Government Accounting in India: formula sheet

Key formulas

Consolidated Fund of India

Article 266(1): Revenues + Loans raised + Loan repayments received

Spending needs an appropriation by law. Charged expenditure is not voted but still comes from this fund.

Public Account of India

Article 266(2): Other public money received by or on behalf of the Government

Includes PF, deposits and small savings. Government is a custodian. Article 266(3) applies, but withdrawals are made under law or executive rules for each head, with no separate Appropriation Act.

Contingency Fund of India

Article 267(1): Imprest created by law, at the President's disposal

For urgent unforeseen expenditure. Recouped from the Consolidated Fund after Parliament authorises.

Withdrawal from the funds

Article 266(3): No money out of the Consolidated Fund or the Public Account except in accordance with law and for the purposes and in the manner provided in the Constitution

For the Consolidated Fund, the law is the Appropriation Act following the budget (Article 114). Article 114(3) requires an appropriation law for all withdrawals from the Consolidated Fund, including charged items. For the Public Account, withdrawals follow law or executive rules for each head, with no separate Appropriation Act.

Taxes need legal authority

Article 265: No tax levied or collected except by authority of law

Basis for parliamentary control over revenue.

Annual Financial Statement

Article 112: Estimated receipts and expenditure laid before Parliament each year

Separates expenditure charged on the Consolidated Fund from other expenditure. Charged items are listed in Article 112(3).

Charged vs voted expenditure

Charged (Article 112(3)): discussed, not voted. Voted: demands for grants voted by Lok Sabha

Charged items include the President's emoluments, salaries of Supreme Court judges, the CAG's salary (also Article 148(3)), and debt charges of the Union. Charged items are not voted, but Article 114(3) still requires an appropriation law for their withdrawal from the Consolidated Fund.

Constitutional basis of the CAG

Article 148 (appointment, oath, removal); Article 149 (duties and powers); Article 150 (form of accounts); Articles 151 (audit reports)

Article 150: the President prescribes the form of Union and State accounts after consulting the CAG. Article 151: Union reports go to the President, State reports to the Governor.

Statutory basis of duties

CAG's (Duties, Powers and Conditions of Service) Act, 1971

Use this Act for the detailed duties, powers, audit of receipts and expenditure and audit of bodies financed by the Government. Do not quote section numbers unless you are certain.

Reporting chain

Union: CAG → President → Parliament; State: CAG → Governor → State Legislature

The Public Accounts Committee examines the reports.

Division of functions

Accounts: Executive (CGA for the Union; ministries as accounting authorities) | Audit: CAG

Separation of accounts from audit took effect for the Union in 1976. The CAG still compiles accounts of most States.

Core audit dimensions

Compliance (legality, regularity, propriety) + Performance (economy, efficiency, effectiveness) + Financial audit

Use these as a ready checklist when asked about the scope of CAG audit.

Status of an IGAS

GASAB recommends → Government notifies → IGAS applies

A GASAB recommendation has no binding force until the Union or State government notifies it.

IGAS 1 guarantee movement

Closing outstanding = Opening + Additions − Discharged/Deleted − Invoked

Use this to reconcile guarantee figures. Guarantees stay as contingent liabilities until invoked.

IGAS 2 classification rule

Grants-in-aid given = Revenue expenditure in the grantor's books

This holds even if the grant is for creating capital assets. The capital-asset portion is disclosed separately.

IGAS 2 grants in kind

Grants in kind → disclose in the statements

They are not a cash payment, so they are shown by disclosure.

IGAS 3 loan nature

Loan = repayable advance on stated terms → shown as a loan asset, not expenditure

Disclose terms, recoveries and arrears. Do not treat a loan as a grant.

Guarantee analysis ratio

Guarantee ratio = Outstanding guarantees ÷ Revenue receipts × 100

This is an analytical measure, not a figure the standard prescribes. Use it only if the question asks.

Saving or excess on a grant

Saving (or excess) = Final grant (original + supplementary) − Actual expenditure

A positive result is a saving. A negative result is an excess needing regularisation by Parliament.

Article 112 statement

Annual Financial Statement = Estimated receipts and expenditure for the year

Charged expenditure is shown separately from other expenditure and is not voted.

Authority to spend

Voted grants + Charged expenditure → Appropriation Act → Withdrawal from Consolidated Fund

Without appropriation by law, no money can be withdrawn from the Consolidated Fund.

Appropriation vs Finance Accounts

Appropriation Accounts = grant-wise control; Finance Accounts = overall position

Use this one-line contrast in answers.

Cash vs accrual

Cash: record on receipt or payment. Accrual: record when the event occurs.

Accrual recognises assets and liabilities such as receivables, payables and depreciation. Cash does not.

Basis of accounting shift

Cash basis, single entry → Accrual basis, double entry

This is the core reform. Revenue is recognised when due and expense when incurred.

Accounting equation for a local body

Assets = Liabilities + Fund balances (reserves and surplus)

Local bodies have no owners' capital. The residual is called fund balance or reserves.

Surplus or deficit

Income (accrual) − Expenditure (accrual) = Surplus or (Deficit)

Shown in the Income and Expenditure Account, not a profit and loss account, because the aim is service, not profit.

Core NMAM outputs

Income and Expenditure Account + Balance Sheet + Receipts and Payments Account (as prescribed) + notes

State the formats your State's manual prescribes if the question gives them; do not assume extra statements.

Grant treatment (principle)

Revenue grant → income; Capital grant → asset-related fund or deferred income, as the manual prescribes

Follow the treatment given in the question or manual. Do not mix capital and revenue grants.

Quick revision

• The Consolidated Fund, Contingency Fund and Public Account are the three Funds of government.
• No money can be withdrawn from the Consolidated Fund except under appropriation made by law (Arts. 114, 204, 266(3)). Charged expenditure is not submitted to the vote of the legislature (Arts. 112(3), 113(2); 202(3), 203(2)) but may be discussed, and it is shown separately in the budget.
• The Contingency Fund is an advance fund for urgent, unforeseen expenditure, later recouped with legislative approval.
• The Public Account holds money the government receives as a banker or trustee.
• Government accounts are classified into levels, from the major head down to the detailed head.
• The CAG audits government accounts and submits reports to the President or Governor, who cause them to be laid before Parliament or the State Legislature. Union accounts are compiled by the Controller General of Accounts (CGA) and the ministries' accounting organisations. For States, the Accountants General compile the accounts for most States, and the arrangement varies across States.
• IGAS are standards issued for government accounting, distinct from Ind AS.
• Government accounting has traditionally been cash-based; Ind AS is accrual-based.
• The budget is an estimate approved by the legislature, and the financial statements show actual results.
• Government companies follow Ind AS; local bodies follow frameworks prescribed for them.
• Always ask first: which entity is this, and which framework applies to it?

Common mistakes

• Saying Parliament must approve each withdrawal from the Public Account. Fix: Remember that the Public Account holds money the government owes to others. Withdrawals follow the rules for the specific head, not an Appropriation Act.
• Mixing up Article 266(1) and 266(2). Fix: Use a memory aid: (1) is the main fund and (2) is the second, smaller account of trust money.
• Saying the CGA audits the accounts of the Union. Fix: Remember: the CGA keeps and compiles, the CAG audits. Link 'Controller' to control of accounts, 'Auditor' to audit.
• Stating that the CAG submits Union reports directly to Parliament. Fix: Write that the report goes to the President, who has it laid before Parliament. For States, it goes to the Governor.
• Treating a grant for building an asset as capital expenditure of the government giving it. Fix: Under IGAS 2 the grantor shows grants-in-aid as revenue expenditure. The capital-asset element is only disclosed separately.
• Recording a guarantee as expenditure when it is issued. Fix: A guarantee is a contingent liability. Under IGAS 1 it is disclosed, and it becomes a payment only if it is invoked.
• Saying the Appropriation Accounts show the overall financial position of government. Fix: Appropriation Accounts test spending against each voted grant. The Finance Accounts show the overall position.
• Saying all expenditure is voted by Parliament. Fix: Charged expenditure is shown separately, is discussed and is not voted. Only voted expenditure goes as demands for grants.
• Calling the result of a local body a profit or loss. Fix: Use surplus or deficit, and Income and Expenditure Account.
• Recording property tax only when cash is received. Fix: Under accrual, record the demand as income and a receivable when it becomes due; record collection later as cash against the receivable.

Exam tips

• Learn the three Article numbers (266(1), 266(2), 267) cold. MCQs often test only this matching.
• In a written answer to a 'distinguish' question, give a point-wise comparison covering nature, Article, authority for withdrawal and control.
• For case scenarios, decide the fund by asking whether the Government holds the money as banker or trustee for others, and whether the need is urgent and unforeseen.
• Use exact words: 'appropriation made by law', 'imprest' and 'recouped'. They signal that you know the mechanism.
• Link this topic to the Role of CAG and Structure of Government Accounts. Questions often cross over to audit and reporting of these funds.
• Write two columns in your mind: 'accounts' and 'audit'. Put every authority and duty under one of them before you answer.
• In MCQs, watch for options that swap the CAG and CGA roles, or swap President and Governor.
• Use the exact article numbers only when you are sure: 148 for appointment, 149 for duties, 150 for form of accounts. Otherwise describe the provision in words.