Applicability of Rules of Debit & Credit in Railway Transactions
By M Nageswara Rao, 9492432160
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.
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
Now Check Railway Transactions:
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.
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
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.
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
Clearance of Cheques & Bills - Minus Credit
Clearance of Remittance Into Bank - Minus Debit
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)
Final Accounts (Trading A/c, Profit & Loss A/c and Balance Sheet)
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
Trading A/c of ABC ltd for the year ending______
Profit & Loss A/c of ABC Ltd for the year ending____
Balance Sheet of ABC ltd as on 31st March _____