Government Accounting – tryspring

By | July 12, 2019

Government Accounting

Government accounting is a scientific procedure of collecting,
classifying, recording, summarizing, and interpreting all the
financial transactions including revenues and expenditures of all
the government offices. It keeps the record of public funds.

Followings are the main objectives of the Government Accounting −

  • Information about Revenues − One of the most important
    functions of the Government accounting is to maintain the
    transactions of generation and collection of revenues during
    the financial year (and maintain all the past years’
    financial data). Under the ‘Right to Information Act,’ if
    someone asks to have the information regarding the financial
    transactions of a government office, it is oblige to provide

  • Information about Expenditures − One of the most
    important objectives of the Government accounting is to
    provide information about the expenditures incurred on
    various heads. It is checked by the Parliament in case of
    Central Government and state legislature in case of the State

  • Information about Deposits and Loans − Government has
    to provide information about the loan granted by the
    Government to others and repayment of the deposits.

  • Information about Availability of Cash − It has to
    provide information about the present and the future cash

Difference between Government and Commercial Accounting

There are following notable differences between the Government
accounting and the commercial accounting −

Headings Govt. Accounting Comm. Accounting
Objective Administration and management of all the financial activities
of the government.
Maintain the records of trading and manufacturing of goods or
to provide services to calculate profits.
Date Entry System It has single entry system — Govt. does not work to earn
profit; so, it does not need cross-check the accounting
Normally, it has double entry system — need to prepare
Trading & Profit & Loss account and Balance Sheet at
the end of the accounting period.
Basis of Accounting statements Accounting statements are also prepared on the basis of
single entry system. Most of the statements are merely
statements of collections of revenue and expenditures done,
except where the Government acts like a banker or lender or
Accounting statements are prepared on the basis of double
entry system.

Important Terms and Expressions of Government Finance

Following are the important terms and expressions used in
Government accounting −

  • Demand for Grant − Without sanction from the
    Parliament, no expenditure can be incurred by any Government
    Authority. Public Authority can request for the grant of
    expenditure to the Government, this request is called
    Demand for Grant”.

  • Supplementary Grant − Sometimes, grants are sanctioned
    before the end of the financial year, in case where annual
    budget might be inadequate. Supplementary demand can be made,
    if need arises to meet the expenditure. For example, amount
    granted for the Natural Disaster Relief fund, may be found
    inadequate due to extraordinary disaster by the flood; in
    such a condition, an additional grant may be asked by the
    concerned state or ministry.

  • Treasuries − Treasuries are the units of fiscal system
    in India. Every Indian States and Union Territory is divided
    into different districts’ headquarters and every district
    headquarters has one or more than one treasury. Treasuries
    are conducted by the State Bank of India as an agent of the
    Reserve Bank of India. Central Government and State
    Government keep their separate accounts and differences of
    Central and State Govt. are adjusted by the Reserve Bank of

  • Votable and Non-votable Items − To incur some
    expenditures, Parliamentary approval is not required; so,
    these expenditures may be charged from the Consolidated fund
    or the Public account, these items are known as
    Non-votable items. Some items of expenditure require
    sanction of the Parliament and cannot be incurred without its
    grant. Thus, demand for grant for that expenditure may be
    placed to the government, such items are called as
    Votable Items.

  • Appropriation Act − After the approval of the budget
    proposal in the Parliament or Legislature, an Appropriation
    Bill has to be introduced, when this Bill is passed, it
    becomes Appropriation Act. Now, money can be withdrawn from
    the Consolidated Fund of India or the concerned State to meet
    the grants.

  • Vote on Account − In certain condition, when
    government has no time to place full budget in the
    Parliament, then it uses the special provision of ‘Vote on
    Account.’ Under this provision, government obtains the vote
    of the Parliament for the amount required to incur the
    expenditure of the items in demand. After sanction obtained
    in the Parliament, government obtains money from the
    Consolidated Fund of India.

  • Public Accounts Committee (PAC) − Public Account
    Committee is formed by the Parliament and each Legislature to
    scrutinize the Appropriation account and Audit the report
    thereon. All the reports on financial statements those are to
    be submitted to the President of Indian and in the Parliament
    are examined by the Public Accounts Committee (PAC).
    Examination by the PAC is similar to post-mortem of the
    reports. Members of the PAC are appointed from the Opposition
    Parties of the Parliament. Member of the ruling party cannot
    be part of this committee, as this committee is working as a
    watchdog to look after the affairs of ruling party.

  • Local Government Accounting − Accounting of the Local
    government is based on the concept of “fund accounting” and
    on the budget. Urban local government entities and rural
    local government entities are two types of local government
    entities. Accounting of the Local Government in India
    comprises budget, Receipt, and payment accounts.

Government Fund

Government of India has following three types of Funds for
marinating the records of all sorts of financial transactions −

  • Consolidated Funds of India
  • Contingency Funds of India
  • Public Account

Let’s discuss each of them succinctly −

Consolidated Funds of India

As per the Clause 1 of the Article 266 of the Indian Constitution

“All revenues received by the Government by way of taxes like
Income Tax, Central Excise, Customs and other receipts flowing to
the Government in connection with the conduct of Government
business i.e. Non-Tax Revenues are credited into the Consolidated
Fund constituted. Similarly, all loans raised by the Government
by issue of Public notifications, treasury bills (internal debt)
and loans obtained from foreign governments and international
institutions (external debt) are credited into this fund. All
expenditure of the government is incurred from this fund and no
amount can be withdrawn from the Fund without authorization from
the Parliament.”

Contingency Funds of India

As per the Article 267 of the Indian Constitution −

“The Contingency Fund of India records the transactions
connected with Contingency Fund set by the Government of India.
The corpus of this fund is Rs. 50 crores. Advances from the fund
are made for the purposes of meeting unforeseen expenditure which
are resumed to the Fund to the full extent as soon as Parliament
authorizes additional expenditure. Thus, this fund acts more or
less like an imprest account of Government of India and is held
on behalf of President by the Secretary to the Government of
India, Ministry of Finance, and Department of Economic

Public Account

The Public Account is constituted under Clause 2 of Article 267
of the Indian Constitution, which says −

“The transactions relate to debt other than those included in
the Consolidated Fund of India. The transactions under Debt,
Deposits and Advances in this part are those in respect of which
Government incurs a liability to repay the money received or has
a claim to recover the amounts paid. The transactions relating to
‘Remittance’ and `Suspense’ shall embrace all adjusting heads.
The initial debits or credits to these heads will be cleared
eventually by corresponding receipts or payments. The receipts
under Public Account do not constitute normal receipts of
Government. Parliamentary authorization for payments from the
Public Account is therefore not required.”

Similarly, all 29 states of India has the same structure as
described above.

General Structure of Government Accounts

The general structure of the government accounts is illustrated
below −

General Structure of Government Accounts

Compilation of Accounts

Treasury and other government departments, initially compile
their receipt and payment accounts on monthly basis for central
government and state government separately and then send to
respective Accountant General of India.

Collection of revenue and disbursement are directly made by
Railway, Defense, Post & Telegraphs, Forest, and public
departments and lump sum payments are made by treasury through
the departmental officers. Detail of accounts on monthly basis is
maintained by the departmental Accounts officers.

Monthly accounts submitted by the treasury and account officer
are compiled by the Accountant General, for the central
government as a whole and for each state separately. The compiled
report shows progressive figure of each month from 1st April to
31st March of every year. Complied accounts along with
appropriation accounts are submitted by Comptroller and Auditor
General of India to the President of India, to the Governor of
each state, or to the Administrator of the Union Territory

Principles of Government Accounting

  • Charges or expenditure on a new project like constructions,
    new equipment, plant & machinery installation,
    maintenance, improvement, and service should be allocated to
    the capital account as per the rule made by competent

  • Working charges of the project should be allocated to the
    revenue account.

  • In case of renewal and replacement and cost of the genuine
    replacement should be charged to capital account.

  • In case of damage due to extraordinary calamities, charged
    should be debited from the capital account or revenue account
    or from both. However, it will be determined by the
    government according to the case and circumstances.

  • Capital receipts during the new project should be credited to
    the capital account to reduce the capital expenditure of the


Comptroller and Audit General (CAG) is an independent
Constitutional body. Special status has been given to safeguard
his independence and enable him to discharge his duty without
fear or favor.

As per the Article 148 of the Constitution of India, the
comptroller and Auditor-General will be appointed by the
President of India. The provision of removal of CAG is the same
as of the judges of the Supreme Court. He can be removed only on
the basis of proven misbehavior or incapacity.

As per the Article 150 of the Constitution of India — the
accounts of the Union and of the States shall be kept in such
form as the President may prescribed, on the advice of the
Comptroller & Auditor General.

Article 151 of the Constitution provides that the audit reports
of the Comptroller & Auditor General relating to the accounts
of the Union shall be submitted to the President, who shall cause
them to be laid before each House of Parliament.

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