Railway Accounts Department Examinations

Friday, June 4, 2021

Applicability of Rules of Debit & Credit in Railway Transactions

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

 ****