Rules of Debit and Credit in Indian Railways Accounts, Minus Debit and Minus Credit, Accounting Cycle, Contra JV

 

Applicability of Rules of Debit & Credit in Railway Transactions

By M Nageswara Rao, 9492432160

Accounting

• An ancient art, certainly as old as money itself even though the art must have been basic/primary in the beginning. 

• Simple Definition of Accounting:  A systematic record of the daily events of a business leading to presentation of a complete financial picture. 

• Definition of Accounting by AICPA (American Institute of Certified Public Accountants):

“The art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character, and interpreting the results thereof”

The above definition in detail:

• Recording of the Journal entries

• Classifying the transactions as Revenue & Capital and different Heads in Ledger

• Summarising the Accounts in a significant manner i.e., Trading Account, Profit & Loss Account, Balance Sheet. 

• Transactions and events of financial nature only.  That means events of promotion of an Executive, clash between Directors cannot be recorded. 

• Interpreting the results i.e., various ratios and information to various stakeholders. 

Luca Pacioli:

• His book Summa de Arithmetica, Geometria, Proportion at Proportionality (Review of Arithmetic and Geometric proportions) in Venice (1494) is considered as the first book on double entry bookkeeping.

• He did not claim that he was the inventor of double entry book-keeping but spread the knowledge of it.

• He used the present day popular terms of accounting Debit (Dr.) and Credit (Cr.).

• Debit  - Origin Latin ‘debita’ (owed / be in debit to the proprietor.) 

• Credit  - Origin from Latin  ‘credo’(owed by the proprietor.) 

• He discussed the details of memorandum, journal, ledger and specialised accounting procedures. 

• Regarded as “Father of Accounting”

Golden Rules of Accounting

Personal Account Rule  -Debit the receiver.Credit the Giver.

Real Account Rule - Debit what comes in. Credit what goes out.

Nominal Account Rule - Debit all the expenses & losses. Credit all the incomes & gains 

Type	Examples	Debit Rule	Credit Rule
Personal Account	Natural persons like Raja A/c, Krishna A/c. Artificial persons like Partnership firms, companies etc.  Representative Personal A/c like Prepaid expenses, Outstanding expenses	Receiver	Giver
Real Account	Tangible Properties like Buildings, Machinery, Inventory, Cash etc.   Intangible properties like Goodwill, Patents, Copyrights etc	What comes in	What goes out
Nominal Account	Expenses like Salaries, Office expenses, Rent, Commission paid, Interest paid.  Incomes like Commission received, Interest received etc	All expenses & Losses	All incomes & gains

Example 1

Mr Krishna Started business with Rs. 5000
Accounts involved	Capital ( Krishna A/c)	Cash
Type of A/c	Personal	Real
Rule of the Account	Debit the Receiver Credit the Giver	Debit what comes in Credit what goes out
Debit or Credit	Credit	Debit
Journal Entry	Cash A/c       Dr           Rs.5000        To Capital A/c                       Rs.5000 (Being the Capital provided by the Proprietor)

Example 2

Withdrew Rs. 1000 from Bank for personal use of Proprietor
Accounts involved	Bank	Drawings (Proprietor)
Type of A/c	Personal A/c	Personal
Rule of the Account	Debit the Receiver Credit the giver	Debit the receiver Credit the giver
Debit or Credit	Credit	Debit
Journal Entry	Drawings A/c   Dr  1000     To Bank A/c                   Rs. 1000 (Being the amount withdrew for personal use  Of proprietor)

Example 3

Paid Salary Rs. 5000 to Mr Krishna
Accounts involved	Salaries	Cash
Type of A/c	Nominal	Real
Rule of the Account	Debit all the expenses & Losses Credit all the Incomes & gains	Debit what comes in Credit what goes out
Debit or Credit	Debit	Credit
Journal Entry	Salaries A/c Dr   Rs. 5000        To Cash A/c              Rs.5000 (Being the salary paid  to Mr Krishna)

Example 4

Sold goods for Cash  Rs. 300
Accounts involved	Goods (Sales)	Cash
Type of A/c	Real	Real
Rule of the Account	Debit what comes in Credit what goes out	Debit what comes in Credit what goes out
Debit or Credit	Credit	Debit
Journal Entry	Cash A/c Dr Rs. 300       To Sales                Rs. 300 (Being Cash sales)

Now Check Railway Transactions: 

Example 1 

Paid the Salary of PFA Office Staff Shri Venkat – Rs. 50,000
Accounts involved	Salaries (erstwhile DN 03)	Bank (Cheques& Bills)
Type of A/c	Nominal	Real
Rule of the Account	Debit all Expenses & Losses Credit all Incomes & gains	Debit what comes in  Credit What goes out
Debit or Credit	Debit	Credit
Journal Entry	Erstwhile Demand No. 03 A/c  Dr    Rs.50,000      To Cheques& Bills A/c                               Rs. 50,000 (Being paid the Salaries of Accounts Staff)

Note: Here, Venkat A/c is not recorded.  Because the Railways pays salary to him in lieu of his services.  If venkat A/c is entered in records, He is supposed to repay the salary to Railways.

Example 2 

Paid HBA to Staff Shri Venkat – Rs. 50,0000
Accounts involved	HBA / Venkat	Bank (Cheques& Bills)
Type of A/c	Personal	Real
Rule of the Account	Debit the Receiver Credit the Giver	Debit what comes in  Credit What goes out
Debit or Credit	Debit	Credit
Journal Entry	HBA (Venkat) A/c  Dr    Rs.500,000      To Cheques & Bills A/c             Rs. 500,000 (Being paid the HBA to StaffShriVenkat)

Example 3

Cash Received in Station Booking Office in respect of Passenger Earnings – Rs. 500
Accounts involved	Passenger Earnings (Abstract X)	Cash (Remittance Into Bank)
Type of A/c	Nominal	Real
Rule of the Account	Debit all Expenses & Losses Credit all Incomes & gains	Debit what comes in  Credit What goes out
Debit or Credit	Credit	Debit
Journal Entry	Remittance Into Bank A/c  Dr     Rs.500           To Abstract X A/c                           Rs.500 (Being accounted the Passenger Earnings)

Example 4

Shortage of Stock noticed during physical verification of ASV – Rs.1000
Accounts involved	Stock Adjustment	Stores in Stock
Type of A/c	Nominal	Real
Rule of the Account	Debit all Expenses & Losses Credit all Incomes & Gains	Debit what comes in Credit what goes out
Debit or Credit	Debit	Credit
Journal Entry	Stock Adjustment A/c   Dr     Rs.1000       To Stores in Stock   A/c               Rs. 1000 (Being loss of stock accounted into the SA A/c)

Example 5

Raised Bill on MrGovind for Rent charges of Railway Building  - Rs. 500
Accounts involved	Demands Recoverable  / Debtors	Sundry Earnings / Income
Type of A/c	Personal	Nominal
Rule of the Account	Debit the Receiver  Credit the Giver	Debit all expenses & losses Credit all incomes & gains
Debit or Credit	Debit	Credit
Journal Entry	Demands Recoverable A/c (Mr Govind)  Dr    Rs.500                     To Abstract Z Earnings  A/c                Rs. 500 (Being the Rent charges due from MrGovind )

Example 6

On Receipt of Rent on Railway Buildings from Mr Govind – Rs. 500
Accounts involved	Demands Recoverable / Govind	Cash
Type of A/c	Personal	Real
Rule of the Account	Debit the Receiver  Credit the Giver	Debit What comes in Credit What goes out
Debit or Credit	Credit	Debit
Journal Entry	Remittance Into Bank A/c   DrRs. 500        To Demands Recoverable (Govind)  A/c     Rs. 500 (Being the receipt of Rent charges from MrGovind)

Contra JV – Journal Voucher

Transaction:  On 01.01.2021, Clearance of WMS duly debiting the POH of Coaches – Rs.1000 

Involved:  Revenue JV and Capital JV

Revenue JV

Date	Particulars	Debit		Date	Particulars	Credit
01.01.2021	Erstwhile Demand No 06 (POH of Coaches)	1000		01.01.2021	Transfer Capital (00878291)	1000

Capital JV

Date	Particulars	Debit		Date	Particulars	Credit
01.01.2021	Transfer Revenue (00878292)	1000		01.01.2021	WMS	1000

		Transfer (008782)
		Debit	Credit
01.01.2021	Transfer Capital (91)		1000
01.01.2021	Transfer Revenue (92)	1000
	Total	1000	1000

Note: 

1. Minus transactions not allowed in the Heads Transfer Capital and Transfer Revenue. 

2.  By nullifying Transfer Railways – One Debit and One Credit, the net journal entry recorded in Books is 

           Erstwhile Demand No.06 A/c  Dr    1000

                                      To WMS  A/c                 1000

(Being clearance of WMS duly charging to Demand NO.06)

Debit and Minus Credit

• Minus Credit or Minus Debit is the Unique feature of Indian Railways Accounting system.

• Probably, nowhere in the World, the Minus Debit or Minus Credit is operated. 

• Let's go into the necessity/object of operation of the Minus Credit. 

Minus Credit: 

•  When an employee goes on transfer, one unit transfers the Civil Grant of an employee to another unit.

•  In this case, Minus Debit is operated in the Journal entries instead of Credit.  The object is to avoid budgeting effect.  Let's check the transactions

• Example: Unit 'A' transfer the HBA Debit balance Rs.1,00,000/- of employee X to Unit 'B' on his transfer. 

Journal entry in the books of Outward Unit 'A':

Credit - HBA head - Rs. 1,00,000

Minus Credit - Transfer Divisional Unit 'B' - Rs. 1,00,000

(Transferring employee X's HBA Debit balance Rs. 1,00,000 to unit B)

Journal entry in the books of Inward Unit 'B' 

Credit - Transfer Divisional Unit 'A'   - Rs. 1,00,000

Minus Credit  - HBA head - Rs. 1,00,000

(Accepting the Debit balance of HBA of Mr X in his books)  

• With the above transactions, Debit balance of HBA in the books of Unit 'A' is reduced and to that extent, debit balance of HBA in the books of Unit 'B' is added. 

• Though, it is a Debit balance, the transactions are effected through minus credit to avoid budgeting effect twice (one at Grant of HBA at unit A and another at accepting the Debit at Unit B)

Some More examples of operation of Minus Debit and Minus Credit 

1. Clearance of Cheques & Bills  - Minus Credit

2. Clearance of Remittance Into Bank - Minus Debit

3. Intra Railway Transfer Transactions among Divisions in a Zonal Railway - Transfer Divisional head operated  - Minus Debit and Minus Credit

***

 

Accounting Cycle (From Transactions to Final Accounts)

Five Stages

1. Transactions

2. Journal Entries

3. Ledger

4. Trial Balance

5. Final Accounts (Trading A/c, Profit & Loss A/c and Balance Sheet)

1.  Transactions in ABC Ltd.

• Started Business with Rs. 100

• Cash Purchases – Rs. 50 (50 units)

• Cash Sales  -  Rs. 60  (40 units) 

• Wages – Rs. 5

• Salaries – Rs. 5

• Furniture purchased – Rs. 20

• Depreciation on Furniture – Rs. 5

• Loan from Krishna – Rs. 20

• Interest on Loan – Rs. 2

             Adjustments: Closing Stock –Rs. 10

2. Journal Entries

Date	Particulars	LF	Dr	Cr
-	Cash A/c Dr   To Capital		100	100
-	Purchases A/c Dr   To Cash		50	50
-	Cash A/c Dr   To Sales		60	60
-	Wages A/c Dr   To cash		5	5
-	Salaries A/c Dr   To Cash		5	5
-	Furniture A/c Dr   To cash		20	20
-	Depreciation A/c Dr   To Furniture		5	5
-	Cash A/c Dr   To Krishna		20	20
-	Interest A/c  Dr   To Cash		2	2

3. Ledger

Capital A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To Balance c/d		100			By Cash		100
	Total		100			Total		100
						By Balance b/d		100

Cash A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To Capital		100			By Purchases		50
	To Sales		60			By Wages		5
	To Krishna		20			By Salaries		5
						By Furniture		20
						By Interest		2
						By Balance c/d		98
	Total		180			Total		180
	To Balance b/d		98

Purchases A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To Cash		50
	Total		50

Sales A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
						By Cash		60
						Total		60

Wages A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To cash		5
	Total		5

Salaries A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To cash		5
	Total		5

Furniture A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To Cash		20			By  Depreciation		5
						By Balance c/d		15
	Total		20			Total		20
	To Balance b/d		15

Depreciation A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To Furniture		5
	Total		5

Krishna A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To Balance c/d		20			By Cash		20
	Total		20			Total		20
						By Balance b/d		20

Interest A/c

Dr					Cr
Date	Particulars	JF	Amount		Date	Particulars	JF	Amount
	To Cash		2
	Total		2

4. Trial Balance

Trial Balance

SN	Particulars	LF	Dr	Cr
1	Capital			100
2	Cash		98
3	Purchases		50
4	Sales			60
5	Wages		5
6	Salaries		5
7	Furniture		15
8	Krishna			20
9	Depreciation		5
10	Interest		2
	Total		180	180

5. Final Accounts

                                               Trading A/c of ABC ltd for the year ending______

Dr					Cr
SN	Particulars		Amount		SN	Particulars		Amount
	To Purchases		50			By Sales		60
	To Wages		5			By Closing Stock		10
	To Gross Profit  (c/f to P & L A/c)		15
	Total		70			Total		70

                   Profit & Loss A/c of ABC Ltd for the year ending____

Dr					Cr
SN	Particulars		Amount		SN	Particulars		Amount
	To Salaries		5			By Gross Profit (b/d from Trading A/c)		15
	To Depreciation		5
	To Interest		2
	To Net Profit (C/f to Capital)		3
	Total		15			Total		15

                                          Balance Sheet of ABC ltd as on 31st March _____

Liabilities					Assets
SN	Particulars		Amount		SN	Particulars		Amount
	Capital	100				Furniture		15
	+ Net Profit	3	103			Cash		98
	Sundry Creditors		20			Closing Stock		10
	Total		123					123