Grouping of Ledger accounts to be used in Accounting Package

SATYAKI EDUCATIONAL ACADEMY & ACCOUNTING SERVICES

1-103/2/R,Street-5,Bhavaninagar,Nacharam,Hyderabad-500076 Cell:93999757

Grouping of Ledger Accounts

                       Groups are collection of ledgers of the same nature. Account groups are maintained to determine hierarchy (category) of ledger accounts which is helpful in determining and presenting meaningful and compliant reports. You can group the ledger accounts under the required groups at the time of creating the chart of accounts or can alter them at any time. The group behavior is classified into Capital or Revenue and more specifically into Assets and Liabilities, Income and Expenditure. The groups will affect Profit and Loss account which are  revenue in nature and Balance sheet which is Capital in nature.   

                     In computerized accounting there are two important chapters (Grouping and vouching) to be observed and practiced carefully to become a perfect accountant. Grouping is nothing but introduction of relationship of ledger accounts with the business to the system and Vouching is nothing but recording of day to day affairs thru system.  Under manual accounting system there was accounting cycle. If the entrepreneur wants to know his financial status thru Balance sheet and result of his venture thru profit and loss account he has to pass thru at least 6 stages to get required reports. But under computerized system you need not do all these processes. You simply get the reports soon after completing the first stage of recording i.e., vouching. Hence while creating new ledger, you are required to classify it suitably under relevant accounts group to tell the system the nature of the ledger and where it will be placed. This is quite necessary at this stage as all the reports are prepared on line the moment you enter the transactions. All the accounting packages creates a set of pre-defined account groups called Reserved Groups to maintain consistency and integrity based on mercantile accounting system representing Assets, Liabilities, Income and Expenditure. Some of the reserved groups are primary groups while some are sub groups to the primary groups. These groups determine whether the Ledger is a revenue item affecting Profit and Loss account or capital item which affects Balance sheet.

Now we will discuss about the Groups that appears in the Balance Sheet- Non Revenue Primary Groups

Liabilities side(Sources)  Capital

Funds invested in a firm or enterprise for the purposes of furthering its business objectives.

        1. Proprietors capital

        2. Partners Capital

        3. Share Capital( In corporate)

·         Paid up capital

·         Share Application Money

·         Share Allotment money

·         Share Call money

         4. Proprietor/Partners additional capital

         5. Proprietor/Partners withdrawal of money/service / goods

         6. Proprietor/Partners family usage of service /goods and money

           In the pre created grouping you will find Capital as primary. You can rename it as proprietor/Partner/Share capital

Reserves and Surplus

Reserves and surplus are profits which have been retained in the business . Reserves are of two types i.e. Revenue and Capital. Revenue reserves represent accumulated retained earnings from the profits of normal operations. Capital reserves arise out from gains which are not related to normal business operations

1.      Unclaimed Dividend

2.      Share Premium

3.      Forfeiture of shares

4.      Investment Allowance Reserve

5.      General Reserve

6.      Special Reserves

7.      Capital Reserves

Retained Earnings

 In accounting, retained earnings refer to the portion of net income which is retained by the corporation rather than distributed to its owners (share holders) as dividends. It is the sub group of Reserves and surplus

1.      Undistributed profits

You will find this in corporate only. The distribution of profits in the form of Dividends will be taken at a later stage. So till that moment the net of the year will be transferred to this account. In proprietary concern the result will be credited or debited at the end of the year. In Partnerships the net result will be apportioned among the partners as per the agreed ratios. So there will be no Retained earnings.

The above two groups are the sub groups of Capital

Loans (Liability)

All loans taken/availed by the business units should be grouped here. Reserved sub groups under this primary group are Bank OD or OCC a/c, Secured Loans, Unsecured Loans

 Bank OD or OCC A/C

An OCC account holder can have cash credit facility against his stocks & receivables. Different banks and financial institutions have different criterion to assess the limit of an OCC account. In a majority of cases, the OCC limit is calculated depending upon turnover of the SME. (Small and medium Enterprises)

1.      Bank OCC(Open Cash Credit)

OD A/C

OD in banking typically stands for overdraft or overdrawn, it is simply a current account with the facility of overdraft that current account holders running a small business are entitled to in any bank. With this facility, the account holder can issue a Cheque up to the limit prescribed/sanctioned by bank even if he does not have money in his account and he is charged interest only on the overdrawn amount on which applicable interest rates are levied. It’s like short term loan from bank where you have to pay interest on the overdrawn amount.

1.      Bank OCC/Bank OD. So both types of loans under these categories are to be placed under this 

Secured Loan

A secured loan is a loan in which the borrower pledges some asset (e.g. a car /immovable property/bank or postal deposit) as collateral (additional) for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to recover some or all of the amount originally lent to the borrower,

1.      Long term loans

2.      Debenture Bonds

3.      Mortgage Loans

Unsecured Loans

A loan that is issued and supported only by the borrower's creditworthiness, rather than by

some sort of collateral security.  All the loans taken from friends and relatives should be placed under this.

1.      Term loans by Banks and financial institutions

2.      Business loans taken from financial institutions

3.       Loans from friends and relatives

4.      Loan by Partner/Director and their families

Current Liabilities

In accounting, current liabilities are often understood as all liabilities of the business that are to be settled in cash within the financial year or the operating cycle of a given firm, whichever period is longer. A more complete definition is that current liabilities are obligations that will be settled by current assets or by the creation of new current liabilities. This primary group has further been subdivided into 4 sub groups.

1.      Duties and Taxes

2.      Provisions

3.      Sundry Creditors

4.      Current Liabilities

Duties and Taxes

It is the duty of a businessman to collect and deduct taxes from his customers and to remit the same to the Govt treasury. It includes TDS, TCS, VAT OUT PUT, profession tax from employees and Excise Duty.

1.      Excise duty payable

Will be collected from the first customer by the manufacturer

2.      TDS deducted

TDS means Tax Deducted at Source. The concept of TDS was introduced in the Income Tax Act, 1961, with the objective of deducting the tax on an income, at the source of income. It is one of the methods of collecting Income Tax, which ensures regular flow of revenue to the Government. This will be deducted from salaried employees if crossed exemption limit

Deducted from contractors / professional consultants/rents/interest/commission etc

Deducted from prized amount thru Horse races/cross word puzzles/Lotteries and TV games as per the rates prescribed by the Govt from time to time

3.      TCS collected

Tax will be collected from the customers along with their price in the occasion of  sale of scrap, collecting royalty, on forest produce like on sale of Timber, Tendu leaves and gum, collection along with their issue price on IMFL by state excise dept. The rates of collection or deduction of taxes will be decided by the Govt. from time to time

4.      Vat Collected(Vat output)

Vat levied by the state Govt. will be collected and adjusted in the obligation of tax by the dealer or will be remitted

5.      Profession tax deducted

It will be deducted from employee salary above Rs 5000 according to the rates prescribed by the state Governments and will be remitted to the Profession Tax Officer

Provisions

Provision is an amount set aside out of profits in the accounts of an organization for a known liability or for the depreciation of an asset. Common examples include Provision for Bad debts, Provision for depreciation, provision for taxes and also provision for accrued liabilities.

1.      Provision for Taxes

2.      Provision for depreciation

3.      Provision for retirement benefits

4.      Reserve for doubtful debts

Sundry Creditors

Sundry Creditors refers to companies or individuals to whom money is owed for stocks supplied or service rendered on credit

1.      Trade Creditor(Supplier of goods)

2.      Service provider(Auditors, Technical Advisers, Advocates, Commission agents and Brokers etc)

Current Liabilities( Charges payable/Outstanding payments)

 All outstanding payments and short term liabilities for the year end are to be placed under this

1.      Customer deposits/Advance for supply/ service

2.      Services/Taxes payable

·         Salaries payable

·         Rent payable

·         Taxes payable

·         Bonus payable/declared

·         Incentives payable to dealers /employees

·         Commission/brokerage payable

·         Deductions for ESI/PF from employees salaries

·         Bills Payable

3.      Accrued interest on loans availed

4.       FSD deducted by contractee

5.      Short-term borrowings

6.      Un earned revenue ***

***When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser. As a result of this prepayment, the seller now has a liability equal to the revenue earned until deliver of the good or service.

With this the discussion on Liabilities side of the Balance sheet completed.

Now we will start discussion on Assets i.e. Utilization of funds

Fixed Assets

Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E) is a term used in accounting for assets and property which cannot easily be converted into cash. It is a  long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time. It differs  from business to business.

1.      Furniture and fixtures/Machineries/Vehicles/Office equipments

2.      Installation charges /Transportation and unloading charges of Assets

3.      First time insurance /road tax on the vehicle

4.      Up gradation of Machinery

5.      Lease hold property

6.      Temporary Sheds in construction activity

7.      Legal /Documentation charges to acquire property

8.      Kitchen ware in Hotel

9.      Beds/Ac units  in Hospital/Hotel

10.  X-Ray / scanners and operation equipments  in Hospital

11.  Projectors / Rectifiers in Cine Theatre

12.  Lift to carry materials in construction site

13.  Hoarding structure /erection charges in Advertising business

14.  Additional Gallery in theatre

15.  Scientific/Laboratory Equipment

16.  Land and Buildings

17.  Renovation of office furniture

18.  Motor to draw water from foundation pits in construction

19.  Live stocks(Poultries/cattle dairy farms)

Investments

The word investment essentially means an outlay on an asset that is capable of generating returns over a period of time. The level of investment depends on the capacities as well as the intents of the individuals or the organizations that are carrying out the investments. In many cases, it actually is influenced by the risk appetite of the investor. Generally, an investment that is more risky offers a higher return. Investments can be made in stocks of listed companies as well through initial public offering, in mutual funds, in pension funds, in insurance sector and with banks in various forms. In respect of companies, monies paid to buy out other companies as well as holding a controlling stake in other companies is classified as investments. Investments can be short term as well as long term, depending on the maturity period.

1.      Shares with other companies

2.      Purchase of Debenture Bonds

3.      Securities with the licensing authorities

4.       Subscriptions in Mutual funds

5.      Government securities

6.      Subscriptions in Chit Funds

Current Assets

A Balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, Stock on hand, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash. Current assets are important to businesses because they are the assets that are used to fund day-to-day operations and pay ongoing expenses.

      1. Accrued interest on deposits and loans disbursed

      2. Prepaid insurance

      3. FSD Receivable

      4. Bills Receivable

      5. Goodwill

      6. Un expired expenditure (The unexpired or unused portion of the economic benefits from an expenditure represents an asset for future usage).

      7. Vat input

 It is subdivided into 6 groups.

1.      Stock on Hand

2.      Deposits(Asset)

3.      Loans and advances (Asset)

4.      Cash in Hand

5.      Sundry Debtors

6.      Bank Accounts.

Stock on Hand

Stock on Hand is accounted for at the end of each financial year. The reason this is included is because the purchase of goods has been claimed for but you haven't sold the stock yet - it is still available for sale or for consumption in the process of manufacturing or construction. This stock on hand has the effect of increasing the profit for the business (to offset against the purchase expense). General and common policy to value closing stock is the least of purchase price or Market price. It is a special group and it has to be differently treated than other normal ledger accounts. Accounts falling under the stock in hand are not permitted any transaction. So you cannot include them in any kind of voucher. Since no transaction thru voucher can be passed, these are the only accounts for which the closing balance can be entered from ledger accounts thru alteration. The opening balance of these accounts gives the opening stock of the company. The closing balance representing the value of the closing stock at the end of a period.

1.      Stock of Raw Materials/Finished/Semi finished goods

2.      Work in progress in construction activity

3.      Work in Process in manufacturing

4.      Stock of packing materials

5.      Stock of stationery

6.      Stock with consignee

7.      Stock in transit

8.      Stock at branch

9.      Stock at working site

10.  Stock of Raw Film in color Labs

11.  Stock of wall posters in film distributing company

Deposits (Asset)

Place all the deposits like FDR’S, Security deposits, Deposits in other companies and Rental advances

        1. BG Deposit (Bank guarantee)

        2. Dealership deposit with distributors and manufacturers

        3. FSD with others (Fixed security Deposit)

        3. Rental Advance for machinery or for business premises

        4. Advance Tax (Income tax)

        5. TDS deducted from our bills

        6. TCS collected with our bills

        7. EMD (Earnest Money deposit)

Loans and Advances (Assets)

During the course of business it is the practice of employer to advance the staff to meet their emergency needs and also advances for supplying of goods, Mobilization advances to contractors and sub contractors or to receive services. This is also common to advance the directors/ partners and their families and friends. Place all advances of non trading nature. Staff advances, Advances to sub contractors and loans given by the company to the others and staff

       1. Staff festival/Medical/tour/Housing loan  advance

       2. Advances to Sub Contractor

       3. Mobilization advance to contractor

4. Loans to partners/ Directors or others and their family members

        5.Advances for supplies/services

Cash in Hand

The amount of money in the form of cash that a company has after it has paid all its costs. The amount of cash on hand determines what projects a company can undertake, or what financial hardships can be absorbed, without going into debt or arranging other financing. A cash ledger account is created by the system itself and placed under this group. You can create any number of additional cash accounts by name Petty cash, Site imprest etc

1.      Cash at office

2.      Cash at branch

3.      Cash with petty cashier/Petty cash

4.      Cash at working site/imprest cash

Sundry Debtors

Sundry mean various, miscellaneous. Sundry Debtor is an entity from whom amounts are due for goods sold or services rendered or in respect of contractual obligations.  They are also termed as debtor, trade debtor, and accounts receivable.

Place all the accounts of your customers on credit

1.      Trade customer

2.      Service receiver

3.      Sums owing by customers

Try to place individual ledger accounts under the appropriate sub group and avoid placing ledger accounts directly under the main Group

Bank Accounts

Current Account is opened by business units in cooperative and commercial Banks who have number of regular transactions with the Bank, both deposits and withdrawals. It is also known as Demand Deposit. In this amount can be deposited and withdrawn any time during the working hours of Bank without giving any prior notice. It is also suitable to make payments to Creditors thru cheques and to deposit cheques received from the Debtors. All Current Accounts with Banks should be placed under this group.

1.      Bank current accounts

Branch/ Divisions

This maintains ledger accounts of all your company's branches, divisions, and sister concerns, subsidiaries and so on. This group may be used for convenience by multi branch companies for inter branch transactions. It is a rare group. You need not use this group if your company having no branches or divisions

Misc. Expenses (Asset)

This group is typically used for legal disclosure requirements such as Schedule VI of the Indian Companies Act. It should hold incorporation and pre-operative expenses. Companies would write off a permissible portion of the account every year. A balance remains to an extent that cannot be written off in Profit & Loss Account.

1.      Preliminary /Pre operative expenditure

2.      Differed revenue expenditure

3.       Product launching Advertisement Expenses

4.      Heavy destruction  of property due to naxals/sunami/earthquakes or by any other reasons

5.      Expenses on underwriting of shares & debentures including u/w comm. or brokerage.

6.      Discount allowed on issue of shares & debentures

7.      Int. paid out of capital during construction period of factory

8.       Research and Development expenditure not adjusted.

Suspense Account

In modern accounting, many large corporations use a Suspense Ledger to track the money paid or recovered, the nature of which is not yet known. The most common example is money paid for Traveling Advance whose details will be known only upon submission of the Travelling Allowance bill. This is a primary group that appears in the Balance sheet.

1.      Advance given to company employee while going on Office duty

2.      Amount given to a consultant to perform official obligations

With this we had completed the grouping related to Liabilities and Assets of the Balance Sheet. Now we will discuss about Revenue groups which will be placed under Trading, Profit and Loss Account

With the above study we came to know that all ledger accounts of Permanent nature i.e. Personal and  ledger accounts related to Real  will find place in Balance Sheet and will be carry forwarded to next year books of accounts. The other ledger accounts of temporary nature i.e. Nominal accounts will be placed under the groups of Revenue and will be placed in Trading, Profit and Loss account

Income and expenditure account

Under this there will be two important statements i.e., Trading and Profit and Loss account. Trading account will help the business man about the gross margin thru the execution of his venture. The business man can know the real strength of his business with this report. Profit and Loss account will help to know the net result of the business. A businessman will always expects positive result in trading account (Gross profit). Nobody will dare to continue the venture if the result is in negative. But the business man will dare to continue his venture even if he got negative or less net margin. So it is clear that the Trading Accounts will disclose the strength of the business and the profit and loss account will disclose the net result of the business. Now let us have a discussion on the groups which we will come across in Trading, Profit and Loss account. The primary groups are six in number.

1 Purchase 2.Sales 3. Direct Income 4. Direct Expenses 5.Indirect Income 6. Indirect Expenses

Groups to be placed under Trading Account

Purchases

 It means items acquired for the purpose of sale or for consumption in the process of manufacturing and in the execution of contract works. Purchase Returns or Returns outwards should be grouped under this to arrive net Purchases. Item wise purchase accounts should be created as subgroups for clarity.

1.      All cash  and credit purchases of raw materials/tradable goods

2.      Purchase returns/Returns outwards/Goods sent back to supplier

3.      Lift for installation in construction

4.      Motor to fit with bore well

5.      Purchase of raw film in color labs

6.      Purchase of wall posters in film distribution

7.      Purchase of paper bundles in news paper industry

8.      Purchase of lottery tickets in lottery agencies

Sales

All the sales which were purchased  previously for the purpose of sale should be placed under this. All sales returns otherwise called as Returns inwards should also be placed under this to get the net quantum and amount of sales.

1.      All cash/Credit sales of tradable, raw materials or finished goods.

2.      All sales returns /returns inwards/ Receipt of Goods returned by customers

3.      Sale of immovable properties i.e. buildings should be placed under which are constructed purposefully for sale( Real estate dealers)

4.      Sale of news papers in news agency

5.      Sale of raw film in color labs

6.      Sale of posters in film distribution

7.      Sale of software in software industry

8.      Sale of metal in crusher industry

Direct Income

The classification of direct incomes & indirect incomes is based on the nature of the business. If the incomes are directly connected with the business, then it is termed as direct incomes.  In some businesses there will be no sales and purchases but revenue will be there thru main activity of the business organizations those should be placed under Direct Income 

1.      Interest income in Finance company

2.      Fore man chit commission( In chit Funds the chit organizer will be called as Foreman)

3.      Service receipts in Service unit

4.      Transport receipts in transporting business

5.      Commission in consignment business

6.      Fee collections in Educational Institute

7.      Consultation /prescription fee in Hospitals

8.      Room rents from patients in Hospitals

9.      Testing charges /X-ray/scanning in clinical laboratories

10.  Operation theater charges

11.  Commission in Lottery Agency

12.  Consultation fee in Technical or professional consultancy

13.  Film exploitation rights in film distribution

14.  Audio and Video rights in film production

15.  Sale of slots in TV

16.  Sale of advertisement space in advertising business

17.  Floor rentals in cine studios

18.  Preview / Dubbing theatre/Rerecording and floor  rents in Studios

19.  Daily collections in cinema theatres

20.  Weekly theatre rents for cine exhibitions to the theatres

21.  Film Hires for the distributors

22.  Guest accommodation charges in Hotels

23.  Film distribution rights in cine production

24.  Hire charges in Hiring business

25.  Gross bill/ Contract receipts  in construction business

26.   Sale of Remaking rights for the producer

27.  Producers share in from area distributor

28.  Renewal rights of film distribution

29.  Franchise fee

30.  Receipts from program sponsorships

31.  Rental income from hoardings/popcorn boards/bus panels

32.  Distribution commission from producers in film distribution

33.  Distributor share from exhibitors in film distribution

Direct Expenses:

DIRECT EXPENSE is that portion of expense that is directly expended in providing a product or service for sale and is included in the calculation of Cost of goods sold. E.g. labor and inventory.

1.      Factory power

2.      Factory workers wages/Factory Managers salary

3.      Fuel, Coal and water

4.      Labour /NMR labour charges in construction

5.      Factory /Hospitals generator rents/ maintenance(fuel and repairs)

6.      Unloading expenses of goods  (Hamali)

7.      Transport on purchases/ Labor transport /carriage inwards

8.      Octroi

9.      Customs duty

10.  Import duty

11.  Royalty

12.  Labor cess in construction

13.  NAC contributions  in construction

14.  Cantonment Cess

15.  Work expenses in contracts

16.  Recoveries by departments in contracts( for the supplies/services and remarks )

17.  Film Hires and MG on films or distributors share in cinema halls

18.  INR and Show Tax in cinema halls

19.  Entertainment tax in cinema halls

20.  Purchase of arc carbons in cinema halls

21.  Costumes in cinema production

22.  Costume designer charges

23.  Rent of set properties in cinema production

24.  Remuneration of all crafts in cinema production

25.  Promos screening charges before releasing of cinema in TV

26.  Still photography charges in film production

27.  Shooting permissions in film production

28.  Junior artists agent commission

29.  Rerecording charges

30.  Dubbing theatre rents

31.  Remuneration to graphic designer in film making

32.  Outdoor unit hire in film production

33.  Story sitting expenditure in film production

34.  Tour expenses for site selections in film production

35.  Production manager salary in film production

36.  Press and media publicity in film production/press meeting expenses

37.  Stills/cassettes for distributors in film production

38.  Title registration charges in film production

39.  Purchase of negative rolls/Sound negatives in film production

40.  Operation theatre maintenance

41.  Ambulance driver salaries

42.  Spl Doctors visiting fee in Hospitals

43.  Doctors salaries

44.  Technical staff salaries

45.  Salaries of nurses in Hospitals

46.  Mess maintenance in Hospitals/construction business/Film production

47.  Hospital premises rents

48.  A/C maintenance in Hospitals

49.  Over time charges to factory workers/ Hospital staff

50.  Seinorage deducted or paid

51.  Chipping and hacking charges in construction

52.  Tender schedules in construction

53.  Marking/total station charges in construction

54.  Work site employee salaries

55.  Hire /rental charges in construction and film production

56.  Drawing and designing charges in construction

57.  Clearing and forwarding charges on imports

58.  Ocean freight Marine insurance  charges on imports

59.  Film production news in magazines and TVS

60.  Audio release function expenses

61.  Actors and crew traveling expenses in film making

62.  AC plant maintenance in cinema theatres

63.  Artist remuneration in circus

64.  Teaching staff salaries in education

65.  Floor rental charges for hoarding

66.  Remaking rights in production

67.  Daily/weekly rated wages of factory

68.  Heating and lighting in factory

69.  Bore well charges in construction

70.  Purchase of explosives in Mines

71.  Breaking charges in mines etc

72.  Weekly theatre rents for cine exhibitions to the theatres in the distributors books

73.  Bye-law registrations /chit commencement certificate fee in chit fund companies

74.  Franchise fee in all the businesses

75.  College/school premises rents in education

76.  Remunerations to lab faculties in education

77.  Lab/library maintenance in education

78.  Honorariums paid in education

79.  Affiliation charges in education

All the above four groups will be placed in Trading/Manufacturing account to arrive at the gross margin of the venture.

  

Groups related to Profit and Loss Account

Ledger accounts related to Indirect income will be added and all the Indirect expenses (Administrative expenses) will be deducted to arrive at the net margin (net profit) of the business.

Indirect Income:

The revenue receipts during the course of business thru other activity should be placed here

   1. Insurance claim

               2. Incentives recd

               3. Sale of scrap

   4. Interest on FDRS/TDRS

               5. Key man’s Insurance claim

               6. Discount on creditors

   7. Interest on drawings

   8. Refund of taxes

   9. Recovery of Bad debts

 10. Rental receipts thru sub letting the premises

 11. Receipts thru short films and slides in cinema halls

 12. Cycle stand and canteen rents in cinema halls

 13. Verification /processing charges in Chit funds/Finance

 14. Late fee penalty

 15. Interest remission

 16. Subsidy

 17. Interest on refunds

 18. Slides and short films in cinema

 19. Foreign currency fluctuation credit balance

 20. Profit on sale of asset

 21. Defacing charges in Advertising business

 22. Flexi sticking charges in Advertising business

 23. Reimbursement of salary by insurance company (Key)/Distributor

 24. Rental receipts thru subletting the hospital premises for canteen/medical shop

 25.  Additional charges on cinema tickets for A/c maintenance charges

 26. Sub contracting commission

 27. Gain on chit

 28. Van/Bus fee in educational institutions

Indirect Expenses

Amount that is spent on general costs, such as management costs, rather than money spent directly on making one particular product or performing one particular service all administration expenses for computation of Net Profit should be placed here.

      1. Interest on capital/finance

      2. Salaries

      3. Rents

      4. Transport on sales

      5. Key man’s insurance premium

      6. Discount on debtors

      7. General Insurance

      8. Export duty

      9. Rent rates and taxes

     10. Ware housing charges

     11. Repairs and maintenance

     12. Office renovation

     13. Selling and distribution expenses

     14. Delcrederi Commission on consignment/ Extra commission to agent

     15. Legal charges

     16. Packing charges

     17. Audit fee

     18. Accounting Charges

     19. Consultation charges

     20. Maintenance of vehicles

     21. Donations and charities

     22. Production incentive to factory manager

     23. Free Samples

     24. Staff quarters maintenance

     25. Administrative staff salaries

     26. Banners and neon sign boards

     27. Cell phone allowances

     28. Conveyance

     29. Licenses and renewals

     30. Equipment maintenance

     31. Interest on equipment loan

     32. Staff and labor welfare

     33. Hospitality

     34. Guest expenses

     35. Books and periodicals

     36. e-filing charges

     37. Loss on sale of asset

     38. Miscellaneous exp written off/preliminary expenses not written off

     39. Apprentice scholar ships

     40. Workmen compensation

     41. ESI contribution

     42. PF contribution

     43. Sales manager commission on sales

     44. Annual maintenance charges

     46. Recreation club maintenance charges

     47. Petty Expenses

     48. Loan processing charges

     49. Cheque discounting charges

     50. CM /PM relief funds

     51. Bank interest on OD

     52 Loss of goods by theft

     53. Fumigation charges in exports

     54. Terminal handling charges in exports(THC)

     55. Foreign currency fluctuation debit balance

     56. Attestation fee paid

     57. Amortization

     58. Directors or partners remuneration

     59. Success meets expenses in films

     60. Traveling expenses

     61. Discount on collections/discount on debtors

     62. Bad debts

     64. Monthly rated wages of staff

     65. Loss by fire irrecoverable

     66. Interest on loan availed

     67. Penalty interest on Bank loan

     68. Penalties

     69. Film publicity

     70. Non teaching staff salaries in education institutes

     71. Consignment commission

     72. Cheque dishonor charges

     73. Depreciation

     74. Consultant fee

     75. Guest house maintenance charges

     77. Compensations

     78. Donation and charities

     79. Anniversary function charges in educational institutions

     80. 100^th day function in film industry

     81. Computer maintenance

     82. Patients reference

     83. Security charges

     84. Staff betas

     85. Festival celebrations

     86. Professional and Technical consultation feeses

     87. National function celebrations in educational institutions

     88. Loss on chits

     89. Guest house rents/maintenance

     90. Cost of mementos in the 100^th day function in film

     91. Film representative betas by theaters in film distribution

     92. Publicity charges in Film distribution

     93. Film boxes transportation charges

     94. News paper advertisements in film distribution

     95. TV/Radio publicity in film distribution

     96. Preliminary expenses written off

     97. CM/PM relief funds and charities/donations

     98. Stamps and documentation charges

     99. Books and periodicals

Apart from the above pre-defined reserved groups you can create new groups that may be Primary or Sub group to any existing Group/Sub group.

Ledger Accounts

The system automatically creates two ledger accounts

1.      Cash ( Cash on hand group)

2.      Profit and Loss account(Direct primary group)

Apart from these two ledgers you have to create all other ledger accounts and place them under proper groups as explained above.

 By the above study it is clear that the Balance sheet will help the business man to know his financial status at a given period and accordingly he will act to develop his financial status and thru .Trading, profit and loss account the net result will be known to him. With this the business man may make future plans to minimize the loss if any and to improve the net margin level.

The above narrated and noted items are some of the examples you may come across while executing your book keeping task. You have to experience with lot number of items which may differ from business to business. If you can keep in memory all the groupings which were discussed above you can easily pass and complete the regular tasks before you while acting as book keeper. Try to place individual ledger accounts under the appropriate sub group and avoid placing ledger accounts directly under the main Group

Note : This system will allow you to create groups as many as you require or rename them but will not allow you delete any group created by the system

Summary of the Grouping of Ledger accounts

1.      All ledgers related to Proprietors, Partners and share capital should be placed under CAPITAL

2.      All ledger accounts related to Application Money, Allotment Money, 1^st call and 2^nd call money should be placed under Capital

3.      Forfeiture of share subscription, Premium amount collected on shares, Unclaimed Dividend and Reserve for doubtful debts are to be placed under Reserves and Surplus which is sub group of Capital

4.      Undistributed Profits are to be placed under Retained Earnings which is also sub group of Capital

5.      After the introduction of capital Loans play an important role in business. To improve turnovers the business needs some financial help from Banks.

6.      Bank OCC and Bank OD should be placed under Bank OCC. This is the sub group of Loans (Liability)

7.      Loans taken from friends and relatives , business loans and Term loans from Banks should be placed under Unsecured Loans

8.      Loans availed from Banks furnishing property securities are to be placed under Secured Loans. 6^th and 7^th  and 8^th categories are the sub groups of Loans (Liability)

9.      Final Primary group is Current Liability. Under this there are 4 subgroups.

10.  Under the system of Taxation it is the duty of assessee to collect taxes from their customers and to remit the same with the govt. So these collections are to be placed under Duties and Taxes. Examples are TDS deducted, TCS collected, VAT  collected ,PT deducted etc

11.  During the process of finalizing the accounts some amount will be put aside to meet the known  liabilities. Those amounts should be put under Provisions. Examples: Provision for taxes and Provision for Depreciation

12.  Every business man will try to avail the required goods, assets and services on credit during the course of business. So all the persons provide service and supply goods on credit should be placed under Sundry creditors. 

13.  At the end of the financial year  some payables are to be created  to know the true result of the business  Ex: Salaries, Rent, Taxes, Bills and should be placed under current liabilities

The above explained groups are the sources of business and are called as Liabilities. Now we will discuss about the utilization of Funds so received as sources.

14.  Every business has to acquire some assets to maintain the venture and to earn for a long period. It differs from business to business. If it manufacturing one they need machineries, buildings, vehicles etc. if it is a construction company they need lifts, earth movers, compressors and lorries etc. Anything which stands for more than one year should be placed under Fixed Assets and Transport, unloading and installation charges of fixed are to be grouped under this

15.  Any  investment made to take shares , mutual funds from other company or deposits made to get licenses are to be placed under  Investments

Other important assets are Current Assets. Unlike the fixed assets the life of the current assets are one year. The assets under this may be closed or decreased or varied within one year.

16.  Under current assets the important item in Manufacturing and trading is Closing Stock.

17.  Closing stock of Raw Materials, stock of finished goods, unfinished goods, stock of packing materials, Work in process, work in progress should be placed under Stock on Hand. This is the sub group of Current asset.

18.  To get Bank Guarantee we have to take FDR, to get dealership from a distributor, to get a rental premises we have to give some rental advance  all are to be placed under Deposits (Assets)

19.  During the course of business it is common to grant advances as festival advances, staff advances, tour advances, medical advances etc to staff and advances to sub contractors by the contractors. All should be placed under Loans and Advances(Assets)

20.  Cash in the office , Cash at branch, cash with petty cashier, cash in the work site  should be placed under Cash in Hand       

21.  Like Sundry creditors in the liabilities side , it is the practice of business man to supply goods to customers , rendering service to the clients on credit  should be placed under Sundry Debtors

22.  All the Banks current accounts should be placed under Bank account

23.  All the branch accounts should be placed under Branch/Divisions

24.  Before the incorporation of company we have to incur heavy expenditure and while launching new product we have to incur heavy expenditure. Even though it is expenditure we have to put it under Miscellaneous Expenditure (Asset). The expenditure which was put under this will be transferred to profit and loss account thru writing off over a period of 4 to 5 years.

25.  In the course of running the business it may happen to send business executive to the other city for business deals, or amount given to consultant for any official or project works amounts advanced for the above reasons should be placed under Suspense account.

With this we came to an end to the lesson of utilization of funds. Every business man’s ambition and objective is to earn money. If anybody wants to earn something he has to spend something. To know  what was spent and against that what was earned we have  to prepare the reports regarding revenue receipts and expenditure. For all the items related revenue we have to select appropriate group to see the correct reports. Now we will discuss about that in detail

26.  In Trading, Manufacturing and in Construction process we have to purchase things to sale or for consumption. So all the purchases in the above three should be placed under Purchases

27.  Like above in real estate business, in Trading and in manufacturing sales will be there. All such sales should be placed under Sales Account

28.  Due to excess supply or poor quality the goods purchased will be returned to the supplier. So to know the net purchase we have  to record purchase returns or returns outwards under Purchase account 

29.  Like above we may be in receipt of goods returned by our customers. This should be placed under Sales Account

30.  To know the venture or project margin we have to prepare Trading account in which all the expenses which influence Gross profit will be placed.  For example Transport to bring the purchased goods in, Factory lighting, Factory wages etc. These type of expenditures are named as Direct Expenses

31.  To know the net result of the business we have to transfer expenses related administration to the profit and loss account. So all the expenses related to regular maintenance of the business are called as Indirect expenses  Ex: Salaries, Rents, Vehicle maintenance and Interest etc

32.  There may not be Sales and Purchase in each and every business Ex: Cine theatre, Hotel, Hospital and Chit Fund co. In that type of businesses we have to treat the main income as Direct Income Ex: Entertainment charges in cine theatre, Guest accommodation charges in Hotels, Foreman’s chit commission in chit fund co and interest income in  Finance co. All such incomes are to be placed under Direct Incomes 

33.  Just like Indirect expenses there may be Indirect income in all the businesses Ex: Incentives, Discount on creditors, interest and tax refunds. All such income should be placed under Indirect Income

So thru concentrating the above things anybody can become a full pledged accountant and can lead a happy and dignified life. I think my explanations may change you and may direct you to better way of life. If not earlier you put a goal now to reach the higher position  in the accounts department and reach it.

                                                                      

Wishing you a Successful Accountant

M.Satyanarayana Raju