ABSTRACT
For the orderly conduct of the finances of a nation a sound system of public accounting is absolutely essential. The Indian system of the public accounts is maintained on “cash” as distinguished from “accrual” basis. The difference between the two is that while the former takes the actual receipts and payments as the basis of the account keeping, the latter is concerned with bringing to account the claims accrued and the liabilities incurred. The account officers in India do not take credit for a receipt which though it has fallen due in a particular year, has not been actually paid in it, and do not show a charge as having been incurred unless money in payment thereof has actually been issued from the Treasury. The pay and allowances of the public servants, for example, for the month of March, which are paid in the beginning of April, are included in the accounts of the fiscal year in which they are paid, and not the year in which they are earned. The arrears of the Income-tax, and other taxes, which are not paid in the year in which they fall due, are credited to the account of the year in which they are actually received. The budget estimates are framed on the basis of what is expected to be received and paid during the following year, including the arrears of the past year; and in the accounts sums paid in and paid out, irrespective of the period to which the claims and the liabilities belong, are shown as receipts and expenditure. When we speak of income of a particular year, we mean the public revenues which have been collected during that period and not the dues which, properly speaking, ought to have been paid in it; and similarly the public expenditure of a year is the sum total of the amounts which have been paid to the creditors of the State, even though the liabilities for which the payments have been made were incurred in the previous years. In France and some other European countries a different system is followed. There, “every liability is brought into the accounts for the year which has been incurred therein, although no payment is made for it till long after, and similarly revenue is brought to account that ought to have been received, although it may not have been received in fact.” 134 The chief merit of the latter system is its accuracy. It, to use the words of Bastable, invests the fiscal year with a personality, and is the truthful record of the income and expenditure of the year. It is not possible under this system for an officer, who has exceeded his sanctioned grant, to hold over the payment of a particular amount for a few months, and debit it against his grant of the next year; and we can know the real yield of different taxes during a particular fiscal period, though the realized amount may be a little smaller. A business corporation, which adopts the cash account as the basis of its financial operations, can give a very misleading account of its real financial standing. The conclusion as regards its being a paying concern depends upon the comparison of its earnings and expenses, and not its payments in and payments out. Cash in hand of a business firm is not a criterion of its financial soundness. Surplus or deficit of the Government, which is the result of putting the amount received against the amounts paid does not show whether it has been able to balance the income and expenditure of the year. But in spite of its manifest disadvantages the system of cash accounts has some merits of its own, which account for its adoption in England, the United States, America and some other leading countries of the world. There the accounts of the fiscal year are closed on the last day of the year; all the outstanding amounts, whether due to or by the State, are carried to the accounts of the next year, and all appropriations not used are annulled. The promptness with which the accounts are closed and the financial position of the Government exhibited is the main recommendation of the system. Every year a new beginning can be made, and the public, within a few weeks of the expiry of the year, can ascertain the state of the nation’s financial affairs. In India, on account of the fact that the budget is presented to the Legislature a month before the commencement of the fiscal year, the actual figures of receipt and expenditure do not receive any public attention. The figures shown in the revised estimates, which, as already stated, are composed of the actuals of eight or nine months and estimated ones of three or four, are taken as the basis of comparison with the budget estimates and made the subject of public comment and discussion. But the total receipts and expenditure of the last year can be known in about the third week in April. So far as the ordinary activities of the Government are concerned, no serious objection can be urged against the system of cash account. If sufficient precautions are taken against its abuse by the officers who want to evade the rule regarding strict adherence to the scheme of appropriations, the practice of bringing to account all receipts and expenditure of the year, though they do not belong to it, has the advantage of simplicity and obviates delay in balancing accounts. When we take into account the variety and complexity of the financial operations of the Government, these advantages constitute a great recommendation of the system. But the Government of India has, besides these activities with regard to which liabilities and assets are a matter of no consequence, undertaken quasi-commercial activities like railways and irrigation, which are expected to yield a reasonable rate of profit. In their case it is desirable to know how much they have earned during the year and how much has been spent on them. This cannot be done if the accounts of these departments are also maintained on the cash basis. For the sake of uniformity and promptness their accounts may also be closed with the accounts of the other public departments, but if their real income and expenditure, apart from their actual receipts and payments, have to be ascertained, it is also necessary to compile their accounts on the basis of the accrued assets and accrued liabilities. In the matter of classification, as remarked a little later, a distinction is made in their case, and all charges which are incurred on their account are debited against them, though they may be paid by other departments. In the matter of accounts also it is a matter of importance to exhibit the real financial standing of these undertakings, and set the amounts due by against the amount due to them and thus arrive at a correct appreciation of the financial results of their operations. With this reservation no exception can be taken to the underlying principle of the system of public accounts in India. It is built upon the basis of the accomplished facts, enables the Government and the public to know the state of the public finances without undue delay, and makes it easy to strike a balance of accounts by cutting off sharp the record of financial transactions on the 31st March every year.
