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 Group, Account Class, Ledger, and Sub-ledger, etc.

It records transactions like Vouchers and Journal Entries, TDS issues, etc. There are reports like statement of cash flow and income statement that give a fair idea of the profit situation of a company.

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

Understanding finance requires familiarity with several key concepts that form the backbone of financial systems. These concepts help individuals and organizations manage their resources, plan for the future, and achieve economic stability.

Asset

An asset is any resource owned or controlled by a government, corporation, or individual that is expected to generate economic benefits in the future. It could boost sales, generate cash flow, or reduce expenses. Assets range from tangible items, like manufacturing equipment, to intangible ones, like patents.

• Fixed Asset: These are long-term physical resources used in operations to generate income but are not easily convertible into cash. Think of things like office furniture, buildings, land, and machinery. They are the sturdy workhorses of a business, underpinning its capacity to operate.

• Current Asset: These are short-term resources expected to be sold, consumed, or converted into cash within a year. Examples include cash, fixed deposits, bank balances, and accounts receivable. These are the nimble assets, keeping day-to-day operations running smoothly.

Liability

A liability is what a person or organization owes, usually money. Settling a liability involves transferring economic benefits, which might be in the form of goods, cash, or services. Liabilities are financial obligations that help businesses leverage opportunities but must be carefully managed to avoid financial strain.

Income

Income represents the monetary gain individuals or businesses earn in exchange for providing labor, producing goods or services, or investing capital. For individuals, it's their salary or wages; for businesses, it’s the profit from selling goods or services above their costs. An income statement reveals a business's profitability, acting as a financial report card.

Expenses

An expense is the cost incurred during operations to generate revenue. Controlling expenses is crucial to ensure profitability.

• Direct Expenses: These are costs directly tied to producing specific goods or services, such as raw materials or purchased goods.

• Indirect Expenses: These apply broadly across business activities and are not linked to specific products. Indirect expenses fall into four categories:

  1. Administrative Expenses: Costs necessary for general operations, like rent, utilities, and insurance. These are often the first to be trimmed during budget cuts.

  2. Personnel Expenses: Costs related to employee remuneration, including salaries and allowances.

  3. Finance Expenses: Costs incurred from borrowing, such as bank interest.

  4. Selling & Distribution Expenses: Costs linked to selling and delivering goods, including advertising, shipping, and logistics.

Credit

Credit is an agreement where a borrower receives something of value, such as money, and agrees to repay the lender later, often with interest. Credit fuels economies by allowing businesses and individuals to invest, grow, and achieve goals without immediate out-of-pocket expenses.

Debit

In accounting, a debit increases assets or expenses and decreases liabilities or revenues. For instance, when a company buys machinery using a loan, the fixed assets account is debited, and the liabilities account is credited.

Overdraft

An overdraft is like a financial safety net for current account holders, allowing them to withdraw more money than their account balance. It acts as a short-term loan to cover unexpected expenses.

Cash

Cash represents the physical currency a business or individual holds. It's the most liquid asset, ready to be used for any immediate financial need.

Cheque

A cheque is a written order directing a bank to pay a specific sum from one account to another. It’s a traditional yet widely trusted method of payment in business.

TDS (Tax Deducted at Source)

TDS is a direct tax mechanism introduced by the government to collect taxes at the source of income. When a payment is made, a certain percentage is deducted as tax and forwarded to the government. This ensures tax compliance and regular revenue flow to the state.

How financial Account Groups Interact -  

Assets and Expenses:

Assets (like cash or property): When you acquire something, it’s a debit (you gain value). If you lose or reduce an asset, it’s a credit.

Example: Buying furniture for your office increases your assets (debit).

Expenses (like bills): When you pay for something, it’s a debit (money goes out). If you reduce an expense, it’s a credit.

Example: Paying electricity bills is an expense (debit).

Income and Liabilities:

Income (like sales or salary): When you earn money, it’s a credit (money comes in). If your income reduces, it’s a debit.

Example: Receiving money for services rendered increases income (credit).

Liabilities (like loans): When you take on debt, it’s a credit (you owe more). If you repay debt, it’s a debit.

Example: Taking out a loan increases liabilities (credit).

Flow of Transactions in the Diagram:

For Assets/Expenses, increases are shown as debits, and decreases are credits.
For Income/Liabilities, increases are shown as credits, and decreases are debits.

A transaction always need 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