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• The initiative:
Migration from Manual, Single Entry System of maintaining
accounts to Accrual Based Double Entry System of Accounting
** (hereinafter referred to as ABDEAS) in computerized environment.
Backgroun
d
The Urban Local Bodies in Madhya Pradesh, were maintaining
their accounts under single entry cash based system. This was an
incomplete accounting system wherein ULBs were not aware of
what they own and what they owe. There were no financial
reports generated by the accounting system for fund
management, resource mobilizations and budgetary control.
The accounts of most of the Urban Local Bodies of Madhya
Pradesh were maintained on Single Entry System and this was
one of the primary causes of the many maladies that plagued the
ULBs like deficient financial reporting, un-reconciled banking
accounts, inefficient budgeting, poor financial planning, too many
inoperative accounts, un accounted interest received from banks,
loss of time in recovering / extracting the relevant data.
Backgroun
d
Till 2004-05, even after the 74th amendment to the Constitution of
India, the ULBs were not able to develop infrastructure on account of
lack of funds. With launch of schemes like JNNURM ,UIDSSMTand RAY,
the ULBs had at their disposal the financial resources to be able to
effectively discharge their function. The role of ULBs thus became
important and with this came the need for better financial practices.
Also, as per the recommendations of the 13th Finance Commission,
without Accrual Based Double Entry Accounting System (hereinafter
referred to as ABDEAS), the ULBs would not have been eligible for
Performance Based Grants.
Situation before the initiative
 The accounts, during the period before migration, were maintained
on Single Entry Accounting System. The only accounting records were
Cash Book and Bank Book. The monitoring, reporting and control
were based on subsidiary registers maintained by the ULBs. There
was no system of checks and balances to ensure that the Cash Book,
Bank Book and the subsidiary records had or were capturing the
information completely and accurately.
Objectives
 Review the existing accounting rules and revise the same.
 Build the capacity accounting staff of ULBs.
Provide professional assistance to ULBs for switch over from single entry
cash based accounting system to double entry accrual based accounting
system.
 Maintain the accounts of assets, liabilities, incomes and expenses of ULBs.
 Generate financial reports for disclosure true and fair view of financial
performance and status of ULBs.
Objectives
Bring more transparency into the accounting system by publishing the
annual accounts of ULBs.
 Ensure proper fund management with citizen participation in budgeting of
annual receipts and payments.
 Generate additional revenues for ULBs through proper resource
management backed up by strong financial records.
 Make ULBs self-sustainable in the long run.
 Have web enabled accounting system for centralized monitoring by the
State.
Objectives
Compliance with the recommendation of 13th Finance
commission and fulfillment of conditions of various schemes of
Government of India was also one of the main reason.
 For exploring new ideas of revenue mobilization preparation of
Opening Balance Sheet was essential. Only after preparation of OBS
the actual picture became clear about the land assets owned by the
ULBs. It helped in exploring options for revenue mobilization.
Objectives
 Standardized the forms, formats and procedure was also a very
important objective. By developing MPMAM this objective was
achieved. MPMAM provides detailed procedures and formats for
the books and registers to be maintained. It also provides the
procedure for valuation of assets and preparation of OBS. Detailed
accounting codes are given to maintain uniformity.
 After assessing the capacity of ULB staff, the strategy adopted for
adopting accrual based double entry accounting system was to get
work done through consultancy firm.
Objective
Master Entry of
Property, Water and Lease
Property Demand
Generation
Water Demand
Generation
Lease Tax Generation
Property
Receipt
Water
Receipt
Lease
Receipt
MIS
Reports
Double Entry
Account
Budget
Preparation
• Basics of Double Entry
• Classification Of Account
• Rules of Debit and Credit
Accounting is an art of recording, classifying, summarizing and
presenting the information related to an organization done to
assess the financial health of the organization. Financial health
means whether the organization is able to generate profit,
whether its Assets are secure, whether it has future prospects
etc.
 Modern accounting system is based on Double Entry
System which is depend on the fundamental
accounting equation.
 Assets = Liabilities + Equity (Capital).
 The Double Entry accounting system ensure that
accounting equation always remains in balance.
 Debit must be equal credit.
 The system is called double entry because every
business transaction has dual aspect and affect least
two account. Every transaction must contain at least
one account debited and at least one account credited
thus posted in at least two different ledger accounts.
Recording
The essence of Accounting is putting the transactions into
black and white i.e. writing.
This writing can be in any form right from piece of paper to
the hard disk of a computer.
Transaction
Before taking up other italicized words, first it is necessary to
learn the meaning of the word transaction. Though its
dictionary meaning is well known, but Transaction means an
action that is undertaken by the organization, which involves
“money”. Only those transactions can be recorded in Accounting
that have money involved in them. Any other action, though
may seem very important cannot be recorded unless its
monetary value can be determined. For example Death of the
Director of an institution, is an extremely important event for
any organization rather success of the organization along with
its life, depends on the Director.
Classification
Most important aspect of Accounts is to classify the
transactions. Classification means finding out the true nature of
the transaction and then finding out under which head it should
be recorded. Before we proceeds further, let us understand what
are the broad categories under which classification should take
place.
-Five Element of Account Modern classification of account is based on expanded
accounting equation. This realistic approach and is easy to
understand.
-First Element of Account- Assets
 Assets: An Asset is a resource that has future values. It is own
and utilized by a business or a person to maintain the
functionality and operation of a business.
-First Element of Account- Assets
Assets Identification:
In a layman’s language, Asset is an advantage enjoyed by the
business/organization. The time during which the advantage is
available to the business is another indicator, which defines the
nature of the Assets.
Assets are first classified as:
Fixed Assets
Current Assets
-First Element of Account- Assets
Fixed Assets:
The Assets that remain with business for very long time and the
business keeps on getting benefit from it for example





Land
Building
Furniture
Plant and Machinery
Tools and equipment.
-First Element of Account- Assets
Current Assets:
As stated the advantage enjoyed by the business for very short
period i.e. within 1 year is current Assets. The examples of current
Assets are as below:





Cash in Hand and Balance at Bank
Sundry Debtors
Stock in hand
Prepaid expenses
Bills receivable etc.
-Second Element of Account- Liabilities
 Liabilities:
Liabilities are obligations of debts that an enterprise has to pay
at some time in the future. They represents Creditor’s claims on
the firm’s assets.
Followings are type of Liabilities.
-Second Element of Account- Liabilities
 Purchases On Credit: When you buy goods or asset on credit
and promise to pay the due amount at some future. We use
account payable for these.
 Expense due but not paid: If Expenses like rent, wages etc are
due on end of then month/year but not paid are called outstanding
expenses or accrued expenses.
 Unearned Revenue: Suppose Ali is a manufacturer of butter one
of his customer pays him Rs. 50,000 in advance. Unless Ali
delivered the butter to his customer, the amount will not be treated
as Sales or Revenue, but it would be treated as Liability. When Ali
delivers the butter, unearned revenue will be converted into
-Third Element of Account- Capital Or Equity
Capital Or Equity:
Equity or Capital represents then owner’s Claim to the asset.
When a new business starts capital includes the amount
invested by owner in term of cash or assets. For the next
subsequent years , Profits are added in it and losses and
withdrawals or drawings are subtracted from it. So owner’s
Capital increased by earning profit or investing further asset and
decreased by suffering loss or taking cash or goods for personal
use and selling asset of the business.
-Fourth Element of Account- Revenue Or
Income
Revenue Or Income:
There is a fundamental difference between Revenue and
income. Revenue refers the amount a business earns by selling
services and products. Income describes as excess amount of
revenue over expanses. Increase in revenue results increase
income. When a business sells goods or service cash at same
time or some future time, but in both cased revenue and income
increase.
-Fifth Element of Account- Expenses
Expenses
An expense in accounting is the money spent or cost incurred
in an entity’s efforts to generate revenue.
 Goods or services purchased directly for the running of the
business that have completely spent their economic value at the
time of preparation of the financial statements. E.g. Wages
expense, Bank Charges, Electricity expense.
 Expenses are debited when incurred regardless of being paid
or payable.
Summarizing:
As we are basically discussing the definition of accounting the
next highlighted word is summarizing. The need and importance
of the summary will become clearer when we practically start
doing the accounts however just imagine when the books of
account are written there will be numerous transactions per day
and each will be entered in the books. So suppose in a register or
book the purchases made by the business is being written
Presenting
The Last highlighted word in the definition of accounting is
presentation. This aspect of accounting is called drawing the
“FINAL ACCOUNTS. Final accounts mean the Result of the
business, under which two statements are made and presented.
These statements are as below:
Presenting
Profit and Loss Account: It is made to find out the Profits earned or
Loss encountered by the business. This statement is for the
accounting year which is also the financial year which commences
on 1st of April and ends on 31st March
Balance Sheet: It is made to analyse the financial position of the
business at the end of a financial year and is the position on 31st
March.
Hence the basic objective of accounting is to correctly
prepare and present the aforesaid statements and there
Five element of accounts with their respective
normal balance.
Simply Follow the Rules of
Accounting
Rules of Accounting:
The transactions of business are categorized as following types of
accounts:
1. Personal Account: The accounts that is related to a person
2. Real Account: The account that is related to things that can be
seen or touched.
3. Nominal Account: The transactions that look different from
what they actually are. For example salary paid to the worker is
not paid due to personal love and affection but for the services
rendered by him. If we commute from one place to another and
pay the rickshaw puller it is called Conveyance.
The following three rules are the backbone of accounting:
Simply Follow the Rules of
Accounting
The rules of accounting are different for all the aforesaid
accounts
For personal accounts: Debit the receiver credit the giver
For Real accounts:
Debit what comes in credit what goes out
For Nominal account: Debit the expenses credit the incomes.
Debit Denotes
A. In case of Person: That business has made payment to that
person for which either he has already done some service or
will do some service in future.
B. In case of Things: That either the value or quantity of these
things have increased.
C. In case of Nominal Things: That either expenses or losses have
been incurred.
Credit Denotes
A. In case of Person: That business has received payment from
that person for which either the business has already done
some service or will do some service in future.
B. In case of Things: That either the value or quantity of these
things have decreased.
C. In case of Nominal Things: That either Incomes or Profits have
been made.
Normally expenses are not decreased
 Generally
expenses are not decreased so never credited.
When accounting period completes and revenues (sales) and
expenses accounts are closed and are needed to transfer
balances to Trading an P&L.
 Expenses are credited to Trading and P&L account.
 Purchase returns are also credited.
How Originate Journal Entry.
We have successfully completed our first part of understanding
Double Entry system, next we have to do is how to make Journal
Entry. To make journal entries we must recall how to debit or
credit accounts. Lets have a look below to understand it more
practically.
On 1st of Feb 2012, Sameer Stated a business by investing Rs.
200,000 in cash.
We know that when we start business our two accounts are
affected. One of two is capital which increased so we credit it
secondly our cash also increase so we debit it. Don’t forget to
use “To” before each credit.
Accounting equation in balance
 Fundamental accounting equation is
 Assets = Liabilities + Equity (Capital)
 We Originate Journal Entry as below
 Cash dr 200,000

To Capital
cr
200,000
Cash
=
Liabilities
+
Equity / Capital
200,000
=
0
+
200,000
Cash increased by debiting and capital increased by crediting.
On 2nd of Feb 2012, Sameer Purchased building for cash
Rupees 80,000.
In the above transaction two assets accounts are affected. Sameer
purchased building, resulting an increase in asset (building)
secondly cash paid for building thus decreasing in cash. We know
that we debit assets when increase and credit when decrease. We
originate Journal entry in the following manner.
लेख ांकन प्रविष्टी
नरे शन
डेबिट र शी (रु.)
बैंक खाता
स्टे ट बैंक ऑफ़ इंडिया
A/C. 5485554512
5000
Landmark Developers
धरोहर निक्षेप-ठे केदार
for Road Const.
एवं प्रदायक
Recp. No 1245/12
Date 29/5/2013
क्रेडडट र शी (रु.)
5000
लेख ांकन प्रविष्टी
धरोहर निक्षेप-ठे केदार
एवं प्रदायक
बैंक खाता
नरे शन
डेबिट र शी (रु.)
Landmark Developers
for Road Const.
Chque No. 65452
4500
स्टे ट बैंक ऑफ़ इंडिया
A/C. 5485554512
क्रेडडट र शी (रु.)
4500
लेख ांकन प्रविष्टी
धरोहर निक्षेप-ठे केदार
एवं प्रदायक
सरु क्षा निधध-ठे केदार एवं
प्रदायक
नरे शन
डेबिट र शी (रु.)
Road Constrution
500
Road Constrution
क्रेडडट र शी (रु.)
500
लेख ांकन प्रविष्टी
प्राप्तत
योग्य
संपत्ति
कर(वर्ष 2012) खाता
संपत्ति कर –आवासीय
संपत्ति खाता
नरे शन
डेबिट र शी (रु.)
क्रेडडट र शी (रु.)
50,000
50,000
लेख ांकन प्रविष्टी
प्राप्तत योग्य नियंत्रण
खाता- संपत्तिकर
प्राप्तत योग्य संपत्ति कर
(वर्ष 2010-2011)
प्राप्तत योग्य संपत्ति कर
(वर्ष 2011-2012)
दं ि एवं शाप्स्तयां
नरे शन
डेबिट र शी (रु.)
क्रेडडट र शी (रु.)
5,10,000
4,40,000
67,000
3,000
Basis of
Single Entry Cash Basis of
Distinction Accounting
Double Entry Accrual Basis
of Accounting
Nature of
the
transactio
ns
All receipts and payments during the Accounting
Period
are recorded whether or not the transactions
actually belong to that accounting period.
All income and expenses
relating to the Accounting
Period are recorded, whether
or not received or paid
Accounts
Only personal accounts and Cash Book are Personal, Real and Nominal
opened
accounts are opened
Accuracy
of
results
Accuracy of transactions cannot be verified since
all transactions are recorded on single entry basis
and no trial
balance is prepared
Financial
performan
ce
Financial performance cannot be ascertained as Financial performance of an
an Income
entity can be ascertained by
and Expenditure Account is not Prepared
preparing the Income and
Expenditure Statement
Financial
Position
Only a Statement of Affairs is prepared which A Balance Sheet is prepared
does not give
on going concern basis which
the true and fair state of affairs
gives a true and fair state of
affairs.
As all transactions are
recorded based on double
entry bookkeeping,
a trial balance is prepared to
check
the
arithmetical
accuracy of the
Transactions