Shreeji Electricals: a stock difference of ₹14,300 that is not one difference

Reconciliation

Step	₹	Running figure ₹
Stock Summary as on 31 March		4,12,500
Less: invoice SE-118 keyed twice (12 and 14 March)	(11,600)	4,00,900
Less: four ceiling fans thrown out, 4 × 1,150	(4,600)	3,96,300
Add: two cartons received on 30 March against GRN 214, not entered	1,900	3,98,200
Physical count		3,98,200

Correct entries

1. Duplicate voucher: Dr Supplier (SE-118) ₹11,600 / Cr Purchases ₹11,600, if the invoice is unpaid; if it was already paid, Dr Supplier ₹11,600 / Cr Purchases ₹11,600 and later Dr Bank / Cr Supplier. The stock figure corrects itself because stock is derived from the voucher - the duplicate must be deleted or reversed, not adjusted in stock.
2. Damaged fans: Dr Loss on damaged stock (or Stock written off) ₹4,600 / Cr Stock-in-hand ₹4,600. Under AS 2 / Ind AS 2, inventory is valued at the lower of cost and net realisable value; here NRV is nil, so cost is written down. This is an abnormal loss, shown separately if material, not buried in cost of goods sold.
3. Uninvoiced goods: Dr Purchases ₹1,900 / Cr Goods received not invoiced ₹1,900 on 31 March; when the invoice arrives, Dr Goods received not invoiced / Cr Supplier. The credit balance is a liability, because the firm owes the money and owns the goods.

Why the single ₹14,300 'Stock Adjustment' entry is wrong

• The net difference of ₹14,300 is a coincidence of three unrelated causes with three different counterparties: a creditor (11,600), an expense (4,600) and a liability (1,900). One entry cannot correct all three.
• It leaves the supplier's balance overstated by ₹11,600, so the firm may pay an invoice twice.
• It leaves ₹1,900 of liability off the balance sheet, understating creditors and purchases - and the GST credit on that invoice will also be missed.
• It creates a vague 'Stock Adjustment' account with no audit trail, which is exactly what an assessing officer or auditor treats as manipulation.
• Rule: reconcile first, then pass one entry per cause against its correct ledger.

What it is

An audit trail is the edit log maintained by the accounting software. For every voucher created, altered or deleted it records the voucher number and date, the user, the date and time of the change, and the original and revised figures. In Tally Prime it is seen through the audit trail report, and it can be configured to show the changed values.

Does the law require it for Shreeji Electricals?

No. The requirement flows from the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, as amended in 2021: every company using accounting software must have an audit trail feature, and with effect from 1 April 2023 the trail must be such that it cannot be disabled. A partnership firm is not a company, so the statutory mandate does not apply. Beware, though: if the firm converts into an LLP or company (or the software is shared with a company entity), the requirement bites immediately, and the audit trail must not have been disabled during the year.

Why the firm still wants it

1. GST and income tax scrutiny. The department asks for voucher-level explanations. 'Who changed this purchase voucher and when' is answered in seconds instead of days.
2. Fraud detection. A duplicate invoice (exactly the SE-118 case) or a deleted sale shows up in the edit log; a printed ledger hides it.
3. Partner disputes and buy-outs. A record that nobody could have back-dated protects the working partner.
4. Bank finance and due diligence. Lenders increasingly ask whether the books are system-generated with an edit log.
5. Discipline. Once users know every change is logged with a name, casual corrections stop.

The practical decision: turn the audit trail on, keep it on, and never allow the 'audit trail off' option to be used even though it is legally permitted for this firm.

How one login destroys the control

• The edit log records the user as 'Admin' for every voucher and every deletion. The log proves that a change was made but not who made it, which is the only question that matters when a difference is found.
• Any of the three assistants can open any year, alter any voucher, delete a purchase and change the master data, including the opening balances and the stock valuation method.
• There is no separation of duties: the person who enters a purchase can also approve it and alter the creditor balance.
• If the firm ever faces a fraud enquiry, the trail will be useless and the three assistants can each blame the others.

Controls to put in place

1. Individual users. Create separate Tally users for each assistant with their own passwords; disable or lock the default Admin after creating a strong password kept with the owner.
2. Least privilege. One user for entry, one for verification, one for masters (ledgers, items, opening balances). Only the owner or Meera holds the rights to delete vouchers, alter masters and change the financial year.
3. No deletion. Withdraw the delete right from entry users; corrections should be by reversing entries or by using optional/cancelled vouchers, so the original stays visible.
4. Period lock. Set the books to be locked or a security control at the date of each month's close, so earlier vouchers cannot be edited.
5. Password and session discipline. No shared passwords, no passwords on a sticky note, change on exit of staff, screen lock when leaving the desk.
6. Backup. Daily automatic backup plus a monthly copy kept off-site; test that the backup actually restores.
7. Reconcile monthly. Creditors ledger vs supplier statements, stock ledger vs physical count, bank book vs bank statement - the controls that catch the errors the software cannot.