Payroll System

It is the process of calculating the remuneration for the employees. If employee is related to production then the remuneration is called as wages. (Wages plan). And the employees who are indirectly related with production and with the company on monthly basis gets salaries.

All the transactions related with pay can be of two types Earnings and deductions. There are various types of earnings and deductions.

Earning Heads
Basic : It is the prime earning field. Normally depend upon grade, category or designation.
Additional Basic : This pay is additional to basic and is allowed for certain categories.
Dearness allowance : Can be variable or fixed. Percentage or limit of DA is normally depend upon CPI (Consumer price index) i.e. cost of leaving.
Base salary = Basic + Additional Basic + DA
HRA : House Rent Allowance : Also either fixed or variable.
CCA : City compensatory allowance : Normally it is not paid in case of private sector
Conveyance allowance : Also treated as travelling allowance - normally it is of reimbursement nature.

Medical allowance - deputation allowance - officiating allowance - educational allowance - leave encashment - overtime - working under hazardous conditions (Mines) - Production allowance - Incentives - Awards - Bonus - arrears - shift allowance - festival allowance etc.

Deduction Heads
Deductions are of two types statutory (compulsory) and voluntary

Statutory Deductions
Provident fund : 12% of basic pay + 12% by employer - you can withdraw your share but employers share can not be withdrawn.
ESI : Employee state insurance - to provide medical aid to employees. Applicable to those who have total earnings below 24000 per anum. Amount deducted 2.25% from employee's salary and employer contributes 5%. ESI returns have to be submitted to the Govt. after every 6 months.
Profession Tax : Depending upon gross pay slabwise.
Labor welfare fund (LWF) :twice a year depending upon gross pay.
Income Tax

Voluntary deductions
HDFC - LIC - Loans

Public Sector : Govt. has certain share
Public Ltd. : Open to all - one can buy shares
Pvt Ltd. : 3 or more owners
Firm : Partnership or proprietorship

Financial Accounting System

Providing Money when it is needed. Finance functions has two aspects
Financial Management
Financial Accounting

Financial Management consists of 4 A's
Anticipation of funds required
Anticipating How to get funds
Allocation or distribution of funds
Apportionment i.e. How to distribute profits.

Different types of accounting

Single entry and double entry system
Journal entry
Debit - Debtors / Credit - Creditors

Day Books : Books of original entries - Book used to enter day to day transactions of the business.

Ledger : Ledger nothing but an extract of day to day transactions of business for a particular account. Hence ledgers are always kept account wise within the account, they are maintained in a sequence of transaction date. All the transactions, which are appeared in books, must appear in ledger accounts. The act of writing down the transactions from daybooks to ledgers is called as ledger posting.

Trial Balance : It is the statement of all those ledgers accounts which have either a debit balance or credit balance. Debit and credit side of trial balance must tally.

Trading and manufacturing account : It is the statement of income and expenses. Expenditure heads are opening stock, purchases, returns inwards, wages, manufacturing expenses, freight etc. Income heads are sales, sales returns, closing stock etc.

Profit and loss account : it is the statement of non operating incomes and expenditure. It receives gross profit or gross loss from trading account and calculates net profit or loss. Income side contains interest received, dividend received, profit on sale of assets, other income. Expenditure side contains salary, rent, power, sales and distribution expenses, taxes, depreciation etc.

Balance Sheet : The statement, which summarizes on the right hand side, the assets of the business, and on the left hand side the liabilities of the business, including what the business owes to the proprietor or the owners, is called as the balance sheet. Balance sheet is always prepared as on a certain date and not for a period. The balance sheet is true only on the date and not any other day. Hence it shows a static picture of the business.

Various types of Business transactions
Purchase Sales Cash payment Cash receipts Bank Payments
Bank Receipts Debit note Credit note Adjustment entries

Input documents
Sales bills Purchase bills Bank Vouchers Cash vouchers
Debit and credit notes.

Outputs
Daybooks for sales & purchase
Cash Book
Bank Book
Financial ledger for debtors and creditors (statement)
Trading account
P&L Account
Trial Balance
Balance sheet
Cash flow statement
Funds flow statement
Ratio analysis

System Flow
Start the business with certain capital
Create various types of account heads like cash bank debtors creditors etc.
Create various ledger accounts in various ledgers.
Provide various types of transaction types.
Encode journal entry rules so that transaction can be posted.
Implement double entry system.
Implement various types ratios
Design data entry screen - voucher entry
Implement various types of validations for the voucher entry screen.
Never over right a value - debit credit effect
Error correction and revalidation of transaction
Provide descriptive narration facility
Proper user master to authenticate each transaction.
Proper security and permissions.
Prefer online processing.
Printing of various day books and ledgers
Printing of various statements as per requirements
Printing Trial Balance, Balance Sheet, Trading Account, P&L Account.

Validations
Document number should not be duplicated
Identify the missing documents
Document date validation
Validate account date and its expiry
Amount should not be blank or Zero.
Total amount should match with individual amount
Narration should not blank
Reject invalid document
Cross-references.

List of Files
Account type master

Ledger Master

Account master

Refer CSI File for file design

Voucher Entry Screen