Tally Accounting Fundamentals

8/18/2019 Tally Accounting Fundamentals

1/20

Hult International Business School - Dubai

A Grzeszczak, 2013-1-

ccoun ng

Handout 2 – Debits & Credits, T Accounts,

Trial BalanceOctober - November 2013


2/20

Debits & Credits (I)Regardless of the type/name of the account ...• The Left hand side is the Debit side;

• The Right hand side is the Credit side;


Depending on the type/name of the account ...

• Increases / decreases are recorded on one or the other side of theaccount.


3/20


4/20

Debits & Credits Practice (I)



5/20

Debits & Credits Practice (II)The Owner’s Equity account below can be furtherseparated into:

• Common Stock,

• Retained Earnings (which is the summary account for Revenues,Expenses and Dividends).



6/20

Permanent & Temporary Accounts


• Accounts that remain open (do notclose at the end of the fiscal year.

• All balance sheet accounts (assetaccounts, liability accounts, owner'sequity accounts) except for thedividends or owner's drawing accounts.

• Accounts that must be closed at theend of each fiscal year (they don't carryany balance into the following year).

• All income statement accounts(revenues, expenses) as well as thedividends or owner's drawing accounts.


7/20

Temporary Accounts (II)Why are temporary accountsused ?

• Temporary accounts are subdivisionsof the Shareholder’s Equity account .

• Recording all (thousands of)transactions directly into

’

'

+,000 000 000

+,000 00 000

+00 0 00

'


cause a mess at the end of the fiscalyear when time comes to prepare theIncome Statement.

• On the debit (left) side there are

expenses and dividends, but which iswhich ?

• On the credit (right) side there arerevenues and investments (commonstock), but which is which ?

+00 00 00

,000 0 00

00 00

0

00

0,0


8/20

Temporary Accounts ClosingTemporary accounts are kept for the duration of the fiscal year andare closed at the end of the fiscal year.

• Temporary accounts are closed by transferring their balances into

Retained Earnings account (one of two subdivisions of the permanentShareholder’s Equity account).

Accounts normall have ositive balances.


• Asset, Expense and Dividend accounts normally have a Debitbalance.

• Liability, Revenue as well as Retained Earnings and Common Stockaccounts normally have a Credit balance.


9/20


10/20

Transactions (I) in T AccountsTransaction impacting Shareholder’s Equity:3. WW performs a service job for a Customer A and receives $500 from him.

00 00

()


4. WW performs another service job for a Customer B and is promised to be paid$700 in the near future (no payment received yet).

00 00

()/


11/20

Transactions (II) in T AccountsTransaction impacting Shareholder’s Equity:5. Shareholder (Winston Wolfe) takes $3,000 out of the business to use for home

improvement work around his house.

,000 ,000


6. WW pays the $200 monthly business internet bill.

00 00

()


12/20

Transactions (II) in T AccountsTransaction impacting Shareholder’s Equity:7. WW receives a $250 council tax bill for the month just ended and is payable in

two weeks time (no payment made yet).

0 0

() /


8. $300 of office supplies are used up (portion of an asset has become an expense).

00 00

()


13/20

Transactions (III) in T AccountsTransaction impacting Assets only:9. WW purchases office supplies for $1,500 of company cash.

,00 ,00


10.WW sells $200 worth of office supplies to another party.

• These office supplies originally cost $200.

00 00


14/20

Transactions (III) in T AccountsTransaction impacting Assets only:11.WW collects $500 worth of A/R balance from the transaction when services

were performed on account.

00 00

/



15/20

Transactions (IV) in T AccountsTransaction impacting Liabilities:12.WW purchases another computer workstation for $2,000 and agrees to pay at

a later date (on account).

/


13.$3,000 is borrowed from a bank.

, ,

,000 ,000


16/20

Transactions (IV) in T AccountsTransaction impacting Liabilities:14.WW pays off the council tax bill received earlier.

0 0

/



17/20

Summarizing Account BalancesSummary of Cash account for Winston Wolfe:• $24.2K subtotal on the Debit side;

• $4.95K subtotal on the Credit side;

• $19.25K balance on the Debit side;

0,000 ,000


00 ,0000 0

000

,00 ,0

,0


18/20

Summary of All Accounts

. 0,000 ,000 . . 00 00 . . ,000 00 . . ,000

. 00 00 . 00 . ,00 00 . 0 . ,000

. 0 00 ,00 . ,00 00 ,000 0

. 00 0 . ,000 ,000

. ,000

,00 ,0

,0

/

/


. 0 0 .

,000 . ,000 . 000 . 0 ,0 0 ,000 ,000 .

,000 0 ,000

,000

. 00 00 .

. 0 00 . . ,000

. 00 0 ,00 ,000

0 0 ,00

0

() ()


19/20

Summary of All Accounts – Comments• Debit balances are equal the Credit balances;

• Sum total of all Debits must equal the sum

total of all Credits;• It applies to every recorded transaction.


A list(ing) of balances for all accounts is called aTRIAL BALANCE.


20/20

Trial BalanceA trial balance is NOT a financial statement.

• It is prepared in order to prove that account balance DO balance (thatDebits = Credits) before financial statements are prepared.

1. List the accounts that have balances in the ledger.2. Separate Debit balances from Credit balances (by using separate columns).

3. List the amounts & add the balances.

4. Verify that Debits = Credits.


• If they do not ... Find the mistakes. ,

/ 00

,000

,000

/ ,000

,000

,000

,000

() ,00

() 0

,00 ,00

Documents

Tally Accounting Fundamentals