Understanding Chart of Accounts in Tally Prime: A Student-Friendly Guide

TABLE OF CONTENTS

1. What is Tally Prime?
2. Chart of Accounts in Tally
3. Primary Groups in Tally
4. Key Benefits of Tally Prime
5. Conclusion
6. FAQs

What is Tally Prime?

Tally Prime is a delightful new-age business management software from Tally’s house. Remember that the trademarks of Tally products are speed, flexibility, simplicity, and reliability. You can get all that with Tally Prime, and you get to experience them at an entirely new level.  

Why is Tally Prime delightful? Your business evolves continuously and with each passing day, there are developments with the people you deal with, the people who work for you, and the norms that you should comply. In the ever-changing business landscape, using a trusted business partner that also evolves to further simplify your operations is a must. Tally Prime is a delightful technology product aimed at boosting business management efficiency. 

Chart of Accounts in Tally

The chart of accounts is an organized list of all accounts used by the business to record all financial transactions. These accounts are classified under different categories based on their nature and purpose. 

The chart of accounts is an organized list of all the accounts that are used by the business to record all the financial transactions properly. These accounts fall under various categories and are based on nature and purpose.

1. Groups

Group accounts are classifications used in categorizing ledger accounts, providing a hierarchical structure for financial reporting and analysis and including predefined options, such as assets, liabilities, and expenses. 

2. Ledgers

Ledgers are records that maintain financial transactions for certain accounts. These accounts include customer, bank, or sales, and are used in all types of accounting vouchers. In most instances, these are actual accounts where all transactions are kept in a single place. 

3. Vouchers

This account represents all Tally types and helps in meeting business requirements easily. This could include receipt vouchers, payment vouchers, sales vouchers, and purchase vouchers. 

4. Cost Centers and Categories

These are organized units where expenses or costs are allocated during transactions. Cost categories are used to accumulate profits or costs for parallel sets of cost centers for more granular reporting. 

5. Stock Items & Stock Groups

Stock items are the goods manufactured or traded. Stock groups categorize these items based on their similarities, enabling organized management and reporting of inventory. 

6. Budgets

Allows you to create and manage budgets for groups or ledgers to monitor financial performance against planned targets, allowing for better financial planning. 

7. Currencies

Allows creating and managing several currencies that enable you to record transactions in different currencies and maintain records accordingly. You have to create currency masters then make party ledgers with the desired currency, and use the multi-currency features when recording vouchers. 

15 Primary Groups in Tally

Groups in the software are there in such a way that it can classify and organize accounts in a way that streamlines reporting and analysis. Furthermore, the groups are the collection of different ledgers of the same nature. One of the great things about the tool is that you can create, change, or alter the group. 

Any group or groups created under the scope of assets and liabilities form a part of the balance sheet. Again, groups heal organize all the ledger accounts to see all the financial statements in the right order. 

Predefined Groups in Tally

Tally Prime has fifteen primary groups. Learn more about them here. 

1. Capital Account

This group is one of the predefined primary groups to manage and monitor all accounts. These are related to the equity and the investment of the business owner. 

Items Included in Capital Account

• Capital Funds
• Surplus and Reserves

Examples

• Retained Earnings
• Shareholders’ Equity
• Partner’s Capital Account
• Share Capital
• Properties Capital Account

2. Current Liabilities

Another predefined group that you should know before using the software. It helps businesses determine their short-term obligations or liabilities to be settled. Some items are included in the current liability section. 

Items Included the Current Liability Account

• Short-Term liabilities
• Sundry creditors
• Outstanding expenses

Examples

• Payroll taxes
• Accounts payable
• Payroll
• Accrued expenses
• Short-term notes payable
• Income taxes
• Interest payable
• Utilities
• Rental fees
• Unearned revenue
• Dividends payable 

3. Loans

The loans and liabilities group is one of the major groups used in recording and managing all accounts. They pertain to loans accrued by the business. All these groups fall under the liability column in the balance sheet. This is vital for monitoring and repaying outstanding balances present in borrowed funds. 

Items Included in the Loan Account

• Unsecured loans
• Secured loans

Examples

• Student loan
• Home loan
• Car loan
• Mortgage loan

4. Investment

This category is used in managing the financial investment of the business. It helps record all primary groups. Furthermore, it includes investments made in bonds, mutual funds, fixed deposits, shares, and other kinds of financial instruments.

Items Included

• Bonds
• Shares
• Mutual funds

Examples

• Bonds
• Shares
• Fixed deposits
• Mutual funds
• Other investments

5. Fixed Assets

The fixed assets group is one of the main groups where accounts are related to long-term tangible and intangible assets. These are categorized assets purchased for long-term business investments, and in most instances, are meant for smother other than resale. 

Items Included

• Building
• Vehicles
• Machinery

Examples

• Furniture and fixture
• Land and building
• Vehicles
• Plant and machinery
• Computers and equipment

6. Current Assets

This is used to classify all short-term assets that most of the time is expected to be converted into cash. It can be used to maintain the operating cycle of the business. These assets are essential to maintain daily business operations. 

Items Included

• Accounts receivable
• Cash and cash equivalents
• Prepaid expenses
• Inventories

Examples

• Sundry debtors
• Cash and bank balance
• Short-term investments
• Loans and advances
• Prepaid expenses
• Accrued income
• Other current assets

7. Sales Accounts

This group comprises of all the primary groups used to record and mange all income generated from sales of goods and services. It forms a vital prat of the entire profit and loss account and helps categorize all revenue from reporting analysis and sales. 

Items Included

• Income and sales of goods

Examples

• Interstate sales
• Local sales
• Taxable and non-taxable sales
• Wholesale and retail sales
• Export sales

8. Miscellaneous Expenses

Refer to minor and miscellaneous expenses not attributable to any specific activities. Furthermore, these are referred to as deferred revenue expenditures. All these expenses are recorded under miscellaneous expenses that help maintain the regular operational cost to a greater extent. 

Items Included

• Deferred revenue and expenditures

Examples

• Provisions
• Duties and taxes
• Miscellaneous expenses

9. Direct Expenses

Expenses that are related directly to the production of goods and services and are relatable to the saleable state. All expenses are attributable directly to the manufacture acquisition of goods. 

Items Included

• Wage
• Raw materials

Examples

• Cost of raw material
• Wages
• Custom duties
• Factory overhead
• Freight inward
• Power and fuel
• Packing expenses
• Royalty and production

10. Indirect Expenses

These are expenses that are not related directly to the production of goods and services. It’s necessary for the overall function and support of the business. Furthermore, all these are essential for running a business and not directly tied to procurement or manufacturing. 

Items Included

• Rent
• Salaries
• Advertisements

Examples

• Financial expenses
• Administrative expenses
• Selling and distribution expenses
• Depreciation
• Rent and rates

11. Purchase Accounts

It’s used to record and manage all expenditures incurred to buy goods and services. It forms part of the profit and loss account. The expense section forms direct costs associated with procurement. 

Items Included

• Purchase of goods and services

Examples

• Interstate purchase
• Local purchase
• Exempt purchase
• Import purchase
• Raw material purchase

12. Direct Incomes

Direct expenses attributable to all production and manufacturing, which includes all wages and raw materials. All these expenses are attributable directly to the manufacturing process where the procurement of goods is necessary. 

Items Included

• Commission
• Rent received
• Interest income

Examples

• Sales register
• Profit and loss account
• Sales register

13. Indirect Incomes

Are the types of income not directly related to the business but could help it grow. These form secondary income resources, but still contribute to the overall earnings. 

Items Included

• Commission
• Interest income

Examples

• GST report
• Profit and loss account
• Sales register

14. Provisions

This group is used to record all expenses and liabilities incurred but are not yet invoiced. In most instances, provisions are made for future reference. Expenses include taxes, utilities, and salaries. 

Items Included

• Liabilities for losses
• Depreciation provisions

Examples

• Income tax provision
• Bad debt provision
• Expenses provision
• Depreciation provision

15. Suspense Accounts

The account group is significant for recording all transactions temporarily where the right ledger account is uncertain. You have to determine things as it serves as a placeholder or an unidentified and unclear transaction, thus you need clarification and reconciliation. 

Items Included

• Unclassified payments
• Unidentified receipts
• Accounting errors
• Unreconciled bank entries
• Pending clarifications

Examples

• Unmatched payments and receipts
• Opening balances
• Unidentified bank transactions
• Error rectification

Key Benefits of Tally Prime

1. Error Reduction and Enhanced Accuracy

The advanced features employ automated data entry, error detection algorithms, and validation. It minimizes human intervention, thus reducing the possibility of errors. By automating tasks, Tally ensures accuracy and consistency. 

2. Seamless Processes and Time Efficiency

The software simplifies routine tasks through data entry automation, allowing users to input and organize financial information quickly. The customized features enable users to tailor workflows fast. 

3. Real-time Insights for Informed Decision-Making

The robust analytics and reporting features offer real-time access to vital financial information. The timely information enables fast decision-making, empowering businesses to minimize risks, grab opportunities, and stay ahead of the competition. 

4. Adaptability and Scalability to Business Growth

The flexibility enables seamless adaptation to the different business requirement. Furthermore, the scalable architecture enables easy customization that ensures business growth. 

5. Regulatory Adherence and Compliance

The compliance features guarantee adherence to local regulations and tax laws, which ensure that a business stays compliant effortlessly. By simplifying these processes, organizations mitigate the risk of fines and penalties. 

Conclusion

Tally Prime offers unparalleled benefits. Moreover, it ensures enhanced error reduction and accuracy and simplifies processes for time efficiency. Business organizations can harness the advanced features of Tally to refine their financial workflows, fostering accuracy and efficiency. Tally Prime catalyzes to maximize financial performance and achieve long-term success. 

FAQs

1. How many types of accounts in Tally?

The three types of accounts are personal, real, and nominal accounts. 

2. How many default ledgers are there in Tally?

Tally has two predefined ledgers. These predefined ledgers include the profit and loss, as well as the cash in hand account. 

3. What is capital account in Tally?

Just like in general accounting, the capital account tracks the investment and retained earnings of a business, representing the equity. 

4. What is chart of accounts in Tally?  

It’s a structured list of all financial accounts that the business uses to record transactions, allowing organized financial data management and reporting. 

5. Is Tally Prime worth the investment?

Whether Tally is a worthwhile investment depends on the specific needs and budget of a business organization. 

6. Is the Tally license valid for a lifetime?

Lifetime license comes with the perpetual Silver or Gold license and could be used by your business for a lifetime. 

7. Can I use Tally Prime on two computers?

Yes. It is available in two versions, namely, single user and multi user. In a single computer, the single user license is mostly used, whereas a multi user license is installed in several computers.