Installation and creating a company
Installation means copying the accounting software onto a computer or server (or signing up for a cloud version) and activating the licence. Check that the hardware and operating system meet its needs.
Next, create the company (the organisation whose books you keep). Usual details: name, address, contact, financial year beginning (1 April in India), books beginning date, base currency (โน), GST/PAN details if needed, and an administrator password. The software then makes default groups like Capital Account, Current Assets, Current Liabilities, Fixed Assets, Direct/Indirect Expenses and Incomes.
Account codes and hierarchy
A code is a short number or letter given to each account so the computer can store, sort and find it easily. Accounts are arranged in a hierarchy (tree): main group โ sub-group โ ledger account.
Example: 1 Assets โ 11 Current assets โ 1101 Cash, 1102 Bank; 12 Fixed assets โ 1201 Machinery. 2 Liabilities โ 21 Current liabilities โ 2101 Creditors.
Types of codes
- Sequential codes: numbers in order, e.g. 001, 002 for vouchers or invoices.
- Block codes: a block of numbers for each group, e.g. 1000โ1999 assets, 2000โ2999 liabilities.
- Mnemonic codes: letters that remind you of the name, e.g. CSH for cash, SAL for salary.
Good codes are unique, short, logical and leave space for new accounts.
Data entry, validation and verification
Transactions are entered through vouchers: payment, receipt, contra (cash to bank), sales, purchase, journal, debit note and credit note vouchers. Each voucher has a date, number, accounts, amounts and a narration.
Validation is the automatic check the software does while you enter: debit total = credit total, date inside the financial year, account code exists, amount is a number, no negative stock (if set). Invalid data is rejected with a message.
Verification is the human check that the data entered is the same as the source document (bill, cheque, receipt). Validation catches wrong form; verification catches wrong facts.
Adjusting, closing and opening entries
Adjusting entries at year end bring in items not yet recorded: outstanding and prepaid expenses, accrued income, depreciation, bad debts and provisions, closing stock. They are entered as journal vouchers.
Closing entries: most software closes nominal accounts (expenses, incomes) into profit and loss automatically when reports are made; the net profit goes to capital or reserves.
Opening entries: when the new year is created, balances of real and personal accounts (assets, liabilities, capital) are carried forward as opening balances.
Preparing statements and reports
Once vouchers are entered, the software gives in one click: day book, cash and bank books, ledger accounts, trial balance, statement of profit and loss, balance sheet, cash flow and ratio reports, debtors' ageing, stock summary and GST reports. You can choose a period, compare years and export to a spreadsheet or PDF.
Security features
- Passwords: for opening the software and each company.
- User rights / access levels: an operator may only enter vouchers; a manager may view reports; only the administrator may delete or alter.
- Audit trail: a record of who created, changed or deleted each voucher, and when.
- Data encryption: data stored in a coded form that outsiders cannot read.
- Backup and restore: regular copies on another drive or cloud so data can be restored after a crash.
- Locking periods: closed months cannot be changed without permission.
Key formulas and definitions
- Company creation: Name + Financial year (1 April) + Books begin + Currency + Password
- Hierarchy: Group โ Sub-group โ Ledger (e.g. 1 โ 11 โ 1101)
- Codes: Sequential, Block, Mnemonic
- Validation = automatic check of form (Dr = Cr, date, code); Verification = human check with source document
- Year end: Adjusting โ Closing โ Statements โ Opening entries next year
- Security: Password + User rights + Audit trail + Encryption + Backup
Worked examples
1. Give block codes for: Cash, Bank, Machinery, Creditors, Capital, if assets use 1000โ1999, liabilities 2000โ2999 and capital 3000โ3999.
Cash 1101, Bank 1102, Machinery 1201, Creditors 2101, Capital 3001 (any number in the correct block is right).
2. A clerk enters a voucher dated 5 May 2027 in a company whose year is 1 April 2026 to 31 March 2027. What happens?
Validation rejects it because the date is outside the financial year.
3. Rent bill is โน6,000 but the clerk types โน600 on both debit and credit. Will validation stop it? What will?
No, because Dr = Cr. Verification (checking with the rent receipt) will catch it.
4. Which voucher type is used for: (a) cash deposited in bank; (b) goods sold on credit; (c) depreciation at year end?
(a) Contra voucher, (b) sales voucher, (c) journal voucher.
5. Which balances become opening entries in the new year: rent, machinery, sales, creditors, capital?
Machinery, creditors and capital (real and personal accounts). Rent and sales are nominal and are closed into profit and loss.
Common mistakes
- Thinking validation and verification are the same. Validation is automatic and checks form; verification is human and checks facts.
- Carrying expenses and incomes forward as opening balances. Only assets, liabilities and capital carry forward.
- Giving two accounts the same code or no room for new ones. Codes must be unique and leave gaps.
- Letting every user delete vouchers. Use user rights and keep the audit trail on.