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

 

Applicability of Rules of Debit & Credit in Railway Transactions

By M Nageswara Rao, 9492432160

Accounting

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

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

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

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

The above definition in detail:

• Recording of the Journal entries

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

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

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

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

Luca Pacioli:

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

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

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

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

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

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

• Regarded as “Father of Accounting”

Golden Rules of Accounting

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

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

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

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

Example 1

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

Example 2

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

Example 3

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

Example 4

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

Now Check Railway Transactions: 

Example 1 

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

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

Example 2 

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

Example 3

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

Example 4

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

Example 5

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

Example 6

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

Contra JV – Journal Voucher

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

Involved:  Revenue JV and Capital JV

Revenue JV

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

Capital JV

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

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

Note: 

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

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

           Erstwhile Demand No.06 A/c  Dr    1000

                                      To WMS  A/c                 1000

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

Debit and Minus Credit

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

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

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

Minus Credit: 

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

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

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

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

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

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

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

Journal entry in the books of Inward Unit 'B' 

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

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

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

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

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

Some More examples of operation of Minus Debit and Minus Credit 

1. Clearance of Cheques & Bills  - Minus Credit

2. Clearance of Remittance Into Bank - Minus Debit

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

***

 

Accounting Cycle (From Transactions to Final Accounts)

Five Stages

1. Transactions

2. Journal Entries

3. Ledger

4. Trial Balance

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

1.  Transactions in ABC Ltd.

• Started Business with Rs. 100

• Cash Purchases – Rs. 50 (50 units)

• Cash Sales  -  Rs. 60  (40 units) 

• Wages – Rs. 5

• Salaries – Rs. 5

• Furniture purchased – Rs. 20

• Depreciation on Furniture – Rs. 5

• Loan from Krishna – Rs. 20

• Interest on Loan – Rs. 2

             Adjustments: Closing Stock –Rs. 10

2. Journal Entries

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

3. Ledger

Capital A/c

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

Cash A/c

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

Purchases A/c

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

Sales A/c

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

Wages A/c

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

Salaries A/c

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

Furniture A/c

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

Depreciation A/c

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

Krishna A/c

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

Interest A/c

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

4. Trial Balance

Trial Balance

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

5. Final Accounts

                                               Trading A/c of ABC ltd for the year ending______

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

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

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

                                          Balance Sheet of ABC ltd as on 31st March _____

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

Excess Grants

 

Excess Grant - Regularisation of Excess Expenditure

• Authority: Article 115 of the Constitution of India

• Excess grants are made when the expenditure has been incurred after a Financial Year has expired. 

• Actual expenditure incurred (out of Consolidated Fund) in excess of Grant voted by the Parliament will be regularised by: 

• Reasons to be fully explained by the spending authorities. 

• On the recommendation of PAC as a result of scrutiny of Appropriation Accounts of Railways and Audit Report of CA&G.  

• Presented after obtaining the recommendation of the President of India. 

—-end—-

Advances to Contractors

Advances to Contractors

• 1264 E -Para No.64 of the 12th chapter of the Indian Railways Engineering Code   

 

•  ACS (Engineering Code ) 58 dated 27.04.2022  Click here  

 

Salient features: 

• As far as possible abstain from giving advances to Contractors.  That means No payment is made except for work actually done. 

• GMs may, however, sanction subject to

1. Within the delegation of powers of GM

2. Works should be capital intensive. 

3. Works should be specialized in nature.  

4. The estimated value of the Tender should exceed Rs. 50 Crores (Exception: for Advances in exceptional cases - There is no minimum value.)

Advances to Contractors - 4 kinds 

SN	Advance to  Contractors	Maximum Advance	Minimum value of Tenders	Other features & conditions
1	Mobilization Advance	10 %  of the Contract value	Above Rs.50 Crores	Stage I -  5% (on signing the Agreement) Stage II - 5% - on submission of utilization certificate of Stage I advance by the Contractor and mobilization of site establishment, setting up offices, bringing in equipment and commencement of work  Irrecoverable Guarantee (Bank Guarantee from Nationalized Bank,  FDR, KVP, NSC)  for 110% of the value of sanctioned advance (covering principal & Interest)
2	Against Machinery & Equipment	10 % of the Contract value   Or  75% of the Purchase price Whichever is less	Above Rs. 50 Crores	Hypothecated to the President of India by a suitable Bond  Or   Irrecoverable Bank guarantee for full cost of Plant & Equipment from Nationalised Bank    Insured for the full value for the entire period of completion of work.  Against New one  Shall not be removed from the site without the permission of the Engineer
3	Accelerating progress of the work	5% of the Contract value	Above Rs.50 Crores	Decided on the merits of each case  Recommended by Engineer and consultation with the associate finance No extension of Date of completion on account of Contractor  Irrecoverable Guarantee (Bank Guarantee from Nationalized Bank,  FDR, KVP, NSC)  for 110% of the value of sanctioned advance (covering principal & Interest)
4	Exceptional cases	Rs. 20 Lakhs	For all contracts (no minimum limit)	Decided on the merits of each case  Recommended by Engineer and consultation with the associate finance Irrecoverable Guarantee (Bank Guarantee from Nationalized Bank,  FDR, KVP, NSC)  for 110% of the value of sanctioned advance (covering principal & Interest)

Other features:  

• Interest rate to be decided by the Railway Board at the beginning of the Financial Year.  The same will be applicable to the tenders to be opened in that Financial Year.  

 

•  The recovery shall commence - When the value of the contract executed reaches 15% of the original contract value 

 

•  The recovery shall be complete - When the value of the work executed reaches 85% of the original contract value. 

 

•  The installments on each "on account bill" will be on a pro-rata basis; 

 

•  Grant of advance is primarily in Railway's own interest 

 

•   Not eligible - same Advance for same work from different officers. 

 

•   Accounts Office - responsible for payment & recovery of such advances.

Recovery of Interest:

•  Interest shall be recovered on the advance outstanding for the period commencing from the date of payment of advance till the date of the particular on-account bill 

 

•  Adjusted fully against the on-account bill along with pro-rata principal recovery.  

Key Takeaways for MCQ 

1. 12th Chapter (Para 64) of Engineering Code and ACS 58 dated 27.04.2022 

2. The estimated value of the Tender - should exceed Rs. 50 Crores (However this rule will not be applicable for Advances in exceptional cases.) 

3. Exceptional cases - Maximum Advance is Rs.20 Lakhs.   

4. Mobilisation Advance  - Two stages (each stage 5%) - Maximum is 10% of Tender Value. 

5. Advance against Machinery & Plant  - Maximum Advance is 10 % of Tender Value or 75% of purchase price whichever is less.  

6. Advance for accelerating progress of work  - Maximum Advance is 5% of Contract Value.  

7. All kinds of Advances except against Machinery & Equipment -  Irrecoverable Guarantee (Bank Guarantee from Nationalized Bank,  FDR, KVP, NSC)  for 110% of the value of sanctioned advance (covering principal & Interest)  

8. Recovery shall commence - the value of the Contract executed reaches 15%  of the original Contract value and shall be completed when the value of the contract reaches 85 % of the Original Contract value. 

***

BPT - Blank Paper Ticket

BPT - Blank Paper Ticket

 

Source: Chapter 2 of Commercial Manual

• When tickets are required to be issued in the exchange of concession orders, and Police Warrants etc.

 

• Issued in Local & through booking (separate series) 

• Machine numbered 

• Distinct colours for different value ranges, as shown below—

 

Value range	Colour
Up to Rs. 10 (inclusive)	White
Rs. 10 to Rs.30	Yellow
Rs. 30 to Rs. 50	Pink
Above Rs.50	Green

 

• Entries in BPT - Block capitals 

 

• Amount in BPT - Bold figures 

 

•  Prepared in Double sided carbon 

 

• Letter R in Red bold type  -  For Return tickets 

 

• 3 foils  (1-Accounts, 2-Passenger & 3- Station Record)

 

• Each BPT - Only One Passenger (Adult or Child) 

 

• At times of heavy rush, One BPT for a party of more than 4 persons will be issued (for the purpose of Reservation)  - Separate series of tickets with White colour (regardless of value range) 

• The upper limit of the value of tickets should be written in the space provided for the “ value under Rs________” .  For example, if the fare is Rs. 120 /-, the value under Rs. 121 /- will be shown. 

 —---end—---