JP ASSOCIATES’ WORKSHOP ON TALLY- SESSION 2

COST CENTRE AND REFERENCING

KINDLY HAVE LAPTOP WITH YOU WITH TALLY.ERP 9 INSTALLED

(MAY BE EDUCATIONAL)

By:- Anchit Agrawal04.01.2014

Case Study 1:-1. A firm named M/s ABC Associates (Chartered Accountants), have recently switched over to Tally.

ERP 9. Firm approaches you to facilitate client’s billing in Tally. Firm is liable to service tax (@ 12.36%).

2. On review by you, firm can faces some problem in future:- While billing, staff may have problem in identifying against which bill, receipt should be settled. Is there any way other than using Accounting Vouchers Receipt and then feed all details for

receipts. Firm may want some way out to allocate its profits on the basis of number of audit done or say

no. of bills raised by its partners. Firms may ask us to divide profits in specified proportion every time between partners. ( A and B

have to be divided into 3:1 ratio.) Firm may want to know is there any way by which no one except supervisor can alter cost centre

details. Firm may carried out an extensive growth plan and have divided its partners into divisions i.e. Tax

Audit, Vat Audit, Transfer Pricing and Company Matters. Now firm wants to distribute expenses to individual partners and also want to know Profit/loss from each division.

Firm may now say that cost centre have been activated on our system. But, firm wants profit/loss from respective Cost centre as P&L a/c we get from ledgers.

(I’ll tell later)

Do it yourself

PRACTICAL SCENARIOS IN WHICH COST CENTRE ARE USEFULCase Study 2:-A Concern engaged in crushing business have 6 site (or say units) and accounting is done at Head office.

In how many ways accounting can be done???

Option 1:- Create separate tally for each unit and then consolidate the same at year end.

Option 2:- Create separate ledgers for each item in B/S and P&L for every unit in single tally.

Option 3:- Use cost centre and minimize ledgers creation and directly allocate the revenue/ expenditure of each unit while passing accounting entries.

PRACTICAL SCENARIOS IN WHICH COST CENTRE ARE USEFUL

• Consider above Cost Centre structure:• Primary Cost Centres - Finance, Manufacturing, Marketing.• Under Marketing, classify the company's sales executives as Cost Centres. This will help

us to track a sales executive's performance, in terms of cost and revenue generated.

ABC Pvt Ltd

Finance ManufacturingMarketing

Sales Man A Sales Man B Sales Man C

So What is Cost Centre?

A Cost Centre is any unit of an organisation to which transactions (generally, revenue) can be allocated.

When only costs or expenses are allocated to these units, they are referred to as Cost Centres.

When profits are also allocated to these units, they become Profit Centres.

We can now obtain a Profit and Loss account of each such Profit Centre by purchasing an add on.

Features we used in Cost Centre

More:Creating a Single Cost

CentreAltering a Cost Centre Creating Multiple Cost

CentresAltering Cost Centres in

Multiple Mode

• JP Associates – Using Cost Centre to allocate Bills and Receipt to its partners.

1

• Our Staff- Using Cost Centre to account for challan receipts and payments.

2

• Any other way to use Cost Centre??

Brain-Storming

Examples from our office ‘JP Associates’

COST CATEGORIES

• The following example illustrates the use of Cost Categories. Restructuring aforesaid example, a new Cost

Category Projects under which Cost Centres such as Airport construction, Road construction and Buildings have been created.

Cost Categories Departments Executives Projects

Cost Centres

Marketing Salesman A Airport Construction

Manufacturing Salesman B Road Construction

Finance Salesman C Buildings

Cost Categories

COST CATEGORIES

Specify a Cost Category to allow allocation of only revenue items or items of both revenue and capital (Non-Revenue) nature. Here in this instance, enable Revenue Items and Non-Revenue Items to Yes for Departments and Projects Categories and only Allow Revenue Items for Executives.

By allocating expenses to parallel Cost Centres under different categories, we are simply assigning the amounts to them; the amount does not increase.

Tally.ERP 9 performs an automatic reconciliation on real-time basis, saving our effort of reconciling Ledgers and Cost Centres.

COST CATEGORIES

Cost Categories are useful for organisations that require allocation of Revenue and Non-Revenue Items to parallel sets of Cost Centres.

Cost categories facilitate third dimensional reporting of Expenditure and revenue.

Some of the examples of Cost Categories can be Region wise or geography wise, Grade wise, Department wise and so on.

By using Cost Categories we may allocate, in parallel, a transaction to more than one set of Cost Centres.

COST CATEGORIES

• Creating a Single Cost Category• Altering a Cost Category• Creating Multiple Cost Categories• Altering Cost Categories in

multiple mode• Creating Cost Centres under Cost

Categories• Creating Multiple Cost Centres

under Cost Categories

Use of Cost Centre Cost Centre in Tally.ERP 9 allows an additional dimension to a

transaction where a Ledger account indicates the nature of the transaction. It does not readily disclose, except in the narration field, which part of the organisation was involved in the transaction.

With the help of Cost Centres, a transaction can be allocated to it, which would then enable accumulation of the all transactions for that particular Cost Centre. Tally.ERP 9 gives us the Cost Centre break-up of each transaction as well as details of transactions for each Cost Centre.

We can classify Cost Centres, just as how we classify Group/Ledger accounts. We can have Primary Cost Centres and several levels of Cost Centres under each Primary Cost Centre.

Like allocate expenditure incurred on sales by the salesmen, as well as the sales generated by them, directly to their Cost Centres. The allocation is done at the time of voucher entry. This prevents allocation errors at the end of the period.

What is Cost Centre?How it is used / can be used?Working on Cost Centre in TallyActivating Cost CentreUsing Cost CentreReports Generated

What is Cost Categories?AND Referencing

Today’s Overview

Thank You

Define your challengesTechnological as well as personal

Set realistic expectationMastery is not achieved overnight

Keep your eye on the goal