Railway Accounts Department Examinations

Tuesday, March 14, 2023

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

 


Applicability of Rules of Debit & Credit in Railway Transactions


By M Nageswara Rao, 9492432160


Accounting


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


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


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


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


The above definition in detail:


  • Recording of the Journal entries

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

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

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

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


Luca Pacioli:


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


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


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


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


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


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


  • Regarded as “Father of Accounting”



Golden Rules of Accounting


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

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

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

Type

Examples

Debit Rule

Credit Rule

Personal Account

Natural persons like Raja A/c, Krishna A/c. Artificial persons like Partnership firms, companies etc. 

Representative Personal A/c like Prepaid expenses, Outstanding expenses

Receiver

Giver

Real Account

Tangible Properties like Buildings, Machinery, Inventory, Cash etc.  

Intangible properties like Goodwill, Patents, Copyrights etc

What comes in

What goes out

Nominal Account

Expenses like Salaries, Office expenses, Rent, Commission paid, Interest paid.  Incomes like Commission received, Interest received etc

All expenses & Losses

All incomes & gains



Example 1


Mr Krishna Started business with Rs. 5000

Accounts involved

Capital ( Krishna A/c)

Cash

Type of A/c

Personal

Real

Rule of the Account

Debit the Receiver

Credit the Giver

Debit what comes in

Credit what goes out

Debit or Credit

Credit

Debit

Journal Entry

Cash A/c       Dr           Rs.5000

       To Capital A/c                       Rs.5000

(Being the Capital provided by the Proprietor)





Example 2


Withdrew Rs. 1000 from Bank for personal use of Proprietor

Accounts involved

Bank

Drawings (Proprietor)

Type of A/c

Personal A/c

Personal

Rule of the Account

Debit the Receiver

Credit the giver

Debit the receiver

Credit the giver

Debit or Credit

Credit

Debit

Journal Entry

Drawings A/c   Dr  1000

    To Bank A/c                   Rs. 1000

(Being the amount withdrew for personal use 

Of proprietor)


Example 3


Paid Salary Rs. 5000 to Mr Krishna

Accounts involved

Salaries

Cash

Type of A/c

Nominal

Real

Rule of the Account

Debit all the expenses & Losses

Credit all the Incomes & gains

Debit what comes in

Credit what goes out

Debit or Credit

Debit

Credit

Journal Entry

Salaries A/c Dr   Rs. 5000

       To Cash A/c              Rs.5000

(Being the salary paid  to Mr Krishna)


Example 4


Sold goods for Cash  Rs. 300

Accounts involved

Goods (Sales)

Cash

Type of A/c

Real

Real

Rule of the Account

Debit what comes in

Credit what goes out

Debit what comes in

Credit what goes out

Debit or Credit

Credit

Debit

Journal Entry

Cash A/c Dr Rs. 300

      To Sales                Rs. 300

(Being Cash sales)












Now Check Railway Transactions: 


Example 1 


Paid the Salary of PFA Office Staff Shri Venkat – Rs. 50,000

Accounts involved

Salaries (erstwhile DN 03)

Bank (Cheques& Bills)

Type of A/c

Nominal 

      Real

Rule of the Account

Debit all Expenses & Losses

Credit all Incomes & gains

Debit what comes in 

Credit What goes out

Debit or Credit

Debit

Credit

Journal Entry

Erstwhile Demand No. 03 A/c  Dr    Rs.50,000

     To Cheques& Bills A/c                               Rs. 50,000

(Being paid the Salaries of Accounts Staff)


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


Example 2 


Paid HBA to Staff Shri Venkat – Rs. 50,0000

Accounts involved

HBA / Venkat

Bank (Cheques& Bills)

Type of A/c

Personal

Real

Rule of the Account

Debit the Receiver

Credit the Giver

Debit what comes in 

Credit What goes out

Debit or Credit

Debit

Credit

Journal Entry

HBA (Venkat) A/c  Dr    Rs.500,000

     To Cheques & Bills A/c             Rs. 500,000

(Being paid the HBA to StaffShriVenkat)


Example 3


Cash Received in Station Booking Office in respect of Passenger Earnings – Rs. 500

Accounts involved

Passenger Earnings (Abstract X)

Cash (Remittance Into Bank)

Type of A/c

Nominal 

Real

Rule of the Account

Debit all Expenses & Losses

Credit all Incomes & gains

Debit what comes in 

Credit What goes out

Debit or Credit

Credit

Debit

Journal Entry

Remittance Into Bank A/c  Dr     Rs.500

          To Abstract X A/c                           Rs.500

(Being accounted the Passenger Earnings)








Example 4


Shortage of Stock noticed during physical verification of ASV – Rs.1000

Accounts involved

Stock Adjustment

Stores in Stock

Type of A/c

Nominal 

Real

Rule of the Account

Debit all Expenses & Losses

Credit all Incomes & Gains

Debit what comes in

Credit what goes out

Debit or Credit

Debit

Credit

Journal Entry

Stock Adjustment A/c   Dr     Rs.1000

      To Stores in Stock   A/c               Rs. 1000

(Being loss of stock accounted into the SA A/c)


Example 5


Raised Bill on MrGovind for Rent charges of Railway Building  - Rs. 500

Accounts involved

Demands Recoverable

 / Debtors

Sundry Earnings / Income

Type of A/c

Personal 

Nominal

Rule of the Account

Debit the Receiver 

Credit the Giver

Debit all expenses & losses

Credit all incomes & gains

Debit or Credit

Debit

Credit

Journal Entry

Demands Recoverable A/c (Mr Govind)  Dr    Rs.500 

                   To Abstract Z Earnings  A/c                Rs. 500

(Being the Rent charges due from MrGovind )



Example 6


On Receipt of Rent on Railway Buildings from Mr Govind – Rs. 500

Accounts involved

Demands Recoverable / Govind

Cash

Type of A/c

Personal 

Real

Rule of the Account

Debit the Receiver 

Credit the Giver

Debit What comes in

Credit What goes out

Debit or Credit

Credit

Debit

Journal Entry

Remittance Into Bank A/c   DrRs. 500

       To Demands Recoverable (Govind)  A/c     Rs. 500

(Being the receipt of Rent charges from MrGovind)







Contra JV – Journal Voucher


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


Involved:  Revenue JV and Capital JV


Revenue JV


Date

Particulars

Debit


Date

Particulars

Credit

01.01.2021

Erstwhile Demand No 06

(POH of Coaches)

1000


01.01.2021

Transfer Capital

(00878291)

1000


Capital JV


Date

Particulars

Debit


Date

Particulars

Credit

01.01.2021

Transfer Revenue

(00878292)

1000


01.01.2021

WMS

1000





Transfer (008782)



Debit

Credit

01.01.2021

Transfer Capital (91)


1000

01.01.2021

Transfer Revenue (92)

1000



Total

1000

1000



Note: 


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


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


           Erstwhile Demand No.06 A/c  Dr    1000

                                      To WMS  A/c                 1000

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









Debit and Minus Credit


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


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


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

Minus Credit: 


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

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

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

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



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

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

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


Journal entry in the books of Inward Unit 'B' 


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

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

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


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


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

Some More examples of operation of Minus Debit and Minus Credit 


  1. Clearance of Cheques & Bills  - Minus Credit

  2. Clearance of Remittance Into Bank - Minus Debit

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

***

 



Accounting Cycle (From Transactions to Final Accounts)


Five Stages


  1. Transactions

  2. Journal Entries

  3. Ledger

  4. Trial Balance

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


  1.  Transactions in ABC Ltd.

  • Started Business with Rs. 100

  • Cash Purchases – Rs. 50 (50 units)

  • Cash Sales  -  Rs. 60  (40 units) 

  • Wages – Rs. 5

  • Salaries – Rs. 5

  • Furniture purchased – Rs. 20

  • Depreciation on Furniture – Rs. 5

  • Loan from Krishna – Rs. 20

  • Interest on Loan – Rs. 2

             Adjustments: Closing Stock –Rs. 10

  1. Journal Entries

Date

Particulars

LF

Dr

Cr

-

Cash A/c Dr

  To Capital


100


100

-

Purchases A/c Dr

  To Cash


50


50

-

Cash A/c Dr

  To Sales


60

60

-

Wages A/c Dr

  To cash 


5


5

-

Salaries A/c Dr

  To Cash


5


5

-

Furniture A/c Dr

  To cash


20


20

-

Depreciation A/c Dr

  To Furniture


5


5

-

Cash A/c Dr

  To Krishna


20


20

-

Interest A/c  Dr

  To Cash


2


2



  1. Ledger


Capital A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To Balance c/d


100



By Cash


100


Total


100



Total


100







By Balance b/d


100


Cash A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To Capital


100



By Purchases


50


To Sales


60



By Wages


5


To Krishna


20



By Salaries


5







By Furniture


20







By Interest


2







By Balance c/d


98


Total


180



Total


180


To Balance b/d


98







Purchases A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To Cash


50







Total


50







Sales A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount







By Cash


60







Total


60


Wages A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To cash


5







Total


5











Salaries A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To cash


5







Total


5







Furniture A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To Cash


20



By  Depreciation


5







By Balance c/d


15


Total


20



Total


20


To Balance b/d


15







Depreciation A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To Furniture


5







Total


5







Krishna A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To Balance c/d


20



By Cash


20


Total


20



Total


20







By Balance b/d


20


Interest A/c

Dr


Cr

Date

Particulars

JF

Amount


Date

Particulars

JF

Amount


To Cash


2







Total


2

















  1. Trial Balance

Trial Balance

SN

Particulars

LF

Dr

Cr

1

Capital



100

2

Cash


98


3

Purchases


50


4

Sales



60

5

Wages


5


6

Salaries


5


7

Furniture


15


8

Krishna



20

9

Depreciation


5


10

Interest


2



Total


180

180


  1. Final Accounts

                                               Trading A/c of ABC ltd for the year ending______

Dr


Cr

SN

Particulars


Amount


SN

Particulars


Amount


To Purchases


50



By Sales


60


To Wages


5



By Closing Stock


10


To Gross Profit 

(c/f to P & L A/c)


15







Total


70



Total


70


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

Dr


Cr

SN

Particulars


Amount


SN

Particulars


Amount


To Salaries


5



By Gross Profit

(b/d from Trading A/c)


15


To Depreciation


5







To Interest


2







To Net Profit

(C/f to Capital)


3







Total


15



Total


15


                                          Balance Sheet of ABC ltd as on 31st March _____

Liabilities


Assets

SN

Particulars


Amount


SN

Particulars


Amount


Capital

100




Furniture


15


+ Net Profit

3

103



Cash


98


Sundry Creditors


20



Closing Stock


10











Total


123





123


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