Govt Will adopt Accrual System of Accounting

Accrual-based accounting system on cards
Our Bureau NEW DELHI INWHAT could be a step towards ensuring a transparent accounting system that would reflect the true position of the country’s financial health, the government has accepted, in principle, a gradual move from cash-based to accrual-based accounting. Acknowledging the essential benefits of the accrual-based accounting pattern, under which revenues and expenditure are shown in the books even when they are realised later, controller general of accounts V N Kaila on Thursday said that the government was positive towards changing the old accounting method. “There are definite benefits of accrual accounting that cannot be ignored. The decision makers can know the full cost of services they are providing, and this would result in better resource allocation, better management of assets and liabilities,” said Mr Kaila, speaking at the diamond jubilee function of accounting body ICAI. Speaking on issues involved in transitioning to the accrual system of accounting, Mr Kaila said that there are various factors that have created a demand for a transition to accrual system of accounting, such as the changing information needs of the decision makers, the implications of the Fiscal Responsibility and Budget Management Act and outcome-oriented budgeting. Cash-based accounting is a method of book keeping that records financial events based on cash flows and cash position. Revenue is shown in the books when cash is received and expense is recognised when cash is paid. On the other hand, under accrual accounting, revenue is shown in the balance sheet when it is earned and realised, regardless of when actual payment is received. Overall, accrual-based accounting would create a desirable measure of the complete financial health of the government, he added.

Publication:Economic Times Delhi;
Date:Jul 4, 2008;
Section:Economy & Corporate;
Page Number:22