Double Entry System of Accounting in tally prime

Double Entry System of Accounting

Core Principle

• Dual Aspect: Every transaction has a dual effect, meaning that for every debit entry, there must be a corresponding credit entry of the same amount. This keeps the accounting equation balanced:
  • Accounting Equation: Assets = Liabilities + Equity

Components of Double Entry

1. Debits and Credits
   • Debit (Dr.): An entry on the left side of an account. It increases asset or expense accounts and decreases liability, revenue, or equity accounts.
   • Credit (Cr.): An entry on the right side of an account. It increases liability, revenue, or equity accounts and decreases asset or expense accounts.

Steps in Recording Transactions in Tally Prime

1. Identify the Accounts Affected
   • Determine which accounts are involved in the transaction.
2. Classify the Accounts
   • Identify whether the accounts are assets, liabilities, equity, revenue, or expenses.
3. Determine the Type of Entry
   • Decide which account will be debited and which will be credited.

Example Transactions and Entries in Tally Prime

1. Purchase of Goods for Cash

• Transaction: Bought goods worth $1,000 for cash.
• Accounts Affected:
  • Inventory (Asset)
  • Cash (Asset)
• Entry in Tally Prime:
  • Debit Inventory Account (Increase Asset): Dr. Inventory $1,000
  • Credit Cash Account (Decrease Asset): Cr. Cash $1,000

2. Sale of Goods on Credit

• Transaction: Sold goods worth $1,500 on credit to a customer.
• Accounts Affected:
  • Accounts Receivable (Asset)
  • Sales (Revenue)
• Entry in Tally Prime:
  • Debit Accounts Receivable Account (Increase Asset): Dr. Accounts Receivable $1,500
  • Credit Sales Account (Increase Revenue): Cr. Sales $1,500

3. Payment of Rent

• Transaction: Paid rent of $500.
• Accounts Affected:
  • Rent Expense (Expense)
  • Cash (Asset)
• Entry in Tally Prime:
  • Debit Rent Expense Account (Increase Expense): Dr. Rent Expense $500
  • Credit Cash Account (Decrease Asset): Cr. Cash $500

4. Owner’s Capital Contribution

• Transaction: Owner contributes $10,000 as capital.
• Accounts Affected:
  • Cash (Asset)
  • Capital (Equity)
• Entry in Tally Prime:
  • Debit Cash Account (Increase Asset): Dr. Cash $10,000
  • Credit Capital Account (Increase Equity): Cr. Capital $10,000

5. Loan Taken from Bank

• Transaction: Took a loan of $5,000 from the bank.
• Accounts Affected:
  • Cash (Asset)
  • Loan Payable (Liability)
• Entry in Tally Prime:
  • Debit Cash Account (Increase Asset): Dr. Cash $5,000
  • Credit Loan Payable Account (Increase Liability): Cr. Loan Payable $5,000

Recording Transactions in Tally Prime

Creating Ledger Accounts

1. Navigate to Ledger Creation:
   • Go to Gateway of Tally > Accounts Info > Ledgers > Create
2. Enter Ledger Details:
   • Name of Ledger
   • Under Group (e.g., Cash under Current Assets, Sales under Income)
3. Save the Ledger:
   • Press Enter to save the ledger.

Entering Transactions Using Vouchers

1. Sales Voucher:
   • Go to Gateway of Tally > Accounting Vouchers > F8: Sales
   • Enter the details of the sale transaction.
2. Purchase Voucher:
   • Go to Gateway of Tally > Accounting Vouchers > F9: Purchase
   • Enter the details of the purchase transaction.
3. Payment Voucher:
   • Go to Gateway of Tally > Accounting Vouchers > F5: Payment
   • Enter the details of the payment transaction.
4. Receipt Voucher:
   • Go to Gateway of Tally > Accounting Vouchers > F6: Receipt
   • Enter the details of the receipt transaction.
5. Journal Voucher:
   • Go to Gateway of Tally > Accounting Vouchers > F7: Journal
   • Enter the details of the adjustment or correction transaction.

Benefits of Double Entry System in Tally Prime

1. Accuracy: Ensures that the accounting equation remains balanced, providing accurate financial statements.
2. Transparency: Each transaction is recorded with a corresponding entry, making it easier to track and audit.
3. Comprehensive Records: Provides a complete record of all transactions, aiding in detailed financial analysis.
4. Error Detection: Helps in identifying and rectifying errors quickly, as the total debits must equal total credits.