning and ending inventory values for the period you’re calculating.

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

For example, if your beginning inventory was $1,600,000 and your ending inventory
was $1,800,000, your average inventory for the year would be $1,700,000. Then find
your cost of goods sold on your income statement, which for this calculation is
$6,500,000 to calculate the inventory turnover ratio.

$6,500,000 / $1,700,000 = 3.82

This result means that you sell your inventory almost 4 times annually. A good turnover
ratio runs between 5% and 10%, with anything lower indicative of slow sales or an
excessive amount of inventory on hand.
8. Accounts Payable Turnover Ratio

The accounts payable turnover ratio, a liquidity ratio, is used to determine a company’s
ability to pay vendors and suppliers during a specific period. Used to help determine a
company’s creditworthiness, the accounts payable turnover ratio needs to be
calculated on a regular basis for it to be helpful.
The accounts payable turnover ratio requires several steps for calculation. First, you’ll
have to calculate your average payables balance for the period. Next, you’ll need to
calculate your net purchases. Once you have these two totals, you can calculate your
AP turnover ratio.

Accounts Payable Turnover Ratio = Supplier Credit Purchases / Average Accounts

Payable

Let’s say you have a beginning AP balance of $95,000 and an ending AP balance of
$93,000, and total purchases of $425,000 with returns of $15,000. Your calculations
would be as follows:
($95,000 + $93,000) / 2 = $94,000

$425,000 – $15,000 = $410,000

Now, you can calculate the ratio:

$410,000 / $94,000 = 4.36

This means that in 2021, your business paid your accounts payable balances 4.36
times throughout the year.

With the accounts payable turnover ratio, a higher number is usually better, since a
higher number means you’re paying your AP balances more frequently, though too high
of a number can also mean that credit circumstances are forcing you to pay your bills
early.

If your AP turnover ratio is consistently low, you may want to consider using a procure-
to-pay software like PLANERGY, that can streamline the entire AP process from
purchase order to invoice payment.
9. Accounts Receivable Turnover Ratio

Like the accounts payable turnover ratio, the accounts receivable turnover ratio should
be calculated regularly. This activity ratio measures how quickly you’re collecting
outstanding balances from your credit customers.

To calculate your AR turnover ratio, you’ll need to obtain your total credit sales for the
time period in question, excluding cash sales in your total.

You’ll then need to obtain your beginning and ending accounts receivable balances for
that same period.

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Let’s say for 2021, your business had total sales in the amount of $1,200,000, with
$10,000 of that cash sales. Next, your beginning AR balance as of January 1 is
$474,000 with an ending balance as of December 31 of $470,000. These are your
calculations:

$1,200,000 – $10,000 = $1,190,000

$274,000 + $270,000 / 2 = $272,000

With this information, you can calculate your AR turnover ratio:

$1,190,000 / $272,000 = 4.37

This indicates that you collect your AR balances around four times a year.
The higher your accounts receivable turnover ratio, the quicker you’re getting paid by
your credit customers. Of course, too high of a number can also indicate that you’re
only offering limited credit terms to your very best customers.
10. Debt-to-Equity Ratio

Also known as a debt-to-asset ratio, the debt-to-equity ratio is a leverage ratio that
looks at your current level of debt compared to your total assets to determine financial
leverage.
This debt ratio is used to help determine how much of your assets are financed from
loans compared to owner equity. The debt-to-equity ratio is popular with those looking
to invest in a company since it tells them how well a company can cover its current
amount of debt.
You can calculate this ratio by obtaining total liabilities and total shareholder’s equity,
with both numbers found on your balance sheet.
Debt-to-Equity Ratio = Total Debt / Total Shareholders’ Equity

For example, if your business currently has total liabilities of $1,400,000 and total
shareholder’s equity of $ 2,100,000 you would calculate the debt-to-equity ratio as
follows:

$1,400,000 / $2,100,000 = 067

This result means that for every dollar of equity your business has, it currently has
$0.67 in debt. Though a good debt-to-equity ratio can vary from industry to industry,
anything less than 1 is considered good, while a debt-to-equity ratio higher than 2
signals that your company is highly leveraged and a riskier investment.
How to Use Accounting Ratios in Your Business

Accounting or financial ratios can be extremely useful for businesses, provided that the
proper ratio analysis is completed. A ratio calculated only once provides a good
snapshot into your business finances but provides little in the way of useful detail if
they’re not calculated regularly.

Module 4: Indian Financial System

 Introduction to Indian Financial System-
Scope of the financial system
Structure and components of the Indian financial system
Evolution and development of the Indian financial system)
 Financial Institutions-
 Commercial banks
Public sector banks
Private sector banks
foreign banks
Cooperative banks
Non-banking financial companies (NBFCs)
Development banks and financial institutions (e.g., NABARD, SIDBI, EXIM Bank)
Insurance companies (Life insurance, General insurance), Mutual funds, Pension funds)
 Financial Markets-
Functions of Financial Markets
Types of Financial Markets
Money market (Call money market, Treasury bills, Commercial papers, Certificate of
deposits), Capital market (Primary market, Secondary market, Stock exchanges, IPOs,
FPOs)
Difference between Capital Market and Money Market)
 Regulatory Framework-
Role of regulatory authorities (RBI, SEBI, IRDAI, PFRDA)
Regulatory Reforms and initiatives
Banking and Securities regulations
 Financial Instruments-
Deposit products (Savings account, Current account, Fixed deposits)
Loans and advances (Retail loans, corporate loans)
Stocks and Bonds
Insurance policies (Life insurance policies, Health insurance policies)
 Financial Services-
Wealth management and Investment banking
Credit rating agencies
Financial advisory services
 Financial Inclusion-
Meaning, Objectives and importance
Government schemes for financial inclusion
Role of technology in promoting financial inclusion)
 Challenges and Issues (Non-performing assets (NPAs) in the banking sector
Cyber security threats
Financial Inclusion and Access to Credit
Module 5- Taxation (Income Tax & GST)

 Introduction to Taxation-
Meaning
Types of Taxes-Direct and Indirect
Direct Tax- Income Tax, Corporate Tax, Property Tax,
 Indirect Tax- GST)
 Introduction to Income Tax
Definition and objectives of income taxation
Historical development of income tax laws
Overview of the income tax system in the country
Definition of various terms used in Taxation
 Concepts of Income
Different types of income (e.g., salary, wages, interest, dividends, capital gains)
Distinction between revenue and capital receipts
Exempted incomes and tax-free allowances
 Residential Status and Scope of Total Income
Determination of residential status for tax purposes
Scope of total income under the Income Tax Act
Taxability of income earned by residents and non-residents
  Income from Salary-
Computation of taxable income from salary
Allowances and perquisites taxable under the Income Tax Act
Deductions and exemptions available to salaried individuals
 Income from House Property-
Taxation of rental income from house property
Deductions available for interest on housing loan and property taxes paid
 Income from Business or Profession-
Taxation of business income for individuals and entities
Computation of business income under different methods (e.g., cash basis, accrual
basis), Allowable deductions and expenses related to business or profession
 Income from Capital Gains-
Taxation of capital gains from the sale of assets (e.g., stocks, real estate, securities)
Classification of capital assets and computation of capital gains
Exemptions and rollover provisions available for capital gains
 Income from Other Sources-
Taxation of income from other sources not covered under the previous heads (e.g.,
interest income, dividend income, lottery winnings), Deductions and exemptions
available for income from other sources)
 Tax Deductions and Exemptions (Overview of deductions available under
various sections of the Income Tax Act (e.g., Section 80C, Section 80D, Section
80G, TDS, Standard Deductions), Exemptions available for certain incomes (e.g.,
agricultural income, income of charitable institutions))
 E-Filing of Income Tax Return (ITR) (Meaning of ITR, Types of ITR Forms,
Requirement for filing of ITR online (Income, PAN, Bank account details), Meaning
of e-filing, types of e-filing, Introduction to Income Tax Portal, e-filing process, due
date of filing of income tax return
 Tax deducted at Source (TDS) (What Is TDS, who are Diductor & Deducted,
TAN, TDS deducted under different sections, Due dates TDS Payments & Return
filing, issuance of TDS Certificate (Form 16, 16A, 16B), Return filing, Penalty, e-
Filing of TDS Returns, List of forms used in return (Form 24Q, 26Q, 26QB, 27Q)
 GST Return (What is GST Return, Overview of the GST system, Objectives and
benefits of GST implementation, Structure of GST in the country (e.g., CGST,
SGST, IGST), Taxable events under GST, Procedure for GST Registration, Concept
of input tax credit under GST, Types of GST Returns (e.g., GSTR-1, GSTR-3B,
GSTR-9), Frequency and due dates for filing GST returns, formats of various GST
return forms, Online Filing process for GST Returns, Penalties and interest for late
filing or incorrect filing of GST returns, Emerging issues and challenges in GST
compliance)

Module 5 - Employability Skills (DGT 30 hrs.)

Module 6- OJT/Project & Viva