Finance

Finance in Ginesys is an optional module that allows users to keep track of all their earnings and spending and create reports for the various financial transactions recorded in Ginesys.

It creates and maintains masters for Account Groups, Account Class, Ledger, and Sub-ledger, etc.

It records transactions like Vouchers and Journal Entries, TDS issues, etc.

The module's extensive capabilities are evident in its document adjustment and bank reconciliation features, which are among the ERP's finest offerings. With this module, users can efficiently handle various tasks such as journal entries, voucher entries, reconciliation, and detailed document-level reporting.

A few important Concepts in Finance

Asset - An asset is a resource that is owned or controlled by a government, corporation, or an individual with the expectation that it will generate a positive economic benefit. An asset can be something that, in the future, can improve sales, generate cash flow, or reduce expenses, regardless whether it's manufacturing equipment or a patent. Asset can be of two types-

                  i. Fixed Asset - A fixed asset is a long-term physical piece of property or equipment that a firm owns and uses in its operations to generate income. It cannot be easily converted into cash. For example, office furniture, buildings, land, machinery etc.

                  ii. Current Asset - Current assets are the assets of a organization that are expected to be sold or used as a result of standard business operations over the next year. In other words, it is an asset that is expected to last only for a year or less. It includes Cash, fixed deposit, bank ,accounts receivable etc.

Liability - A liability is something that an individual or organization owes, usually a sum of money. To settle a liability, an individual or a business must transfer the economic benefits which includes goods, money or services.

Income - Income is a gain usually measured in money which an individual or business receives in exchange for providing labor, producing goods or services, or through investing capital. Individuals most often earn income through salary or wages. Businesses earn income through selling goods or services above their cost of production. The income statement provides the retailer with a picture of the organization’s profit and loss situation.

Expenses - An expense is the cost of operations that a organization incurs to generate revenue. Common expenses include payments to suppliers, employee wages etc. There are two types of Expenses -

                  i. Direct Expenses - Direct expenses are costs that can be traced back to a specific department, are incurred only to benefit that department. It is related to the purchase of products or services. For example, purchase of  any goods or services, raw materials.

                  ii. Indirect Expenses - Indirect expenses are the costs that can apply to more than one business activity. Unlike direct costs, we cannot assign indirect expenses to specific cost objects. Examples of indirect expenses include rent, utilities, general office expenses, employee salaries, and other overhead costs. Indirect Expenses can be of 4 types-

                                        a. Administrative - Administrative expenses incurred by a business that are not directly related to a specific business function. Some part of administrative expenses will always be incurred as a  necessary part of operations. Administrative expenses are often the first identified for budget cuts, because they do not directly impact a company's main business function. For example - rent, electricity bill, telephone bill, insurance.

                                        b. Personnel - Personnel expenses refers to the remuneration that a company or business makes to the workers under its charge, which goes beyond the payment of salaries. For example, employee salary, allowance.

                                        c. Finance - They are costs incurred from borrowing from lenders or creditors. They are the expenses outside the organization’s core business. For example, bank interest.

                                        d. Selling & Distribution - Selling and Distribution expenses are the costs which are all sale related. For example, logistic cost, shipping cost, advertising cost.  

Credit - Credit is generally defined as a contract agreement between creditor and debtor(borrower) in which the debtor(borrower) receives a sum of money or something of value and repays the lender/seller at a later date, generally with interest (in case of a monetary debt).

Debit - A debit increases asset or expense, and decreases liability or revenue. For instance, if an organization secures a loan to buy machinery, that means fixed assets is debited and simultaneously a liabilities account is credited, based on the type of the loan. 

Overdraft - The overdraft allows the account holder of current account to continue withdrawing money even when the account has zero balance in it or has insufficient balance to cover the amount of the withdrawal. It is a type of loan.

Cash - Cash refers to the physical money that a business  or a individual has in notes and coins.

Cheque - A Cheque is a document which instructs a bank to pay a particular amount of money from a person's account to another individual's or company's account in whose name the cheque has been made or issued.

TDS -  TDS stands for Tax Deducted at Source. TDS is a direct taxation mechanism which was introduced by the Government to collect taxes from the source of income itself or at the time of income payout. Under this mechanism, if a person (deductor) is accountable to make payment to any other person (deductee) then the tax will be deducted at source and remaining balance will be transferred to the deductee. The TDS amount deducted will be forwarded to the Central Government.

How financial Account Groups Interact -  

A transaction always needs two ledgers. One will be debited and another will be credited.

Here in the diagram it is shown that, if the Asset or Expense increases then it is a Debit and if decreases then it is a Credit. Similarly, if the Income or Liability increases the it is a Credit and if decreases it is a Debit.

Case studies

1. Rent paid through bank ₹1000.

               Rent (Expenses) ₹1000 (Dr.)   → Debit 

               Bank (Asset) ₹1000 (Cr.) → Credit

       2. Cash Received via sale ₹ 5000.

                Cash (Asset) ₹5000 (Dr.) → Debit

                Sale (Income) ₹5000 (Cr.) → Credit 

       3. Purchase goods from X (Vendor) Rs.10,000.

                   Purchase (Expenses)  ₹10,000 (Dr.) → Debit 

                   X(Vendor) (Liability) ₹10,000 (Cr.)→ Credit

       4. Salary paid to staff via Bank Rs.3000.

                  Salary (Expenses) ₹3000 (Dr.) → Debit

                   Bank (Asset) ₹3000 (Cr.)→ Credit

       5. Capital introduce via bank Rs.50,000.

                   Capital (Liability) ₹50,000 (Cr.)→ Credit

                   Bank (Asset) ₹50,000 (Dr.)→ Debit

        6. Motor Cycle purchased via bank Rs.1,30,000.

                   Motor cycle (Asset) ₹1,30,000 (Dr.)→ Debit

                   Bank (Asset) ₹1,30,000 (Cr.) → Credit

        7. Car repair cost paid in cash Rs.5000.

                   Car repair cost (Expenses) ₹5000 (Dr.) → Debit

                   Cash (Asset) ₹5000 (Cr.) → Credit

        8. Electricity bill paid in cash Rs.3000.

                   Electricity bill (Expenses) ₹3000 (Dr.) → Debit

                   Cash (Asset) ₹3000 (Cr.)→ Credit

        9. Income from scrap sale in cash Rs.20,000.

                   Income from scrap sale (Expenses) ₹20,000 (Cr.)→ Credit

                   Cash (Asset) ₹20,000 (Dr.) → Debit

        10. Depreciation of motor car Rs.4000.

                   Depreciation (Expenses) ₹4000 (Dr.) → Debit

                   Motor car (Asset) ₹4000 (Cr.) → Credit

        11. Cash deposited in bank Rs.50,000.

                   Cash (Asset) ₹50,000 (Dr.) → Debit

                   Bank (Asset) ₹50,000 (Cr.) → Credit

Articles on Finance Forms, Masters and Transactions in Ginesys