Part 1 · Keeping the books · Chapter 1.6
Parties and cost centres
Draft: the wording may change.
The idea
Every posting answers three questions. The account says what kind of money it is. The party says with whom. The cost centre says for which part of the business. Party and cost centre are tags on the posting — not accounts of their own.
One party, many accounts
The same customer, supplier or staff member can sit in more than one account, on different sides:
| Party | Asset side (they owe us) | Liability side (we owe them) |
|---|---|---|
| Customer | Balance receivable on bills | Advance received from them |
| Supplier | Advance we paid them | Balance payable on their bills |
| Staff | Salary advance, staff loan | Salary, incentive, reimbursement payable |
A supplier's advance is an asset because they owe us goods. A customer's advance is a liability because we owe them goods or the money back.
The party's balance is the total of every posting tagged with that party, across all its accounts. Net debit means they owe us. Net credit means we owe them.
At the counter
Salesman Kumar has an incentive payable of ₹8,000 (credit) and took a salary advance of ₹3,000 (debit). His two accounts show both amounts; his party balance shows the net: ₹5,000 payable to him.
In the balance sheet, each amount is shown by its account: the advance under assets, the incentive under liabilities. If a party's net balance ends up on the "wrong" side — a supplier with a net debit, say — it is shown as an advance to the supplier.
Tally usually keeps advances inside the same party ledger and marks each line with a reference type: New Ref (a new bill), Agst Ref (a payment against a bill), Advance and On Account. The idea is the same: one party, many kinds of money.
Cost centres
A cost centre is a second tag on postings: branch, godown, route, salesman, brand or vehicle. It is not an account. It answers "where was this earned or spent?" A profit and loss by cost centre is the same postings, grouped by that tag.
Common mistake
Opening a new account for every route or every salesman's sales ("Sales — Route 4", "Sales — Route 5"). The chart of accounts explodes, and totals by brand become impossible. Keep one Sales account and tag the postings with route or salesman.
Where you'll use this
In Part 3, brand-wise profit for a multi-brand stockist and salesman incentives are both cost-centre reports. The company's account with you — purchases, claims receivable, scheme credits — is the "one party, many accounts" case.
Check yourself
- A customer pays ₹2,000 before any bill. Which side, asset or liability?
- How do you find a party's total balance?
- Is "Route 4" an account or a cost centre?
Answers
- Liability — we owe them goods or the money back.
- Add every posting tagged with that party across all its accounts; net debit means they owe us.
- A cost centre — a tag on postings, not an account.