Business training · Section 1

The building blocks of accounting

Source documents, accounts, postings and journal entries —
and why every report is the same lines seen a different way.

Why keep accounts at all?

A scorebook for the business

Without a scorebook, nobody can say who is winning — even though every ball was bowled.

Without accounts, a shop sells all day and still cannot answer:

  • How much profit did we make?
  • Who owes us, and since when?
  • How much do we owe, and to whom?
  • How much stock should be on the shelf?

530 years, same idea

Where double entry came from

When What Books kept
1300s Italian merchants (Genoa, Florence, Prato) Merchant ledgers with both sides
1494 Luca Pacioli, Venice — first printed description Memorandum (rough daybook) → Journal → Ledger
Centuries Indian traders' bahi-khata Rojmel (daily cash book) + khata (ledger), jama / udhar
1900s Shop and office practice Bill book → Sales/Purchase day books → Ledger
Today Tally, ERP, apps The bill is the journal entry; reports are calculated

The whole model on one slide

Four building blocks

Source document — the evidence (bill, receipt, bank slip)
↓ produces
Journal entry — one balanced business event
↓ made of
Postings — single Dr or Cr lines, each to one account
↓ land in
Accounts — named buckets (Cash, Sales, Ravi Stores…)

Everything else — journal, ledger, trial balance, P&L, balance sheet, GST reports — is a view of the postings.

Block 1 — source documents

Not every document creates an entry

Class Ledger Stock Examples
No entry — — Quotation, proforma invoice, sales or purchase order
Stock only — Yes Delivery challan, goods received note, godown transfer
Ledger only Yes — Receipt, payment, salary, loan, rent bill, bank charges, GST/TDS payment
Ledger + stock Yes Yes Sales invoice, purchase bill, credit/debit note with goods returned

The test: does this document change what the business owns or owes? A promise (quotation, order) does not.

Block 2 — accounts

Five kinds of bucket

Type Means Family example Business example
Asset What we own or are owed Gold, house Cash, bank, stock, customers who owe us
Liability What we owe Home loan Suppliers we owe, GST payable, salary payable
Equity Owner's share What is truly the family's Capital, retained profit
Income Money earned Salary Sales, discount received
Expense Money spent to earn Groceries, EB bill Rent, salary, freight

Block 3 — debit and credit

Two tanks: what leaves one enters the other

Every movement has two ends.
Debit (Dr) = where the value went
Credit (Cr) = where the value came from

Total Dr always equals total Cr.

Account type Increase Decrease
Asset Dr Cr
Expense Dr Cr
Liability Cr Dr
Equity Cr Dr
Income Cr Dr

One worked example

Ravi Stores, four events in October

  1. 1 Oct — Ravi Stores pays an advance of ₹500 in cash
  2. 5 Oct — Bill #245 to Ravi Stores: goods ₹1,000 + GST ₹180 = ₹1,180; the advance is adjusted
  3. 10 Oct — Ravi Stores pays ₹600 in cash
  4. 12 Oct — Cash sale, bill #246: goods ₹200 + GST ₹36 = ₹236

We will look at these four events five ways: as stored postings, as journal entries, as the journal, as ledgers, and as Ravi Stores' statement.

What is actually stored

12 postings — nothing else

# Date Document Account Party Dr Cr
p1 1 Oct Receipt R-01 Cash — 500
p2 1 Oct Receipt R-01 Customer Advances Ravi 500
p3 5 Oct Bill #245 Sundry Debtors Ravi 1,180
p4 5 Oct Bill #245 Sales — 1,000
p5 5 Oct Bill #245 GST Output — 180
p6 5 Oct Adjustment J-01 Customer Advances Ravi 500
p7 5 Oct Adjustment J-01 Sundry Debtors Ravi 500
p8 10 Oct Receipt R-02 Cash — 600
p9 10 Oct Receipt R-02 Sundry Debtors Ravi 600
p10 12 Oct Bill #246 Cash — 236
p11 12 Oct Bill #246 Sales — 200
p12 12 Oct Bill #246 GST Output — 36

Block 4 — one journal entry

A balanced group of postings

Bill #245 (the evidence)
Ravi Stores
Goods ₹1,000
GST ₹180
Total ₹1,180

→
Posting Account Dr Cr
p3 Sundry Debtors (Ravi) 1,180
p4 Sales 1,000
p5 GST Output 180
Total 1,180 1,180

Rules of an entry: 2 or more postings · same date · same source document · total Dr = total Cr.
The bill says what happened; the entry is the accountant's translation — and the translation can be wrong.

View 1 — the journal (day book)

Grouped by event, sorted by date

1 Oct   Receipt R-01      Cash                      Dr    500
                            To Customer Advances (Ravi)          500
5 Oct   Bill #245         Sundry Debtors (Ravi)     Dr  1,180
                            To Sales                           1,000
                            To GST Output                        180
5 Oct   Adjustment J-01   Customer Advances (Ravi)  Dr    500
                            To Sundry Debtors (Ravi)             500
10 Oct  Receipt R-02      Cash                      Dr    600
                            To Sundry Debtors (Ravi)             600
12 Oct  Bill #246         Cash                      Dr    236
                            To Sales                             200
                            To GST Output                         36

Answers: what happened, and does each event balance? No running balances here.

View 2 — the ledger

Filtered by account, with a running balance

Cash

Date Against Dr Cr Balance
1 Oct Customer Advances 500 500 Dr
10 Oct Sundry Debtors 600 1,100 Dr
12 Oct Sales 236 1,336 Dr

Sales

Date Against Dr Cr Balance
5 Oct Ravi Stores 1,000 1,000 Cr
12 Oct Cash 200 1,200 Cr

Each page sees only its own lines, names the other account as a pointer, and carries a running balance.
Bill #245 is one block in the journal but three lines on three different ledger pages.

View 3 — the party statement

Filtered by party, across all accounts

Date Document Account Dr Cr Net balance
1 Oct R-01 Customer Advances 500 500 Cr — we owe Ravi
5 Oct #245 Sundry Debtors 1,180 680 Dr
5 Oct J-01 Customer Advances 500 1,180 Dr
5 Oct J-01 Sundry Debtors 500 680 Dr
10 Oct R-02 Sundry Debtors 600 80 Dr — Ravi owes ₹80

Split by account: Sundry Debtors 80 Dr · Customer Advances 0

Same 12 lines, different grouping

Every report is a view

Journal Ledger Party statement Trial balance
Filter All postings One account One party All postings
Grouped by Document — — Account (one total each)
Running balance No Yes Yes (net) Closing balance only
Bill #245 appears as 3 lines in one block 1 line on each of 3 pages 1 line (Ravi's only) Inside 3 account totals
Answers What happened? Where does this account stand? Where do we stand with this party? Do the books balance?

A word that confuses everyone

Account vs ledger

Account = the identity
Name, type, group; for a party: GSTIN, phone, credit limit.
Exists even with zero transactions. Changes rarely.

Like your bank account number.

Ledger = the story
Every posting to that account, by date, with a running balance.
Grows with every transaction.

Like your passbook.

Tally calls accounts "ledgers". When Tally says create ledger, it means create account.

Tags on postings

Parties and cost centres

Party Asset side (they owe us) Liability side (we owe them)
Customer Customer balance receivable Advance received from customer
Supplier Advance paid to supplier Supplier balance payable
Staff Salary advance, staff loan Salary, incentive, reimbursement payable

Party balance = all live postings tagged with that party, across all its accounts. Net Dr: they owe us. Net Cr: we owe them.

Account — what kind of money?
Party — with whom?
Cost centre — for which part of the business? (route, godown, salesman, brand)

Stored or calculated?

Balances are calculated, not written down

Thing Stored? Why
Posting Yes — the truth Everything is built from it
Running balance on each line No A backdated edit would make every later line wrong
Opening balance for a period No Sum of postings before the start date
Current balance on an account Yes, as a cache Fast lookup; rebuilt from postings and checked every night

The bank does not store your balance on every passbook line — it prints it when you update the passbook.

When something is wrong

An edit replaces the entry — it never patches a line

Open period (normal days)
Edit bill #245 → its old postings are marked superseded, a new balanced set is written.
Reports show only the live set; history keeps both.

Locked or filed period
GST already filed, books closed →
do not edit. Pass a reversing entry (credit note / journal) in the current period.

Never fix a report by hand. Fix the document; the postings follow; every report corrects itself.

Checking the books

  1. Every posting points to one account and one source document
  2. Every posted document has a balanced set of live postings
  3. Each document class gets only its kind of postings
  4. Edits replace, never patch — history is kept
  5. No posting without a document, no posted document without postings

If these hold, every report is right by construction.

Try it

Quick quiz

  1. A customer sends a quotation request and we send a quotation. Which postings?
  2. We pay ₹10,000 rent by bank. Which two accounts, which sides?
  3. A customer pays ₹2,000 advance before any bill. Is that an asset or a liability for us?
  4. Bill #245 has 3 postings. How many ledger pages does it appear on?
  5. Why should a system not store the running balance on every line?

Remember one sentence

A document produces an entry, the entry is made of postings, each posting lands in an account — and every report is a view of those postings.

Today: what accounting actually stores, and how every report comes out of it. By the end, anyone should be able to take a bill and say which accounts it touches, which side, and where it shows up.

Accounting is not paperwork for the auditor. It is the only way to know where the business stands.

Pacioli did not invent double entry; he wrote down what Venetian merchants already did. The three books he describes are the journal and ledger we still talk about. Treat the age of bahi-khata as debated.

Say this sentence until people can repeat it: a document produces an entry, the entry is made of postings, each posting lands in an account. Only these are stored.

Same document type can switch class: a credit note for a price difference is ledger only; a credit note for returned goods is ledger + stock. Ask the group for examples from their own work.

Every account in any business is one of these five. Ask: "Which type is a customer advance?" — liability, because we owe them goods or money back.

Debit and credit are not good and bad. They are just the two ends of one movement. Cash coming in: cash (asset) increases, so Dr Cash. Tamil textbooks use pattru for debit and varavu for credit.

Keep this slide up for a moment. Ask the group to guess: at the end, does Ravi owe us or do we owe Ravi, and how much? Answer comes later: Ravi owes 80.

This table is the whole truth. Every report after this slide is calculated from these 12 lines. Point out: each line has exactly one account, one side, one amount, and a link back to its document.

The bill is evidence. The entry is a judgement: which accounts, which side. That judgement is what an auditor checks. In software the bill and entry are merged into one voucher, but the rules that generate the postings can still be wrong.

The journal is a newspaper: each day's events reported in full. Same 12 postings, grouped by document.

The ledger is each player's career statistics: same matches, only that player's runs, with a running total.

This is the answer to the guess from earlier. Ravi owes 80. The party statement is the same postings again, filtered by party instead of account.

If the postings are right, every one of these views is right automatically. If two reports disagree, a posting is wrong.

In software: the account is a stored record; the ledger is a query on the postings. You can rename an account without touching a single posting.

Example: salesman Ravi has incentive payable 8,000 Cr and salary advance 3,000 Dr, so net 5,000 payable. Tally usually keeps advances in the same party ledger and marks them with reference types: New Ref, Agst Ref, Advance, On Account.

On paper the clerk wrote the running balance on every line because there was no other way. In software that is a trap: one backdated bill and every stored balance after it is wrong.

This is how Tally users can edit a voucher and see the books update immediately, while auditors can still see what changed.

These five rules are what a good accounting system enforces, and what a reviewer checks first.

Answers: 1) None, a quotation is a promise. 2) Rent expense Dr 10,000, Bank Cr 10,000. 3) Liability, we owe them goods or the money back. 4) Three: Sundry Debtors (Ravi), Sales, GST Output. 5) A backdated edit would make every later stored balance wrong; calculate it when the ledger is shown.

Close. Next session: everyday events — sales, purchases, returns, receipts, payments — each shown as document, entry, postings.