Draft Accounting Manual PDF

National Panchayat
Accounting Manual
Vol. I - Accounting Systems & Treatments
(Draft Version)
Govt. of India
Ministry of Panchayati Raj
Developed by Infrastructure Professionals Enterprise (P) Ltd.

New Delhi, India
National Panchayat Accounting Manual – Vol. I
Table of Contents
1. ACCOUNTING IN PANCHAYAT RAJ INSTITUTIONS ....................................................... 1

1.1. Present Scenario ........................................................................................................................................ 1
1.2. Tier levels of the administrative set-up of Panchayats ..............................................................................1
1.3. Accounting in PRIs...................................................................................................................................... 2
1.4. Need for National Panchayat Accounting Manual (NPAM) .......................................................................2
1.5. Our Approach in preparation of NPAM .....................................................................................................3
1.6. Applicability of NPAM ................................................................................................................................4
2. ENVISAGED ACCOUNTING SYSTEM .................................................................................... 5

2.1. Recommendation of the Second Administrative Reforms Commission on Local Bodies ..........................5
2.2. Model Accounting System .........................................................................................................................6
2.3. Codification in Chart of Accounts ..............................................................................................................7
2.4. Basis of Codification ................................................................................................................................... 8
2.5. PRI Accounts and Budget Formats ...........................................................................................................11
3. PRIASOFT ................................................................................................................................ 13
3.1. Need for a Accounting Software ..............................................................................................................13
3.2. Basic Features .......................................................................................................................................... 15
3.3. Different Vouchers in Priasoft .................................................................................................................15
4. BASIC ACCOUNTING SYSTEM ............................................................................................ 17

4.1. Need for Accounting ................................................................................................................................17
4.2. Types of Accounting .................................................................................................................................18
4.3. Methods of Accounting - Book Keeping ..................................................................................................20
5. ACCOUNTING PROCESS UNDER DOUBLE ENTRY ACCOUNTING SYSTEM........... 22

5.1. Vouchers ..................................................................................................................................................23
5.2. Cash Book................................................................................................................................................. 25
5.3. Leger Posting............................................................................................................................................28
5.4. Reconciliation........................................................................................................................................... 29
5.5. Preparation of Financial Statements .......................................................................................................35
6. ACCOUNTING OF ‘OWN SOURCE RECEIPTS’ ................................................................. 50

6.1. Cash Book................................................................................................................................................. 50
6.2. Collection Book ........................................................................................................................................50
6.3. Register of contribution ...........................................................................................................................50
6.4. Register of Loans ...................................................................................................................................... 51
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6.5. Responsibility of the Accounts Officer .....................................................................................................51
7. ACCOUNTING OF PAYMENTS ............................................................................................ 52

7.1. Policy for Establishment Expenses ...........................................................................................................52
7.2. Policy for Non Establishment Expenses: ..................................................................................................53
7.3. Register of bills .........................................................................................................................................54
7.4. Scrutiny of bills. ........................................................................................................................................54
7.5. Passing of bills ..........................................................................................................................................54
7.6. Responsibilities of the Executive Officer for incurring expenses .............................................................55
7.7. Internal controls on Accounting of payments .........................................................................................55
8. ACCOUNTING FOR GRANTS-IN AID ................................................................................. 57

8.1. Nature of Grants ...................................................................................................................................57
8.2. Accounting Policies for Grants ............................................................................................................58
8.3. Accounting Records & procedures for Grants ..................................................................................58
8.4. Recording of Grant Received ...............................................................................................................58
8.5. Utilisation of Grants ..............................................................................................................................59
8.6. Internal Controls ...................................................................................................................................60
9. PERIOD END PROCEDURES................................................................................................ 61

9.1. Daily Procedures ......................................................................................................................................61
9.2. Monthly Procedures ................................................................................................................................61
9.3. Annual Procedures ...................................................................................................................................62
10. BUDGETARY CONTROL ................................................................................................... 63

10.1. Objectives ................................................................................................................................................63
10.2. Recommended Budgeting System ...........................................................................................................63
11. AUDIT .................................................................................................................................... 65

11.1. Statutory Audit......................................................................................................................................... 65
11.2. Financial Statements Audit ......................................................................................................................66
11.3. Report of the Financial Statements Auditor ............................................................................................66
11.4. Additional Matters to be Reported ..........................................................................................................67
11.5. Timeline for financial statements audit ...................................................................................................68
11.6. Other Audits .............................................................................................................................................68
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1. Accounting in Panchayat Raj Institutions
1.1. Present Scenario

The 73rd and 74th Constitution Amendment Acts 1992, supplemented by
legislation/resolutions in the States in 1994, changed the structure of governance
permanently from a two-tier
tier to a three
three-tier system consisting of the Union, the States and the
Panchayats/Municipal Bodies with a dist distinct
inct developmental orientation. With these landmark
Constitutional amendments, the units of local self self-governments
governments at various tiers/levels got a
new lease of life and many farfar-reaching changes in the Constitution and the State laws were
brought about to ensure
sure proper functioning of democracy at the grassroots.
grassroots
“Decentralisation in the context of Panchayats means that when authority is transferred

from the state to the local governments, the latter should have the prerogative of taking
decisions on the planning
ing and implementation of such activity.” - The Government of India
(GOI) Task Force on Decentralisation (2001)
Panchayats have now become an integral part of the National Government structure. The
level of government that is closest to the citizens is in the best position to facilitate the
decision making process for improving their living conditions and a means to make use of their
knowledge and capabilities in the promotion of all round development.
The rapid urbanization and the consequent growth in the functioning of local government’s
calls for excellent support systems, therefore strengthening and capacity building of the
Panchayats assumes paramount importance. As one of the steps in that direction, this training
manual shall give an overview of the accounting system, an overview of the Model Accounting
System and understanding of financial statements etc.
The Accounting system followed in Panchayats is purely on cash basis.. Here revenues are
recorded when cash is actually received and expenses are re recorded
corded when they are actually
paid (no matter when they were actually invoiced). Accounts in Panchayati Raj Institutions are
maintained at three levels viz. Village, Block, and District. In order to synergise the entire
system of accounting, at all levels, the software ‘PRIASOFT’ was conceptualised.
1.2. Tier levels of the administrative set

set-up of Panchayats
1.2.1. Zilla Parishad
Zila Parishads
Zilla Parishad is a local government body at the district level in India. It
looks after the administration of the rural area of the district and its office
is located at the district headquarters. Zilla Parishad has minimum of 50
Block
and maximum of 75 members
members. Its sources of Income involve taxes on
Panchayats
water, pilgrimage, markets, etc. and fixed grant from the State
Government in proportion with the land revenue and money for works
and schemes assigned to the Parishad. Gram
Panchayats
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1.2.2. Block Panchayat

The block Panchayat is the local government, set at the block or tehsil level, for a group of
gram panchayats in states where the total population exceeds 20 lakh.
1.2.3. Gram Panchayat
Gram panchayats are local governments at the village or small town level. A gram panchayat
can be set up in villages with minimum population of 300. Sometimes two or more villages are
clubbed together to form group-gram panchayat when the population of the individual
villages is less than 300. The main source of income of the Gram Panchayat is the property tax
levied on the buildings and the open spaces within the village. Other sources of income
include professional tax, taxes on pilgrimage, animal trade, grant received from the State
Government in proportion of land revenue and the grants received from the Zilla Parishad.
1.3. Accounting in PRIs

The accounts of PRIs under model system of accounting are kept on cash basis. The
transactions in PRI accounts represent the actual cash receipts and disbursements during a
financial year as distinguished from amounts due to or by PRI during the same period.
1.3.1. Principles of cash based accounting in PRIs.
• Transaction is only recorded when cash is received or paid
• The accruals of amounts due to or owing by Panchayats are not shown in the financial
statements but are kept track by way of institutional records
• The expenditure on purchase of goods is not recognized until the bill is actually paid,
irrespective of when the goods were received or consumed
• The transactions represent the actual cash receipts and payments during a financial
year
• Cash based information has the advantage of being relatively simple and readily
verifiable.
1.4. Need for National Panchayat Accounting Manual (NPAM)

The 74th Constitutional Amendment Act, 1992 redefined the role and significantly increased
the responsibility of panchayats in the country’s development. With the status of ‘Local Self
Government’, these authorities were now required to perform a wide range of civic and
developmental functions for local development. The Panchayats now witnessed a significant
increase in responsibilities with greater powers, distinct sharing of resources with the State
Government and greater decentralised authority. Considering the growing importance of
these bodies, there was a need felt to simultaneously improve their internal financial systems
and resources, and strengthen their capacity to carry out the new responsibilities. So in order
to addresses the issues related to improving financial accountability of local self-governments
in India, the need to have an accounting manual at PRIs was initiated.
Articles 243 J and 243 Z provide for maintenance of accounts and audit of Local bodies, which state
that “The Legislature of a State may, by law, make provisions with respect to the maintenance of
accounts by the Panchayats/Municipalities and the auditing of such accounts”.
The NPAM is developed in order provide policy base and practice guidance to the Panchayati
Raj Institutions (PRIs) in their objective of developing an effective accounting and financial

management and thus the Manual is expected to serve as a comprehensive reference volume
for the PRIs in their day to day functioning. As a reference document, the NPAM also provides
detailed formats for accounting for transactions of different nature and prescribes the exact
procedures to be followed by all accounting staff in PRI.
1.5. Our Approach in preparation of NPAM

Our approach to the development of this NPAM is based on the guidelines issued by the MoPR
and the C&AG, keeping in line to the adoption of the Cash Basis system of accounting as the
pertinent Accounting System to be followed at PRI. In the preparation of the manual the
International Public Sector Accounting Standard (IPSAS) “Financial Reporting under the Cash
Basis of Accounting”, promulgated by International Federation of Accountant Committee
(IFAC)-Public Sector Committee has been abided by to the extent applicable and practicable.
The manual has also taken into account international accounting practices, professional
literature and current accounting practices being followed at all levels of the Panchayati Raj in
India. This document enumerates provisions for preparation, maintenance and presentation
of accounts. It also contains forms and other needed formats for the collection of data on
assets, liabilities, etc. The document provides instructions and guidance on how to fill up these
forms. It will also provide detailed guidance on preparing all the required Financial Statements
using ‘PRIASoft’- The accounting software developed by the MoPR in close coordination with
the NIC. The purpose of the volume is not only to be ready reference, but to promote
accuracy, prudence and propriety in the processing and recording of accounting transactions.
Thus NPAM is expected to bring in accountability and transparency and thereby good
governance in the PRIs.
Field visits were carried in six states, i.e. Madhya Pradesh, Punjab, Orissa, Andhra Pradesh,
Maharashtra and Assam to study the current accounting systems being followed in different
states and efforts required to migrate to new model accounting system. Comprehensive
discussions were held at State, Zila, Block, and Gram Panchayat level with concerned
functionaries, to discuss various accounting and implementation issues and their suggestions
were also undertaken.
The National Panchayat Accounting Manual (NPAM) will help the PRIs in understanding and
implementing:
• sound accounting practices and processes/procedures to be followed in financial
transactions relevant to Panchayats;
• the basics of different accounting system;
• differences in cash and accrual based accounting;
• process/procedures to be following in financial transactions;
• single entry/double entry accounting systems;
• reconciliations procedures;
• period end procedures;
• procedures for recording transactions related to Panchayat functions and activities
in different accounting system which shall include the method of identification,
preparation, verification and recording of transactions in all Panchayat accounting
areas such as taxes and fees, grants from various sources, salaries/wages, suppliers

materials, contractors, projects and fixed assets, grants and revenue from various
services provided etc. both under a manual and computerized environment;
• Chart of Accounts
• Features and use of PRIASOFT
And also help the Central and State Governments in:
• Aggregating the Data for PRIs;
• Tracking the flow of funds; and
• Taking decisions on subsequent release of funds
The manual will also serve as a base document for computerisation of accounting
procedures in the PRIs and for ensuring that the policies, procedures and forms
recommended by the central government and various state governments are amenable for
computerisation.
1.6. Applicability of NPAM

This manual is applicable to all PRIs to whom the 74th Constitutional Amendment Act, 1992,
is made applicable. Accounting principles and procedures placed in the manual are primarily
focused on the concept of cash basis of accounting. The accounting principles adopted for
preparation of the Financial and Information Statements of the PRIs shall be followed
uniformly unless stated otherwise in the manual. The manual provides for integrating the
budgeting and accounting systems to enable better control.

2. Envisaged Accounting System
As per the recommendations of the Eleventh Finance Commission, the Ministry of Finance
(MOF) had issued guidelines for Utilization of Grants to Local bodies in June 2001. Para 6.4 of
the Ministry of Finance guidelines states that “The C & AG shall be responsible for exercising
proper control and supervision over the proper maintenance of accounts and their audit for all
3 tiers/levels of PRIs and ULBs.” As of 30th April, 2009 out of 24 States where 73rd & 74th
amendments are applicable, entrustment of TGS to CAG has been received in 22 states and
one Union Territory.
An important way of securing accountability and transparency is to make available data

related to finances of the local bodies, to all stakeholders viz. the local body itself, public and
the district/state/central level governments. Recognizing the need for such a database, on the
recommendations of the Eleventh Finance Commission, the Ministry of Finance in its
guidelines had stated that, “The database on finances of Panchayats and municipalities shall
be developed at the district, State and Central Government levels and shall be made easily
accessible by computerisation. The data shall be collected and compiled in standard formats as
prescribed by CAG.”
2.1. Recommendation of the Second Administrative Reforms Commission on Local

Bodies
A number of recommendations of the Sixth Report of the Second Administrative Reforms
Commission titled “Local Governance- An Inspiring Journey into the Future” have been
accepted by Government of India. The following recommendations have been accepted by the
Government of India:
1. The accounting system for the urban local bodies (ULBs) as provided in the National
Municipal Accounts Manual (NMAM) should be adopted by the State Governments
2. The financial statements and balance sheet of the urban local bodies should be audited
by an Auditor in the manner prescribed for audit of Government Companies under the
Companies Act, 1956 with the difference that in the case of audit of these local bodies,
the C&AG should prescribe guidelines for empanelment of the Chartered Accountants
and the selection can be made by the State Governments within these guidelines. The
audit to be done by the Local Fund Audit or the C&AG in discharge of their
responsibilities would be in addition to such an audit
3. The existing arrangement between the C&AG of India and the State Governments with
regard to providing Technical Guidance and Supervision (TGS) over maintenance of
accounts and audit of PRIs and ULBs should be institutionalized by making provisions in
the State Laws governing local bodies.
4. It should be ensured that the audit and accounting standards and formats for
Panchayats are prepared in a way which is simple and comprehensible to the elected
representatives of the PRIs
5. The independence of the Director, Local Fund Audit (DLFA) or any other agency
responsible for audit of accounts of local bodies should be institutionalized by making
the office independent of the State administration. The head of this body should be
appointed by the State Government from a panel vetted by the C&AG

a. Audit reports on local bodies should be placed before the State Legislature and
these reports should be discussed by a separate committee of the State
Legislature on the same lines as the Public Accounts Committee (PAC).
b. Access to relevant information/records to DLFA/designated authority for
conducting audit or the C&AG should be ensured by incorporating provisions in
the State Laws governing local bodies.
c. Each State may ensure that the local bodies have adequate capacity to match
with the standards of accounting and auditing.
d. The system of outcome auditing should be gradually introduced. For this
purpose the key indicators of performance in respect of a government scheme
will need to be decided and announced in advance.
e. To complement institutional audit arrangements, adoption and monitoring of
prudent financial management practices in the local bodies should be
institutionalized by the State Governments by legislating an appropriate law on
Fiscal Responsibility for Local Bodies.
The Comptroller and Auditor General of India has been requested by the Ministry of Urban
Development to work out the methodologies for implementation of the same in
consultation with the Ministries.
Based on these recommendations the CAG has prescribed
• A model Accounting System
• List of Account Codes
• Accounts and Budget Formats
2.2. Model Accounting System
The Ministry of Panchayati Raj, Government of India after consultative process with C&AG and
State Governments prepared a Model Accounting System for the Panchayati Raj Institutions to
ensure transparency and accountability in the operations of the financial transactions in
Panchayats.
Based on the recommendations of the Eleventh Finance Commission, for exercising proper
control and securing better accountability, the formats for the preparation of budget &
accounts and database on finances were prescribed by C&AG in 2002. These formats were
further simplified in 2007 for easy adoption at grass root level. The Technical Committee on
Budget and Accounting Standards for in the meeting held on 4th August 2008 co-chaired by
Secretary, Ministry of Panchayati Raj, Govt. of India and Deputy Comptroller and Auditor
General (LB), considered the need for developing simple but robust format of accounts and
constituted a Sub-Committee co-chaired by Director General (LB) and Principal Secretary,
Panchayati Raj Department, Govt. of Gujarat, for the purpose. The mandate of the Technical
committee was to the sub-committee inter alia include to prescribe simple but robust
accounting system for , comprehensible to the elected representatives and functionaries of
and facilitates generation of financial reports through Information and Communication
Technology. The simplified accounting formats were circulated among the members of the
sub-committee, and were subsequently approved on 15th January, 2009. These formats are

simple to implement and by adopting them states will have better financial control over and
will gain in terms of better financial management and greater creditability.
2.2.1. Features of Model Accounting System
The accounting practices prescribed for PRIs are by and large; akin to the accounting practices
followed by the State Governments which are as follows.
• Each institution i.e. Zilla Parishad/Mandal Parishad / Gram Panchayat is an
accounting entity.
• The accounts are kept on cash basis.
• The financial transactions are classified on three tier structure i.e. Functions (major
head), programs/ schemes (minor head)and objects( object head)
• The nomenclature of the Major Heads is kept identical to the 29 functions listed in
the Eleventh Schedule of the Constitution.
• Sub-heads have been prescribed for classification of scheme under appropriate
function.
• States may choose and operate those major/minor heads as required in their
particular context without changing the overall structure.
• There is a strong relationship between accounting and budgeting and the
accounting system provides the basis for appropriate budgetary control.
• The institutions are not require-d to prepare a balance sheet and the details of
assets are kept in the subsidiary registers and records of the PRI
• The Receipts and Payments Accounts would incorporate revenue and capital,
deposits, loans and advances and remittances.
• Period of accounts is a financial year ending 31st March.
The Accounts are to be kept in two parts,
Part - I To record transactions of all receipts and expenditure relating to Panchayats

Fund
Part - II To record transactions relating to Provident Funds, Loans, Deposits and
Advances.
2.3. Codification in Chart of Accounts

The purpose of Codification is to better organize accounting principles and laws to simplify
user access. The synchronisation of the ‘Priasoft’ with the accounting codes will lessen the risk
of noncompliance of accounting standards and policies.
The following changes are incorporated in the model accounting system as compared to the
new accounting formats introduced earlier.
• First tier i.e. Major Head (four-digit) represent functions enumerated in the Eleventh
Schedule of the Constitution.
• Second tier i.e. Minor Head (three-digit) represent activity/programme of the functions.
• Third tier i.e. Object Head (two-digit) represent the object of receipts/ expenditure.
• A two digit sub-head is introduced to distinguish the grants released by central and
state governments. Considering the number of state schemes Alpha-numeric sub-heads
can be operated for state schemes.

ABCD EFG HI J K
ABCD-EFG-HI-JK
For the entire list of codes Vol II is to be reffered.
2.4. Basis of Codification

2.4.1. First Tier Classification: Major Head
The main unit of classification in accounts is a four digit 'major head' which correspond to
one of the (29) functions enumerated in the 11th Schedule of the Constitution are classified
under 23 major heads. In addition to the 23 Major Heads three mo morere Major heads as shown
below have been opened to facilitate the PRIs to account their activities.
2049- Interest Payments
2071- Pension and Other Retirement Benefits and
2515- Panchayat Raj Programmes
In the four digit code of Major Head, the first dig
digit indicate whether the Major Head is a
Receipt Head, Revenue Expenditure Head, or Capital Expenditure Head

Revenue Receipt
Revenue receipts consist of tax collected by the government and other receipts consisting of
interest and dividend on investments made by government, fees and other receipts for
services rendered by government"
Revenue Expenditure - It means outlay benefiting only the current year. It is treated as an
expense to be matched against revenue.
Capital Expenditure - Expenditure intended to benefit future period incurred for acquisition
/ construction of fixed assets. The term is intended to cover expenditure that adds fixed
asset units or that has the effect of improving the capacity, efficiency, life span or economy
of operations of an existing fixed asset.
Capital Receipt is the funds that are not part of the operating activities of the
establishment. Capital receipts primarily include external assistance, market loans, small
saving and government provident funds etc.
Inserting digit ‘2’ to the first digit of the Revenue Receipt will give the Code Number allotted
to corresponding Revenue Expenditure Head; inserting a ‘4’ instead of ’2’ will give the
relevant Capital Expenditure. Any addition or deletion of a major head, or a minor head will
be done only with the approval of the State Accountant General.
Functions listed in the Corresponding Major Heads

SI. th Nomenclature of the
XI Schedule of the Revenue Capital
No. Revised Major Head Receipts
Constitution Expenditure Expenditure
Agriculture. including Agriculture, including

1. 0435 2435 4435
Agricultural Extension Agricultural Extension
2. Rural Housing Rural Housing 0216 2216 4216
Water Supply and

3. Drinking Water 0215 2215 4215
Sanitation
Education. including
4. Primary and Secondary Education 0202 2202 4202
Schools
5. Markets and Fairs Market and Fairs 0206 2206 4206
In addition, Panchayats may also operate the following separate major heads to record all
transactions (Receipts and Payments/Disbursement) under Loans, Pension & Provident
Fund, Insurance and Pension Fund, Deposit and Advances and Civil Advance, depending
upon the requirement:
7610- Loans to Panchayat Employees
8011- Insurance and Pension Fund
8550- Civil Advances
8009- Provident Fund
8443- Civil Deposit

To record all unclassified transactions not immediately booked under the respective
functional major heads due to lack of detail/proper classification in the
challan/cheque/voucher, Panchayats may operate '8658-Suspense Accounts'.
2.4.2. Second Tier Classification: Minor Head
The second tiers of Minor Heads, with a three digit code, identify the programme undertaken
to achieve the objectives of the functions. A major head is divided into minor heads.
Major Head Function Minor Heads
101- Profession Tax
0028 Taxes on Profession, Trades etc.
103- Trade License Fees
101- Entertainment Tax
0045 Taxes on Duties and Commodities 102- Advertisement Tax
104- Receipts under Other Acts
101- Primary Education
2202 Education 102 -Secondary Education
103-Adult Education
101-ZiIla Parishad
2515 Panchayat Raj 102- Block Panchayat
103-Gram Panchayat
2.4.3. Third Tier Classification: Object Code
For most commonly used items of expenditure a two-digit standardized object head (inputs)
have been standardized. The object head under receipts head can be opened as per
requirement. Item-wise details of Object head expenditure like Dearness Allowance, House
Rent Allowance etc. under salaries can be kept outside accounts if required.
Purpose of
Object Code Purpose of Expenditure Object Code
Expenditure
Salaries 01 Wages 02
Overtime Allowance 03 Travelling allowance 07
Administrative Supplies and Materials 13

12
Expenses
Petrol/Diesel 14 Grants – in – aid 17
Share of taxes / duties 20 Maintenance 26

2.4.4. Sub Head

A two digit codification of the schemes has been done as under. In order to earmark the
transactions under specific scheme, the codification of schemes was desirable.
Scheme Code Scheme Description
11 National Rural Employment Guarantee Scheme (NREGS)
12 Sampoorna Gramin Rozgar Yojana (SGRY)

13 Swaranjayanti Gram Swarozgar Yojana(SGSY)
14 Indira Awas Yojana (IAY)

15 National Rural Health Mission (NRHM)
16 Accelerated Rural Water Supply Programme (ARWSP)
17 Total Sanitation Campaign

18 Mid Day Meal Scheme
19 Sarva Shiksha Abhiyan

20 Pradhan Mantri Gram Sadak Yojana (PMGSY)
21 Integrated Watershed Management Programme
22 Integrated Child Development Services (ICDS)
Receipts Payments
1601- Grants in aid 2210-Health and Sanitation
101-Grants from GOI 101-Primary Health Centre
14 - IAY 14 - IAY
02- Wages 02-wages
(object head) (object head)
2.5. PRI Accounts and Budget Formats

As a major initiative, the accounts and budget formats for PRI prescribed by CAG in 2002 have
been accepted and formal orders issued by 11 states. These formats and accounts codes have
been simplified in 2007 to enable their easy adoption. The Technical Committee on Budget
and Accounting Standards for PRI in the meeting held in August 2008 felt the need for further
simplifying the formats of accounts considering the capacity of the Gram Panchayats staff and
constituted a Sub-Committee to develop a simple but robust computerised accounting format
for PRIs which should be user friendly. The Sub-committee has developed the simplified
accounting formats for PRIs by changing already prescribed six-tier classification to more
manageable three tier classification system. The simplified accounting formats along with list
of Codes, Functions, Programmes and Activities for PRIs recommended by the Sub-committee

have been accepted by the Technical Committee in January 2009. Maintenance of accounting
formats as prescribed would help in subsequent switch over to the modified accrual system of
accounting. These formats as prescribed by CAG can be referred to in Vol III.
With a view to ensuring that accounts of the PRIs properly present the financial
position of the authorities, the CAG has prescribed ‘Guidelines for Certification Audit
of PRIs’, which would improve the quality of audit being undertaken by the primary
auditors and bring in greater accountability
2.5.1. Registers prescribed.
Under model accounting system (8) formats are now recommended instead of 16 prescribed
earlier Maintenance of these Registers would eventually help in shifting over to Accrual
System of Accounting
The theoretical frame work of accounts developed for PRIs laid a strong foundation for the
preparation and maintenance of accounts and their audit.
• The prescribed receipts and payments formats, along with statement of demand
collections, and assets, address critical aspects of the accounts.
• The formats depict all the (29) functions listed in the Eleventh schedule to the
constitution and show funds transferred to PRls under various programmes and schemes.
• The accounts and the budget formats are synchronized and linked to the functions
performed by the PRIs
• The codification prescribed makes the accounts amenable to computerization for building
up a database and generation reports for effective monitoring.
Sl No. Form No. Name of the Register
1. Form - I Monthly/Annual Receipts and Payments Account
2. Form - II Consolidated Abstract Register
3. Form - III Reconciliation Statement with Bank and Treasury
4. Form - IV Statement of Receivable and Payable
5. Form - V Register of Immovable Property
6. Form - VI Register of movable Property
7. Form - VII Inventory Register
8. Form - VIII Register of Demand, Collection and balance
The entire set of formats appear in Vol III which is a part of the document

3. Priasoft
Panchayati Raj Institutions Accounting Software is a web-based e-governance application,

developed by National Informatics Centre, Ministry of Information Technology, and Govt. of
India for Panchayati Raj Institutions to effectively monitor and manage their accounts. It
addresses the monitoring of funds at three-tier Panchayati Raj Institutions (PRI) under
different account heads, on a month end basis. Its objective is to facilitate better financial
management of Panchayati Raj Institutions (PRIs) by bringing about transparency and
accountability in the maintenance of accounts thereby leading to better credibility and
ultimately strengthening of PRIs. The citizen section of the application provides financial
information to the public whereas the government section captures data and generates MIS
reports in the specified format as per the need at the state, district, block and GP levels. The
project has been operational since 2003.
3.1. Need for a Accounting Software

Keeping with the spirit of the Constitutional amendments and the philosophy of
decentralization which recognizes that grassroots level participation and implementation is
the very essence of good governance, Panchayats are being increasingly invested with
responsibility of implementation of many schemes and programmes. But In order to deal with
this challenge the Panchayats lacked the technical knowhow and the ability to manage these
funds. Some of the key audit concerns brought out in CAG’s Reports are summarised below:
Budgeting
• Weak budgeting and budgetary control.
• Budget proposals not approved by the PRIs/gram Sabha.
• Due to non-formulation of annual plan in time:
o majority of local bodies could not incorporate estimates of receipts and
payments relating to Plan schemes in their budgets and
o local bodies incurred plan expenditure without budget approval
Postings in Cash Book
• Differences in opening and closing balances.
• Non-account of receipts.
• Incorrect and incomplete postings.
• Non- reconciliation of cash book with bank pass book.
Accounts
• Delay in preparation of monthly and annual accounts
• Lack of up to date accounts by the local bodies leading to incomplete picture of
their financial position.
• Non maintenance of accounts in the Accounts Formats prescribed by CAG
rendering comprehensive analysis of the finances and expenditure difficult.
• Local bodies are yet to create the database on finances prescribed by CAG. In
some States this work has been entrusted to consultants
• Lack of a centralized agency for consolidation of accounts and creation of a
comprehensive database on finances of local bodies.
Utilization of funds
• Incomplete works.

• Fraudulent/irregular/excess payment noticed during test check of muster rolls.

• Release of excess grants leading to increased unutilized balances.
• Non – adjustment of Abstract contingent Bills.
• Non- maintenance of property records – risk of encroachments/ mis-utilization.
• Sums due to Gram Panchayats not transferred by ZPs
• Diversion of expenditure for schemes to other purposes/ schemes.
• Weak material management – absence of periodical stocktaking; reconciling
shortages; purchases without tenders/ quotations.
Internal controls
• Lack of internal controls in the areas of budgeting, procurement of stores and
execution of works leading to fraud, misappropriation and embezzlement of
funds
• Absence of periodic reconciliation of receipts and expenditure.
• Non-operational internal controls against errors and inaccuracies through
monthly accounts.
• Lack of receipts and expenditure controls resulting in huge savings and excess
expenditure.
• Weak asset management – missing asset registers, inadequate physical
verification, lack of effective control & no institutional mechanism to track
assets.
• Absence/arrears in internal audit in the local bodies.
Implementation of schemes
• Loss of assistance due to failure to adhere to stipulated conditions and
underutilization of available funds.
• Blocking of funds.
• Instances of unfruitful/doubtful expenditure noticed.
• Diversion of scheme funds.
• Irregular adjustment without vouchers & utilization certificates.
• Defective identification of beneficiaries and selection of beneficiaries.
Grassroots planning
• District Plans did not reflect the felt needs of local bodies.
• Release of funds before approval of action plans.
Loss of revenue
• Non-realisation of taxes, rent, license fee and auction proceeds.
• Short collection of sales tax; non-remittance of statutory taxes & cess to govt.
account.
The Ministry of Panchayati Raj have therefore requested the National Informatics
Centre (NIC) to develop a software to address these issues, capturing the 3-tier
classification, and providing a true and fair view of the existing financial position of the
Local self Governments. The software should take into account the reports, codes and
formats as prescribed by CAG. Accordingly, NIC working closely with the CAG
developed the software called “PRIASOFT”.

3.2. Basic Features

Simplicity
o Simple & Easy to Use
o Focus on Schemes; Account Head details hidden as much as possible
o Double Entry Accounting concepts hidden from end users
o Panchayats only need to understand the use of four vouchers; all reports are
generated automatically
Adaptability
o Can be easily configured to meet State-Specifc Needs
o Can be used in State’s official language
Security
o Data is passed over a secure network
o Audit logs of all transaction data maintained by the system
Availability
o Web-based software, available 24X7
Transparency
o Reports generated are available on public domain
Two Stage Data Entry
o Operator
o Administrator
Alerts on Important Transactions Through
o SMS
o E-mail
3.3. Different Vouchers in Priasoft

In ‘Priasoft’ vouchers have been sub categorized as under:
a) Receipt Voucher
i. Direct
ii. Transfer
iii. Advance Receipt
iv. Refund of Advance
v. Cancellation of Cheque
vi. Refund of Excess Payment
vii. Refund of OB advance.
b) Payment Voucher
i. Expenditure
ii. Transfer
iii. Advances
iv. Receipt Cancellation
c) Journal Voucher
i. Expenditure Rectification

ii. Receipt Rectification

iii. Advance Rectification
iv. Advance Adjustments
v. Deductions
d) Contra Voucher
i. Withdrawing Cash from Bank/Treasury / Post office etc.
ii. Depositing Cash in Bank/Treasury/Post Office etc.
The entries of different type of entries into the vouchers have been explained in section
5.1 of this manual.

4. Basic Accounting System
"Accounting is an art of recording, classifying and summarizing in 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
thereof.” The process involved in making a financial record of
transactions and
nd in the preparation of statements concerning the assets, liabilities, and
operating results of an entity is termed as Accounting.
Accounting is a process of identification, measurement and communication of economic
information involving four interconnect
interconnected
ed phases. They are outlined herein:
1. At the outset, the first phase is meant to record the economic events or
transactions -depending
depending upon their occurrences, chronologically in the books of
accounts - called journals. This process is known as journalizing
journalizing..
2. Next comes the phase of ledger ledger-posting:: It is the process by which all the
transactions are synthesized account
account-wise
wise so that the accumulated balance of each
of those accounts can be determined. The process of ledger posting is vitally
important as it he
helps
lps in ascertaining the net effect of various transactions during a
given period.
3. The subsequent stage is preparing the trial balance which involves the
arrangement of all ledger accounts having been aggregated into debit and credit
activity IS reconciliation which enables to check and confirm
balances. This activit
whether the total of debits is equal to that of credits.
4. Finally,, comes the phase of preparing financial statements. This is the phase where
reporting is done by measuring profit & loss account and preparing Balance Sheet-
Sheet
at the end of accounting period.
4.1. Need for Accounting

Accounting with accuracy, efficiency and effectiveness in terms of overall economic activities
is of a great assistance to management for planning, controllin
controllingg and decision making process.
It is with the help of accounting information that the performance of an entity can be
appraised, at the same time as, its methodical records make possible to eliminate the frauds
and the thefts. Furthermore, being concerned primarily with the creation of financial
information for its users, accounting provides useful information for ascertaining the
effectiveness and efficiency of the entity. Hence, accounting is must for every entity.
Recording of
Financial
Transactions
with

4.2. Types of Accounting

4.2.1. Cash Basis of Accounting
Under the cash basis of Accounting, transactions are recorded when the related cash receipts
or cash payments take place. Thus the revenue is recognized when cash is collected.
Similarly, expenditure on acquisition and maintenance of assets used in rendering service as
well as on employee remuneration and other items is recorded when the related payments
take place. The end-product of cash basis of accounting is a statement of receipts and
payments that classifies cash receipts and cash payments under different heads. A statement
of assets and liabilities may or may not be prepared.
Budget is the principal tool of financial control in the government which sets forth the targets,
objects and purpose for which expenditure should be incurred and during the period and
correspondingly the sources from which funds should be raised to meet the expenditure.
Since, cash basis of accounting seeks to measure actual expenditure and receipts under
various budget heads to facilitate a comparison of actual performance viz-a-viz the budgeted
targets, it is adopted in the government.
Some benefits and limitations of cash based accounting are explained below:
Benefits of cash basis of accounting
o Government budgets and appropriations are cash based, therefore, monitoring of
receipts and spending is easier.
o Cash based financial reports are budget compliant.
o Principles underlying the cash basis are easy to understand and easy to explain.
o Compilation of cash based information is easier
o Operating cost is low
o No need to exercise any judgment in determining the amount of cash flows for the
period.
Limitations of cash basis of Accounting
o Information on assets and liabilities is not available.
o Impact of consumption of stock of net assets held by government is not known.
o Cash based accounting focuses solely on the cash flows of the current period.
o The timings of the cash receipts and cash payments may not coincide with earning
of revenues and incurring of expenditure.
o Measurement of performance based on cash basis of accounting is susceptible to
alternation through slight variation in the timing of cash receipts and payments.
o A budgetary deficit can be concealed by postponing payment by few days.
o In cash basis of accounting expenditure incurred on major changes to the
infrastructure that results in increase in its life, will be treated as revenue on
normal repairs and maintenance.
o Refundable deposits are normally treated as charges for services.
o Performance and financial position under cash basis of accounting, therefore, may
not yield correct results.

4.2.2. Accrual basis of Accounting

In the accrual basis of accounting (also known as Mercantile Basis of Accounting), transactions
by which revenue, costs, assets and liabilities are reflected in the accounts in the period in
which they accrue. The accrual basis of accounting includes considerations relating to
deferral, allocations, depreciations and amortization.
In the accrual basis of accounting financial effects of the transactions and other events of an
organizations are recorded in period in which they occur, unlike the cash basis of accounting
where financial transactions are recorded in the period(s) when cash is received or paid, The
goal of the accrual basis of accounting is to relate the performance of the organization in
earnings in revenues and incurring expenditure during a period and not listing cash receipts
and payments. Apart from income and expenditure measurements, accrual basis of
accounting recognizes assets, liabilities or components revenues and expenses for amounts
received or paid in cash in past, and amounts expected to be received or paid in cash in future.
Benefits of accrual basis of accounting are summarized below:
• Under the system income and expenses are taken into the books of accounts as
soon as they happen. This is like issuing a cheque and noting the amount down in
the cheque book. That way we always know how much money we shall finally
have at the end of the day, whether or not the cheque has been encashed by the
person to whom we have given it.
• Under this system liabilities are recognized (moneys that are committed for
payment but may not have actually paid) and also assets (physical assets like land
or buildings or monitory assets like fixed deposits or moneys that PRI is sure to
get).
• Since, the accrual system recognizes income and expenditures as and when they
happen, it reflects exact financial position at any given point of time.
• Using the accrual system we can then create not only an income and expenditure
statement of the PRI which tells us in real terms its deficit or surplus, and also a
balance sheet of its assets and liabilities.
• The balance sheet of assets and liabilities in turn, tells the net assets position of the
organization, which basically is a statement of its overall financial worth. For
example, take the case of a person who owns a house worth Rs.10 Lakh and he has
Rs.10, 000 in the bank. Now, if that person has actually run up bills of Rs.20,000,
his creditors are unlikely to bother him because they all know that he owns that
house. In accounting terms we say that his net assets position is Rs.9 Lakhs and 90
Thousands Rupees. Of course, this money is not in cash but this is his monitory
worth. If he wants to pay the extra Rs.10, 000 that he does not have in cash, he can
always raise a small loan against his house and the other assets, pay the
outstanding Rs.10, 000, and perhaps, chalk out a scheme for repaying his loan over
a longer period of time.
• In the PRI also we can adopt these kinds of strategies to get over our periodic
shortages of cash; but for that, like in our example, we need to know our exact net
assets position. And we will not know that unless we have an accrual system of
accounting in place.

4.2.3. Differences between Cash Basis and Accrual Basis of Accounting

Basis of Cash Basis of Accounting Accrual Basis of Accounting
Distinction
Nature of the Transactions are recorded when All incomes and expenses relating to
transactions the related cash receipts or cash the particular Accounting Period are
payments take place whether or recorded, whether or not received
not the transactions actually or paid during that period.
belonged to that accounting period
Accounts Only Personal accounts and Cash Personal, Real and Nominal
Books are opened Accounts are opened
Financial Financial Performance cannot be Financial Performance of an entity
Performance ascertained as an Income and can be ascertained by preparing the
Expenditure Account is not Income and Expenditure Statement
prepared
Financial Only a Statement of Affairs is A Balance Sheet is prepared on
Position prepared which does not give the going concern principle, which gives
true and fair state of affairs a true and fair state of affairs.
Authenticity This system is not considered to be This system of accounting is well
authentic by the financial accepted by the Financial
institutions, lending agencies and institutions, lending agencies and
other outside bodies other bodies.
4.3. Methods of Accounting - Book Keeping

Two common methods for recording financial transactions by organizations are the single-
entry bookkeeping system and the double-entry bookkeeping system. In the single-entry
bookkeeping method, only income and expense accounts is recorded primarily in cash book or
day book. Single-entry bookkeeping is adequate for many small businesses. Double-entry
bookkeeping requires posting (recording) each transaction twice, using debits and credits.
4.3.1. Single Entry System
The primary bookkeeping record in single-entry bookkeeping is the cash book, which is similar
to a checking account register but allocates the income and expenses to various income and
expense accounts. Separate account records are required to be maintained for petty cash,
accounts payable and receivable, and other relevant transactions such as inventory and assets
etc. We can also say single entry bookkeeping system is an incomplete form of double entry
bookkeeping as it does not show on equal debits and credits.
Advantages of Single Entry System
• It is being used in the interest of simplicity.
• It is less expensive compare to double entry bookkeeping system.
• It does not require a professionally trained person
Disadvantages of Single Entry System
• It is difficult for management to do effectively planning and controlling the business as
perfect data may not be available.
• As it does not show the perfection, it may lead to inefficient administration and may
reduce the control over the business affairs

• The major disadvantage of this system is that it does not provide a check against
clerical error.
• Since every debit does not have a corresponding credit, a trial balance cannot be
extracted to test the arithmetical accuracy of the entries.
• In absence of proper records of any assets and of any allowances for depreciation or
other losses of value, it is not possible to prepare a balance sheet.
• It is too easy to perpetrate the errors and frauds and too difficult to detect them.
4.3.2. Double Entry System
Double Entry Accounting System recognizes that every transaction has a dual effect. There
are two sides of every transaction. If one account is debited, any other account must be
credited. Every transaction affects at least two accounts in opposite directions. It may,
however, be noted that double entry does not mean that a transaction is recorded twice. It
actually means that at least two accounts are affected by a transaction, one account receiving
a benefit and other account yielding a benefit. It is because of dual aspect principle that two
sides of Balance Sheet are always equal and the following accounting equation will always
hold good at any point of time.
Assets = Liabilities + Capital (or net worth)
Whenever, a transaction is to be recorded, it has to be recorded in two or more accounts to

balance the equation. If a transaction affects ( increases or decreases) the one side of
equation, it will also affect (increase or decrease) the other side of equation or increase one
account and decrease another account on the same side of equation.
Advantages of Double Entry System
• It is possible to keep a full record of dual aspect of each transaction.
• Transactions are recorded in a scientific and systematic manner , thus providing
reliable information for controlling the organization efficiently and effectively.
• Since the total Debit under this system be equal to total Credit, arithmetical accuracy
of the books can be tested by means of trial balance.
• An income and expenditure accounts can be prepared to know the excess
income/expenditure during a particular period and to know how such excess
income/expenditure has arisen.
• The financial position of organization can be readily ascertained by preparing a
balance sheet.
• Frauds are prevented, because alternation in accounts becomes difficult and
discovery of irregularities is facilitated.

5. Accounting Process under Double Entry Accounting System
TRANSACTIONS
Receipt Payment Deposit/Withdrawal Adjustment
Receipt Voucher Payment Voucher Contra Voucher JOURNAL

VOUCHER
CASH BOOK JOURNAL BOOK
TRIAL BALANCE
Balance Sheet Income & Expenditure Receipt &

Payment Account Account

5.1. Vouchers
The process of recording a financial transaction begins with its documentation in vouchers. A
voucher is an accounting document representing an internal intent to make a payment to an
external entity. On the basis of source documents entries are first recorded on vouchers. A
serial number is put on each voucher and the relative source documents are attached with the
voucher. The vouchers are properly filed according to their serial number so that auditors
may easily vouch them and these may also serve as documentary evidence in future. In
Priasoft there are four types of vouchers:
Receipt Voucher
Payment Voucher
Contra Voucher
Journal Voucher
5.1.1. Receipt Voucher
A Receipt Voucher is used to record or capture the details of any inflow of funds for the
Panchayat. Panchayati Raj Institutions may receive money as
Direct Receipt
Transfer Receipt (money transferred to them by other PRIs)
Advance given by other panchayats to do deposit work
Refund of Advance
Refund of Excess Payment
Cancellation of Cheques

5.1.2. Payment Voucher

A Payment Voucher is used to record the details of any outflow of funds from the Panchayat.
The outflow of funds incurred by the Panchayat could be related to
Actual Expenditure incurred by the Panchayat
Transfer of Funds to other Panchayats
Payment of Advance to other Panchayats, Line Departments, Agencies or
Employees
5.1.3. Contra Voucher

A Contra Voucher is used to record any transactions occurring between cash-in-hand and
bank/treasury/post office and vice versa and also between two bank/treasury/post office
accounts. Contra voucher can only be used to record the transactions that occur within a
scheme or its components

5.1.4. Journal Voucher

Journal Voucher is used to record any book adjustment (from one Account Head to another
Account Head). Journal Voucher can be used by Panchayats for
Receipt Rectification
Payment Rectification
Advance Rectification
Adjustments
Deductions
5.2. Cash Book

A cash book is a book of original entry for cash receipts and disbursements. Cash comprises
cash on hand and demand deposit. Cheques and demand drafts not in favour of Panchayat do
not fall within the scope of definition of cash. The cash book is the primary record for keeping
accounts of money received and payments made. Only one main Cash book in each PRI may
be maintained incorporating balances from all subsidiary cash books, which are to be kept as
necessary. The cash book should be properly bound and the pages numbered.
5.2.1. Writing a Cash Book
• The Cash book should be written daily, recording all the transaction on that day, both on
receipts and payment-side.
• The first entry on the debit side (left side) of the cash book shall be the opening balance
as on the 1st April which shall be the closing balance as on 31st March of the preceding
year.
• All transactions, whether in 'cash’ or by ‘cheque’ shall be entered in chronological order
in the cash book.
• Head of account for each transaction shall be clearly mentioned
• All receipts namely grants-in-aid, bank drafts, credit slips from bank etc are entered first
in the register of cheques received.
• Challans for the amount credited in to Treasury to PRI funds should be taken to receipts
side of Cash book giving full details of the remittances
• The adjustments shown in pay bills like recovery and the adjustments shown in work bills
should be classified and exhibited in the cash book both on receipts and payment side.
• All the payments by cheques are exhibited on the right side of the cash book.
• Brief narration should be given for every transaction.
• Each item transacted should be given voucher number serially for the financial year and
noted in the cash book as well as on the voucher.

• The last entry in the cash book shall be the closing balance of cash on hand and in bank
on the right side.
• The abstract of balances in various bank books is prepared and agreed with the closing
balance in the cash book. The details of cash in hand cash at banks should invariably be
appended in the cash book and attested.
• Entries regarding remittances of receipts to the bank/ treasury for credit to Panchayats
Account shall be attested by the competent authority after verifying the bank's receipt or
the pay-in-slip or challans.
5.2.2. Closing of cash book
• The cash book shall be closed regularly and checked.
• The Closing Balance worked out in the cash book would form the Opening Balance for
next day transaction.
• The totalling of cash book columns shall be verified by the authority other than the writer
of the cash book who shall initial it as correct.
• The closing balance as per cash book shall be compared with U1C balances as per bank/
treasury pass book and a monthly reconciliation statement drawn up on the last working
day of the month.
• At the end of each month the head of the office should verify cash balance and record
dated certificates
• The difference between the receipts and payment shall represent closing balance both in
cash and bank columns.
• When the credit appears in the bank/ treasury, the actual date of realization of the
cheque shall be indicated against the original entry in the cash book so as to keep track of
outstanding items.
• An eraser or over-writing of an entry once made in the cash book is strictly prohibited. If
a mistake is discovered, it shall be corrected by drawing the pen through the incorrect
entry and inserting the correct one in red ink between the lines.
• The competent officer shall initial every such correction and invariably date his initials
• Cash, cheque, drafts, etc. shall be kept in safe custody in cash chest. At the time of
transfer of the cashier proper handing over of cash balances shall be made under the
dated signature.
• Dishonoured cheque returned by bank will be reversed by minus entry.
5.2.3. Internal controls on cash book maintenance
The following general internal controls shall be observed by the PRIs:
• Balance brought forward is the opening balance to be entered
• The date of receipt to be shown in Cash book shall be the date on which amount has
actually been received
• All moneys received shall be immediately, without reservation be entered in the Cash
book
• The receipts shall be classified in the column provided according to budget heads
• The payments side of Cash book shall be posted from the details of vouchers and of the
cheques drawn
• The amount of each cheque shall be entered as soon as the cheque is signed

• Each entry in the cash book .should be attested by the authorized officer
• The classification and totals of cash book should be initialled
• Cash book should be closed daily and monthly.
5.2.4. Bank Payments /Drawing of Cheques
The following of points should be kept in mind while using cheques:
• Payment Voucher has to be prepared before preparing any cheque.
• All Vouchers have to be verified and approved before payment is released.
• Payment has to be made only against original bills and claims. Duplicate copy of bill or
claim should not be entertained.
• All supporting documents should be attached with the Payment Voucher
• The cheque number should be written on every Payment Voucher
• On receipt of cheque books from Treasury/Bank they should be carefully examined to see
that all the cheque leaves are in intact.
• Cheques should be written legibly and doubly ensure that the amount in words and
figures are the same.
• All cheques have to be crossed. A Rubber Stamp stating “A/C Payee only” should be put
on every cheque.
• No cheque shall be signed unless it is required for immediate delivery.
• Never sign cheques in advance or in blank
• Bearer cheques Post-dated cheques should not be issued.
• Cheques prepared on a day shall be dispatched on the same day
• All letters/instructions to the bank should be signed by the authorized signatories.
• Cheque books should always be kept under lock and key. Only authorized persons should
be allowed to handle them.
• If the cheque is lost, an intimation of the fact shall be given at once to bank for stopping
payment.
• A cheque if not encashed within six months, is presented for revalidation, the cheque can
be revalidated under the dated signature of Drawing officer
• If a cheque is not encased within one year of its drawl it shall be written back by a minus
entry under the relevant expenditure head if in the same financial year of by credit to the
connected receipt head, if after the close of the financial year.
• When a cheque is cancelled the fact of cancellation shall be recorded on the counterfoil
and also at the relevant cash book entries and on the paid vouchers etc. The cancelled
cheque shall be preserved till audit is over.
• When a cheque is cancelled after the cash book is closed in the same financial year, the
amount shall be adjusted by minus entry under the corresponding expenditure heads in
the posting register and in the cash book.
• The recoveries of overpayment whether made in cash or from payment vouchers shall be
posted direct under the service head concerned as reduction of expenditure, irrespective
of whether they relate to overpayment pertaining to the current year or to any previous
year. Net amount is taken as the amount of payment
5.2.5. Internal controls on writing of accounts
The following general internal controls shall be observed by the PRIs:

• The closing balance of cash as per the Cash Book shall be verified daily with the physical
cash balance and must be signed by the person verifying the cash.
• The accountant in the office should be made responsible for maintenance of books of
Account
• The same individual who encashed the cheques should not be entrusted with
responsibility writing the cheques.
• The totals in the cash book, Should be got checked by person other than the Person who
writes the above books.
• All the corrections and alteration in accounts shall be neatly made in red ink and attested
by the Executive authority
• If cash chest is maintained it should have two keys. One key with the cashier and the
other with another officer designated for this purpose by the PRI
• Bank reconciliation shall be carried out monthly by the accountant.
• At the time of recording collections, the Accounts Section shall ensure that the total
amount of collections as per the Collection Register tallies with the total amount as per
Receipt Register.
• Original copies of all the cancelled documents such as receipts, payment vouchers shall
be retained in the office file with reasons / justification for cancellation written on the
cancelled documents.
• The Accounts Section shall ensure that all the bank charges accounted based on the bank
reconciliation statement are supported with original bank debit advices.
• The Accounts Section shall certify all Reconciliation Statements
5.3. Leger Posting

Ledger contains classified and permanent record of all the transactions of an organization. It is
the chief book of accounts, and it is in this book that all the business transactions would
ultimately find their place under their accounts in duly classified form. Each ledger is divided
into two parts left side is known as debit side and right hand side as credit sides.

5.3.1. Rules for Posting

Posting is the process of transferring entries from journal or subsidiary books to the ledgers.
The following rules should be observed while posing entries in the ledger:-
1. All transactions relating to an account should be entered at one place. In other words
two separate accounts should not be opened for posting transactions relating to the
same account.
2. The word ‘To’ is used before the accounts which appeared on the debit side of an
account. Similarly the word ‘By’ is used before the accounts which appeared on the
credit side of an account.
3. If an account has been debited in the journal entry, the posting in the ledger should also
be made on the debit side of such account. In the particular column, the name of the
other account which has been credited in the journal entry should be written for
reference.
4. If an account has been credited in the journal entry, the posting in the ledger should
also be made on the credit side of such account. In the particular column, the name of
the other account which has been debited in the journal entry should be written for
reference.
5. Similarly amount which has been posted in the debit side of an account should also be
posted on the credit side of other account and vice versa.
5.4. Reconciliation
The objective of the reconciliation procedures is to ensure that there are no discrepancies
between the different sets of records. The recommended reconciliation procedures will
ensure that the receivables figure is the same in both the sets of records. In case of
differences, necessary adjustments may need to be carried out. The reconciliation procedures
are to be carried out by the concerned PRI.
The procedures will include the following:

1. Bank Reconciliation,
2. Reconciliation of deposits,
3. Reconciliation of receivables and collections in respect of:
i. Tax Revenue
ii. Non Tax Revenue;
iii. Other heads of revenues.
4. Reconciliation of advances to:
i. Contractors/suppliers;
ii. Other PRIs; and
iii. Employees of the PRI.
5. Reconciliation of loans received (borrowings) ,
6. Reconciliation of payables including contractors’ payables,
7. Reconciliation of balances with Government, quasi-Government agencies, Government
Corporations, and
8. Reconciliation of the accounts for the income and expense heads falling under the
following categories with the Function wise Income / Expense Subsidiary Ledgers
maintained at the Accounts Department in respect of those categories:
i. Fees & User Charges,
ii. Sale & Hire Charges,
iii. Establishment Expenses,
iv. Administrative Expenses, and
v. Repairs & Maintenance Expenses.
5.4.1. Bank Reconciliation
Bank Reconciliation is a procedure which aims at reconciling the bank balance as shown in the
Cash Book of the PRI with the bank balance as per the pass book / bank statement received
from the bank. The Bank Reconciliation shall be carried out on a monthly basis for each of the
bank accounts maintained by the PRI.
The bank balances as per the Cash Book and the Bank Statement may not match for the
reasons listed in Table
Effect on Cash Book bank Effect on bank balance as
Reconciliation factors
balance per Bank statement
Cheques issued but not presented Bank balance reduces by that
No effect
for payment amount
Bank balance increases by that
Cheques deposited but not cleared No effect
amount
Bank balance increases to the
Cheques received but not
extent of cheque received but No effect
deposited
not deposited
Bank balance reduces to
Debit of charges by bank for any
No effect the extent of charges
services rendered
levied
Direct deposit of amount in the Bank balance increases to
No effect
bank account the extent of deposit
Bank balance increases to
Interest allowed and credited by
No effect the extent of interest
the Bank
credited

Effect on Cash Book bank Effect on bank balance as

Reconciliation factors
balance per Bank statement
Payment by the bank in respect of Bank balance reduces to
standing instructions given to the No effect the extent of the payment
bank made
Fixed Deposit or any other sum Bank balance increases to
directly credited by bank to the No effect the extent of money
account credited
Any other reason which may result in difference between bank balance as per Cash Book and Bank
Statement.
5.4.2. Reconciliation of Deposits

Reconciliation of Deposits aims at reconciling the balance of Earnest Money Deposit, Security
Deposit and any other deposits received by the PRI. The reconciliation shall be carried out
between the records. The Deposit Reconciliation shall be carried out every half year.
The PRI which had received the deposits shall prepare a Reconciliation Statement of Deposits
Outstanding from the Deposit Register (Form PIR 25, 26) in the format provided in Table
below for all the deposits received. This statement shall be prepared for each type of deposit.
In case there is a discrepancy between the records of the two, this statement may have to be
prepared for each contractor/supplier.
Reconciliation Statement of Deposits Outstanding with the PRI
as on ____
Particulars Amount (Rs.)
Deposits outstanding at the beginning of the current year
Add: Deposits received during the current accounting year
(specify all the Statement of Collections through which deposit
has been received)
Less: Deposits returned during the current accounting
year(specify all the Payment Orders through which the deposit
has been refunded)
Less : Deposits Adjusted (Give details)
Less : Deposits Lapsed
Deposits outstanding at the end of the accounting period
The balances computed above would be reconciled with the balances for Deposits shown in
the Ledger and the Deposit Register (Form PRI 25,26). The reasons for differences, if any, shall
be identified and rectification entries passed wherever required by the department, which has
recorded the entry incorrectly.
5.4.3. Reconciliation of Receivables and Collections
The receivables and collections shall be reconciled on a yearly basis. The procedure for
reconciling the outstanding balance of receivables and collections shall be the same for all
kinds of receivables.
For instance, for reconciling water charges receivables the PRI based on their records,
especially the Demand Register and the Collection Register (Form PRI 12) shall ascertain the
information required in Table below:
Reconciliation Statement of Receivables and Collection

Details as on ____
Sr.
Particulars Amount (Rs.) Amount (Rs.)
No.
A OPENING BALANCE OF DEMAND OUTSTANDING
i Demand outstanding in respect of the previous year
ii Demand outstanding in respect of previous accounting

years (This detail should be given year-wise, wherever
applicable)
B Add: Demand raised during the current year
C TOTAL DEMAND OUTSTANDING
D COLLECTIONS DURING THE CURRENT Year
i. Collection of demand pertaining to current year
ii. Collection of demand pertaining to previous year
iii. Collection of demand pertaining to demand for the
years prior to the previous accounting years collected
during the current accounting period (This detail
should be given year-wise, wherever applicable)
iv. Collection in advance pertaining to future accounting
periods
E Total collections during the current period (i + ii + iii +
iv)
F CLOSING BALANCE OF DEMAND OUTSTANDING
i. Demand outstanding in respect of the current periods
[B – D(i)]
ii. Demand outstanding in respect of the previous
accounting year [A(i) – D(ii)]
iii. Demand outstanding in respect of years prior to the
previous accounting year (This detail should be given
year-wise, wherever applicable) [A(ii) – D(iii)]
The Reconciliation Statement shall be reconciled with the respective ledger accounts maintained by the
PRI. The reasons for differences, if any, shall be identified and rectification entries passed in the
department which has recorded the entry incorrectly.
5.4.4. Reconciliation of Advances Given
This section describes the reconciliation procedure to be followed on a half-yearly basis for
reconciling the advances given to, namely:
1. Contractors/Suppliers;
2. Departments of the PRI; and
3. Employees of the PRI.
5.4.5. Reconciliation of advance given to Contractors/Suppliers
The PRI shall maintain a record of the advances given to each of the contractors/suppliers. The
PRI shall also maintain a record of the advances provided in a Register of Advances (Form PRI-
24).

The PRI who has given advance to the contractor/supplier shall prepare a Reconciliation
Statement of Advance Outstanding in the format provided in Table below for all the
contractors/suppliers. In case there is a discrepancy between the records this statement may
have to be prepared for each contractor/supplier.
Reconciliation Statement of Advance Outstanding provided to Contractor/Supplier
______________ as on ____
Advance outstanding at the beginning of the accounting year
Add: Further advance given during the current accounting year
(specify all the Payment Orders through which advance have
been provided)
Total Advance Provided
Less: Advance recovered during the current accounting year
(specify all the Statement of Collection through which advance
had been recovered)
Less : Advance Adjusted (Give details)
Advance outstanding at the end of the accounting period
The Reconciliation Statement of Advance Outstanding shall be reconciled with the respective
ledger accounts and the Register of Advances. The reasons for differences, if any, shall be
identified and rectification entries passed wherever required by the PRI, which has recorded
the entry incorrectly.
5.4.6. Reconciliation Of Loans / Advance Given To Employees
The employees of the PRI may be provided with some loans / advances such as House Building
Advance, Vehicle Advance etc.
The details of such advances granted to the employees shall be recorded in a Register of
Advances in Form PRI-23. The details of recovery of advances shall also be recorded in that
Register. At the end of the accounting period, a confirmation statement shall be obtained
from each of the employees to whom advance has been provided in the format provided in
Table below. The confirmation statement so obtained shall be reconciled with the record of
the employees maintained in the PRI. The PRI shall reconcile the total amount of advance
provided with the control ledger accounts.
Reconciliation Statement of Personal Advance provided to
______________ (name of the employee) as on ____
Advance outstanding at the beginning of the accounting year
: Further advance given during the current accounting year
(specify all the Payment Orders through which advance have
been provided/replenished)
Total Advance Provided
: Advance recovered including recovery from the salary during the
current accounting year
Advance outstanding at the end of the accounting period

5.4.7. Reconciliation of Loans Taken

The PRI shall maintain a record of all the loans borrowed in Register of Loan (Form PRI- 29). At
the end of each accounting year, the PRI shall prepare and forward to the lender, a
Confirmation Statement for loan borrowed in the format provided in Table below stating
therein, the amount borrowed or disbursed directly to Executing Agency, the amount repaid
and interest accrued and paid on the loan.
Confirmation Statement of Loan borrowed from
______ (name of the lending agency) as on ____
Amount Amount
Particulars
(Rs.) (Rs.)
Loan outstanding at the beginning of the accounting year
Add: Instalments received during the accounting year
Sub-total loan outstanding
Less: Instalments paid during the accounting year
Net Loan outstanding at the end of the accounting year (A)
Total Interest Payable at the beginning of the accounting year
Add: Interest accrued during the accounting year
Total Interest Payable
Less: Interest paid during the accounting year
Total Interest Payable at the end of the accounting year (B)
Total amount due (principal plus interest) at the end of the
accounting year (A+B)
Based on the reply received, the PRI shall take steps for reconciliation of the difference,
if any.
5.4.8. Reconciliation of Payables (Suppliers and Contractors)

The concerned departments and the Accounts Department maintain a Register of Bill for
Payment (Form PRI - 11) in which all bills submitted for payment are recorded. The PRI shall
ascertain the information required as per Table below:
Reconciliation Statement of Payables
Details for ____ Department as on ____
Sr. No. Particulars Amount (Rs.) Amount (Rs.)
A OPENING BALANCE OF UNPAID BILLS
i. Bill outstanding in respect of the previous
accounting year
ii. Bill outstanding in respect of years prior to
previous accounting year (This detail should be
given year-wise, wherever applicable)
B Add: Bills received during the current period
C GROSS TOTAL LIABILITY OUTSTANDING (A + B)
D PAYMENTS DURING THE CURRENT PERIOD
i. Payment of bills pertaining to the current
accounting year
ii. Payment of bills pertaining to previous year

Sr. No. Particulars Amount (Rs.) Amount (Rs.)

accounting year during the current period
iii. Payment of bills pertaining to prior to the previous
accounting years during the current period (This
detail should be given year-wise, wherever
applicable)
E Total payments during the current period (i + ii +
iii)
F CLOSING BALANCE OF UNPAID BILLS
i. Bill outstanding in respect of the current
accounting year [B – D(i)]
ii. Bill outstanding in respect of the previous
accounting year [A(i) – D(ii)]
iii. Bill outstanding in respect of years prior to the
previous accounting year (This detail should be
given year-wise, wherever applicable) [A(ii) – D(iii)]
The Reconciliation Statement PRI shall be reconciled with the respective accounts maintained.
The reasons for differences, if any, shall be identified and rectification entries passed
wherever required by the PRI, which has recorded the entry incorrectly.
5.5. Preparation of Financial Statements
The Model Accounting System prescribes following formats/financial reports to be prepared:
• Monthly/Annual Receipts and Payment Accounts
• Consolidated Abstract Register
• Reconciliation Statement
• Statement of Receivables and Payables
• Register of Immovable Property
• Register of Movable Properties
• Inventory Register
• Register of Demand Collection and Balance
However, it has been decided in addition to the above, annual financial report of the PRI
under Double Entry Cash Accounting system shall now also include the following financial
statements:
• Statement of Receipts and payments.
• Statement of Income & Expenditure
• Statement of Assets & Liabilities
• Notes to Accounts including Accounting Policies
• Notes to Accounts
Apart from above the management of PRI shall also give some additional information
regarding Financial & Non Financial Performance Indicators of the PRI operations.
In determining the accounting treatment and manner of disclosure of an item in the
Statement of Assets & Liabilities & Statement of Receipts and Payments, due consideration
shall be given to the materiality of the item .i.e. even if small amount is relevant and
important to disclose, then it shall be disclosed as a part of financial statements. Thus,

information is material if its omission or misstatement could influence the decisions or

assessments of users made on the basis of the financial statements.
Materiality depends on the nature or size of the item or error judged in the particular
circumstances of omission or misstatement.
Period of Preparation
The financial statements should be prepared from 1st April to 31st March.
Audit
The annual statements should be audited internally and externally.
Comparative Financial Statements
The annual Financial Statements of PRI shall be prepared on comparative basis i.e. Statement
of Receipts and Payments & Statement of Assets and Liabilities shall disclose figures for the
current year and the previous year. They shall also disclose the figures of third party
separately, If third party disclosure are not possible initially, then a flexibility of one year only
may be taken in this regard This will not only help in better understanding of financial
statements but also it will ensure better control. In addition, Annual Financial Statements shall
also disclose the relevant budgeted figures.
Approval Authority
The Financial Statements shall be approved by the designated authority in the PRI. The
amount stated in the annual financial statements and the schedules forming part of the
financial statements shall be stated in Indian Rupees. The approved statement must have
exact figures because it will be audited .However, for presentation purposes, a separate
statement in 1000 ` may be given.
5.5.1. Process of Preparation of Financial Statements
Under the double entry accounting system, there are three stages in recording a transaction
completely:
1. In first stage, enter the transaction in the ‘primary books of account’.
2. In the second stage, post the transactions in the ledger;
3. In the third stage the trial balance to ascertain the arithmetical accuracy of debits and
credits in the books of account is prepared.
After completion of the above, the process of preparation of the Financial Statements shall
follow.
The process of financial statements is as follows:
a. The process of financial statements shall begin with the preparation of trial balance.
b. Trial Balance will be prepared once all the vouchers as per new accounting system have
been entered in the ledgers.
c. The Trial Balance is a list of closing balances in all the accounts in the Ledger and the
Cash Books. It checks the accuracy of accounting and acts as a Gateway for the
preparation of Financial Statements.
d. The basic objective of Preparation of Trial Balance at this stage is to ensure the
authenticity of the accounting records and posting of accounting figures.
e. It should be noted that while preparing the Trial Balance all receipts accounts and cash
& cash equivalents shall generally have credit balances and the all payments accounts
shall generally have debit balances.

5.5.2. Preparation of Trial Balance

Before carrying out the below mentioned steps following steps are essential in regard to
closing of books of accounts:
1. Verification of Period end Cash Balance
2. Identification of Outstanding Checks and ensure reconciliation of bank
3. To check the transfers in and transfers out
4. To determine the unpaid bills or any prepaid payment
5. Identification of those grants which has been sanctioned but not credited by bank on
the date of balance sheet
6. Identification of those grants which has been sanctioned but not received in the bank
7. Identification of revenues which have become due but not actually received.
8. Identification of the balance of cash & cash equivalents, whether it is positive or
negative, if negative reasons thereof shall be investigated.
The following are the steps involved in the preparation of a Trial Balance:
1. All the ledger accounts shall be closed at period end and the debit or credit balance
shall be calculated;
2. The debit balances shall be posted in the debit column of the Trial Balance and the
credit balances in the credit column of the Trial Balance.;
3. The posting of Ledger Accounts in the Trial Balance shall be in the same order as shown
in the Chart of Accounts.
4. The Bank Books shall be closed and the balances shall be posted in the Trial Balance.;
5. Both the Debit Column and the Credit Column of the Trial Balance shall be totaled.
6. Then from Trial Balance (prepared one), accounting cell shall prepare financial
statements .These are being discussed in the succeeding sections.
Matching the trial balance
In case, the Trial Balance does not tally, some of the steps that should be taken for finding
those errors and rectifying them are as follows
(It is only relevant for the period the accounts are being maintained manually under new
system)
• Check for totaling errors in the Trial Balance;
• Ensure that the cash and Cash Equivalents is not omitted from inclusion into the Trial
Balance;
If above doesn’t result in tallying the trial balance then, verify:
• Check the ledger account totals and their postings in the Trial Balance;
• Check the journal to see that the total debits and credits for each entry tally;
If above doesn’t result in tallying the trial balance then, verify:
• Verify the postings to the ledger accounts from the books of original entries, i.e., the
Cash Book and Journal to ensure that no error is made while posting entries in ledgers;
(It may be kept in mind that all these steps are essential in Manual accounting. When PriaSoft
is used after posting of journal, all the following steps including preparation of financial
statements will be done automatically.
5.5.3. Preparation of Statement of Receipts and Payments

Following Steps shall be followed in the preparation of Statement of Receipts and Payments:
Initially, it shall be prepared on double entry cash accounting basis (DECA), later gradually
shifted to accrual system of accounting. It shall be prepared as per the format prescribed in
the Model Accounting System as far as practically possible;
The responsibility for preparation of financial statements shall be of the designated officer in
the PRI.
1. The Statement of Receipts and Payments discloses the results of the working of the PRI
during the period covered by the statement;
2. The opening and closing Cash and Cash equivalents balances should be ascertained and
entered:;
3. It shows Receipts and Payments of the PRI for an accounting period and the excess of
receipts over payments or vice-versa for that period;
4. Since the Financial Statements are prepared under cash basis, the Statement of
Receipts and Payments shall include all the receipts actually received during the year
and all the payments actually paid;
5. The receipts considered are on cash basis and does not take into account the
receivables. Similarly, the payments considered are on cash basis and does not take into
account the payables.
6. Non-cash items like Depreciation, Miscellaneous Expenditure w/off(written off),
Profit/Loss on disposal of Fixed Assets, Profit/Loss on disposal of Investments will not
be considered while preparing these statements;
7. The Statement of Receipts and Payments is drawn from the Trial Balance. The various
heads of Receipts and Payments shall be posted from the Trial Balance to the
Statement of Receipts and Payments ;
8. The Statement of Receipts and Payments shall be prepared in the format as prescribed
in the Model Accounting System.
Note: 1. The payment by/from third parties can be separately disclosed by adding an
additional column as per cash based IPSAS
2. If any amount has been forfeited by PRI relating to deposit from suppliers, then it shall be
disclosed under Extraordinary Receipts.
20X2 20X1
Sched
Accoun ule Budget Amount Amount
HEADS OF ACCOUNT
t Code No. Estimates Actuals Actuals
(Rs.) (Rs.) (Rs.)
RECEIPTS
Part I - PANCHAYAT FUND
0028 Taxes on Profession, Trades etc. R1
0029 Land Revenue R2
0030 Stamps and Registration Fees R3
Taxes on Property other than
0035 R4
Agriculture Land
0041 Taxes on Vehicles R5
0042 Taxes on Goods and Passengers R6
0044 Service Tax R7

20X2 20X1
Sched
HEADS OF ACCOUNT
(Rs.) (Rs.) (Rs.)
0045 Taxes on Duties and Commodities R8
0049 Interest Receipts R9
0059 Maintenance of Community Assets R10
Contribution & Recoveries towards
0071 R11
Pension and other Retirement Benefits
0202 Education R12
0206 Market & Fairs R13
0210 Health & Family Welfare R14
0215 Water Supply & Sanitation R15
0216 Rural Housing R16
Animal Husbandry, Dairying, Poultry
0403 R17
and Fuel and Fodder
0405 Fisheries R18
0406 Forestry R19
Agriculture including Agriculture
0435 R20
Extension
0515 Panchayati Raj Programmes R21
0702 Minor Irrigation R22
0801 Rural Electrification R23
0810 Non-Conventional Sources of Energy R24
0851 Village and Small Scale Industries R25
1601 Grants in aid R26
4000 Capital Receipts R27
Part II – PROVIDENT FUND ETC
7610 Loans to Panchayat Employees R28
8009 Provident Fund R29
8011 Insurance & Pension Fund R30
8443 Civil Deposit R31
8550 Civil Advances R32
Part III - SUSPENSE ACCOUNT
8658 Suspense Account R33
Total of Receipts XXXX X X
PAYMENTS
2049 Interest Payments P1
2059 Maintenance of Community Assets P2
2071 Pensions & Other Retirement Benefits P3
2202 Education P4

20X2 20X1
Sched
HEADS OF ACCOUNT
(Rs.) (Rs.) (Rs.)
Technical Training and Vocational P5
2203
Education
2205 Art, Culture and Libraries P6
2206 Market and Fairs P7
2210 Health and Family Welfare P8
2211 Women and Child Welfare P9
2215 Water Supply and Sanitation P10
2216 Rural Housing P11
Welfare of Scheduled Castes, P12
2225 Scheduled Tribes and other Weaker
Sections
2235 Social Security & Welfare P13
2402 Soil and Water Conservation P14
Animal Husbandry, Dairying, Poultry P15
2403
and Fuel and Fodder
2405 Fisheries P16
2406 Forestry P17
2408 Public Distribution System P18
Agriculture including Agriculture P19
2435
Extension
2501 Poverty Alleviation Programme P20
2515 Panchayati Raj Programmes P21
2702 Minor Irrigation P22
2801 Rural Electrification P23
2810 Non-conventional Sources of Energy P24
2851 Village and Small Scale Industries P25
3054 Transportation P26
Capital Outlay on Art, Culture and P27
4205
Libraries
4206 Capital Outlay on Market and Fairs P28
Capital Outlay on Health and Family P29
4210
Welfare
Capital Outlay on Water Supply and P30
4215
Sanitation
4216 Capital Outlay on Rural Housing P31
Capital Outlay on Social Security & P32
4235
Welfare
Capital Outlay on Soil & Water P33
4402
Conservation
4405 Capital Outlay on Fisheries P34
4406 Capital Outlay on Forestry P35
Capital Outlay on Public Distribution P36
4408
System

20X2 20X1
Sched
HEADS OF ACCOUNT
(Rs.) (Rs.) (Rs.)
Capital Outlay on Agriculture including P37
4435
Agriculture Extension
Capital Outlay on Panchayati Raj P38
4515
Programmes
4702 Capital Outlay on Minor Irrigation P39
4801 Capital Outlay on Rural Electrification P40
Capital Outlay on Non-Conventional P41
4810
Sources of Energy
Capital Outlay on Village and Small P42
4851
Scale Industries
5054 Capital Outlay on Transportation P43
Part II – PROVIDENT FUND ETC
7610 Loans to Panchayat Employees P44
8009 Provident Fund P45
8011 Insurance & Pension Fund P46
8443 Civil Deposit P47
8550 Civil Advances P48
Part III - SUSPENSE ACCOUNT
Part III – SUSPENSE ACCOUNT
8658 Suspense Account P49
Total of Payments YYYY Y Y
Increase/Decrease of Cash in current year ZZZZ
Closing Balance of Cash in

Hand
Closing Balance of Cash in
Bank
Total of Closing Cash & Bank XXXX
Opening Balance of
Less:
Cash in Hand
Opening Balance of
Cash in Bank
Total of Opening Cash &
YYYY
Bank
Difference between opening
ZZZZ
& closing balance
As per our report on even date For:
________________________ _________________ ____________________

Name of the Audit Firm (Panchayat Secretary) (Pradhan)
Date:
Place:

5.5.4. Preparation of Statement of Income & Expenditure Account

In the Income & Expenditure account of PRI all receipts and payments of revenue nature will
be recorded. All the payments will be recorded on the debit side and all the receipts will be
recorded on the credit side. A format of Income & Expenditure account is given below:
Income and Expenditure Account of _________________
For the Period 1-4-20X1 to 31-3-20X2
20X2 20X1
Budget Amount Amount
Account Estimates Actuals Actuals
Code HEADS OF ACCOUNT (Rs.) (Rs.) (Rs.)
OPERATING EXPENSES
2049 Interest Payments P1
2059 Maintenance of Community Assets P2
2071 Pensions & Other Retirement Benefits P3
2202 Education P4
2203 Technical Training and Vocational P5
Education
2205 Art, Culture and Libraries P6
2206 Market and Fairs P7
2210 Health and Family Welfare P8
2211 Women and Child Welfare P9
2215 Water Supply and Sanitation P10
2216 Rural Housing P11
2225 Welfare of Scheduled Castes, Scheduled P12
Tribes and other Weaker Sections
2235 Social Security & Welfare P13
2402 Soil and Water Conservation P14
2403 Animal Husbandry, Dairying, Poultry and P15
Fuel and Fodder
2405 Fisheries P16
2406 Forestry P17
2408 Public Distribution System P18
2435 Agriculture including Agriculture Extension P19
2501 Poverty Alleviation Programme P20
2515 Panchayati Raj Programmes P21
2702 Minor Irrigation P22
2801 Rural Electrification P24
2810 Non-conventional Sources of Energy P25
2851 Village and Small Scale Industries P26
3054 Transportation P27
Total Operating Expenses X1 X1 X1
OPERATING REVENUE
0028 Taxes on Profession, Trades etc. R1
0029 Land Revenue R2

20X2 20X1
Budget Amount Amount
Account Estimates Actuals Actuals
Code HEADS OF ACCOUNT (Rs.) (Rs.) (Rs.)
0030 Stamps and Registration Fees R3
0035 Taxes on Property other than Agriculture R4
Land
0041 Taxes on Vehicles R5
0042 Taxes on Goods and Passengers R6
0044 Service Tax R7
0045 Taxes on Duties and Commodities R8
0049 Interest Receipts R9
0059 Maintenance of Community Assets R10
0071 Contribution & Recoveries towards R11
Pension and other Retirement Benefits
0202 Education R12
0206 Market & Fairs R13
0210 Health & Family Welfare R14
0215 Water Supply & Sanitation R15
0216 Rural Housing R16
0403 Animal Husbandry, Dairying, Poultry and R17
Fuel and Fodder
0405 Fisheries R18
0406 Forestry R19
0435 Agriculture including Agriculture Extension R20
0515 Panchayati Raj Programmes R21
0702 Minor Irrigation R22
0801 Rural Electrification R23
0810 Non-Conventional Sources of Energy R24
0851 Village and Small Scale Industries R25
1601 Grants in aid R26
Total Operating Revenue Y Y Y
Surplus/Deficit from operating Z

activities
As per our report on even date For:
________________________ _________________ ____________________

Name of the Audit Firm (Panchayat Secretary) (Pradhan)
Date:
Place:

5.5.5. Preparation of Statement of Assets & Liabilities

The Statement of Assets and Liabilities is a statement of financial position of the PRI. In short it
could be described as a listing of those unexpired costs or revenues which are carried forward
to the next period. Thus the Statement of Assets and Liabilities would contain a listing of
assets and liabilities as on the last date of the accounting year (31st March). Thus, the
Statement of Assets and Liabilities forms a very important part of the annual financial
statements of any organisation as it reflects the financial position of the PRI as on a particular
date. It presents the assets, liabilities and fund of the PRI as on a specified date. Following
Steps shall be followed in the preparation of Statement of Assets and Liabilities :
• The details of various items of the Statement of Assets and Liabilities would be given
in separate schedules attached to the statement;
• Till now PRI doesn’t have any financial statements .So, they need to provide the data
for the preparation of Statement of Assets and Liabilities on the basis of available
records and Information;
• As discussed above that no Statement of Assets and Liabilities was prepared till now,
so there will be a problem of matching of Statement of Assets and Liabilities as they
are not maintaining any accounts till now on double entry system of accounts.
Benefits of a Statement of Assets and Liabilities
The benefits of preparing a Statement of Assets and Liabilities are:
• Provides a record of the assets (amounts owned) and liabilities (amount owed) by the
PRI;
• Allows follow up and better management on the amounts receivable and payable by
the PRI;
• Informs the fund balance for the fund. This is the difference between assets and
liabilities of the PRI;
• Allows the financial strength of the PRI to be assessed, based on analysis of assets and
liabilities;
• Allows comparability and analysis of financial position over different years;
• Without an Opening Statement of Assets and Liabilities, the Statement of Assets and
Liabilities at the end of the period (i.e. Closing Statement of Assets and Liabilities)
cannot be prepared;
Hence, all PRI are required to prepare an opening Statement of Assets and Liabilities as on the
date before which they are required to start implementation of DECA.
Matching the Opening Statement of Assets and Liabilities
As mentioned earlier, the PRI generally does not have adequate information to prepare a
Statement of Assets and Liabilities. Hence, they must be carry out the whole process of
identifying assets and liabilities of the PRI, and then valuing them in order to reflect them in
the statement of assets and liabilities. In this context, the two principles that shall guide the
preparation process shall be RIGOUR and SIMPLICITY – rigour in the sense that no asset or
liability must be left out of the records (i.e. at least quantitatively, all assets and liabilities
MUST be included in the forms for the purpose) and – Simplicity in the sense that valuation of
assets must be made simple and practical.

Steps in Preparing the Opening Statement of Assets and Liabilities.

The steps to be followed in order to prepare the statement of assets and liabilities in respect
of PRI are as follows:
ification of Assets and Liabilities;
1) Identification
2) Valuation of Assets and Liabilities
3) Preparation of Accounting records (Fixed Asset Register etc.)
4) Preparation of Opening Statement of Assets and Liabilities with the required
disclosures
Period of Preparation
The opening statement of assets and liabilities shall be prepared as on 01-04-2010.
01
Treatment of Difference
The opening fund balance or deficit of the PRI shall thus be arrived at by deducting
the total of all liabilities from the total assets as at the date of the first balance sheet.
The difference between the assets and liabilities constitutes the capital or fund
balance or deficit of the PRI. as the case may be;
Data for Preparation
i. Since PRI have generally not been preparing a Statement of AssetsAsset and Liabilities, the
assets and liabilities balances are not readily available, and thus these figures have to
be arrived at by compiling all assets and liabilities from information available with the
PRI. ;
ii. The data for capital assets will be taken out of the accounting records maintained by
the PRI.
iii. All capital assets shall be valued as per the valuation guidelines.
Process of Preparation of Statement of assets and liabilities
The process of collection of data for opening Statement of Assets and Liabilities can be
exhibited as follows:

Approval Authority
The Statement of Assets and Liabilities needs to be approved by the Designated
Authority and their suitable observations and comments shall be suitably
incorporated.
Treatment of Information received at later stages
a. The available information may not be sufficient to arrive at a balance sheet which is
correct in all respects, and at a later point, the PRI may come across information that may
have a bearing on the assets or liabilities shown in the opening balance sheet, or may
come across assets or liabilities that have been left out of the opening balance sheet.;
b. Amount of all such adjustments to the opening balance sheet shall be transferred to Fund
Balance at the end of the year.
Format of Statement of Assets and Liabilities
The data for preparation of Statement of Assets and Liabilities shall be captured from the
formats of Immovable Properties, Movable Properties and Receivable and Payables prescribed
in the Model Accounting System. The Statement of Assets and Liabilities will be prepared in
the following format:
Account Head Schedule Current Year Previous Year Budgeted

Amount Amount Amount
ASSETS
Immovable Properties
Roads
Land
Others
Immovable Properties
Current Assets
Advances Not Acquitted till Now
Inventories
Bank Accounts
(As per Schedule P.No;6)
Receivables
(As per Statement of Receivables )
TOTAL OF ASSETS
LIABILITIES
Fund
PRI Fund
(Balancing Figure)
Grants, Loans& Deposit
Security Deposit(Net)
(As per statement of SD )*
Grants
(If later Refundable)

Loans/Borrowing
Other Liabilities
(As per statement of payables
under new system)
TOTAL OF LIABILITIES
5.5.6. Preparation of Notes to Accounts

The Notes to Accounts shall disclose all Significant Accounting Policies, and other information
which shall make the financial statements meaningful and representative of the PRI financial
situation. It shall also contain the detailed explanation on items that are material to the
presentation and proper understanding of financial statements.
The Notes to Accounts shall disclose all Significant Accounting Policies, Contingent Liabilities if
any and other information which shall make the financial statements meaningful and
representative of the PRI financial situation.
The main purpose of giving the notes to accounts is to enable any reader of the accounts to
understand the context in which the accounts have been prepared. A reader would have a
better understanding on the position shown by the accounts with reference to the notes.
The Notes to Accounts shall comprise of Statement of Significant Accounting Principles,
Statement on Contingent Liabilities, Subsidy Report and Other Disclosures.
A. STATEMENT OF SIGNIFICANT ACCOUNTING PRINCIPLES
The Statement of Significant Accounting Principles shall state important accounting
principles followed by the Panchayat in respect of accounting for its transactions and in the
preparation and presentation of the Financial Statements.
Where any of the accounting principles adopted by the Panchayat while preparing its
Financial Statements is not in conformity with the principles prescribed in this Accounts
Manual and the effect of deviation from the accounting principles is material, the particulars
of the deviation shall be disclosed together with the reasons therefore and the financial
effect thereof, except where such effect is not ascertainable. The disclosure of such
deviation reasons thereof and financial effect thereof shall be made in the section “Other
Disclosures”. In case the financial effect thereof is not ascertainable, either wholly or in part,
the fact that it is not so ascertainable shall be indicated. Likewise, any change in the
accounting principles which has no material effect on the Financial Statements for the
current period but which is reasonably expected to have a material effect in later periods,
the fact of such change should be appropriately disclosed in the period in which the change
is adopted.
The statement of significant accounting policies to be disclosed in the financial statements is
given below.
1. BASIS OF ACCOUNTING
The financial statements are prepared on a going concern and under historical cost
basis under cash/accrual basis of accounting.
2. RECOGNITION OF REVENUE
i. Revenue
a. Property and Other Taxes are recognised in the period in which they
become due and demands are ascertainable

b. Revenues in respect of Profession Tax on Organisations / entities are

accrued in the year to which it pertains and when demands are raised.
c. Advertisement taxes are accrued based on Demand or the contract.
d. Revenue in respect of Trade License Fees is accrued in the year to which it
pertains and when Demands are raised.
e. Assigned revenues like Entertainment Tax, Duty / Surcharge on transfer of
Immovable properties are accounted during the year only upon actual
receipt. However, at year-end, they are accrued if sanction order (or
proceedings) is passed and the amount is ascertained.
f. Other Incomes, which are of an uncertain nature or for which the amount
is not ascertainable or where demand is not raised in regular course of
operations, is recognised on actual receipt
ii. Provision against receivables
a. Prudential norms are applied based on type of income and age of
receivable. Based on the policy on provisioning, incomes that have been
accrued and are doubtful of recovery are provided for.
3. RECOGNITION OF EXPENDITURE
a. Expenses on Salaries, bonus and other allowances are recognised as and when
they are due for payment
b. All revenue expenditures are treated as expenditures in the period in which they
are incurred.
c. In case of works, expenditures are accrued as soon as the work has been
measured and becomes due for payment.
d. Provision for expenses are made at the year-end for all bills received upto a
cutoff date.
4. FIXED ASSETS
a. All Fixed Assets are carried at cost. The cost of fixed assets include cost
incurred/money spent in acquiring or installing or constructing the fixed asset,
interest on borrowings directly attributable to acquisition or construction of
qualifying fixed assets up to the date of commissioning of the assets and other
incidental and indirect expenses incurred up to that date.
b. All assets costing less than Rs.5,000/- are expensed / charged to Income &
Expenditure Account in the year of purchase.
c. Any Fixed Asset, which has been acquired free of cost or in respect of which no
payment has been made, is recorded at nominal value of Re. 1/-.
5. GRANTS
a. Grants, which are re-imbursement of specific revenue expenditure is
recognised as income in the accounting period in which the corresponding
revenue expenditure is charged to the Income and Expenditure Account.
c. Grant received towards capital expenditure is treated as a liability till such
time the fixed asset is constructed or acquired. On construction/acquisition of
fixed asset, the grant corresponding to the value of the asset so
constructed/acquired is treated as a capital receipt and transferred to capital
contribution.

6. EMPLOYEE BENEFITS
Contribution towards Leave Encashment on retirement is recognised as and when it
is due. All other retirement benefits are met by the State Government.
B. STATEMENT ON CONTINGENT LIABILITIES
The Contingent Liabilities represent an obligation, relating to a past transaction or other
event or condition, that may arise in consequence of a future event now deemed possible
but not probable. They represent a claim against the Panchayat which is contingent on the
happening of a future uncertain event, the financial implications of which may or may not be
ascertainable at the end of an accounting period. The following shall be disclosed by the
Panchayat in the ‘Statement on Contingent Liabilities’:
a. Amount of Capital Contracts remaining to be executed and not provided for;

b. Amount of claim in respect of suits filed against the Panchayat for which the
Panchayat may be liable, in case the Panchayat loses suits;
c. Claim against the Panchayat not acknowledged as debts; and
d. Other money for which the Panchayat is contingently liable.
C. OTHER DISCLOSURES
This section shall give other important financial information about the Panchayat, which
have not been disclosed in the Financial Statements. These shall include:
a. Details of the expenses incurred under various Government Circulars together with
the details, in broad terms, of the beneficiaries;
b. The following shall be disclosed separately in case of each of the incomes of the
Panchayat:
i. amount of refunds, remissions and write-offs made during the year, and
ii. Arrears collected during the year.
In addition to disclosures required to be made as specified above, the Panchayat may also
furnish information in respect of the following;
a. Percentage of properties defaulting on property tax both in terms of number and
value in comparison to total properties and income earned;
b. Details about the various health programs undertaken by the Panchayat from its
own resources and the section of the population being benefited;
c. Percentage of connections, category-wise, defaulting on payment of water supply
charges both in terms of number and value in comparison with the total number of
connections and demand raised together with the remedial measures taken;
d. Details about the water purification and water distributed and billed in terms of
quantity;
e. Number of lamp-posts erected and the areas in which they are erected (the
expenses incurred in respect of the street lighting shall be given in the Subsidy
Report);
f. Age analysis of receivables;
g. Age analysis of payables; and
h. Such other details as the Panchayat may decide to give for better disclosure and
governance.

6. Accounting of ‘Own Source Receipts’

The PRls are authorised to levy, collect taxes, duties, tolls and fees and are also assigned to
collect certain taxes, duties and tolls levied imposed by the State Government. The Demand
and Collection Register is maintained to ensure that the various levies, taxes, fees and other
amount due to Panchayats are demanded and collected in time. Panchayats shall be
responsible to ensure that all sums due to them are regularly and promptly assessed, realised
and credited to the account of the Panchayat. A Separate register for each category of
demand shall be maintained along with the register of assesses.
The PRIs usually receive funds from following sources:
Revenue Receipts
• Tax Receipts
• Non Tax Receipts
Capital Receipts
Grants/Transfers/Donations
Extra Ordinary Receipts (not in nature of income)
As per cash basis IPSAS, amount received from third parties shall be separately disclosed,
and along with current year’s figures, last year’s figures shall also be disclosed.
The sources of income of PRIs can be further categorised as from ‘Own Sources’, ‘Grants from
State/Central Government’ and ‘Contribution from Public or Other Institutions).
The following are the registers to be maintained to account receipts in PRIs
6.1. Cash Book

A cash book is a book of original entry for cash receipts and disbursements. Cash comprises
cash on hand and demand deposit. Cheques and demand drafts not in favour of Panchayat do
not fall within the scope of definition of cash. The cash book is the primary record for keeping
accounts of money received and payments made. Only one main Cash book in each PRI may
be maintained incorporating balances from all subsidiary cash books, which are to be kept as
necessary. The cash book should be properly bound and the pages numbered.
6.2. Collection Book
In this register all the collections made by PRI through Misc. Receipts are noted. If this register
is maintained promptly it will facilitate to ensure that all the money collected are accounted
for and brought to cash book. This will avoid to a great extent the possible misappropriation of
the amounts collected in PRI's.
6.3. Register of contribution

In this register all types of contributions made to Panchayat from public or any other
institution for any specific purpose are noted, showing the challan number etc. When
expenditure is incurred out of contribution, the voucher number and the date, together
specifying the purpose for which this amount is utilized is recorded.

6.4. Register of Loans

Loans received shall be entered in the Register of Loans ‘(PRI 29) and treated as liabilities in
the accounts. The amounts actually received and repaid shall be recorded in the Receipts a
Payment account and ‘Register of Loans’ shall be appropriately updated.
6.5. Responsibility of the Accounts Officer

The Responsibilities of Accounts Officer with report to realization of Revenues are detailed
below:
1. Asses the demand of all revenue other than purpose grants.
2. Take steps to realize the revenue promptly
3. Maintain proper account of collection
4. Maintain Demand Collection Balance register and watch realization against demand
5. Take steps to apply to competent authority for writing off irrecoverable revenues
6. Remit the cash collection to treasury immediately

7. Accounting of Payments
The expenses made by PRI can be classified as under:

• Revenue Expenses
o Establishment Expenses
o Operational Expenses
o Supplies
• Capital Expenses
• Grants/ Transfers/Donations if paid.
• Extraordinary Payments (not in nature of expenses)
The above classification can further be categorized into Establishment and Non Establishment
Expenses. Establishment Expenses primarily relate to employees expenses like salary,
allowances and addition to salary etc. whereas Non Establishment Expenses relate to works,
operational expenses, purchase of stores, acquisition of assets etc. The following procedure
will be followed in accounting of expenses.
7.1. Policy for Establishment Expenses

• Only that component of establishment expenses will be taken into account which is paid
for the PRI employees. Salary paid out of PRI funds will be taken into accounts. However,
salary paid through treasury for employees on rolls of PRI, shall be treated as third party
payment.
• The expenses on salaries and other allowances will be recognized when actually paid.
• Statutory deductions out of the salary including those for income tax, professions tax etc.
shall be recognized as liability and entered in the Register of ‘TDS and Other Deductions -
Employees’ (PRI 21) at the time when the salary is actually paid. It will be cleared when
payments are made to the respective authorities
• Advances to employees will be treated as assets at the time of payment and entered in
‘Register of Advances to Employees’ (PRI 24). Deductions from salary towards recovery of
advance along with interest shall be treated as receipts at the time of payment of salary.
• Terminal benefits payable by the PRI will be recognized at the time of actual payment.
• Contribution made for meeting retirement benefits expenses will be recognized at the
time of actual payment.
7.1.1. Records and Procedure for Establishment Expenses

Every state has its own standardized formats of pay bills, pay bill registers etc. It is
recommended that PRI uses the same format for sake of compatibility with state systems as
salaries of some employees are paid from treasuries also. Only registers for deductions and
advances to employees have been prescribed which will have direct effect on accounting of
assets and liabilities. The following procedure will be followed in recording accounting entries
of Establishment related expenses:

• When the salary or allowances are actually paid to the employees, the PRI will prepare a
Payment Voucher (PRI 6).
• Thereafter, an entry will be passed in the Cash Book (PRI 1).
• After recording the entry in the cash book entries will be made in the respective ledgers
(PRI 3).
• Journal Vouchers (PRI 7) will be prepared for adjustments.
• The statutory deductions will also be recorded separately as liabilities in ‘Register of TDS
and other Deductions -Employees’ (PRI 21).
• The recoveries of Advances shall be entered separately in ‘Register of Advances to
Employees’ (PRI 24).
7.2. Policy for Non Establishment Expenses:

• All expenses will be recognized when actually paid.
• Third Party payments i.e. payments made by any other agency on behalf of PRI shall be
appropriately reflected and accounted (even though it does not pass through PRI
accounts).
• Expenses of capital and revenue nature are segregated and classified properly
• Records of Assets are properly maintained.
• Appropriate record of payables is maintained.
• Advances to contractor’s/suppliers will be treated as assets at the time of payment and
will be recognized as expenditure at the time of acquittal. Consequently, the amount
acquitted during the period shall be shown as deemed receipts in the Cash Book and
included in the respective expenses head in order to reflect expenses at actual gross
amount.
• Deposits, Earnest Money, Security and statutory deductions made from payments shall
be treated as liabilities when received /recovered. They shall be treated as cleared when
the check of for refund/remittance is issued.
7.2.1. Records and Procedure for Non Establishment Expenses:

• When the bill is received in the PRI, it shall be entered in the ‘Register of bills for
payment’ (PRI 11).
• After the bill has been appropriately passed by the competent authority, and payment
will be made and Payment Voucher (PRI 6) will be prepared.
• Based on the payment voucher, entries will be made in Cash Book (PRI 1).
• Journal Voucher (PRI 7) will be prepared for adjustments.
• Consequently entries will be made in the respective ledgers (PRI 3).
• Statutory deductions will be treated as liabilities and entered separately in ‘Register of
TDS and other Deductions-Contractors/Suppliers’ (PRI 22)

• Recoveries of Advances given to Contractors shall be separately recorded in ‘register of

Advances to Contractors/Suppliers’ (PRI 26). After adjustment of advances from the bills
the register will be appropriately updated.
7.3. Register of bills

A bill is a claim with voucher in a prescribed form with full details as to the amount and nature
of the claim, period for which the claim relates to and orders sanctioning such claim and all
particulars necessary for the proper classification of the payment in the Accounts.
All the bills received should be entered in a register which will show the amount of the bill, the
period of claim, amount actually paid and progressive totals of expenditure. Separate pages
should be allotted for each detailed Head of Account. The provision under each Head of
Account shall be recorded at the top of each page. Thereafter the bill received is entered on
the connected page. The register will guard against exceeding provision in the budget and
double claims if any can also be defected. This register will help in preparing the list of
payables, after close of the year.
7.4. Scrutiny of bills.

• The bills prepared shall be in the form prescribed
• Printed form shall be used to prepare the bills
• Charges against two different heads of accounts shall not be included in one bill.
• No payment should be made on a bill unless it is passed by E.O duly signed in ink.
• Copies of sanction orders should be enclosed with the bill.
• The bills should be checked by Sr. Asst., first before it is passed by EO.
• The amount of the bill shall be written in words and figures.
• In respect of stores/material stock entry certificate mentioning that articles have been
received in good condition and entered in stock register, indicating page no, should also
be written on the reverse of the sub-vouchers.
• After making payment the sub vouchers/supply bills should be stamped with “paid and
cancelled “rubber stamp.
• No bill is sanctioned unless budget provision is indicated there in.
• If there is no budget provision and if it is decided to fund the amount by re-
appropriation, the same shall be indicated in the bill with the due sanction of PRI
7.5. Passing of bills
Before passing the bill the EO should ensure that

• The bill is for charge which is admissible against the PRI fund
• The arithmetical calculations are correct it contains no erasures or unattested
alterations
• Where previous sanction is necessary, such sanction has been obtained
• The bill has been endorsed in favour of proper person.
• The expenditure does not exceed the sanctioned budget

7.6. Responsibilities of the Executive Officer for incurring expenses

All payments out of Panchayat funds in respect of bills presented shall be made only
after the bills are passed by the Executive Authority (E.O).
1. Where any item of expenditure requires the sanction of higher authority, such sanction
shall be obtained and quoted in the bill.
2. No item of expenditure shall be sanctioned unless the budget provision is noted in the
bill. If there is no budget provision under the Head concerned, the EO shall indicate the
Head from which it is to be met by re appropriation with the approval of the body.
3. The E.O. shall be personally responsible for the amounts drawn, until it has been
disbursed to the proper person under stamped acknowledgement.
4. No work or scheme sha11 commence and no material change in any item or cost of
expenditure shall be carried out unless it has been sanctioned by the competent
authority.
5. For sanction of any expenditure the E.O. shall prepare note for the information of the
members along with his specific remarks and recommendations:
whether the proposed expenditure is within its power of sanction
whether it requires the sanction of higher authority
Whether such expenditure is prohibited either by any statutory rules or by the
executive orders issued by Government or by any authority.
whether in the circumstances of the case, he does or does not recommend the
sanction of expenditure
6. If any irregular or objectionable item of expenditure is sanctioned by the general body
without previous information of EO or without giving him reasonable time to scrutinize its
propriety and legality, the EO shall before incurring the expenditure invite the attention of
the general body to the correct rule position. He shall also bring such cases to the notice of
higher authorities.
If the general body sanction any item of expenditure subject to sanction of Zilla Parishad or
Government the EO shall obtain such sanction before incurring the expenditure.
7.7. Internal controls on Accounting of payments

The general internal controls in respect of all payments made by the PRI including payment of
supplier’s/contractor's bills, refund of taxes, payment of advance, refund of deposits,
investments made, etc., are described below:
1. The bills or claims against the PRI shall be received at the Accounts Section. The
concerned accountant shall verify the bills. On satisfactory verification, the bills shall be
entered into the Register of Bill
2. On approval of the payment by the concerned authorities the bills forwarded to
accounts Section for payment
3. Before release of payment, the accounts section shall verify and ensure the following
relating to Payment

a. Whether the supporting documents such as invoices, bills, etc are signed
by the authorities concerned
b. Whether adequate provision is available under the particular head.
c. Whether evidence of entry into Purchase/Fixed Assets/Investments Register with
folio and reference numbers are noted.
d. Whether work / job completion certificate is received and a copy is attached with
the Payment Voucher in the case of release of Security relating to construction or
acquisition of fixed assets.
e. Whether a copy of the purchase order with update of items/ stocks received along
with the reference to goods in good condition / satisfactory condition as per
specification receipt etc is attached with the payment voucher
4. At the time of approving payment; the Accounts Section shall ensure that the Payment
Order provides reference of Register of Bills, Measurement Book, Stock Ledger or Fixed
Asset Register, etc, depending on the purpose for which payment is made In case of
any queries in the process of verification of 'payment order' the same shall be noted
and returned to the respective Section.
5. The concerned Section shall resolve the query and make the necessary changes in the
Payment Order if required, and forward the documents back to the accounts section
for review of the revised payment order.
6. After satisfactory verification of the payment order and its supporting documents the
claim shall be admitted for payment
7. On approval of payment, entry shall be mode in the Register of Bills
8. On approval of payment, a cheque shall be prepared. The E.O .or the authorized
signatories’ shall sign the cheque.
9. After the signing of the Payment Voucher, the Accounts Section shall pass the entry in
the cash book and other subsidiary registers.
10. The Accounts Section shall stamp "paid and cancelled" on all the bills/ sub vouchers,
once approved for payment, to ensure that the same bill is not processed once again.

8. Accounting for Grants-in Aid
Grants-in-aid are payments in the nature of assistance, donations or contributions made by

one government to another government, body, institution or individual. Grants-in-aid are
given for specified purpose of supporting an institution including construction of assets. The
general principle of grants-in-aid is that it can be given to a person or a public body or an
institution having a legal status of its own. Such grants-in-aid could be given in cash or in kind
used by the recipient agencies towards meeting their operating as well as capital expenditure
requirement.
The 73rd and 74th Constitutional Amendment Acts envisage a key role for the Panchayati Raj
Institutions (PRIs) and the Urban Local Bodies (Panchayats) in respect of various functions
such as education, health, rural housing, drinking water, etc. The State Governments are
required to devolve funds, functions and functionaries upon them for discharging these
functions. The extent of devolution of financial resources to these bodies is to be determined
by the State Finance Commissions. Such funds received by the Local Bodies from the State
Governments as grants-in-aid are used for meeting their operating as well as capital
expenditure requirements. The ownership of capital assets created by Local Bodies out of
grants-in-aid received from the States Government lies with the Local Bodies themselves.
Grants-in-aid are an important component of Finance Commission transfers. Grants allow
making corrections for cost disabilities faced by many states which are possible to address
only to a limited extent in any devolution formula. The 13th Finance Commission has
accordingly suggested several categories of grants-in-aid amounting in aggregate to Rs.
3,18,581 crore which constitutes 18.03 per cent of total transfers.
• The first of such grants is the post-devolution Non-plan Revenue Deficit (NPRD) grant.
• The second grants recommended in pursuance of the goal of universalisation of
elementary education, underpinned by the constitutional right of all children, in the
age group 6 to 14, to free and compulsory schooling.
• The third grant is aimed to address the need to improve the quality of public
expenditure to obtain better outputs and outcomes
• The fourth grant is to manage ecology, environment and climate change consistent
with sustainable development
• The fifth grant is for maintenance of roads.
Panchayats receive a significant portion of their revenue in the form of State and Central
grants.
8.1. Nature of Grants

All grants received by the Panchayats are for a specific scheme or for meeting specific costs of
a programme. There are conditions attached to the utilisation of such grants which usually
require maintenance of separate bank account, periodic submission of utilisation certificates
etc. Examples of grants include Swarna Jayanti Shahri Rozgaar Yojana (SJSRY), Malaria Grant,
as well as MP Local Area Development Scheme (MPLADS).
The Grants require opening of a Designated Bank Account from which all expenditures in
respect of the grant are paid and/or maintenance of separate Books of Accounts.

8.2. Accounting Policies for Grants

The following Accounting Policies shall govern the recording, accounting and treatment of
transactions relating to Grants:
1. The Grants in Panchayats have restriction on their spending and need to be accounted
on receipt during the year. If there is a sanction order at the end of the year, amount
sanctioned shall be accrued. Grants shall be treated as a liability till they are utilised.
2. To the extent the Grant is used for revenue expense, it shall be transferred as an
income to the Income & Expenditure Account. If the amount is used for capital
expenditure, the amount of the grant shall be treated as a contribution and
transferred to Capital Contribution. Fixed assets acquired out of such grant shall be
accounted at cost, and depreciation shall be charged on them.
3. Grants received or receivable as reimbursement of specific expenditure shall be
recognised as income in the accounting period in which the corresponding revenue
expense is charged to the Income and Expenditure Account.
4. In the some grants where the amount is to be recovered from the beneficiaries and
paid back to the Government, the amount received for the Scheme shall be shown
as a liability. The amount utilised shall be shown as a recoverable (current asset).
5. In case of grants (i.e. expenses of the PANCHAYATS met directly by the government)
where deduction is made by the Government for service provided, loan recovery etc,
gross amount shall be accounted as grant, and the amount deducted shall be
accounted as payment of liability or expenditure, as appropriate.
8.3. Accounting Records & procedures for Grants

This section describes the records, register, documents, accounting entries, etc., in respect of
accounting for transactions related to Grants.
The Accounting Officer shall maintain Separate Grant Registers with separate pages for each
grant to record the details of receipt and expenditures incurred from it.
The Finance Commission grants, MPLAD funds are all central schemes and the same will
appear under 1601-101- Grants from Central Government. Regarding grants from other
institutions or international donor agencies etc. the same will be booked under Minor Head
‘103- Grants from other Institutions’. It is suggested that Grants will be treated as ‘liability’
and will appear under Major Head ‘1601’. The reason for treating it as a liability is that mostly
the grants are unutilized and the unspent balance of grants remains with the PRI, and
therefore, only that part which has been spent by the PRI should be taken as receipt under
Major Head 1601 and the remaining balance will appear under the liability Head. In some
cases the state grants are routed through ZP and therefore when they transfer funds to BP or
GP, it should not be reflected in their Income & Expenditure Account. Hence it should be
treated as liability as it cannot be acknowledged as their income.
8.4. Recording of Grant Received

Grants received shall be recorded as a liability in the name of the grant under “Grant received
for Specific Purposes” till its determination and disbursement for payment. The Grants
received shall be included in the Summary of Daily Collections maintained by the Accounts
Department. If it is received in cheque, it shall also be entered in Register of Cheques Received

before being deposited into the Bank Account. The details of the Grant Sanction Order shall be
recorded in the Grant Register
Once the Grant is received by the Panchayat, it has to be utilised for the purposes as outlined
in the agreement with the donor. The Panchayat shall account for it according to its purpose
under Revenue or Capital expenditure.
8.5. Utilisation of Grants

After the Grants are received, it has to be utilised for the purposes as outlined in the scheme /
donor agreement. The Panchayat shall account its utilisation in accordance with the
procedure given in other chapters of the Manual. However, all such transactions must
mention the Scheme / Grant name as the Source of Financing Code and ensure that payments
are made only from the grant’s bank account.
The grant may be used either for:
a. Construction of assets through ‘Original Works’;
b. Maintenance Expenses through ‘Repair Works’, if the terms of grant use allow;
c. Other revenue / maintenance expense, if the terms of the grant allow.
The accounting treatment in such case would be the same as described in the relevant
sections of the Manual. For example, in case of SJSRY funds received in the entry above, the
Panchayat may decide to use it for repair works in slum areas. The entries in this case would
be exactly on the lines of Chapter 10 - Public Works. The only variation to entries shall be:
a. Use of Grants Bank Account Head for all transactions related to the work. This
means that bills, statutory deductions etc. are to be paid only from the grant’s
bank account. Similarly any security deposit etc. received shall be deposited in the
grant’s bank account only;

b. Use of appropriate Scheme Code as the Source of Financing in transactions of a

particular grant.
c. Simultaneous record of the grant’s utilisation in the Register of Grants
8.6. Internal Controls

The following internal controls shall be observed by the Panchayat in respect of transaction
related to Grants:
• The Head of the Accounts Department shall ensure that the grant received for a
specific purpose shall not be utilised for any other purpose.
• The Head of the Accounts Department and the Head of the Department implementing
the project/scheme sponsored by the grant shall quarterly reconcile the expenditure
incurred during the period in respect of each of the grant from the Ledger and the
Grant Register maintained at the Accounts Department and the relevant records
maintained at the respective departments.
• The Head of the Accounts Department shall quarterly reconcile the amount of grant
received and receivable in the Ledger and the Grant Register maintained at the
Accounts Department.
• The Head of the Accounts Department shall, after entry in Cash Book in respect of
grants received, ensure that the grant received is recorded in the Grant Register.
Further, it shall be ensured that the Receipt in the summary of Daily Collections
prepared provides reference of Grant Register.
• The Head of the Panchayat shall specify an appropriate calendar of returns /reports
for monitoring.
As per the minutes of the meeting held on 21st January, 2011 under the
Chairmanship of Sh.D.K.Jain, Jt. Secretary, MoPR on issues related to the preparation
of the National Panchayat Accounting Manual, it was decided that, the major head
‘8782-Cash Remittances & adjustments between Panchayats’ will now be modified
into ‘8782-Grants for Specific Schemes.’ So the Priasoft will now book all grants
received under the accounting code ‘8782’

9. Period End Procedures
In this chapter, the procedure for regular updation and preparation of accounts by the PRIs is
described. PRIs will prepare annual accounts of the financial year starting from 1st of April and
ending on 31st March year. The annual accounts will be compilation of monthly accounts.
Certain reconciliation and accounting procedures in addition to normal annual procedures are
to be carried out on a daily and monthly basis so that the recording of transactions is up to
date. The procedure to be followed on daily, monthly and annual basis can be described as
under:
9.1. Daily Procedures

Balancing of Cash/Bank Book: The Cash/Bank Book shall be totalled and balanced
daily. The posting of the day’s transactions shall be made in the respective Ledger
Accounts by the end of the day. The closing cash and bank balance of the day shall be
carried forward to the next day as closing balance for that day.
Physical verification of cash balance: Cash available with the Accounts Department
shall be physically verified by the Cashier. The values and denomination of the cash
physically verified shall be noted in the Cash Book itself. This shall be certified by the
Cashier and the Head of the Accounts Department. The cash balance as physically
verified should match with the closing cash balance as per the cash book.
Deposit of Collections (both cash & Cheque) in the Bank: The cash and cheque
collection shall be remitted to the Accounts Department or deposited with the
respective bank on the same day or in the first half of the next day but not later than
24 hours within receipt. The cash and Cheques received in the first half of the last
working day of the week or day prior to any holiday should be deposited in the bank
on afternoon of the same day. The Cash and Cheques received on afternoon of the
last working day of the week or day prior to any holiday should be kept in the safe
custody i.e. cash chest and deposited in the bank in the first half of the next working
day after the holiday.
Checking of Ledgers accounts with the books of original entries i.e. Cash Book and
Journal Book: The daily postings of entries in the Ledger Accounts from the Cash/Bank
Book and the Journal Book shall be checked and certified by the designated officer.
The person making the concerned postings shall also certify the posting of each
transaction recorded in the books of original entries. Necessary rectification entries
shall be passed immediately in respect of differences or errors in posting.
Updation of Demand & Collection Books The designated officer will update the DCB
on the basis of receipts of revenue issued. This will help in computing receivables at
the end of the year.
9.2. Monthly Procedures

Bank Reconciliation and Treasury Reconciliation should be completed and all
differences between Cash Book and bank and treasury balances are rectified. Bank
reconciliation shall be carried out for each of the Banks either on monthly basis or for
such shorter time as the PRI may decide. Reconciliation procedures have been
prescribed in the separate chapter.

Corrections if any should be made in the Register of Receipts and Register of

payments. If any discrepancies are found between the bank figures and register of
receipts or payments, it should be immediately rectified.
Monthly Receipt and Payment account prepared up to object head level: At the end
of the each month, totals of Receipt and Payment (up to the object head level) shall
be posted to the Monthly Receipt and Payment.
Consolidated abstract should be updated by adding current months figure to the
previous month’s progressive total: The monthly figure is added to the previous
month’s progressive total and the figures up to the end of the current month can be
worked out in the Consolidated Abstract.
Closing of Ledger Accounts: The ledger accounts shall be totalled and balanced at the
end of the each month. The closing balance of each of the ledger accounts shall be
determined and posted in the Trial Balance prepared for the period. The procedures
for preparation of Trial Balance have been outline in the Chapter ‘Financial
Statements’.
9.3. Annual Procedures

All the period end procedures including the passing of adjustment shall be performed at the
end of each accounting year. In addition to that, further period end procedures required to be
performed at the year- end have been prescribed below:
Physical verification of stores: The physical verification of stores shall be carried out
at least once in year on the last day of accounting year. The verification should be
carried out by the stores-in-charge in presence of the designated officers of
accounts/audit as the department may decide.
Physical verification of assets: Each Fixed assets should be physically verified at least
once in a year. PRI should establish a system to enable physically verification each
fixed assets. Any discrepancy in the fixed asset register should be rectified.
Reconciliation and updation of all advances: At the end of the accounting year, the
PRI will update and reconcile all the advances given to the employees and
contractors/suppliers, and recoveries/adjustments made against these advances. If
some discrepancy is found out, the same may be rectified.
Closing of Ledgers: All the ledger accounts shall be balanced and totalled at the end of
the each accounting year i.e. 31st March, for preparation of Financial Statements. The
closing balances for each of the ledger accounts shall be posted in the Trial Balance
from, which Financial Statements shall be prepared in accordance with the procedures
outline in Chapter ‘Financial Statement’

10. Budgetary Control

The budget should reflect the principles and programmes of the organisation and should
enable organisation to measure and promote accountability in respect of service delivery. To
do this a Budget Statement is prepared simply called a ‘Budget’. The Budget in the context of a
PRI is also a sanction document, i.e. to say, no expenditure can be incurred unless there is a
budget approval for it. Thus it implies:
• Any expenditure prior to being incurred should be backed by appropriate sanctions in
accordance with the procedures laid down by the Rules in this regard;
• No work order can be issued without a budget availability;
• No payment can be incurred unless backed by a budget sanction;
• Any expenditure prior to being incurred must be identified to its budget head for
allocation of money;
This chapter contains a discussion to an improved budgeting and budgeting control system.
The purpose of this document is to make recommendations for improvement in the budgeting
system in PRI.
10.1. Objectives
In the context of PRI, Budgeting should have the following objectives:
• Serve as a vehicle for communication of PRI top management’s goals and vision for the
budget year and future years.
• Budget of PRI shall reflect the service expectation of the citizens.
• Provide an opportunity to all line departments to participate in the process of
preparation and implementation of Budget.
• Ensure commitment of all the managers towards achievement of annual goals
• Ensure that budgets are prepared in a realistic manner after taking into consideration
the potential for taxation and other resources which are likely to be available as also the
constraints being experienced and likely to experienced in terms of manpower skills
availability.
• Since resources are likely to be limited, ensure that there is appropriate prioritization
while approving budgets particularly with regard to capital projects and expenditures,
so that projects which will result in maximum citizen welfare are given priority and
expenditures which are relatively more essential are given priority.
10.2. Recommended Budgeting System

10.2.1. Budget Guidelines and Variance Report: Serve as MIS at PRI
The effectiveness of the budgeting exercise improves considerably if the various managers in
an organization have clarity about the vision and direction in which the top management
wishes to steer the organization. This can be brought about by the top management issuing
Budget Guidelines prior to the preparation of the budgets. The Budget Guidelines would be a
formal document issued by the top management. It will contain the following:
• Top Management’s analysis of the past performance of PRI, including trends in

revenues, trends in expenditures, progress of capital projects, availability of resources,
efficiency standards achieved, manpower availability, etc.

• Its perceptions about the environment including expectations of State Government ,

expected role of PRI and regulatory constraints in which PRI has to function, etc.
• Its expectations of the likely environment.
• Its expectations about standards of citizens’ services to be achieved, projects to be
completed, efficiency standards to be reached, manpower to be recruited and/or
trained, resources to be obtained, revenue growth to be attained, expenditure control
to be exercised, etc.
PRI has never done this before. It is, therefore, likely to face difficulty in doing so. It is
recommended that this exercise be initiated in the next budget even it is not perfect. This
will also serve as pre budget MIS reports from PRI management perspective. As, being able
to streamline your budgeting and forecasting process is great, but the real value of budgets
and forecasts is only realized when they are compared with actual and the variances are
analyzed. Besides this, variance report will also serve as additional post budget MIS report
10.2.2. Features of Revised Forms

Some of the basic features of preparation of budget are discussed below.
a. PRI would be required to prepare its budget in four sections viz. Revenue Budget
(showing its earnings from whatever source appropriate to it); Payment Budget
(showing its expenditures on salaries and other items as relevant for it); Staff Budget
(showing the existing staff strength for each major category of staff and the proposed
strength); and Capital (showing proposed capital expenditures on projects of PRI either
construction of roads etc either for better functioning &control or for providing better
service, as may be appropriate).
b. All the line departments should actively contribute in preparation of the budget
exercise to achieve objectives of the budget. Moreover, budget will be based on
realistic assumptions after considering the expectations down the line and the ground
realities. Thus the prioritization would be better.
c. While preparing a budget, to keep it simple and based on current practice, the trends of
last year prior to the current year i.e. two years prior to the budget year will be
considered so that the budgets are prepared in a realistic manner and over-optimism
and pessimism are both avoided.
d. Here just last year will not be the basis of new requirement rather a justification has to
be given for each and every new requirement without reference to previous sanctions.
Thus new budgeting system will be justification and obligation based rather comparison
based. Each activity centre or department would be expected to give the following
along with its budget.
• Assumptions for the numbers chosen by it, including justification.
• The steps to be taken by it for improving its functioning.
• Improvements in service standards expected to be achieved by it.

11. Audit
This chapter discusses the format and content of the Audit Report to be submitted in relation
PRIs. At present different states are using different systems of audit. This chapter will
prescribe the model audit system which PRIs will follow:
The audit in local bodies generally covers the following:
a. Statutory Audit;
b. Financial Statements Audit; and
c. Other Audits.
11.1. Statutory Audit

This audit is normally conducted by the Local Fund Auditor appointed by the State
Governments. The powers and duties of such an auditor, and its reporting requirements are
described in the relevant statute and Rules.
The statutory audit is primarily focused on verifying the propriety of transactions undertaken
by the PRI and the manner in which its affairs are conducted. Irregularities if any, including
non-compliance with relevant statues etc. are to be reported by such an auditor. The
statutory auditor will include, in his report, a statement of:
i. Every payment which appears to him to be contrary to law;
ii. The amount of any deficiency or loss which appears to have been caused by the
gross negligence or misconduct of any person;
iii. The amount of any sum which ought to have been but is not brought into account by
any person; and
iv. Any material impropriety or irregularity which he may observe in the accounts other
than those mentioned in clauses (i), (ii), and (iii).
Though, the different states have different audit rules/guideline, the main points which the
auditor has to cover in his report are:
i. Whether grants or borrowings are utilised for the purpose of the grant or loan;
ii. List of loans availed and whether necessary provisions have been made for
repayment of principal and interest;
iii. Whether all advances and investments are fully secured;
iv. Result of the verification of stock, and whether any losses have occurred, and
whether the system of stores accounts requires to be improved etc.
This audit is conducted under the current system of accounting and will continue under the
new system as well. The statutory auditor shall continue to verify the transactions, essentially
with regard to their propriety, and give his opinion on the accounts and transactions of the
PRI.

11.2. Financial Statements Audit

At present most of the PRIs are preparing different types of financial statements. Different
states are following different systems. With the implementation of the new accounting system
proscribed in this manual, PRIs will be required to prepare Annual Financial Statements
consisting of Balance Sheet, Income & Expenditure Statement and Receipts & Payment
Account, Statement of Assets and Liabilities and also the formats prescribed under Model
Accounting System along with Notes to Accounts, These are discussed in Chapter 11 earlier.
The audit of these financial statements shall be carried out primarily to establish whether they
represent a ‘true and fair’ view of the affairs of the PRI during the period. Such an audit is
referred to as a ‘Financial Statements Audit’.
The Financial Statements Audit shall be carried out by an auditor appointed by the State
Governments under the relevant state rules. (It is recommended that at the initial stage,
State Governments may appoint Chartered Accountant Firms to conduct this audit holding
certificate(s) of practice under the Chartered Accountants Act, 1949. They shall be appointed
by the State Government in consultation with the State AG, from an audit panel maintained
for the purpose. These Auditors shall be subjected to regular rotation of audits. )
11.3. Report of the Financial Statements Auditor

The Financial Statements Auditor shall, upon completion of audit of the accounts, issue a
report on the financial statements of the PRI. The report shall be addressed to the PRI, with
copies sent to Head of the Department and the Controller, State Accounts Department.
The Report of the Financial Statements Auditor shall state:
a. whether he has obtained all the information and explanations which to the best of
his knowledge and belief were necessary for the purposes of his audit;
b. whether, in his opinion, proper books of account as required by the Act, Rules and
the Accounts Manual have been kept by the PRI so far as it appears from his
examination of those books;
c. whether the financial statements prepared by the PRI are in agreement with the
books of accounts;
d. whether the Financial Statements give a true and fair view:
i. In case of the Balance Sheet, of the State of Affairs of the PRI as on the last day
of the financial year; and
ii. In case of Income and Expenditure Statement, of the surplus / deficit of the PRI
for the year ended on that date.
Where any of the matters referred to above are answered adversely or with a qualification,
the auditor’s report shall state the reason for the same and with further explanation and the
financial impact of such qualification.

11.4. Additional Matters to be Reported

Apart from the above, the Financial Statements Auditor shall also report in respect of the
following matters in an Annex to the Audit Report:
1. Whether all sums due to and received by the PRI have been brought to account and have
been appropriately classified?
2. Whether all grants sanctioned or received by the PRI during the year, have been
accounted properly, and where any deduction is made out of such grants towards any
dues of the PRI? Whether such deductions have been properly accounted?
3. Whether any Special Funds, have been created as per the provision of any statute and
whether the Special Funds have been utilized for the purposes for which they have been
created?
4. In respect of contracts that are in existence during the year, whether there are any
deviations from the sanctioned plans and the estimates without the sanction of the
competent authority;
5. Whether the PRI is maintaining proper records showing full particulars, including
quantitative details and situation of fixed assets; whether these fixed assets have been
physically verified at reasonable intervals; whether any material discrepancies were
noticed on such verification and if so, whether the same has been properly dealt with in
the books of account?
6. Whether in case of leasehold property given by the PRI, lease rentals are collected
regularly by the PRI and that the lease agreements are renewed after their expiry?
7. Whether physical verification has been conducted by the PRI at reasonable intervals in
respect of stores?
8. Whether the procedures of physical verification of stores followed by the PRI are
reasonable and adequate? If not, the inadequacies in such procedures should be reported;
9. Whether any material discrepancies have been noticed on physical verification of stores
as compared to book records, and if so, whether the same has been properly dealt with in
the books of account?
10. Whether proper procedures are in place to identify any unserviceable or damaged stores
and whether provision for the loss in this respect, if any, has been made in the accounts?
11. Whether the valuation of stores is in accordance with the accounting principles laid down
in the Accounts Manual? Whether the basis of valuation of stores is same as in the
preceding year? If there is any deviation in the basis of valuation, the effect of such
deviation, if material, should be reported;
12. Whether the parties to whom the loans, or advances in the nature of loans, have been
given by the PRI are repaying the principal amounts as stipulated and are also regular in
payment of the interest and if not, whether reasonable steps have been taken by the PRI
for recovery of the principal and interest?

13. Whether Advances and loans given to employees and interest thereon are being regularly
recovered;
14. Whether there exists an adequate internal control procedure for the purchase of stores,
including components, plant and machinery, equipment and other assets?
15. Whether the PRI is regular in depositing statutory dues including tax deducted at source,
works contract tax, cess payable to the government etc., and if not, the nature and cause
of such delay and the amount not deposited;
16. Whether the PRI is regular in remittance of pension and leave encashment contributions
or any other amounts which the PRI is liable to remit towards the retirement dues of its
employees, including employees on deputation;
17. Whether any personal expenses have been charged to the PRIs accounts; if so, the details
thereof?
18. Whether the Bank Reconciliation statements have been properly prepared for all the bank
accounts of the PRI?
19. Whether the year-end and reconciliation procedures prescribed have been carried out;
11.5. Timeline for financial statements audit

The financial statements audit is expected to be completed within 6 months of the end of the
financial year i.e. within September 30 of the year.
11.6. Other Audits

In addition to the statutory and financial statements audit, the Government may additionally
require certain PRIs to get their accounts audited in the following forms:
Internal Audit – regular audit to be conducted by the internal staff of the PRI or professional
agency on a regular basis;
Special Audit – An investigative or audit in depth with a specific objective of verifying or
checking some specific type of transaction(s) or activities. This may be conducted at the
discretion of the Controller, if such a course appears to him to be necessary in any case. The
Head of the Department may in special circumstances request the Controller to arrange for a
special audit of the accounts of a PRI for any period.

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National Panchayat

Developed by Infrastructure Professionals Enterprise (P) Ltd.

1. ACCOUNTING IN PANCHAYAT RAJ INSTITUTIONS ....................................................... 1

2. ENVISAGED ACCOUNTING SYSTEM .................................................................................... 5

4. BASIC ACCOUNTING SYSTEM ............................................................................................ 17

5. ACCOUNTING PROCESS UNDER DOUBLE ENTRY ACCOUNTING SYSTEM........... 22

6. ACCOUNTING OF ‘OWN SOURCE RECEIPTS’ ................................................................. 50

Prepared by Infrastructure Professionals Enterprise (P) Ltd. i

6.5. Responsibility of the Accounts Officer .....................................................................................................51

7. ACCOUNTING OF PAYMENTS ............................................................................................ 52

8. ACCOUNTING FOR GRANTS-IN AID ................................................................................. 57

9. PERIOD END PROCEDURES................................................................................................ 61

10. BUDGETARY CONTROL ................................................................................................... 63

11. AUDIT .................................................................................................................................... 65

Prepared by Infrastructure Professionals Enterprise (P) Ltd. ii

1. Accounting in Panchayat Raj Institutions

1.1. Present Scenario

“Decentralisation in the context of Panchayats means that when authority is transferred

1.2. Tier levels of the administrative set

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 1

1.2.2. Block Panchayat

1.3. Accounting in PRIs

1.4. Need for National Panchayat Accounting Manual (NPAM)

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 2

1.5. Our Approach in preparation of NPAM

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 3

1.6. Applicability of NPAM

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 4

2. Envisaged Accounting System

An important way of securing accountability and transparency is to make available data

2.1. Recommendation of the Second Administrative Reforms Commission on Local

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 5

2.2. Model Accounting System

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 6

Part - I To record transactions of all receipts and expenditure relating to Panchayats

2.3. Codification in Chart of Accounts

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 7

For the entire list of codes Vol II is to be reffered.

2.4. Basis of Codification

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 8

Functions listed in the Corresponding Major Heads

Agriculture. including Agriculture, including

2. Rural Housing Rural Housing 0216 2216 4216

Water Supply and

5. Markets and Fairs Market and Fairs 0206 2206 4206

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 9

Overtime Allowance 03 Travelling allowance 07

Administrative Supplies and Materials 13

Petrol/Diesel 14 Grants – in – aid 17

Share of taxes / duties 20 Maintenance 26

Prepared by Infrastructure Professionals Enterprise (P) Ltd. 10

2.4.4. Sub Head

12 Sampoorna Gramin Rozgar Yojana (SGRY)

14 Indira Awas Yojana (IAY)

17 Total Sanitation Campaign

19 Sarva Shiksha Abhiyan

22 Integrated Child Development Services (ICDS)

2.5. PRI Accounts and Budget Formats