Video Transcript

Hello and welcome back, so today in this session, we are going to discuss The Indian accounting system.

I hope you might have already gone through our previous videos of the Indian Accounting System or Double Entry System; to continue with this, in this session, we are going to study the complete lifecycle of an Indian accounting system, and also we are going to explain almost all the transactions involved in an Indian business, or the business carried out in India.

As you already know Indian accounting system is based on the double-entry system in the double-entry system, there will be at least, minimum of two entries, two or more entries, with the sum of all the credit and debit entries are equal. Here we are going to understand all the transactions involved in businesses carried out in India.

Let us consider that you have started a business, let’s take, for example, a stationery shop, consider that you have started a stationery shop to trade the stationery items like paper, pen, pencil, etc. Consider that you started a company with a capital investment of Rs. 5,000.

The first entry would go to the cash book and the ledger will be your capital investment. So all the capital investments are the investments done by the director(s), or a proprietor or partner(s) will be under the capital ledger.

So let’s understand how these entries are entered. As you are investing initially Rs. 5,000 so the Capital Ledger will be credited by Rs.5,000 and your Cashbook will be debited by Rs.5,000.

You can see this is how the ledger entries are done here, so Capital Ledger is an account or a capital account, an account of all the directors of a company or the partners or the proprietor of a company.

So all investments are registered in a Capital Ledger, for any business you need to trade, the trade means, you may manufacture material or products to sell it and another way is you purchase materials, and you trade those materials and you sell them with some profit, or it could be a service-oriented business, wherein you provide a service various services – you sell those services to earn money.

Let’s consider a simple business wherein you trade as I told you earlier, you trade stationery items, to start a company, you have invested Rs.5,000 and to trade, you need materials for your trading, let’s consider that you purchased some materials like paper, pen pencil from another company and you sell them.

So, the first example would be purchasing the trading materials, let’s consider you have purchased some paper, pen, pencil, paper clips from a company called Ideal Tecno Enterprises.

You can see the bill here, invoice of your purchased goods, so the invoice will be issued by Ideal Tecno to your company or to your stationery shop, the typical bill is here, a tax invoice is here, it contains all the materials that you purchased, say for example you purchased a paper with HSN code 4802 and quantity is mentioned, and also rate and GST, GST amount and the total amount that is including GST and your material cost.

Similarly, you purchased a pen, pencil, and a paperclip, and an HSN code is always mentioned in the tax invoice.

So the total amount is Rs.2,061 and the total GST amount is Rs.261. Let’s understand how this tax invoice or the purchased items are registered in a ledger or a cashbook. Let’s consider this transaction as a credit transaction, so as you know how to enter the ledger entries of a credit transaction.

Let’s understand this in detail again, here the party is Ideal Tecno Enterprises, so we need to pay the payment of Rs.2,061 to Ideal Tecno Enterprises, so the Ideal Tecno Enterprises will be credited by Rs.2,061 and as it is a purchase, so purchase a register will be updated, I mean to say, the purchase register will be debited by Rs.1,800 because here we are deducting the GST amount from the total amount because the actual cost of the purchased amount is Rs.1,800. Rs.2,061 is including GST as we need to maintain separate registers for GST, CGST, SGST, and IGST

So we have to take only the product or a trading material amount as a purchase register amount, so the purchase register or a ledger will be debited by Rs.1,800 and as you can see here clearly CGST is Rs.130.50 paisa and SGST is also Rs.130.50 paisa, as these transactions are within the state transactions so only CGST and SGST are applicable and in the same way CGST lecture is debited by Rs.130.50 paisa and SGST ledger is debited by Rs.130.50 paisa.

So this is how a purchase is registered in a ledger book. And also to complete this transaction, say for example for this transaction you have to pay transportation charges or you made a vehicle to transport your purchased goods from your vendor’s shop to your stationery shop and that would be Rs.200.

Let’s consider how this Rs.200 you have paid as cash will be registered in your ledger or a cash book, here you have paid Rs.200 so the cash book will be credited by Rs.200 and as this is the transportation charges if it is a considerable expense then you would keep a transportation ledger separately and this is a stationery shop and transportation charges are minimum charges which account for your profit and loss, so we are going to add this transportation charges in a miscellaneous ledger so miscellaneous ledger will be debited by Rs.200, Wherein we are going to write a description as transportation charges or you can write a detailed description like, to whom you have paid and the vehicle number or vehicle type that you have used and also if you want you can mention the invoice number so that in future it is clear what exactly you had purchased and why did you pay Rs.200 as transportation charges,

For this, you can even raise a payment voucher, wherein payment voucher contains all the details like date and also voucher number and the particulars that could be the transportation charges with a detailed description of vehicle number and the driver name or the payment, the one who had collected the payment, etc, and also the amount mentioned as Rs.200.

Usually, a payment voucher contains as it is a payment, so the receiver’s signature is important so you can take receiver’s signature at the bottom of the payment voucher.

We have seen investment, capital investment, then purchase, purchase of trading materials, and then also we saw the example of payment voucher.

so once you purchased to complete the trade you have to sell it. Let’s take an example of sales and let us see how the entries are made in a ledger. For example, in your stationery shop you already have a stock of paper, pen, pencil, and paper clips, etc.

Which you have purchased so now you are going to sell it to your customer. Let’s say one of your customer SSE Works purchases a set of materials from you as shown in the tax invoice here

so whenever you sell goods to any party you’re going to raise a bill for that or a tax invoice and tax and tax invoice contains as you already know, it contains Serial Number, product, HSN code, and relevant GST charged on it and also rate, quantity, etc. consider this sale as a credit sale, so here you are selling a set of products as shown

in the tax invoice to party, your customer  works let’s see how this taxing wise is registered in a lecture so first of all as it is a credit-based ourselves so first the party should be debited here the best part is assessing box so SSE works ledger account is debited by 181 to piece which is the tax invoice, in the same way, the sales as it is assessed so sales registered or the sales ledger will be credited by 160 rupees because we are not updating sales register with a 181 we are updating it with one sixty rupees because we need to
keep track of see GST yes GST and I GST separately so that we can find the GST later on so here the sales are in the sales ledger only the product cost actual cost before taxation is considered which is 160 rupees so sales ledger or the resistor is credited by 160 rupees the CGS T&S; GST are the two taxes which are applicable in an equal percentage so see GST is credited by 10 to 50 paisa and s GST is also credited by 10 to be 50 paise one thing you can observe here is total debit entry and sum of all the credit entries are remain same so this is how sales are registered now let’s consider that the to which you have sold the transaction is incomplete without receipt of let’s say the party to which you have sold the products he says he works he is back you the fable of 1/81 to peace by in the means of the check so in this case, you have to raise receipt torture to excessive
works so here the total amount received by Chuck is 180 mantelpiece as any check or DD is or waste deposited to a pack so among directly transferred to the fine so as you have an account usually all the trading or companies or businesses in India hang current account so let’s say we have an current account and check is deposited to the to that current account here let’s see how this receipt Rocha is registered in and ledger here the bank is debited by 180 degrees and SSE works ledger for the SSE works account is credited by 180 degrees let’s see some more examples of sales we already know how credit sales is done now let’s see an example of a cash sales intention says the party is not important as it is cash sales we may not require the party name to the party account is neither debited or credited as it is only attached convection so let’s see an example of at assets as you can see here maximize one of your walk-in customers your stationery shop and purchase some paper paper clips pencils etc four rupees of four hundred and fifty five degrees and 80 by some the actual product cost here is four hundred rupees and GST charge is defiantly city by so let’s see how this cash sales is registered in our ledger books here as you can observe three or four Ledger’s are affected one is a cash because it is castles second as it is a sales so sales ledger will be affected and apart from that it has its it has a GST part also that is a taxation part here – GST
accounts are affected one the see GST and Esty Esty so here as it is a cash sense so we have
received a cash so cash book or the cash ledger enjoyed or it is for the cash book is committed by 455 of peace and eighty paisa and in the same base sales ledger or the sales register is credited by 400 rupees here we are deducting the GST part of the taxation part it is the actual cost of the product before adding taxes so that is 400 rupees so sales transistor is credited by 400 rupees and in the same AC GST ledger is credited by is not oppressor and also s GST is credited by 27 to this 90% so again as I was mentioning again and again here if you observe the total credit entries and sum of all the debit entries are against L that is four hundred and fifty five degrees eating myself now you can see that the cash balance has increased so when you when you sum up all the debit and credit entries of cash and you deducted a bit from credit you will get the exact cash balance or it is called as the cash in hand or every days after the day is closed it is called the closing balance and the same closing balance will be the next day’s opening balance let’s understand more about closing and opening balances of nature’s of the cash book in our next coming videos now we have understood purchase sales and payment and received now let’s see one more different type of transaction which we do it in our business and so let’s consider it’s basically an internal transaction let’s consider that you are depositing rupees cash in hand to here neither here you can observe that you are depositing your own money your own cash in hand to your
own bank account so one thing you can observe that here that it is neither and payment because your net asset is not affected it is just a transfer of value from one account to another account so this type of entries is called contra entry and previously it was called as a journal or a journal entry so both are same so let’s consider an example of depositing this 3,000 cash from your back let’s see how the ledger entries as we are depositing from cash book or the cash ledger he is credited by 3000 rupees and your bank account is debited upon 3000 rupees as we in our previous example we have purchased material or trading material from Hank idea took my enterprises 60 rupees for our trading materials
now let’s consider that we are paying back that 2061 piece death or the payable to idea dec 9 2013 and torture the payment water could be issued for cash as well as here with cash or bank check didi whatever but the payment receptivity payment torture should be raised in this example we are paying two thousand sixty one rupees to the party idea from our vendor idea to Atlanta prices by check so here bank account is credited by vendor account Highgate Atlanta prices he is debited by 2060 one rupees so this is how payment Oh Charlies generated for the bath let’s see some more examples and some more different type of transactions we make in our resources let’s consider let’s see an example of an indirect time so in our previous video we have told briefed about the entire income so basically the income or the profit we shall get out of our core business that is in this case the core business is trading of stationery materials as it illustration original so all the income or the profit we each other it out of training these are is a directed come let’s see what’s an indirect income indirect income is income which we gave our which we earn through not through the core business what I’m going to say is say for example you have a deposit of some amount in an time so usually when you deposit in a bank the bank will give you interest on deposits for a certain period if you have a fixed deposit or you have a recurring deposit all bank accounts will give you interest if it is a deposit so the interest earned on deposit is an indirect income because here it’s not getting the interest or depositing is not the core business it is just an amount we earned out of our extra revenue so decent in directed let’s see how this indirect income is
registered with an example say for example we have some amount already in this example we already have a rent account in a bank and we have some amount in the mind and for that amount, in the current account the bank gives us the interest of 50 rupees let’s see how
this 50 rupees transaction is registered in our ledger here Bank is debited by 50 rupees and indirect income nature he is credited by 50 rupees