Finance Accounts and Capital & Revenue Accounts

 

Finance Accounts and Capital & Revenue Accounts

·         Indian Railways is a Departmental Commercial Organization.  So not only secure essential requirements of Commercial Accounts, but also conforms to the Government Accounts. So it prepares Capital & Revenue Accounts and Finance Accounts to comply the Commercial Accounts and Government Accounts respectively

Commercial Accounts:

·         Also called as Capital and Revenue Accounts.

 

·         Recorded in such a way;

1.       How its Capital has been utilised (Balance Sheet)

2.       How it (IR) stands in relation to its Debtors and Creditors (Balance Sheet)

3.       Whether it (IR) is gaining or losing (Profit & Loss A/c)

4.       Whether the sources of its gains or losses

5.       Whether it is solvent or insolvent+

 

·         So, the Accounts of Railway presented in such a form as to facilitate a review of Railways as a Commercial undertaking.

 

·         To be included in Annual Report of IR

 

·         Sources :

1.       Revenue  - Revenue Allocation Register (RAR)

2.       Register of Earnings/Revenue 

3.       Registers of Capital, DRF, DF etc  - Works

 

·         Due date : 15th September or any other date prescribed by the Railway Board from year to year

·         Financial Results cannot be gauged correctly unless transactions recorded separately for Revenue and Capital

 

·         Loan A/c  - Assets created out of Capital only

 

·         Block A/c - Assets created out of all sources of finance (Capital + DRF + DF + RRSK + RSF)

 

·         Consists of : Statements of

1.       Authorised Capital

2.       Stock

3.       Loans, Debentures

4.       Receipts & Expenditure of Capital A/c

5.       Capital expenditure details for the year

6.       Capital A/c

7.       Revenue A/c

8.       Distribution of Earnings/Revenue and working expenses of worked lines

9.       GWE - Gross Working Expenses - Summary

10.   GWE - Gross Working Expenses - Details

11.   Earnings/Revenue

12.   Outstanding Earnings/Revenue (Traffic Suspense & DR)

13.   Net Revenue A/c

14.   DRF A/c

15.   Erstwhile Demands 1 & 2 / Major Head 3001

16.   Development Fund A/c (DF)

Government Accounts:

Government Accounts are kept in 3 Parts - Flow Chart

Government Accounts

 

 

  ·         Also known as Finance A/cs

·         Duly classified as per prescribed rules of Government

·         Object: Systematic record of all Receipts & Expenditure classified under certain appropriated headings.

·         Railway Fund:

 

1.       Though the Railway transactions form the part of Consolidated Fund, Contingency Fund & Public Account, they are accounted in the pro forma "Railway Fund"

2.       In the books of CAS - Central Accounting Section, RBI/Nagpur

 

·         Extra Railway Transactions:  Railway Audit expenditure  - booked in Railway Accounts for convenience purpose, though they do not pertain to Railway Revenue & Expenditure.

 

Structure of Booking of expenditure / earnings in Indian Railways

Hierarchy		Example:  HRA of PFA		Description
Major Head		3002		Indian Railways Commercial Lines -  Working Expenses
SMH - Sub Major Head		01		General Superintendence & Services
MH -Minor Head		200		Financial Management
Sub Head ( Subordinate Head)		210		Accounts
Detailed Head		211		Officers
Object Head ( PU -Primary Unit)		04		HRA - House Rent  Allowance

 

·         Final Allocation / classification of HRA of PFA - 03-0211-04

 

·         Note:  Still, allocation structure aligns with erstwhile Demand No. 03 - for Sub Major Head 01 -" General Superintendence & Services"

 

·         Monthly Account Current /Annual Account Current - complies the Finance A/cs

 

·         Railway Accounts further classified into 1. Commercial Lines  2. Strategic Lines

 

·         Strategic lines exists in 4 Zonal Railways.   They are NR, NFR, NWR & WR

 

·         Recoveries (of overpayments in last year) - shown as Earnings/Revenue in Current year.

 

·         However, recoveries due to difference in attendance of previous year - should be shown as reduction in the expenditure only in current year.

 

·         Credits up to Rs. 10 thousands pertaining to closed works - to be post as Earnings/Revenue

 

·         Para 217A -  Allocation of Receipts & Expenditure 

 

A.      The primary responsibility for the allocation of all receipts and payments rests with the concerned departmental officers.

 

B.      Each bill or voucher received from them should show the correct allocation of the receipt/expenditure in the fullest detail.

 

C.      The Accounts Department is responsible for seeing, to the extent it is possible for them to do so, that the allocation shown on the initial document is not prima facie incorrect.

 

·          Correct classification should be followed in recording the expenditure in accounts irrespective of whether provision in the budget has been made under correct budget head.

 

·         In order, however, to avoid undue variation between the budget and accounts figures, changed in accounting classification will not ordinarily be introduced during the course of the year.

 

·         In the case of works, the allocation of which has to be changed during the course of a year from one head of expenditure to another, classification of expenditure in that year should follow the original allocation. The change should be given effect to from the beginning of the next financial year only after making necessary provision in the Budget at the Budget stage or at the Revised Estimate stage to cover not only the estimated expenditure for the budget year but also write back of the expenditure incurred from the commencement of the work to the end of the previous year.

 

Link Heads between Govt Accounts & Commercial Accounts

 

	Demands Payable	Labour	Traffic	Bills Recoverable
Revenue / Capital	Revenue	Capital	Revenue	Revenue
Always having	Credit balance	Credit balance	Debit balance	Debit balance
Operated on	Expenditure side	Expenditure side	Earnings side	Earnings side

 

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Video Lesson on Government Accounts classification

Indian Railways Vs Government of India

Indian Railway Accounts:  What is common with the Govt of India Accounts

1.       Classification of Government Accounts i.e., Consolidated Fund of India, Contingency Fund of India and Public Account of India.

2.       Voted and Charged Expenditure

3.       Audit authority of Financial transactions - CAG - Comptroller & Auditor General of India

4.       Funds voted by Parliament

5.       Appropriation Accounts presented to Parliament

6.       Budget

7.        Account Current

8.       Exchequer Control

9.       Ways & Means

10.   GFR - General Financial Rules

11.    Demands for Grants

12.   Major Heads & Minor Heads (Classification of Expenditure and Earnings)

Indian Railways: what is unique in comparing other Depts in Govt of India

1.       Maintenance of Accounts by Dept itself ( in Other Depts - by CAG)

2.       Operation of Minus Debit and Minus Credit

3.       Keeping the accounts of the railways on a commercial basis outside the regular government account.  Thus maintaining Two sets of Accounts.

4.       Link Heads ( i.e., Demands Payable, Traffic, Labour & Demands Recoverable)  connecting Commercial Accounts with Government Accounts.

5.       Preparation of Profit & Loss Account and Balance Sheet

6.       Separate Codes and Manuals

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Flow Chart of Government Accounts classification

Download Flow chart PDF

Differences between Government & Commercial Accounts

      Are the Government Accounts and Commercial Accounts are same or not?  If not explain the differences between both with the backdrop of Indian Railways ? 

      The Indian Railways is a departmental commercial undertaking of the Government of India. That means on one side, It performs as departmental functions like other Government depts such as Defence, Finance, CPWD, etc and on other side act as Commercial undertaking since Railways manufacture and sells the perishable commodity "TRANSPORT".  Hence the accounts of Indian Railways should comply the Government Accounts as well as Commercial Accounts.

       To achieve this distinguishing accomplishment,  Indian Railways has performing dual role of maintaining  the both sets of Accounts with the help of Four suspense Heads i.e., 1. Demands Payable (DP) 2. Labour  3. Traffic Account  4. Demands Recoverable.  These are called "LINK HEADS", since the same are linking Government accounts and Commercial Accounts.  The discussion on LINK HEADS will be discussed separately in the same blog.

      The following features are the differences between Government accounts and Commercial Accounts.

GOVERNMENT ACCOUNTS	COMMERCIAL ACCOUNTS
1. Government Accounts are maintained on CASH basis. It accounts Actual cash receipts and actual cash payments during the financial year.	A.  In Commercial Accounts, ACCRUAL is the basis. That means Accrued earnings, whether realised or not, and the liabilities incurred, whether actually disbursed or not.   In the above example,
2. The Govt. Accounts are technically known as "FINANCIAL ACCOUNTS"  and maintained in accordance with the requirements of Government Accounts.  These accounts compiled annually for the purpose of representing a Consolidated Fund duly classified under the heads of accounts prescribed for Government accounting system.	B.  The Commercial Accounts are technically knows as "CAPITAL AND REVENUE ACCOUNTS".   These accounts facilitate a review of finances of the Railway as Commercial undertaking.  These are compiled every and included in the Annual Report of the Railway.
3. Mostly Government Accounts are maintained on Single entry system.	C. Commercial Accounts are maintained on Double entry system. (For every Debit, there is equivalent Credit existed)
4. Government prepares Accounts of its incomings and outgoings only. (Not Profit & Loss A/c and Balance Sheet, since it is not commercial oriented)	D. Commercial firms prepares Profit & Loss A/c and Balance Sheet to know how much profit they earned during the year and what is their position (Assets and Liabilities) at the end of the year.
E. Government Accounts are designed "How little money it (Govt) need to take out of the pocket of the tax payer (citizen) in order to maintain its necessary activities i.e., welfare of the people, defence of the country etc".	E. Commercial Accounts are designed to show how much money the firm can put into the pockets of the owner/business in the form of Profit.