handbook on accounting procedures for rd institutions

SIRD Mizoram

LALDINLIANA

Accounting Procedures for Rural Development

Establishments Based on Ministry of Rural Development Guidelines 2001

Including basics of Tally 9 for computerised accounting

2

From the Writer’s Desk

I want to go back to the time when

”getting high” meant “on a swing”

When “drinking” meant “apple juice”

When “dad” was the only “hero”

When “love” was “mom’s hug”

When “dad’s shoulder” was “the highest place”

When your “worst enemies” were your “siblings”

When the only thing that could “hurt” were “skinned knees”

When the only things “broken” were your “toys”

When “goodbyes” only mean “till tomorrow”

This was a small piece of work, embalmed with child-like wishes texted by a very dear

friend. Life has become more intricate as days rolled by. Some, complexed by choice and

some, by eventualities. In some instance, science itself convoluted some aspects of art and

knowledge. I believe accountancy, with all for the purpose of educational curriculum

fulfillment, is made more sophisticated in textbooks than in practice. With effort, the science

of accounting can be made simpler and less-demanding, easy to be grasped by lay person.

The rationale of this handbook is to eliminate the accountancy-phobia so deeply carved in the

paradigm of many. The concept of accounting can be simplified, explained away with „lefts

and rights‟ without going into the orthodoxy of the basics. The handbook may be an

instrument to do away with the phobia, bringing the subject easier to comprehend for the non-

accounting layman.

3

CONTENTS

PART ONE:

ACCOUNTING GUIDELINES OF MINISTRY OF RURAL DEVELOPMENT (2001)

Chapters Page

Introduction

1. General Guidelines

2. Maintenance of Cash Book

3. Maintenance of Scheme Ledger

4. Maintenance of Block wise and VC Payment Register

5. Maintenance of Receipt Register

6. Re-Appropriation

7. Guidelines for Payment

8. Procedure for Bank Reconciliation

9. Coordinate functions of Banks with DRDAs

10. Guidelines for Cheque Books

11. Guidelines regarding permanent imprest

12. Guidelines for auditing the accounts of DRDA

13. Guidelines regarding selection of CA Firm

14. Guidelines regarding sending reports

15. Duties and responsibilities of Project Director

16. Duties and responsibilities of various wings of DRDAs

17. Guidelines for Annual Financial Statements

18. Monthly Statements to be prepared by DRDAs

19. Summary of Accounting Records

20. Government of India Decision No.6 under GFR 149

4

PART TWO:

ACCOUNTING PROCEDURES

Chapters Page

1. Double Entry System

2. Calculation of Depreciation

3. Cash Book

4. Ledgers

5. Receipt and Payment

6. Income and Expenditure Account

7. Balance Sheet

8. Prescribed Format

9. Financial Management Practice

PART THREE:

USING TALLY FOR COMPUTERISED ACCOUNTING

Chapters Page

Introduction to Tally

1. Creating Organization Profile

2. Creating Ledgers in Tally

3. Creating Groups for Ledgers

4. Accounting Receipts

5. Accounting Payment

6. Contra Entry

7. Altering the Organization Profile

8. Alteration of Ledgers

9. Alteration of Transactions

10. Viewing Income and Expenditure Account

11. Viewing Balance Sheet

12. Easy Reckoner 121

5

As per Government Notification dated Aizawl 11th February,

2008 No. B.11016/10/2001-RD(Acct), all accounts of DRDAs,

RD Blocks and other establishments of Rural Development

Department are advised to maintain double entry system with

effect from 1st April, 2008

6

ACCOUNTING GUIDELINES OF

MINISTRY OF RURAL DEVELOPMENT

(2001)

General Guidelines

Maintenance of Cash Book

Maintenance of Scheme Ledger

Maintenance of Block wise and VC

Payment Register

Maintenance of Receipt Register

Re-Appropriation

Guidelines for Payment

Procedure for Bank Reconciliation

Coordinate functions of Banks

with DRDAs

Guidelines for Cheque Books

Guidelines regarding permanent

imprest

Guidelines for auditing the

accounts of DRDA

Guidelines regarding selection of

CA Firm

Guidelines regarding sending

reports

Duties and responsibilities of

Project Director

Duties and responsibilities of

various wings of DRDAs

Guidelines for Annual Financial

Statements

Monthly Statements to be

prepared by DRDAs

Summary of Accounting Records

Government of India Decision No.6

under GFR 149

7

INTRODUCTION

The Ministry of Rural Development sponsors many schemes under the Poverty Alleviation

and Rural Employment Schemes such as Swaranjayanti Gram Swarozgar Yojana (SGSY),

Jawahar Gram Smiridhi Yojana (JGSY), Indira Awaas Yojana (IAY), and Employment

Assurance Scheme (EAS). In the Social Sector, the Ministry has been sponsoring National

Old Age Pension Scheme, National Family Benefit Scheme and National Maternity Benefit

Scheme. The schemes namely Accelerated Rural Water Supply Programme and Central Rural

Sanitation Programme are part of Department of Drinking Water Supply. The Department of

Land Resources is handling the Integrated Wastelands Development Programme, Desert

Development Programme, and Drought Prone Areas Programme for the development of Land

Resources in the country.

There are 571 district in India and the central share as well as the state share are released

directly to the District Rural Development Agencies (DRDA.s), Zila Panchayats(ZP.s)

and District Level Committee on NSAP(DLC on NSAP). The percentage of funds

provided by the Central Government varies from 50% to 100% from scheme to scheme. In

the case of Union Territories, 100% of the expenditure is borne by the Government of India.

The schemes are implemented through the DRDA.s/ZP.s/DLC on NSAP. The DRDAs are

autonomous bodies set up under the Societies Registration Act. The Accounting Procedure

which was earlier approved by the Comptroller and Auditor General (C & AG) for the Small

Farmer‟s Development Agency Programme (SFDA) was extended to the erstwhile scheme of

Integrated Rural Development Programme (IRDP) now known as SGSY mutatis mutandis

pending the formulation of detailed accounting procedure for the IRDP.

Based on the recommendations of an inter-ministerial working group a revised accounting

procedure was drawn up in 1984 and was approved by the C & AG of India. The main

modifications brought about in the revised procedure for SFDA and approved for the DRDA

in 1984 provided that:

(i) The accounts should be maintained on commercial principle on Double Entry System.

(ii) The Agencies should maintain annually among others the following:

(a) Receipt and Payment Account

(b) Income and Expenditure Account

(c) Balance Sheet

8

(iii) There should be an audit by a Chartered Accountant or any other recognised body of

the Accountants every year and

(iv) There should be test audit by the C&AG of India.

(v) Provision was made for the maintenance of Block wise accounts through the Cash

Book.

(vi) A uniform format was prescribed for Subsidy Register as well as the Cash Book.

(vii) Specific time limits were incorporated for compilation and submission of annual

accounts. The annual accounts are to be compiled by the DRDA by 30th June. After

approval by the Governing body the accounts shall be got audited by the Chartered

Accountants or any other Auditor as envisaged under the Rules by 31st August. A

copy of such Audit Report along with annual statement of Accounts certified by the

Auditor and the Chairman of the Agency shall be furnished simultaneously to the

Government of India and the State Government not later than 30th September.

(viii) A standard format for furnishing Utilisation Certificate was prescribed.

(ix) Powers of Project Officer/Project Director for signing cheques fixed at 10,000/- and

was subsequently raised to Rs.50,000/-.

(x) A charter of duties and responsibilities of the accounting wing of the DRDA was

suggested.

The Study Teams of CCA.s Wing carried out the study of accounting practices followed by

the DRDA.s of 100 districts during the years 1998-99, 1999-2000 and 2000-2001. The study

group of National Institute of Financial Management had also submitted their project report

on the delivery of funds by the Ministry Rural Development to the Implementing Agencies.

Based on the feedback received from these study teams, the need for modifying the

Accounting Procedure was felt and following important amendments have been incorporated

in the Accounting Procedure 1984:

9

(1) The accounts of the DRDA.s/ZP.s/DLC on NSAP and Block shall be

maintained on Accrual basis/Double entry basis.

(2) Multiplicity of Bank Accounts for one scheme is not permissible. Scheme-

wise accounts shall be opened in the Nationalised/Cooperative/ Regional

Rural Banks and funds received in common Bank Account from the Govt. of

India and State Governments shall be transferred to the scheme wise bank

account only.

(3) DRDA.s/ZP.s/DLC on NSAP and Blocks are required to maintain Scheme-

wise Cash Book. Name of the bank and Account number should be written on

the first page of the Cash Book.

(4) Funds are not allowed to be diverted from one scheme to another or from the

Central Scheme to State Scheme by DRDA/ZP/DLC on NSAP.

(5) Funds transferred to BDO.s, to Panchayats and/or to other implementing

agencies shall be reflected as advance to them and may be adjusted against the

receipt of adjustment Bills from them.

(6) Interest earned on funds of each scheme should be added in the scheme funds.

(7) The Comptroller and Auditor General shall have the right of superimposed

audit of the accounts of the society, and for this purpose, shall have the right

of access to the books and other relevant records of the society. Copy of the

annual accounts along with the audit report and comments of the agency

thereon shall be sent to the audit office.

(8) Funds received both for Central as well as State Share for Rural Development

Schemes and National Social Assistance Programme Schemes i.e. NOAPS

and NFBS should be kept in a Savings Bank Account in a Nationalised

/Cooperative/ Regional Rural Banks. Funds in no case be kept in the

Fixed Deposits/Term Deposits.

(9) The Powers of the Project Director for signing cheques have been raised from

Rs.50,000/- to Rs. 1,00,000/-. Any cheque beyond this limit should be signed

by both the Project Director and the Executive Director.

(10) The Central Schemes being implemented through District Level Implementing

Agencies (DRDA, ZP, DLC on NSAP) will be subject to the Internal

Inspection by the Ministry of Rural Development, Govt. of India.

10

(11) The Annual Financial Statements should be accompanied by the Schedules of

Grants/Subsidies received, Interest Earned on unutilized funds kept in Banks,

Establishment Expenses, Other Administrative Expenses, Expenditure on

Grants and Subsidies and Schedule of assets created during the year.

(12) DRDAs/Blocks should maintain a register of the Permanent and Semi

Permanent assets acquired wholly or mainly out of Government Grants. The

Register should be maintained separately in respect of each scheme. A list of

annual assets acquired should be sent to the State Government and Ministry of

Rural Development as Schedule of Annual Financial Statements.

11

CHAPTER- I

GENERAL GUIDELINES (Accounting System)

In pursuance of the provision made under rule 31 of the Rules of the Small Farmers

Development Agency/Marginal Farmers and Agricultural Labourers‟ Development Agency

(now DRDA) the following arrangement is prescribed in regard to maintenance of Accounts

by the Society (DRDA), ZP.s and DLC on NSAP as also the nature of inspection and audit to

be applied there on. In states where the DRDAs have been merged with the Zila Panchayats,

these guidelines would be applicable even in such Zila Panchayats for DRDA Accounts or

Rural Development Schemes accounts maintained by them. Similarly, in states where

DRDAs are no longer implementing agencies and are existing only for monitoring of

schemes these accounting procedure shall be implemented by such DRDAs for effective

progress and monitoring of schemes. Wherever the State Government.s accounting procedure

are inconsistent with the Accounting Procedure mentioned in the subsequent paragraphs, the

State Government may amend such rules so as to make them consistent with these accounting

procedures.

DRDA.s/ZP.s and Blocks are responsible for the correct accounting of money distributed to

the implementing agencies. They are supposed to supervise and control the whole accounting

functions of Blocks/Panchayats. Project Directors/CEOs are supposed to carry out essential

checks indicated in Chapter XV.

The accounts of the each District Rural Development Agency (DRDA)/ZP/DLC and Block

shall be maintained on accrual basis/double entry system like other commercial organisation.

DRDA.s/ZP/DLC/Block & Panchayats should maintain a consolidated Receipt and Payment

Account register common for all schemes on the basis of Pass Book, Cash Transaction as

recorded in the Cash Book and posted in Ledger. This consolidated information should be

made available to Inspecting Officers and Audit parties.

Interest earned on funds of each scheme should be added in the scheme fund. Income and

Expenditure Account should depict the same separately.

12

Principal of one Bank account for each scheme must be followed by DRDA and line level.

Second Bank Account for the same scheme, if at all required could only be opened with the

approval of the State Secretary (RD). Multiplicity of Bank Accounts for one scheme is not

permissible.

The Ministry of Rural Development will telegraphically transfer funds/grants relating to all

the schemes in a Common Bank Account opened by the DRDA/ZP in SBI or its associate

Bank. The Telegraphic Transfer message would contain the name of the scheme under which

the funds have been remitted. The DRDA/ZP should transfer the amount so received

immediately to the respective Scheme Accounts so maintained.

Funds received both from Central and State Governments should be kept in the Savings

Bank Accounts only. Funds in no case should be kept in the Fixed Deposits/Term

Deposits. All existing FD.s/TD.s should be encashed and transferred to the respective

scheme account.

Scheme Account should be maintained only in .Nationalised/Cooperative/ Regional Rural

Banks. In no case funds are to be kept or transferred in Treasuries, or in Personal Ledger

Account, Treasury Savings Accounts, Treasury Public Deposit Account etc.

State Share received against each scheme should also be transferred in the respective scheme

account maintained in the Banks. No funds should be kept in Treasuries.

Funds transferred to Block Development Officers/Implementing Agencies shall be reflected

as advance to them and be adjusted against the receipt of adjustment bills. Second advance

for the same project can be given subject to the condition that 60% funds have been

utilized/expenditure incurred out of advance already issued. However third advance cannot be

given till the first advance is fully settled.

Advances to BDO should be shown as advance in the Cash Book and Balance Sheet and not

as final Expenditure on the scheme.

13

Expenditure on the scheme should be on the basis of adjustment bills or on receipt of the

utilisation certificates.

DRDA.s/ZP.s should prepare following Scheme-wise Annual Statements as per Chapter

XVII:

i) Receipt and Payment Account

ii) Income and Expenditure Account

iii) Balance Sheet

iv) Utilisation Certificate

v) A statement of Annual Opening and Closing Balance of each Scheme.

vi) A certificate of Imprest adjustments at the end of Financial Year.

Payments to state P.W.D., Forest Department and to other Implementing Agencies for

various works may be termed as Deposit works for which separate accounts may be kept and

executing agency shall render the account of each deposit and expenditure against such work

every month to the DRDA/BDO.s as the case may be.

The DRDA.s Accounts Officer shall acknowledge the receipt of funds received from the

Banker of the Ministry. The acknowledgement receipt should reach to the Pay and Accounts

Officer, (Special Cell), Ministry of Rural Development, Room no. 548, Krishi Bhawan, New

Delhi-110001 within seven days of the receipt of funds.

Subsidies from SGSY scheme fund should not be released by the lead Bank / DRDA to

branches before the receipt of the intimation from the branch bank confirming that the

loan release cases of the beneficiaries have been processed and sanctioned. Thereafter

subsidy equal to sanctioned amount should be released on monthly basis. Instances of

refund of unutilized subsidy by the bank branches may be reduced to the minimum.

DRDA.s are not authorised to take overdraft from the Banks. No overdraft at any stage be

paid to DRDAs on behalf of any scheme of Govt. of India. Bank should not entertain any

such request as Government of India is not liable for such payment.

Flow of funds from DRDAs/ZPs/Blocks/Gram Panchayats and Implementing Agencies

should be through cheque/Demand Draft only.

14

CHAPTER II

Maintenance of Cash Book

The DRDA/ZP/DLC in NSAP are required to maintain separate Cash Book for each Scheme.

Against each entry in the cash book, name of the block and implementing agencies should be

indicated. The Cash Book shall be maintained by all the District Rural Development

Agencies. The transactions relating to schemes of other Ministries should not be included in

these Cash Books.

Like DRDA.s each Block is required to maintain separate Cash Book for each scheme. The

transactions relating to schemes pertaining to other Ministries should not be included in these

Cash Books.

The name of the Bank and the Bank Account no. of the Scheme should be written on the first

page of the Cash Book as it will be useful to the Inspecting Officers and Audit Officers.

Cash Book shall be closed on every transacting day. All receipts and payments should be

posted in the Cash Book on regular basis. After balancing the amount it should be signed by

the Cashier and DDO.

The Cash Book should be certified, summerised, closed and signed on the last working day of

the month by the Project Director, DRDA/ CEO, Zila Panchayat/DLC on NSAP.

All receipts of money should be entered in the Cash Book on the day they are received.

Interest Earned on scheme fund should also be reflected in the Cash Book.

The monthly closing balance should have details of Balances available in the Bank Pass

Book, entries in the Cash Book and Cash in Hand. Balance should also be supported by

the copies of Bank Pass Book. A certificate in this regard should be recorded at the close

of every month. There may be some debits and credits for Bank charges, commission or

interest, which may appear in the Monthly Bank statement. These items should be

incorporated in the Cash Book in the following month so that Cash Book balances agree

with the Bank Balance.

15

CHAPTER III

Maintenance of Scheme Ledger

Each DRDA/ZP/DLC on NSAP should maintain Scheme wise Ledgers. Different pages of

Ledgers should be for different Blocks. Thus there will be numbers of ledgers equivalent to

the number of Schemes in the District and each Ledger will have detail of Blocks, date of

release of Advance, Amount of Advance released, voucher number, cheque number and date

of receipt of UC.s/Adjustment Bill.

At the end of the month a scheme-wise abstract should be prepared showing Monthly

Advances and the monthly adjustment/expenditure in respect of each scheme and each Block.

Each Block should maintain a Scheme wise Ledger with different pages for different

Panchayats, under which name of the Panchayats/Village, date of release of Advances,

Amount of advance, Cheque number and date of receipt of UC.s/Adjustment Bill should be

given.

At the end of the month a scheme wise abstract should be prepared showing the release and

monthly Expenditure in respect of each scheme in each Panchayat. This monthly abstract

should reach to DRDA.s in the first week of subsequent month.

Trial Balance for the month using General Ledger and Cash Book should be prepared. If Trial

Balance is not tallied then error of posting in Cash Book and Ledger should be checked.

16

CHAPTER IV

Maintenance of Block wise and

Panchayat wise Payment Register

Each DRDA/ZP/DLC on NSAP should maintain Block wise Payment Registers. Different

pages of the register should be allocated for different schemes. Thus there will be number of

registers equivalent to the number of Blocks in the District and each register will have detail

of Schemes, date of release of Advance, Amount of Advance released, and date of receipt of

UC.s/Adjustment Bill.

Block wise register should be closed on monthly basis along with progressive expenditure of

each month.

Each Block should maintain Panchayat wise Payment Register. Different pages of register

should have detail of different schemes. The register should have name of the scheme, date of

advance, amount of advance, and detail of adjustment bill.

Panchayat wise register should be closed on monthly basis along with progressive

expenditure of each month. Each Panchayat should maintain payment register

17

CHAPTER V

Maintenance of Receipt Register

For DRDAs

Each DRDA/ZP/DLC on NSAP should maintain a Consolidated Receipt Register indicating

name of the scheme, amount received, sanction no., date of receipt of funds and source of

receipts of funds i.e. Govt. of India, State Government, Others etc.

The Register should be closed each month and abstract should be prepared indicating the total

receipt during the month.

For Blocks

Each Block should maintain a Consolidated Receipt Register indicating name of the scheme,

amount received, sanction no., date of receipt of funds and source of receipts of funds i.e.

DRDA, others etc.



For Panchayats

Each Panchayat should maintain a Receipt Register indicating name of the scheme, amount

received, sanction no., date of receipt of funds and source of receipts of funds i.e. DRDA,

Blocks, others etc.



18

CHAPTER VI

Re-appropriation

If any grant has been made by the Government of India or by the State Government of India

or by the State Government to the Society for a specific purpose, the society shall not without

the prior sanction of the granting authority, appropriate such grant or sum or any part thereof

for a purpose other than the approved purpose i.e. Funds are not allowed to be diverted from

one scheme to another scheme or from Central Scheme to State Scheme.

In no case funds are allowed to be diverted from one scheme to another scheme or from

Central Scheme to State Scheme.

Unutilised funds under any head/scheme should be reflected as ‘Opening Balance’ in

the next financial year. PD, DRDA/CEO, ZP should sign the Annual Closing and

Opening Balance Statements.

Reappropriation of funds from one district to another district of the state is not allowed.

19

CHAPTER VII

Guidelines for Payments

BDOs/Implementing Agencies will receive their funds from DRDAs/ZPs as advance and

adjustment bills should be submitted to DRDAs/ZPs to settle the advance. There is no limit

on reimbursement, however second advance for the same project can be be given subject to

the condition that 60% funds has been utilised/expenditure incurred out of advance already

issued. However, third advance cannot be given till the first advance is fully settled.

All payments exceeding Rs.1,000/- shall be made in Cheque/DD, in cases where it is not

possible to make payment by Cheque/DD then such reasons should be recorded in the Cash

Book. The Drawing and Disbursing Officer will satisfy himself about the mode of payment.

All payments should be supported by documents such as bills/receipts and cash memos.

When disbursing the payments, the Accountant/Accounts Officer should obtain the signature

of the payee acknowledging receipt of the cheque or cash as the case may be. This signature

must be affixed in appropriate space.

All paid vouchers be retained for the period of 5 years from the date of

adjustment/settlement of Advance, or till the Statutory Audit for that period is completed,

whichever is later.

Bills and Vouchers which have been paid by cheques shall be divided into the following

classes, namely (I) salary and establishment Bill and (ii) other bills. Each class of bills should

be pasted in a separate guard file and shall be consecutively numbered in order of payment.

But sub-vouchers which have been paid in cash out of the permanent advance, shall be

separately filed together with the recoupment vouchers covering them.

A system of debit voucher for each payment (whether by cheque or in Cash) may be

introduced. The debit voucher may indicate sanction number, particular of expenditure,

ledger head under which it is classified and mode of Payment (Cheque/DD/Cash). The debit

voucher may be approved by the Accounts Officer and shall form the basis for posting the

Cash Book. Payment made to Blocks/ Panchayats and Other implementing agencies be

entered in Payment Register.

20

CHAPTER VIII

PROCEDURE FOR BANK RECONCILIATION

The DRDA.s/ZPs and Banks should reconcile their accounts on monthly basis. Pass Book

should be updated twice in a month i.e. on 10th and last working day of every month. The

Bank Reconciliation Statement should be pasted in the Cash Book at the end of each month.

The Balance appearing in Pass Book/Bank Statement should be reconciled with entries

shown in Cash Book. In the event of any cheques issued during a month remaining uncashed

at the close of the month, there will necessarily be a difference between the balance

brought out in the Cash Book and of the Pass Book and of the certificate issued by the

Agency of the Bank under rule 10. This difference shall be explained by a note in the

last page of the Cash Book for the month in the following manner.

At the end of each Month a summary of the outstanding cheques issued but not presented to

Banks should be prepared indicating date, cheque no., amount and Payees name.

Cheques older than 6 months from the date of issue and not presented to the Bank should be

investigated by the PD/CEO,ZP and then written back in Cash Book noting the reference

21

number, date of payment voucher and head of Accounts liability for payment in future after

following the procedure laid down in Chapter VIII.

All moneys remitted to the Bank to the Credit of the Society and all payments made by the

Bank on cheques or otherwise on account of the society shall be entered in a Pass Book. The

Pass Book shall remain in the custody of the Accounts Officer and it shall be sent to the Bank

at least twice in a month. The Bank should update entries of Receipt and Payment, balance

the account and sign the Pass Book. The amount should be entered in words as well as in

figures. On receipt of the Pass Book by the Bank, the receipt and payment up to date, shall be

entered therein and when the Book is received on the last working day of the month, the

account shall be balanced and signed by the Agent of the bank, the amount being entered in

words as well as in figures. The Pass Book shall be returned to the Office of the Society

(DRDA) as soon as the entries prescribed in this rule have been made in it.

The Project Director/CEO,ZP shall examine the Pass Book at least once in a month and shall

immediately call the attention of the Bank to any discrepancy that may appear between the

credits and debits shown in the Pass Book and these shown in the accounts of the Society.

22

CHAPTER IX

Coordinated functions of Banks with DRDAs/ZPs/DLC

Funds received both for Central as well as State Share for Rural Development Schemes and

National Social Assistance Programme Schemes i.e. NOAPS and NFBS should be kept in a

Savings Bank Account in a Nationalised /Cooperative/ Regional Rural Banks. Funds in no

case be kept in the Fixed Deposits/Term Deposits.

The Bank should immediately intimate to the DRDAs/ZPs about the receipt of Telegraphic

Transfer (TT) of funds. On receipt of such intimation, the Project Director shall immediately

send the pass book to the bank for making necessary entries in the Pass Book.

The bank should credit the accounts of DRDA/ZP on the day of receipt of TT. The accredited

bank will be liable for penal interest for delay (in terms of no. of days) in crediting the

accounts of DRDA/ZP. In case of repeated instances of delay, the matter should be referred

to this Ministry and with prior approval, the account in such Bank should be closed and a new

SB Account should be opened in other Branch of SBI or its Associate Banks.

Interest earned on funds of each scheme should be added in the scheme fund. The bank shall

intimate in writing to the Project Director about the amount of interest earned so that

necessary entries are made in the Cash Book maintained by the DRDA/ZP.

Banks should confirm the DRDA/BDO.s that loan release cases of the beneficiaries have

been processed and sanctioned. Thereafter, subsidy equal to sanctioned amount should be

released to the Bank on monthly basis. Instances of refund of unutilised subsidy by the bank

branches may be reduced to the minimum.

DRDA.s/ZPs are not authorised to take overdraft from the Banks. No overdraft at any stage

be paid to DRDAs/ZPs on behalf of any scheme of Govt. of India. Bank should not entertain

any such request as Government of India is not liable for such payment.

23

In case of non receipt of TT.s by the bank, the banker as well as the Project Director should

immediately contact Asstt. General Manager, State bank of Bikaner & Jaipur, G-72, 1st

Floor, Connaught Place, New Delhi-110001, (Telephone No. 011-3358464, 3712083,

3719044 Fax: 3712081, 3713994) the accredited bank of the Ministry of Rural Development,

Govt. of India and the Pay and Accounts Office whose address and telephone no. is also

given in the sanction order.

On the receipt of „Sanction Order‟ from the Ministry of Rural Development, the Project

Director should contact the Bank to ensure the receipt of funds through TT, necessary credit

by the Bank in the accounts of DRDA/ZP and for making necessary entries in the Pass Book.

24

CHAPTER X

Guidelines for Cheque Books

Cheque books will be supplied by the Bank only; and no other forms shall be used. The

cheque books and the counterfoils/record slips of used cheques shall be kept in the custody of

the Accounts Officer/Project Director for audit.

On receipt of cheque book from the bank, the Project Director shall count the cheques and

shall record on the back of the cheque book that .this cheque book contains...... forms. The

cheque books will also be entered in the register meant for the purpose.

Cheques for sums not exceeding Rs. 1,00,000/- shall be signed by the Project Director,

DRDA/ZP. Cheques for sums exceeding Rs.1,00,000/- will be signed both by the Project

Director,DRDA and Executive Director,DRDA. At Block Level the cheques for more than

Rs.50,000/- should be signed by two Gazetted officers including BDO.

No cheque shall be signed unless required for immediate delivery to the person to whom the

money is to be paid, nor until the Bill which it will discharge, has been presented in a

complete form, examined and passed for payment.

If a cheque, after it has been signed cannot be delivered to the payees on account of his non-

appearance on a particular date, it should be lodged in an Iron safe; the key of which should

be kept in the custody of the Accounts Officer.

In case of Lost Cheque, on intimation of such loss from the Payee, the drawee bank should be

asked to provide ‘Non Payment Certificate’. The Payee should be asked to execute an

Indemnity Bond for an amount equal to the cheque lost. Only then a fresh cheque should be

drawn in favour of the payee.

In case of time barred cheques, fresh cheques are required to be issued on receipt of request

and no revalidation shall be resorted to. The time barred cheque should not be destroyed but

25

preserved as a voucher/sub-voucher and fresh cheque should be issued on this basis. To avoid

misuse of cancelled cheque the word „VOID‟ should be written over the leaf.

Every payment made, either in cash or by cheque, shall be covered by a receipt stamped if

necessary, signed by the person to whom the money is due and to whom it has actually been

paid.

All accounts received in cash or cheque/Draft will be acknowledged by printed receipts

which will be signed by the Drawing and Disbursing Officer or other person authorised to

work on his behalf. The receipts with their counterfoils will be machine numbered and their

record will be kept in the receipts register.

Counter foils/Record Slips of cheques should bear payees name, amount, the date of issue,

voucher number and the initials of the signatories.

All cheques other than Self Cheque should be a Crossed Cheque/Account Payee Cheque and

in no case a Bearer cheque should be issued.

26

CHAPTER XI

GUIDELINES REGARDING PERMANENT IMPREST

In order to carry out Contingency Nature, Petty cash payment of miscellaneous nature,

a Permanent Impress of Rs.5,000/- may be sanctioned and paid to any Gazetted Officer

of the office of the DRDA/ZP for a specific purpose or for petty contingent transactions.

Permanent Imprest Account shall be submitted by the imprest holder at least once in a

month and get the amount recouped.

All Permanent Imprest must be adjusted at the close of the financial year i.e. 31st of

March every year or at the time of relinquishing the charge by the Imprest Holder due

to retirement/transfer etc.

In case the Imprest Holder does not submit any Account for three months continuously,

he shall be asked to render the account for adjustment failing which further imprest

should not be allowed.

The Permanent advance fixed as per the State Government Rules /General Financial

Rules shall be recouped as often as may be necessary in the following manner:-

The Project Director/Accounts Officer shall compare the sub-vouchers with the entries in the

permanent advance account. He shall deface them by stamping „Cancelled‟ thereon so that

they cannot be used again. He shall total and initial the column. Amount of sub- voucher. in

the permanent advance account. The voucher for recoupment shall be drawn out, in a suitable

form and it shall be enfaced with the usual payment order. The Project Officer shall draw out

a cheque in own favour for the amount.

27

CHAPTER XII

GUIDELINES FOR AUDITING THE ACCOUNTS OF DRDA/ZP

The Comptroller and Auditor General shall have the right of superimposed audit of the

accounts of the society, and for this purpose, shall have the right of access to the books and

other relevant records of the society. Copy of the annual accounts along with the audit report

and comments of the agency thereon shall be sent to the audit office.

The Annual Accounts of the DRDA.s/ZP.s/DLC on NSAP, Block and selected Gram

Panchayats shall be audited by the Chartered Accountant or by the Local Fund Audit

Department, A copy of their Audit Report should also be sent to the respective

Accountant Generals (AGs), State Governments and Programme Divisions in the

Ministry of Rural Development, Govt. of India.

The Chartered Accountant or Local Fund auditor shall have access to the Record of DRDAs,

Zila Panchayats, Blocks and Gram Panchayats. They must physically certify and sign the

accounts so audited. Chartered Accountant must audit offices of DRDAs/ZPs/DLCs and all

blocks and selected Gram Panchayat.

The Project Director shall ensure that, the annual accounts of the agency are prepared by a

date not later than 30th June comprising of Receipt & Payment Account, Income and

Expenditure Account and Balance Sheet. After approval by the Governing Body he shall

have the accounts audited by the Chartered Accountant or by the Local Fund Audit

Department.

A copy of such audit report (duly signed by auditor) along-with the annual statement of

accounts certified by the auditor and the C.E.O. of the Agency thereon shall be furnished

simultaneously to Government of India and the State Government before 30th September.

The Central Schemes being implemented through District Level Implementing

Agencies/ZP.s may be subject to the Internal Audit by the Ministry of Rural

Development, Govt. of India and State Government Teams.

28

CHAPTER XIII

Guidelines regarding Selection of Chartered Accountant Firms

Preference should be given to select an experienced Chartered Accountant listed in the panel

of A.G.s of the State or C & A.G. of India. However, in areas where empanelled CAs are not

available or which are remote or inaccessible, the Local Fund Audit Party or any other

Chartered Accountant with Professional Qualifications prescribed by the respective State

Governments from time to time.

The C & AG of India shall have right to lay down some specific qualifications and

experience of Chartered Accountant for certain areas or in special cases.

The C & AG shall have right to issue directives to Chartered Accountants (CA.s) about each

audit.

Any professional misconduct on the part of the CA shall be reported to the Institute of

Chartered Accountant of India. CA shall be responsible for such action taken by the Institute

under the code of conduct as defined under provision contained in the Chartered Accountant

Act 1949.

The Chartered Accountant shall also be responsible for inviting attention of any material

departure from generally accepted procedure of Audit. Its failure shall be considered as

professional misconduct as defined under the Charted Accountant Act of 1949.

If the Ministry of RD, Government of India or State Government notices that Account

audited by any Charted Accountant is not up to the standard, incorrect, deviates from factual

ground realities, misrepresent the facts, etc. then the Ministry of Rural Development, Govt. of

India / State Government may debar such CA from audit and shall report against such

Chartered Accountant to the Institute of Chartered Accountants of India, New Delhi for

initiating action under their conduct rules.

29

CHAPTER XIV

GUIDELINES REGARDING SENDING REPORTS TO THE CENTRAL

GOVERNMENT

All DRDAs/ZPs should send following audited Annual Financial Statements to the M/O RD,

State Government and to the State AG by 30th

Sept. of the subsequent financial years.

(a) Receipt and Payment Account

(b) Income and Expenditure Account

(c) Balance Sheet

(d) Audit Certificate of the Chartered Accountant

A Statement showing the Schedule of Fixed Assets created under each scheme held by the

Agency at the end of the financial year shall be sent to the State Government and to the

Government of India in the prescribed form. The value of assets should be shown at the

original cost in the accounts.

All DRDA.s/ZPs/DLC should send their Scheme wise Opening Balance as on 1st of April

brought forward the unspent balance of the previous year. The Report should reach to the

M/O RD, Budget Division by 30th May of each year. The Opening balance should include

unspent balances lying with the Implementing Agencies/BDOs/Gram Panchayats as on 31st

March.

All the Agencies shall send a Utilization Certificate to the Government of India (Ministry of

Rural Development) in the prescribed pro forma given in respective scheme guidelines along

with annual statement of accounts. The Utilization Certificate must be prepared strictly on the

basis of the Receipts and Payment Account and Opening / closing balances in both Receipts

and Payment Accounts.

As the existing Utilisation Certificates do not reflect reality, a complete list of completed and

incomplete works should be attached with the U.Cs. This should also show where the unspent

money is lying.

30

A compiled expenditure report on quarterly basis should be sent to the State Government and

the Ministry of Rural Development, Government of India. The Report should have Opening

Balance, Total Receipts (both from the Govt. of India and the State Government) and

expenditure under various scheme heads of accounts along with cumulative total at the end of

the quarter.

31

CHAPTER XV

Duties and Responsibilities of Project Director

In case PD/CEO is working as DDO, he shall sign all entries of Receipt and Payments made

in the Cash Book on each transaction day.

Closing Balance in the Cash Book along with certificate and summary of Monthly statement

is to be signed and dated by the PD/CEO.

Monthly Bank Reconciliation Statement shall be signed by the PD/CEO and pasted in the

Cash Book at the close of the each month.

PD/CEO shall examine the pass Book from time to time at least once a month and shall

immediately call attention of the Bank of any discrepancy noticed in the Bank Reconciliation

Statement.

Monthly review of Advances paid to various executing agencies/Implementing Agencies and

adjustment of bills thereon shall be carried out.

Monthly receipts and expenditure Statement should be signed. He should ensure that scheme

wise expenditure met in accordance to allocation.

PD/CEO shall be responsible for getting the Annual Accounts prepared, which shall include

Receipt and Payment Account, Income and Expenditure Account and Balance Sheet. He will

sign these before getting the same audited from the CA.

PD/CEO must sign all the UC.s being sent to the M/O RD along with annual statement of

Accounts.

PD/CEO must ensure that negative (-) balance does not come in the opening and Closing

Balances of each scheme.

32

PD/CEO while forwarding the proposal for II installment must issue a certificate that no

funds are kept in Fixed Deposit Receipts.

PD/CEO must ensure that Imprest Amount is adjusted at the close of every financial year

31st March.

PD/CEO must ensure that Opening Balance in each scheme is communicated to the Ministry

of RD, Govt. of India at the close of financial year latest by 30th May every year.

PD/CEO should maintain a watch on the expenses of Blocks with reference to the allocation

in different schemes.

33

CHAPTER XVI

DUTIES & RESPONSIBILITIES OF THE VARIOUS WINGS OF DRDAs/ZP

Establishment Wing:

The head of Establishment Wing should arrange and ensure proper maintenance of the

following records:

Preparation of Pay bills, TA bills, Contingent bills towards administrative expenses, their

scrutiny and submission to the Project Director for approval.

Maintenance of following Registers

(a) Pay bill register and Aquittance register.

(b) Loan register in G.F.R. form 20 (Share capital loan).

(c) Register of fixed charges.

(d) Traveling allowance Register.

(e) Service books of employees of the Society.

(f) Leave Salary and Pension contributions etc. of employees.

(g) Register of advances to staff and their recovery.

(h) Stock register of (a) Consumable articles; (b) non consumable articles.

Accounts Wing:

The Accounts officer or the head of the Accounts wing should arrange and ensure proper

maintenance of the following records:

Preparation of the budget estimates under different heads viz. Administrative expenses,

subsidy risk fund, etc.

Maintaining a watch on the expenses of blocks with reference to the allocation in different

scheme.

34

A system of debit voucher for each payment by cheque or in cash may be introduced. The

debit voucher may be approved by the Accounts Officer/Project Officer and form the basis

for posting the cash book/ledger.

Preparation of cheques for payments on the basis of the sanction/pass orders on bills or

approved debit vouchers.

Monthly Bank Reconciliation of balances as per the books of the Agency with the balances as

per the books of the banks in which the cash balances of the agency are kept.

To watch the receipt of funds from State and Central Government and to acknowledge the

receipt of funds to the Ministry of RD and the State Government as the case may be.

Preparation of monthly reports of expenditure under different heads, and different blocks for

comparison and review with budget allotments and Quarterly progress report to be sent to the

State Govt./ Govt. of India.

Quarterly Receipt and Expenditure Report to be sent to the State Govt./Govt. of India.

Preparing a consolidated register of all funds received from Central and State Government

and Block wise and Scheme wise Expenditure made.

Preparation of Annual Financial Statements for Audit as in Chapter XVII

Watching Adjustment Bills/ UC.s from the Blocks and Implementing Agencies for the

advance given to them and allowing subsequent advance.

Dealing with correspondence relating to audit objections and inspections reports till

they are finally settled.

Maintenance of the accounting records as given in Chapter XIX.

35

Assistant Project Officer

Scrutiny of subsidy claims made by Banks dealing with SGSY.

Watching the receipt of utilization reports and adjustment bills from the Banks/ Credit

Institutions in respect of subsidies advances made to them, within the stipulated period,

processing the adjustment to final heads making necessary entries in the Scheme-wise

beneficiary register; in the event of default, ensuring recovery of under-utilized subsidies and

interest thereon.

Register of subsidies Scheme wise, beneficiary wise (these registers may be kept separately

for each block).

Register to monitor and record the expenditure on subsidies in different blocks against the

block ceiling.

Register to review the progress of expenditure against the budget allotment for:

(i) Administrative Expenses under different Ledger heads

(ii) Expenditure on subsidies for different programmes in different sectors and Risk Fund/

Managerial Subsidy.

36

CHAPTER XVII

GUIDELINES FOR ANNUAL FINANCIAL STATEMENTS

The following annual Financial Statements shall be prepared by the DRDA/Agency for

each scheme.

Receipts and Payments Account

The summary of the Receipts and Payments should be tallied with the cash book. It has

following features.

(1) It starts with an opening balance on the debit side showing cash in hand and balance in

bank.

(2) Receipts are recorded on the debit side and payment on the credit side.

(3) Both receipts and payment are classified under suitable headings.

(4) All transactions occuring during the year shall be recorded in this account. In other words,

receipts and payments pertaining to the previous year, current year and next year are recorded

in it. Moreover it records receipts and payments of both capital and revenue nature.

(5) This account ends with a closing balance which represents cash in hand or bank balance at

the end of the year. If however, it shows a credit balance, it means it is bank overdraft.

Income & Expenditure Account

It is prepared on the principles of Profit and Loss Account of a Non-Profitable organisations.

Special features of the account are:-

(1) Expenditure is on the debit side of this account and Incomes are recorded on its credit

side.

(2) Items of only revenue nature are shown. Items of capital nature are excluded.

37

(3) Expenses and Incomes are adjusted in the following manner:-

i) Include all figures relating to the current year only even if the items are not fully

settled in cash and.

ii) Exclude figures relating to future or previous years.

iii) Interest earned on funds of each scheme should also be shown as Income.

Steps for preparing Income and Expenditure Account out of Receipts and Payments

Account:

For this purpose the following steps may be necessary

(1) Exclude the opening and closing balances of the Receipts and Payments Account.

(2) All items of capital nature recorded in the receipts and payments account should be

excluded.

(3) Any income and expenditure of the previous year or next year must be excluded.

(4) Any income earned but not received during the year should be provided for, similarly of

expenditure incurred but not paid should be recorded in.

(5) Items like depreciation, bad debits etc., which are not paid in cash, must be taken into

account.

(6) All items of capital nature appearing in receipts and payments account but not shown in

the income & expenditure account should be shown in the balance sheet.

38

Balance Sheet

i) The Balance Sheet must be prepared for every financial year

ii) The Balance Sheet should show all balance of Assets and Liabilities Account at

close of the year with the comparative figure for previous period.

iii) Accounts Officer and Project Director/CEO must sign the Balance Sheet, before

forwarding it either for audit or to Executive Committee.

iv) The necessary annexure to the balance Sheet should be numbered in sequence

and attached thereof.

v) The annual accounts along with Balance Sheet shall be subjected to Audit.

vi) The Audited Annual Accounts along with the Balance Sheet and Audit Report

should be sent to the Ministry of Rural Development, Government of India and

the State Government by the 30th

September of next year.

Schedules:-

The Annual Financial Statements should be accompanied by the following Schedules:

(i) Schedule of Assets created during the year

(ii) Schedule of Grants/Subsidies received.

(iii) Schedule of Interest Earned on unutilised funds kept in Banks.

(iv) Schedule of Establishment Expenses (For DRDA Admn. only)

(v) Schedule of Other Administrative Expenses (For DRDA Admn. only)

(vi) Schedule of Expenditure on Grants & Subsidies

After the preparation of Annual Financial Statements, as mentioned above, the Project

Director shall lay them before the Governing Body for their approval.

Utilisation Certificate:

The DRDA/ZP/DLC shall submit utilization certificate along with Annual Statement of

Accounts. The Blocks and other executing agencies shall render their accounts against

advance given to them by the DRDA. The UC.s shall be signed by the PD/CEO.

39

CHAPTER XVIII

List of Monthly Statements to be prepared by DRDA/ZP/DLC.

DRDA.s/ZP/DLC shall prepare following monthly statements for each scheme.

1. Preparation of Bank Reconciliation Statement.

2. Monthly / Fortnightly review of Bank Pass Book.

3. Monthly Closing of Cash Book having Summary of Statement of Transaction.

4. Monthly closing of scheme wise ledger by the DRDAs indicating the advances given and

their adjustment made.

5. Monthly closing of Scheme wise and Panchayat wise Register by the DRDAs/BDOs

indicating summary of advances and their adjustment made.

6. Monthly closing of Receipt and Payment Register.

7. Summary of cheques issued but not presented in the Bank during the month.

8. Monthly Expenditure Statement.

40

CHAPTER XIX

Summary of Accounting Records to be maintained by the

DRDAs/ZPs

1. Cash Book

2. Ledger

3. Journal

4. Cheque Issue Register

5. Register of Receipt Books

6. Register of Cheque Books

7. Register of Advance Implementing Agencies

8. Register of risk fund/managerial subsidies Bank account register to record the cheques

issued against the balances in different banks and to work out the balance from time to

time.

9. Register to review the progress of expenditure against the budget allotments for (i)

administrative expenses under different ledger heads: (ii) expenditure on subsidies for

different programmes in different sectors; and (iii) risk fund/managerial subsidy.

10. Permanent advance Account (Petty cash book and recoupment vouchers).

11. Provident funds accounts if any for employees of the DRDA/DRDS, under the rules

of the society.

12. Register to record the recovery and remittance of (I) Provident Fund Contributions;

(ii) Income tax; (iii) Loans and Advances (iv) Register to watch the disposal of Audit

objections (A.G.‟s inspection, C.A.‟s audit).

13. Assets register in G.F.R. Form 19.

14. Bank reconciliation register with separate folios for the reconciliation of balances held

with different branches of the bank by the DRDAs.

15. Any other register considered necessary in connection with the work of maintenance

of accounts.

16. Register of Consolidated Receipt and Payment.

17. Deposit Register in a format to be maintained for EMD, Security Deposit and Income

Tax Deduction.

18. Scheme wise Ledger having Block wise Detail.

19. Petty Cash Book

41

20. Recoupment Register (for Imprest)

21. Register of Audit and settlement of Audit Objections

22. Block wise Scheme wise Register for watching Utilisation from BDOs/ Implementing

Agencies for amount advanced to them. The Register should show the following items

also:

(a) Funds advanced to the Blocks under different Schemes.

(b) Expenditure intimated by the Blocks against advances.

(c) Amount Outstanding against each BDO pending adjustment.

23. A monthly account showing the allotment and expenditure under each item, shall be

prepared and put up before the PD/CEO.

42

CHAPTER XX

GOVERNMENT OF INDIA DECISION NO 6 UNDER G.F.R. 149.

Disposal or utilisation for other purposes of assets acquired out of government grants not

permissible except with prior approval-(a) In making grants to non-government or quasi-

Government bodies or institutions, a condition should be laid down that assets acquired

wholly or substantially out of Government, shall not be disposed off; encumbered or utilised

for purposes other than those for which the grants were sanctioned. (G.I., M.F., O.M. No. F

ii(8)-E.ii(A)/60. Dated the 2nd February, 1960)

The following procedure should be observed in regard to assets acquired wholly or

substantially out of Government grants:-

(i) An undertaking should be obtained by the sanctioning authorities from the grantee

institutions that they ( the institutions)agree to be governed by the conditions of grants which

result in the creation or acquisition of permanent or semi-permanent assets.

(ii) The grantee institutions should maintain a register in Form A G.F.R. 19 of the permanent

and semi-permanent assets acquired wholly or mainly out of Government grants. The register

should be maintained by the grantee institutions separately in respect of each sanctioning

authority and a copy thereof furnished to the respective sanctioning authorities annually.

(iii) The sanctioning authorities should maintain block accounts also in form G.F.R. 19 of

permanent and semi permanent assets acquired wholly or mainly out of Government grants.

This record should be of a permanent nature and should be posted from the annual returns

furnished by the grantee institutions under (ii) above.

(iv) The register of assets and the Block Accounts, maintained by the grantee institutions and

the sanctioning authorities respective should be available for open to scrutiny by Audit. (G.I.,

M.F., O.M. No. F 11(8)-E II(A)/60,dated the 28th March, 1961).

Explanation: The term „assets‟ used in clauses (a) and (b) of this decision means (i)

immovable, property; and (ii) movable property of a capital nature where the value

exceeds Rs.1,000/- (G.I., M.F. O.M. No. F.II (14)- E-II(A)/62, dated the 29th June,1962).

43

NOTE: Library books and articles of furniture need not be taken as falling within the terms

.assets.. It is not, therefore, necessary to indicate such articles in Form G.F.R. 19. Inventories

of such articles in the prescribed form should nevertheless be maintained by the authorities

and produced at the time of audit.

44

ACCOUNTING TECHNIQUES

Double Entry System

Calculation of Depreciation

Cash Book

Ledgers

Receipt and Payment

Income and Expenditure Account

Balance Sheet

Prescribed Format

Financial Management Practice

45

CHAPTER ONE

DOUBLE-ENTRY SYSTEM

Introduction

Double Entry is an old art, as old as business itself. In the 15th

century, a Franciscan monk,

Lucas Pacioli described a method of arranging accounts in such a way that the dual aspect

would be expressed by a debit amount and an equal and offsetting credit amount.

There cannot be a transaction unless there are two parties involved in it. Every transaction

resulting in transfer of money, goods or services must imply existence of at least two parties,

one the receiver and the other the giver. Double entry therefore is the system under which

each transaction is regarded has two-fold aspects and both the aspects are recorded to obtain

complete record of dealings. Double entry adheres to the rule, without any exception, that for

each transaction the debit amount(s) must equal the credit amount(s). Double Entry implies

recording of a transaction in the books of the two parties involved. For example, if a cash

payment for Rent is seen on the Payment i.e. right-hand side of the Cash book, an entry of

Cash A/c should be made on the left-hand side of Rent A/c ledger for the same amount. If

there is a Receipt entry i.e. left-hand side in the Cash book from Government, there should be

a corresponding entry on the right-hand side in Government A/c ledger for the same amount.

In that way, there will be a record of two effects for one transaction and this is basically

called Double-Entry.

The advantages of double entry system may be seen as below:

1. It enables to keep a complete record of transactions

2. It provides a check on the arithmetical accuracy of the books of accounts. Based on

equality of debits and credits, the system provides the test whether at any point of

time the records are accurate or not

3. It gives the result of activities during the accounting period. By preparing Profit &

Loss Account (Income & Expenditure Account, in this case), surplus or deficit can be

ascertained

46

4. It tells the financial position of the organization at a point of time. Total resources of

the organization, items in which expended, claims of any outsiders or debts etc. are

revealed in the statement called Balance Sheet

5. It makes possible comparison of the current year with those of the previous years in

respect of purchase, expenses, revenues, grants, surplus, deficit etc. Such comparison

helped the officials to manage the organization‟s funds on better lines

6. It reduces the chances of errors in the accounting records because of its equality

principle

7. It helps to ascertain the details regarding any account easily and accurately

Basic Terminologies in Book-Keeping

Assets: Anything of use to future operations of the organization and belonging to the

organization. E.g. Building, land, machinery, cash, vehicle, computer system etc.

Liability: Amounts owed by the organization to the outsiders i.e. to all others except the

organization. E.g. Creditors, overdrafts etc.

Current Asset: Those assets which can be converted to cash within a short period of time.

E.g. Cheques, cash at bank etc.

Current Liability: Those liabilities which have to be repaid within a short period of time. Eg.

Outstanding expenses etc.

Entry: The recording of transaction or event in the books of accounts is known as entry

Net Worth: Also known as capital. It is the difference between total assets (-) liabilities.

Book-keeping: It is the art of recording financial transactions and events in a set of ‘books’.

Debit: Amounts entered on the left-hand side of a “T” Account is called debit and is

abbreviated as “Dr.”

47

Credit: To make an entry on the right hand side is called credit and is denoted as “Cr.”

Depreciation: Decrease in the value of assets from usage or super-session.

Straight-line method: Cost of asset – Scrap value

Estimated life

Journal: A chronological record (in order of occurrence) of transactions showing the names

of accounts to be debited or credited and the amounts.

Contra entry: In three column cash books, there will be some cross entries i.e. transfer of

money from cash to bank (amount deposited) and vice versa (amount withdrawn from bank

for office use). In such case, both entries occur in the cash book and no ledger entry is

required. ‘C’ is entered in both sides’ folio column.

Cash Book: A subsidiary book of accounts where movements of cash are recorded. The left

hand side denotes receipt and the right hand side denotes payment.

Ledger: Principal or chief books of accounts. They are literally books. The book which

contains all the accounts is called ledgers.

Ledgers should be created for every effect of transactions. While entering in ledgers,

payments will be entered in the debit side and receipts will be entered in credit side.

Therefore, if rent is paid, the amount Rs. *** will be entered in debit side. If bank interest is

received, the amount will be entered in the credit side of Interest A/c

48

CHAPTER TWO

CALCULATION OF DEPRECIATION OF ASSETS

Depreciation is the decrease in the value of assets caused by usage or supersession. Sound

accounting should be equitable spread over the useful life of asset.

Reasons for providing depreciation:

Depreciation has to be considered for the following reasons:

1. For replacement cost on the retirement of the original assets

2. To find out correct surplus for the years

3. To find out the correct financial position through balance sheet

Even though the Accounting Procedures Chapter XIV quoted “The value of assets should be

shown at the original cost in the accounts”, the same Guidelines Chapter XVII mentioned

where depreciation is to be treated while preparing Income and Expenditure Account.

Furthermore, General Financial Rules 2005 spoke of depreciation in Rule 91 (c), 202 (2) and

279 (3). In Appendix 1 of GFR 2005, the recommended percentage to be charged in case of

vehicles including cycles is 20% and 15% in case of calculating machines in case of the

Government property or equipment lost, damaged or destroyed by the carelessness of

individuals.

Calculation of depreciation of assets:

Depreciation expense is calculated utilizing either a straight line depreciation method or an

accelerated depreciation method. The straight line method calculates depreciation by

spreading the cost evenly over the life of the fixed asset. Accelerated depreciation methods

such as declining balance and sum of years digits calculate depreciation by expensing a large

part of the cost at the beginning of the life of the fixed asset.

The required variables for calculating depreciation are the cost and the expected life of the

fixed asset. Salvage value may also be considered. Examples of depreciation calculations for

both straight line and accelerated methods are provided below.

49

Straight Line Depreciation Method

The straight line depreciation method divides the cost by the life.

Straight Line = Cost / Life

Example:

A desk is purchased for Rs.487.65. The expected life is 5 years. Calculate the annual

depreciation as follows:

Rs. 487.65/ 5 years

= Rs. 97.53

Each year for 5 years, Rs. 97.53 would be expensed.

To determine the rate of depreciation to be charged when the obsolete asset can be sold as

scrap, the following formula has to be applied:

D= C –S/N

Where,

D = Rate of depreciation

C = Cost of asset

S = Scrap value

N = Expected life, say, in years

Example:

D = Rs. 10,000 – Rs. 100/15 years i.e. Rs. 660 (which is 6.60%) will have to be deducted as

depreciation every year for 15 years.

50

Sum of the Years Digits Method

The first step is to sum the digits or numbers starting with the life and going back to one. For

example, an asset with a life of 5 would have a sum of digits as follows: 5+ 4+ 3 +2 + 1 = 15

To find the percentage for each year divide the year's digit by the sum. In the example above

the percentage would be calculated as follows:

Year 1 5 / 15 = 33.34%

Year 2 4 / 15 = 26.67%

Year 3 3 / 15 = 20 %

Year 4 2 / 15 = 13.33 %

Year 5 1/ 15 = 6.67%

Example:

A conference table is purchase for 1,467.89. The expected life is 5 years. Since this is a 5

year asset the yearly factors have been calculated above.

Year Depreciation

Calculation

Depreciation

Expense

1 1,467.89 X 33.34 % 489.40

2 1,467.89 X 26.67 % 391.49

3 1,467.89 X 20 % 293.58

4 1,467.89 X 13.33 % 195.67

5 1,467.89 X 6.67 % 97.91

51

CHAPTER THREE

CASH BOOK

Introduction

In all the Rural Development organizations and institutions under the Government of

Mizoram, the largest, or rather all of the transactions must relate to cash and bank. It is so

because every transaction must, ultimately result in cash. Therefore cash book have to be

well-maintained.

Cash book is a record of receipts and payments of cash including transactions relating to

bank. It is also technically called a book of original entry because cash and bank transactions

are not recorded in any other books.

Types of cash book

The type of cash book depends upon the nature and requirements of the organization. It may

be any one of the following:

1. Single column cash book (cash column)

2. Double column cash book (cash and discount columns)

3. Triple Column cash book (cash, discount and bank columns)

4. Bank Cash Book (bank and cash column)

For DRDAs and other RD Institutions, it is recommended to use Bank Cash Book as all the

activities involving monetary transactions relate to bank and cash.

52

Cash Book

These kinds of books are called „T‟ columns. Any regular stationery stores will be carrying

these kinds of books. All receipts and expenses, whether as cash, cheque or telegraphic

transfer, will be recorded in the cash book.

Illustration 1:

The following transactions are to be entered in DRDA Cash Book

Nov. 1 Balance of cash in hand Rs. 4,000/- and in bank Rs. 10,000/-

2 Received cash from Muana Rs. 1,000/-

3 Paid to the bank Rs. 2,000/-

4 Paid to D & Sons by cheque Rs. 320/-

5 Received cheque from Government Rs. 225/-

8 Drew for office use Rs. 900/-

11 Paid cash for advertisement Rs. 45/-

19 Paid salaries to staff by cheque Rs. 1,250/-

23 Paid rent Rs. 400/-

26 Purchase by cheque office furniture Rs. 375/-

30 Received Rs. 580/- in cheque from Government

53

Solution:

1. All receipts are to be entered on the left hand side of the book and all expenditures are

to be entered on the right hand side of the book.

2. All entries on the left hand side are prefixed with „To‟ and all entries on the right hand

side are prefixed with „By‟

3. Transaction using cheque is to be entered in the bank column

4. Note than on Nov. 8th

, Rs. 900 was withdrawn for office use. That means the amount

is withdrawn from the bank account and is now in cash. As the Cash Book in use is

for recording all transactions of cash and bank, the amount with be entered as

expenditure in bank column and at the same time, will be entered as receipt in cash

column. This kind of transaction is called „contra entry‟ and the letter „C‟ will be

marked in both sides in Ledger Folio (LF) column.

5. Whenever it is desired to balance an account, the columns of the two sides are added

up and if the totals of the columns of the two sides are unequal, then the difference are

put on the side having lesser total. This will make respective columns of the two sides

equal. The amount of the difference inserted is known as „balance‟ of the account and

is written as Balance c/d (carried down). In the subsequent period, it is known as

Balance b/d (brought down)

54

DRDA Cash Book

Cash basis and Accrual Basis:

It can be noticed from the simple illustration that transactions are made as and when cash or

bank transaction takes place, irrespective of the time period for which the receipt or payment

is made. Suppose, the cashier paid newspaper subscription of Rs. 300/- for 3 years in

advance, this amount will be entered in payment/ disbursement side of the Cash Book as and

when it is paid. But then, the subscription goes beyond the current year, rather it is pre-paid

for the coming two years too. This principle is called „Cash Basis‟. Cash Basis uses the

system where incomes are considered to have been earned only when received and expenses

incurred only when paid actually.

On the other hand, „Accrual Basis‟ is the system where all incomes are credited to the period

in which earned irrespective of the fact whether received or not. Expenses are debited to the

period whether actually paid or not. This principle will be seen in Income and Expenditure

A/c later.

55

CHAPTER FOUR

LEDGERS

Introduction

Maintaining regular records in Cash Book may be quite sufficient for small organizations

with less transactions and stakeholders. However, for disbursing agencies like DRDAs, mere

Cash Book has its limitations, which are:

1. Cash Books of organization with large amount of transactions can be compared with a

store room where all sorts of items like bricks, sand bags, cement bags, nails and tools

etc. are thrown in at random. All items are kept there but everything is mixed and

jumbled up. It is almost impossible to know at a given moment just how many nails

and hammers are in the room, how many bricks are lying around and how many

cement bags are kept there.

2. As Cash Book follows the „Cash Basis‟ concept, it does not accurately give just how

much cash be accounted for the accounting year. It does not show just how much the

organization is liable as unpaid dues as these unpaid debts are still „unpaid‟ and thus,

does not shown in Cash Book.

Ledgers may simply be labeled as books. The books which account for all transactions of a

particular subject may be termed as ledgers. Technically, ledgers are referred to as the

„principal‟ or „chief‟ book of accounts. The first limitation can be dealt with by maintaining

ledgers.

Writing ledgers

In ledgers, we maintain accounts. Each account is allotted one or more pages, depending

upon the requirement – how many times entries are expected to be made on that account.

Ledger is usually ruled in any one of the following format.

56

First Format:

Date Particulars Folio Debit (Rs.) Credit (Rs.) Debit or

Credit

Balance

Second Format:

Dr. Cr.

Date Particulars Folio Amount Date Particulars Folio Amount

First format is used in those cases where balance is required to be ascertained after every

transaction like banks etc.

Second format is followed in those cases where balance is required to be ascertained only

periodically, say, after a month or a year. This format will be used for making ledgers

All the entries made in the Cash Book will be allotted ledgers. Taking illustration 1 as an

example, separate ledgers for Muana, Government, Dina & Sons, Advertisements, Salaries,

Rent and Furniture will have to be prepared. Please note that there is no duplicity of ledgers.

Rent, being a recurring item i.e. an expenditure which will have to be paid every month, will

57

show number of times within an accounting period. Even so, only one ledger is to be created

for the account „Rent‟.

The transactions are entered in the ledger accounts in order of dates. Every entry must be

dated and records of the relevant amount will be entered in the amount column. In the Folio

column, pages from which the account is entered will be written.

As most of the cashiers and accountants in governmental organizations are without commerce

or accountancy background, the conventional method of journalizing is deliberately omitted

for the sake of simplicity. Enter all those accounts in the ‘Payment’ side of the Cash Book

to their respective ledgers on the left hand side or ‘Dr’ side as Cash or Bank A/c.

Conversely, all those accounts in the ‘Receipt’ side of the Cash Book on the right hand

side or ‘Cr’ side of the respective ledgers as Cash or Bank A/c. Remember to maintain

this as a rule.

For example:

Muana A/c is seen as Receipt in the Cash Book and the entry in Muana ledger will be on the

right hand side or Cr. Side. The two sides are balanced at the end of a given period (say,

accounting period etc.) and the balancing figure is carried down to the subsequent period.

Muana A/c

Dr. Cr.


Nov.2 By Cash A/c 1,000

Nov.30 To Balance c/d 1,000

1,000 1,000

Dec. 1 By Balance b/d 1,000

Similarly, Government A/c is seen as Receipt in the Cash Book and the entry in Government

ledger will be on the right hand side or Cr. side. Note that the receipt is by cheque and so will

be accounted as „Bank A/c‟ in the Government A/c ledger. The two sides are balanced at the

58

end of a given period (say, accounting period etc.) and the balancing figure is carried down to

the subsequent period.

Government A/c

Dr. Cr.


Nov. 30 By Bank A/c 580

Nov. 30 To Balance c/d 580

580 580

Dec. 1 By Balance b/d 580

For those items in Disbursement side, the accounts will be shown in the left side of the

ledger.

For example, Dina & Sons A/c is shown as expenditure in Cash Book. This will be entered in

the concern ledger in the Dr side or left hand side. Note that the transaction is made with

cheque and so the entry will be made as „Bank A/c‟. The two sides are balanced at the end of

a given period (say, accounting period etc.) and the balancing figure is carried down to the

subsequent period.

Dina & Sons A/co

Dr. Cr.


Nov.4 To Bank A/c 320

Nov. 30 By Balance c/d 320

320 320

Dec.1 To Balance b/d 320

Similarly, for other items in the disbursement side of the Cash Book, ledgers are to be

prepared as follows:

59

Advertisment A/c is shown as expenditure in Cash Book. This will be entered in the concern

ledger in the Dr side or left hand side. Note that the transaction is made in cash and so the

entry will be made as „Cash A/c‟. The two sides are balanced at the end of a given period

(say, accounting period etc.) and the balancing figure is carried down to the subsequent

period.

Advertisements A/c

Dr. Cr.


Nov.11 To Cash A/c 45


45 45


Salaries A/c is shown as expenditure in Cash Book. This will be entered in the concern ledger

in the Dr side or left hand side. Note that the transaction is made with cheque and so the entry

will be made as „Bank A/c‟. The two sides are balanced at the end of a given period (say,

accounting period etc.) and the balancing figure is carried down to the subsequent period.

Salaries A/c

Dr. Cr.


Nov.19 To Bank A/c 1,250

Nov. 30 By Balance c/d 1,250

1,250 1,250

Dec.1 To Balance b/d 1,250

Rent A/c is shown as expenditure in Cash Book. This will be entered in the concern ledger in

the Dr side or left hand side. Note that the transaction is made in cash and so the entry will be

made as „Cash A/c‟. The two sides are balanced at the end of a given period (say, accounting

period etc.) and the balancing figure is carried down to the subsequent period.

60

Rent A/c

Dr. Cr.


Nov.4 To Cash A/c 400


400 400


Furniture A/c is shown as expenditure in Cash Book. This will be entered in the concern

ledger in the Dr side or left hand side. Note that the transaction is made with cheque and so

the entry will be made as „Bank A/c‟. The two sides are balanced at the end of a given period

(say, accounting period etc.) and the balancing figure is carried down to the subsequent

period.

Furniture A/c

Dr. Cr.


Nov.30 To Bank A/c 375


375 375


61

Illustration 2:

DRDA CASH BOOK

Page 1

Receipt Disbursement

Date Particulars LF Bank Amount Date Particulars LF Bank Amount

1/1 To Balance b/d 10000 100000 2/1 By Rent 400

5/1 “ Rent 100 2/1 “ Salaries 200

13/1 “ Government 1000 5/1 “ BDO 100

12/1 “ BDO 100

28/1 “ Water Bill 100

31/1 “ Stationery 100

31/1 “ Balance c/d 10600 99500

11000 100100 11000 100100

Page 2



1/2 To Balance b/d 10600 99500 1/2 By Rent 400

4/2 “ Rent 100 5/2 “ Salaries 200

21/2 “ Government 1000 5/2 “ BDO 100

26/2 “ Water Bill 100

28/2 “ Stationery 200

30/2 “ Balance c/d 11100 99100

11600 99600 11600 99600

Page 3



1/3 To Balance b/d 11100 99100

62

Solution:

Rent A/c

Dr. Cr.


2/1 To Cash 400 5/1 By Cash 100

1/2 “ Cash 400 4/2 “ Cash 100

“ Balance c/d 600

800 800

* There is a credit balance of Rs. 600/-

Salaries A/c

Dr. Cr.


2/1 To Bank 200

5/2 “ Bank 200

By Balance c/d 400

400 400


63

BDO A/c

Dr. Cr.


5/1 To Bank 100

12/1 “ Bank 100

5/2 “ Bank 100

By Balance c/d 300

300 300


Water Bill A/c

Dr. Cr.


28/1 To Cash 100

26/1 “ Cash 100

By Balance c/d 200

200 200


Government A/c

Dr. Cr.


13/1 By Bank 1000

To balance c/d 2000 21/2 “ Bank 1000

2000 2000

* There is a debit balance of Rs. 2000/-

64

Advantage of ledger maintenance:

As mentioned earlier, it is quite difficult to easily reckon just how much transaction for one

account is made within a year in organizations like DRDAs. As the transactions made even

for a day may be quite voluminous, entries of an account like Rent A/c may be made in

different pages within a year. Thus, ledgers serve as a „box‟ where all transactions for a

particular account (say, rent) are kept in order. Taking illustration 2 as an example, DRDA

Cash Book shows multiple entries for Rent A/c, both in receipt and disbursement side. This

implies that it is cumbersome to give the true picture concerning Rent A/c just from the Cash

Book. If proper ledger is maintained for Rent A/c, true figure concerning the account can be

obtained from the respective ledger at any given point of time.

65

CHAPTER FIVE

RECEIPT AND PAYMENT

After all the ledgers are balanced, the balancing figures are compiled in „Receipt and

Payment A/c”. This A/c is merely compilation of the Cash Book for an accounting year. It

is an abridged edition of Cash Book and therefore, in effect, a summary of Cash Book.

All cash receipts during the whole year are recorded on its left-hand side, while all cash

payments during the whole year are written on its right-hand side, arranged in a classified

form. Cash receipts and cash payments of both capital and revenue nature are recorded here.

Capital expenditure is such expenditure the benefits of which are available to the

organization over a long period. It results in the enhancement of productivity of the

organization. It also includes producing asset comparatively permanent. E.g. Purchase of

vehicle, construction of building etc. Revenue expenditures are those expenses incurred in

maintenance of organization. The full benefit is consumed within the same accounting period.

E.g. Rent, repairing of car etc.

In Receipt & Payment A/c, there is no Bank column and Cash Column, but are integrated into

a single amount column. The opening balance of bank column will appear as „Opening Bank

balance‟ and „Opening Cash balance‟. The balance c/d of Bank column and Cash column in

the Cash Book will be shown as „Cash-in-hand at the end of the year‟ or „Closing Cash

balance‟ and „Cash-at-bank at the end of the year‟ or „Closing Bank balance‟. The ledger

balances will be entered in their respective sides in the Receipt & Payment A/c. All credit

ledger balances will be entered in Payment and all the debit ledger balances will be entered in

Receipt.

The advantages of preparing Receipt & Payment A/c may be seen as below:

1. The receipts and total payments under various heads are available at a glance

2. The amount of cash in hand at the year-end can be ascertained

3. The correctness of Cash Book can be verified through it

4. The total of Debit side of Cash Book will agree with that of Receipts side of Receipts

and Payments Account. On the other hand, the total of Credit side of Cash Book will

agree with that of payments side of Receipts and Payments Account

http://www.blurtit.com/q195506.html

66

Taking Illustration 2, Receipt and Payment A/c is compiled for the accounting year as

follows:

Receipt & Payment A/c of DRDA for the year………….

Receipt Payment

Particulars Amount Particulars Amount

To Opening Cash balance 10000 By Rent 600

“ Opening Bank balance 100000 “ Salaries 400

“ Government 2000 “ BDO 300

“ Water Bill 200

“ Stationery 300

“ Closing Bank 11100

“ Closing Cash 99100

112000 112000

67

CHAPTER SIX

INCOME AND EXPENDITURE ACCOUNT

Introduction

As mentioned in the previous chapter, Receipt and Payment A/c (or R&P A/c) is basically

Cash Book compiled for an accounting period. Therefore, R&P A/c operates under the

principle of Cash Basis. It records all receipt and payment- not considering what type of

receipt/ payment it is and for which period of time.

Taking for example, if there is an asset, say, motor bike is bought during the year, the amount

will be shown as expenditure. In other words, if a bike is bought, the amount is expended.

But in reality, even though the cash balance will be reduced by the purchase of the bike, the

monetary value is exchanged for the value of asset itself. This is not disclosed by Receipt &

Payment A/c. Again, unpaid debts are not shown in R&P A/c. This is due to the fact that

there is no actual disbursement of cash or bank. Therefore, R&P A/c shows the financial

balance with the organization at the end of the period, not the actual financial situation for the

particular accounting period. The actual financial status of the organization is shown by

Income & Expenditure A/c (or I&E A/c) and Balance Sheet. It should be noted that Receipt

& Payment A/c is not an account within the Double-Entry system. Rather, it is a statement

form.

Income and Expenditure account records revenue expenditure and revenue income whether

paid or not/ received or not and is pertaining only to the current accounting period. The non

cash expenses like depreciation are also recorded in Income and Expenditure Account. The

resultant figure of Income and expenditure account is either excess of income over

expenditure or excess of expenditure over income. It is a substitute of Profit & Loss A/c in

non-trading organizations. Expenses are shown on debit side and incomes on credit side in

Income and Expenditure A/c, the reverse order of Receipt & Payment A/c. The balance of

Income & Expenditure A/c is transferred to Capital Fund (i.e. in the Balance Sheet). I&E A/c

are accompanied by Balance Sheet and falls within Double Entry system.

68

Steps for preparing Income & Expenditure A/c

► Ignore opening and closing balances of cash book/ R&P A/c

► Eliminate all capital items

► Ascertain and consider only those incomes and expenditures incurred during the

relevant year

► Make adjustments in respect of bad debts, depreciation etc.

► Ascertain the difference of income and expenditure. If income side is more = surplus

and deficit if expenditure is more. Add to Capital Fund in Balance Sheet if surplus

and deduct, if deficit

Illustration 3

Receipt & Payment A/c of DRDA for the year ending……….

Receipt Rs. Payment Rs.

Government

Bank Interest

1,00,000

2,000

POL

Salary

Stationery

Electric Bill

Water Bill

Training expenses

Repair and Maintenance

New Bike

Balance c/d

200

1,000

50

200

150

2,000

500

30,000

67,900

1,02,000 1,02,000

69

Solution:

Income & Expenditure A/c of DRDA for the year ending………………..

Expenditure Income

POL

Salary

Stationery

Electricity

Water bill

Training expenses

Repairing

Surplus (excess of income

over expenditure)

200

1000

50

200

150

2000

500

97900

Bank Interest

Draft from Govt.

2000

100000

102000 102000

Illustration 4:



Opening balance

Draft from Govt.

Bank Interest

1,000

1,00,000

2,000

POL

Salary

Stationery

Electric Bill

Water Bill

Training expenses

Repairing

New Bike

Balance c/d

200

1,000

50

200

150

2,000

500

30,000

68,900

1,03,000 1,03,000

70

After the preparation of Receipt & Payment A/c for the year, the following information was

furnished:

1. A building worth Rs. 1,00,000 already constructed is to be taken into consideration

2. Training expenses Rs. 1,000 still unpaid

3. Provide 5% depreciation on building

Solution:

Building, as it is an asset, will not show in I&E A/c but the depreciation 5% on the

asset worth will be charged as „Expenditure‟. Depreciation is a provision created for

valuing the true worth of an asset and this depreciation is shown as expenditure even

though it is not an actual monetary expenses. That is why it is not shown in R&P A/c.

Training expenditure Rs. 1,000 was not shown in R&P A/c because it was still unpaid

but it has to be accounted for in the accounting year as expenditure. Only then the

actual financial situation can be arrived at.


Expenditure Income

POL

Salary

Stationery

Electric

Water bill

Training expenses

Repairing

Outstanding Training Bill

Depreciation on building

Surplus (Excess of income

over expenditure)

200

1000

50

200

150

2000

500

1000

5000

91900

Bank Interest

Draft from Govt.

2000

100000

1,02,000 1,02,000

71

CHAPTER SEVEN

BALANCE SHEET

Introduction:

The previous chapter deals with Income & Expenditure A/c. However, it should be noted that

this I&E A/c is not complete unless accompanied by Balance Sheet. Balance Sheet is

prepared for an accounting period to show the true financial standing of an organization.

Liabilities are shown on the left side and assets are shown on the right side. Liabilities

include Capital, Reserves & Surplus, Current liabilities etc. Assets include Fixed Assets like

buildings, land etc. and Current Assets like cash-in-hand, bank account etc. In the Balance

Sheet prescribed by the Guidelines, Liabilities and Assets are shown one upon the other.

Even then, the principle underlining the preparation is the same.

Steps for preparing Balance Sheet:

All capital items will find its place in the Balance Sheet

Opening cash balance will be included in the Balance Sheet under Current Asset

Adjustments made to the expenses shown in I&E A/c will also appear in Balance

Sheet. Outstanding expenses will appear on liability side and prepaid expenses on the

asset side

72

Illustration 5:



Government

Bank Interest

1,00,000

2,000

POL

Salary

Stationery

Electric Bill

Water Bill

Training expenses

Repair and Maintenance

New Bike

Closing Balance

200

1,000

50

200

150

2,000

500

30,000

67,900

1,02,000 1,02,000

Solution:


Expenditure Rs. Income Rs.

POL

Salary

Stationery

Electricity

Water bill

Training expenses

Repairing

Surplus (excess of income

over expenditure)

200

1,000

50

200

150

2,000

500

97,900

Bank Interest

Government

2,000

1,00,000

1,02,000 1,02,000

73

Balance Sheet of DRDA as on ………………

Liabilities Amount Assets Amount

Capital:

Excess of Income over

Expenditure

97,900

Motor Bike

Cash-in-hand (Balancing Figure)

30,000

67,900

97,900 97,900

Illustration 5:



Opening balance

Draft from Govt.

Bank Interest

1,000

1,00,000

2,000

POL

Salary

Stationery

Electric Bill

Water Bill

Training expenses

Repairing

New Bike

Closing Balance

200

1,000

50

200

150

2,000

500

30,000

68,900

1,03,000 1,03,000

74


Expenditure Rs. Income Rs.

POL

Salary

Stationery

Electric

Water bill

Training expenses

Repairing

Outstanding Training Bill

Depreciation on building

Surplus (Excess of income

over expenditure)

200

1,000

50

200

150

2,000

500

1,000

5,000

91,900

Bank Interest

Government

2,000

1,00,000

1,02,000 1,02,000

Balance Sheet of DRDA as on………………..

Liabilities Amount Assets Amount

Capital fund

(building construction fund)

Excess of Income over exp.

Outstanding training expenses

1,00,000

91,900

1,000

Building 1,00,000

(-) Depreciation 5,000

Motor Bike

Cash:

At beginning: 1,000

Current year: 66,900

95,000

30,000

67,900

1,92,900 1,92,900

75

Note:

Cash Rs. 67,900 is the balancing figure of Liabilities and Assets.

Opening cash balance according to R&P A/c is Rs. 1000. Therefore, Cash acquired

during the year can be calculated out by subtracting Rs. 67,900 from Rs. 1000, which

amount to Rs. 66,900.

Compare the closing balance of R&P A/c to the Cash amount in Balance Sheet. The

R&P A/c shows Rs. 68,900 while Balance Sheet Cash shows Rs. 67,900. The R&P

A/c closing balance is the amount at the end of the year. It can be seen that there is

still an unpaid expenditure of Rs. 1,000 and this is not shown in R&P A/c. The

Balance Sheet gives the true financial picture at the end of the year by showing Rs.

67,900, which is R&P A/c closing balance Rs. 68,900 less unpaid training expense

Rs. 1,000.

76

CHAPTER EIGHT

PRESCRIBED FORMAT

The prescribed format of the three statements of accounts mentioned by the Ministry of Rural

Development guidelines is displayed below:

79

CHAPTER NINE

FINANCIAL MANAGEMENT PRACTICE

The financial management within the Rural Development establishments under the

Government of Mizoram has its own system. The pattern of fund flow can be seen as below:

Ministry of Rural Development State Government

(Central Share) (State Share)

District Rural Development Agencies

(DRDAs)

Block Development Offices

(BDOs)

Village Councils

(VCs)

Villagers

The Centrally Sponsored Schemes funding goes directly to the District Agencies and this

funding will be matched by the State in the prescribed percentage. The funding is usually

transferred telegraphically to the main bank account of the DRDA. Simultaneously, sanction

orders are issued by the Central Government. This amount is entered in the Main Cash Book

of the DRDA when the deposit is accounted for. The funding will come for a specific scheme

e.g. IWDP (Integrated Wasteland Development Programme). It should be noted that these

Central Sponsored Schemes will be having several components like works component,

training component and administrative cost component. As soon as the fund is received, the

amount is disbursed from the Main Cash Book to the scheme-wise Subsidiary Cash Book.

For example, if Rs. 1 lakh is received in the Main Cash Book for IWDP, this 1 lakh will be

80

disbursed from the Main Cash Book to the IWDP Subsidiary Cash Book. From these

subsidiary cash books, the DRDAs will disburse the required amount to the different Block

offices within their districts. Again, when the Block Office receive the fund in their main

account, they will transfer it to their scheme-wise subsidiary cash books. This is done so as to

keep „zero-balance‟ in their main Cash Book. The Block Offices will disburse the scheme

funding to the Village Councils. As required by the Guidelines, the District Agencies are to

maintain ledgers to Block level and the Block Offices are to maintain ledgers to Village level.

81

USING TALLY FOR COMPUTERISED

ACCOUNTING

Introduction to Tally

Creating Organization Profile

Creating Ledgers in Tally

Creating Groups for Ledgers

Accounting Receipts

Accounting Payment

Contra Entry

Altering the Organization Profile

Alteration of Ledgers

Alteration of Transactions

Viewing Income and Expenditure

Account

Viewing Balance Sheet

Easy Reckoner

82

CHAPTER ONE

INTRODUCTION TO TALLY

There are many accounting packages are available in the market, Tally remains the

undisputed king of all financial accounting packages available in India. Tally is capable of

handling any kind of transaction you would need, whatever your business. In order to use

tally, you neither need to neither learn new accounting methods nor should change your

existing style of handling accounts. The information can be fed as well retrieved at random

and all human errors can be corrected. A transaction in accounting terminology means

transfer of money or money‟s worth from one party to another, for example sale of goods,

purchase of furniture etc. are examples of transactions. Fundamentally there are two systems

of transactions: Pre transaction and post transaction. Let us explore it in detail, assume that

you have to make payment to a party, in pre transaction, this is done by first creating a

voucher, which is signed by payee and then the transaction is completed by actually making

the pay creation of internal entries in case of completed transactions. The post transaction

system follows the traditional practice of entering a voucher or cash bill into a cash book after

the payment has been made. Tally is a post transaction system. It follows the traditional

methods of accounting, that is, the payment is first made on the basis of existing accounting

methods (i.e., against a voucher or a cash bill) and that information is fed into the Tally. The

simple fact that your existing system of accounting remains untouched by Tally is a big

reason behind the success of this package. The area of the Tally is very wide, you could be

the owner, financial controller, accountant, manager or an auditor. All that is required to learn

Tally is fundamental knowledge of accounts and familiarity with basic accounting

terminology. This means that you should understand certain basic terms like an account, a

debtor, a creditor, assets, liabilities, capital etc. Even if you are not well versed with the

accounting, you can still use Tally effectively at the same time become known to accounting

methods. Tally have many versions like 3.0, 4, 4.5, 5.0 5.4 etc. Tally release 5.0 and 5.4 are

window based software in which you feel the window look like programs, than the text based

screens. We shall be dealing with Tally 9 in this step-by-step pictorial guide based on the

prescribed format.

83

CHAPTER ONE

CREATING THE ORGANIZATION PROFILE

1. Tally software is worked by double-clicking on the „Tally.exe‟ icon inside the „Tally‟

folder.

2. The following interface will open. This window will prompt you to „Create

Company‟. We assume that „Company‟ in Tally term as any organization we will be

creating profile for.

84

CHAPTER TWO

CREATING LEDGERS IN TALLY

1. The following window is where the details of the organization is recorded

2. After entering details of the organization in the required parameters, press <enter> to

accept and move on to the next parameter untill all fields are completed and the

software prompt you to accept or not

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3. After pressing <Enter> or <Tab> or <Y> key, the entered details will be saved into

the system and the organization profile will be created and the next window will show

the „Gateway of Tally‟. This area is the workplace for all entries

It is the area in which you actually work. You can activate this area either by clicking

anywhere in this area or by pressing <Ctrl> + <M> key combination.

Direct Command Area:

Although Tally supports mouse commands; you can execute all commands in plain

English from a keyboard by typing them in this area. You can activate this area either

by clicking anywhere in this area or by pressing <Ctrl> + <N> key combination.

The Buttons:

This area contains buttons which perform various useful functions. For example the

second button in this area has a caption “F4:Backup” this means that in order to take

backup of a company on floppy disk you will have to either click on this button or

press the <F4> key. The third button has caption “F4:Restore”. This means that in

order to restore a company whose backup had been already taken on floppy you will

have to either click on this button or press <Alt+F4> key combination.

Company Information Menu:

The right half of the Gateway of Tally area displays the company info. Menu. This

menu has following three options:·Select Company, Create Company and Quit

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4. Before entering any transaction, the first step is to create ledgers. We have to make

ledgers for all those items in the Cash Books. By moving the cursor of the keyboard,

you can highlight „Accounts info‟. Press <Enter> or <A> to start creating ledgers.

This will take us into „Gateway of Tally‟ to this window.

5. When we enter „Ledgers‟, the next window will open for you to start creating ledgers.

You can see the „Create‟ option in this window. We shall be creating Single Ledger

for our example as organizations like DRDAs do not maintain Multiple Ledgers.

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6. When „Create‟ is selected, the following screen will appear. Enter required fields to

create a functional ledger. In the picture, „DRDA Bank‟ ledger is being created

7. When the name of the ledger is entered, press <Enter> or <Tab> and the field „Under‟

will be highlighted and a box „List of Groups‟ will drop down in the right corner of

the window. Move your cursor to highlight the appropriate group for your ledger.

Here, „Bank Accounts‟ is selected for DRDA Bank.

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Note that „Opening Balance as on 1.04.2010‟ Rs. 8,14,726 is entered

8. Similarly, the following ledgers are created and their appropriate groups are assigned

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Creating ledger for „State Government‟

Creating ledger for „Publicity and Advertising‟

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Creating ledger for „Interest from Bank‟

Creating ledger for „Outstanding Expenses‟

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Creating ledger for „Vehicle‟

Creating ledger for „Furniture & Fixtures‟

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Creating ledger for „Office Equipment‟

Creating ledger for „Computer & Peripherals‟

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Creating ledger for „Others (Furnishing)‟

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CHAPTER THREE

CREATING GROUPS FOR LEDGERS

1. Some ledgers can be grouped under a common heading for more convenience. In such

cases, the procedure starts from „Gateway of Tally‟ and entering „Accounts info‟ as in

creation of ledgers. Here, we shall be entering „Groups‟

2. When „Groups‟ is entered, the following window will prompt for creating group for

ledgers

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3. On entering „Create‟, the following window will open for creating group.

4. A group named „Expenses on Administration‟ is created under Indirect Expense.

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Similarly, „Any Other Item‟ and „Suspense‟ groups are created by following the same

procedure

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5. Going back to the creation of ledgers, Salary and Allowances ledger is created. In the

„List of Groups‟, the newly created group „Expenses on Administration‟ can be

selected

Ledger for „Travelling Expenses‟ under the created group „Expenses on

Administration‟

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Ledger for „Printing and Stationery‟ under the created group „Expenses on

Administration‟

Ledger for „Electricity‟ under the created group „Expenses on Administration‟

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Ledger for „Telephone‟ under the created group „Expenses on Administration‟

Ledger for „Leave Salary and Pension‟ under the created group „Expenses on

Administration‟

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Ledger for „Motor Vehicle Maintenance and Repairs‟ under the created group

„Expenses on Administration‟

Ledger for „Seminar and Meetings‟ under the created group „Expenses on

Administration‟

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Ledger for „POL‟ under the created group „Expenses on Administration‟

Number of ledgers are created under the group „Any Other Items‟

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Ledger for „Administrative Cost of State Headquarters‟ under the created group „Any

Other Items‟

Ledger for „Medical Reimbursement‟ under the created group „Any Other Items‟

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Ledger for „Newspaper and Magazines‟ under the created group „Any Other Items‟

Similarly, several ledgers are created under „Suspense‟ following the similar

procedures. Ledger for „GPF/EPF/CPF‟ under the created group „Suspense‟

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Ledger for „Income Tax Paid‟ under the created group „Suspense‟

Ledger for „HBA/MCA or Other Advances‟ under the created group „Suspense‟

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CHAPTER FOUR

ACCOUNTING RECEIPTS

1. To receive any cash or bank, start from „Gateway of Tally‟ and enter „Accounting

Vouchers‟

2. At the right-hand side of the window, column of buttons are lined for various

functions viz. receipt, payment, contra, journal and so on. Click the „Receipt‟ button

or <F6> on your keyboard and the following window will appear

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3. When „Account‟ field is clicked, „List of Ledger Accounts‟ dropped down on the right

hand corner of the window and display two accounts Cash (which is automatically

created by the software) and DRDA Bank (which you have created before). Select

whether you are receiving in cash or in bank.

4. After selecting DRDA Bank for „Account‟ field, the „Particulars‟ field is highlighted

for entering which ledger is receiving funds. Note that only the ledgers created will be

shown in the „List of Ledger Accounts‟

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5. The amount so received is entered in the field

6. If so desired, narrations regarding the transaction can be noted at the bottom left field

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7. Similarly, receipts from „State Government‟ and „Interest from Bank‟ are entered

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CHAPTER FIVE

ACCOUNTING PAYMENT

1. To make any payment entry, start from „Gateway of Tally‟ and enter „Accounting

Vouchers‟


functions viz. receipt, payment, contra, journal and so on. Click the „Payment‟ button

or <F5> on your keyboard and the following „Payment‟ window will appear

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3. In the picture shown below, payment is being made for „Salary and Allowances‟ with

„DRDA Bank‟. Note that as in the case of receipt, the fields for „Account:‟ and

„Particulars‟ can be made with only the ledger accounts you have made before.

Similarly, payments for other accounts are made as below

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Payment for „Printing and Stationery‟ with „DRDA Bank‟

Payment for „Telephone‟ with „DRDA Bank‟

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Payment for „Leave Salary and Pension‟ with „DRDA Bank‟

Payment for „Motor Vehicle Maintenance and Repairs‟ with „DRDA Bank‟

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Payment for „Seminars and Meetings‟ with „DRDA Bank‟

Payment for „POL‟ with „DRDA Bank‟

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Payment for „Repairs and Maintenance of Machinery‟ with „DRDA Bank‟

Payment for „Administrative Cost of State Headquarters‟ with „DRDA Bank‟

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Payment for „Medical Reimbursement‟ with „DRDA Bank‟

Payment for „Newspaper and Magazines‟ with „DRDA Bank‟

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Payment for „GPF/EPF/CPF‟ with „DRDA Bank‟

Payment for „Furniture & Fixtures‟ with „DRDA Bank‟

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Payment for „Office Equipment‟ with „DRDA Bank‟

Payment for „Motor Vehicle Maintenance and Repairs‟ with „DRDA Bank‟

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CHAPTER SIX

CONTRA ENTRY

1. To make contra entry, start from „Gateway of Tally‟ and enter „Accounting Vouchers‟


functions viz. receipt, payment, contra, journal and so on. Click the „Contra‟ button or

<F4> on your keyboard and the following „Contra‟ window will appear. Suppose you

are withdrawing „Cash‟ from the „DRDA Bank‟ account, enter „Cash‟ in „Account:‟

field

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3. Then, enter „DRDA Bank‟ in the „Particular‟ field

4. Enter the amount withdrawn from the Bank

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CHAPTER SEVEN

ALTERING THE ORGANIZATION PROFILE

1. To make change in the organization profile, go to „Gateway of Tally‟ window. On the

menu bar on the right side of the window, you will see „Comp Info‟.

2. On clicking the button, the following window will appear. Enter „Select Company‟

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3. On entering „Select Company‟, the following window displaying „List of Company‟

will appear. Select our organization „DRDA‟. Note that if you create more than one

organization profile, the list will display it here

4. You can change any details about the organization‟s profile in this window

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CHAPTER EIGHT

ALTERATION OF LEDGERS

1. To alter any details of a ledger, go to <Gateway of Tally>, enter <Accounts Info> and

<Ledgers>. Here you will find „Alter‟ option.

2. Upon entering „Alter‟, the following window will be displayed showing „List of

Ledgers‟. Select „Account Recievables and Advances Recoverables‟

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3. On selecting the ledger, the following ledger alteration window will appear. Here, any

changes required can be made

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CHAPTER NINE

ALTERATION OF TRANSACTIONS

1. To make any changes in transactions already entered, go to „Gateway of Tally‟,

<Enter> „Profit & Loss A/c‟, <Enter> „Any Other Items‟. Select „Administrative Cost

of State Headquarters‟ and press <Enter>

2. On entering the „Administrative Cost of State Headquarters‟, voucher for the ledger

will appear. Select „DRDA Bank‟ and press <Enter>

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3. On entering „DRDA Bank‟, „Accounting Voucher Alteration‟ window will appear and

any required changes can be made here and saved to the system

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CHAPTER TEN

VIEWING INCOME & EXPENDITURE ACCOUNT

1. In order to view Income & Expenditure A/c in Tally, we have to enter „Profit & Loss

A/c‟. It should be understood that Profit and Loss A/c is equivalent to Income &

Expenditure A/c in case of Non-Profit Organizations like Government etc.

2. On entering „Profit & Loss A/c‟, the following window will display. To gte more

details about, say, „Indirect Expense‟, highlight it and press <Enter>

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3. Upon entering „Indirect Expenses‟, the following window will appear. To get more

details about, say, „Any other Items‟, highlight it and press <Enter>

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CHAPTER ELEVEN

VIEWING BALANCE SHEET

1. To view Balance Sheet, go to „Gateway of Tally‟. „Balance Sheet‟ will be under

Reports as shown in the picture.

2. On entering „Balance Sheet‟, the following window will display the balance sheet till

date

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CHAPTER TWELVE

EASY RECKONER

1. In case of payment, Account: Cash/Bank A/c Particular: Expenses A/c

2. In case of receipt, Account: Recipient A/c Particular: Giver A/c

3. In case of contra, Account: Recipient A/c Particular: Giver A/c

4. Alteration/ Deletion of company Select Company> Company Info> Alter> Alt+ Del

5. Alteration of transaction Gateway of tally> Balance Sheet> Respective voucher, then make alterations

6. Ledger alteration Gateway of tally> Ledger> Alter

7. Any reports can be printed. <ENTER> any reports like Profit & Loss A/c or Balance Sheet and

you can find ‘Print’ command button. Similarly, you can export, email or upload these

reports.

8. Basic Commands:

a. To accept any entry <ENTER> or <Tab>

b. To move back one field <Backspace>

c. To move back one window <Esc>

d. In every command option, one letter in the word will be red in colour. Press

the corresponding key (letter) and it will function as a hot-key or short-cut key

to enter the command

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9. Common information on Creation of Voucher:

a. Type of Voucher: All screens at the top left of voucher box display the Type

of Voucher‟ you are entering like, Purchase, Payment etc. You can change

this type by pressing the relevant key.

b. Voucher Number: The entire voucher displays the number of the voucher.

You can set these numbers manually or let the Tally generate it

automatically.

c. Date of Voucher: The top right of the voucher box displays the date of

voucher and the day of the week; this date indicates the current date on

which you are entering the voucher. The same date appears as the current

date at the Gateway of Tally. You can change date by pressing <F2> Key.

d. Particular: In accounting vouchers this column contains the information

about the ledgers you debit or credit. When To or Cr is displayed, specify the

ledger to credit. When By or Dr is displayed, specify the ledger to debit.

e. Debit/Credit: This column takes value of transactions. Therefore, specify the

amount of the transaction here. If you debit a ledger, the amount goes into

the debit column and if you credit a ledger, the amount goes into the credit

column. At the bottom of these columns, the totals of the debit and credit

amount appears. Note: The voucher entry is completed only when the total in

the two columns matches.

f. Narration: Under each debit or credit entry, there is a provision for narration.

In this column, you can mention the details of the entry. At the end of the

voucher, there is a common narration for the whole voucher. The option for

writing narration, for each entry will be present only if you had set the option

‘Use narration for each entry‟ in the accounting vouchers section of the

voucher configuration menu „Yes‟.

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ABOUT THE AUTHOR

Laldinliana is an Assistant Professor in Department of Commerce,

Mizoram University (Central University) since July, 2010. He was

previously the Assistant Director/ Core Faculty (Commerce) in State

Institute of Rural Development, an autonomous apex training institution

under Government of Mizoram. An alumnus of Loyola College, he

specialised in Entrepreneurial Development in M.Com with distinction

in Advanced Business Statistics. He was conferred Certified Finance

Manager (CFM) by National Institute of Management, Mumbai

recognised by Government of Mumbai and internationally accredited by

UKAS. He completed his Post Graduate Diploma in Computer

Applications (PGDCA) and Post Graduate Diploma in Marketing

Management (PGDMM) from NCT and CBRD, Chennai. His

affiliations include All India Management Association, All India

Commerce Association and Indian Accounting Association Research

Foundation (IAARF). He also authored “A Facilitator‟s Primer on

Entrepreneurship and Group Dynamism”, a publication of SIRD

Mizoram in 2009.

handbook on accounting procedures for rd institutions

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