CHAPTER 2

GOVERNMENT ACCOUNTS
Sources of government revenue

The government revenue means the amounts which are received by the government during a
particular year. In other words, the income of the government is known as public or government
revenue. These may be classified as:-

A) Internal sources
B) External sources.

DEVELOPMENT EXPENDITURE

Development expenditure is incurred for the establishment of new agricultural and industrial
projects, installation of new plant and machinery, construction of new water and power projects,
construction of new roads, and buildings, purchase of new equipment etc. development
expenditure is mainly financed from external loans and grants. Internal borrowing is also another
source of financing the development expenditure. Development expenditure is shown in capital
budget.

INTERNAL CONTROL

In each ministry, there is a system of internal control. The main purpose of this control is to
ensure that the spending are according to appropriations and for correct purposes.

AUDIT BY CONTROLLER AND AUDITOR GENERAL

The controller and auditor general are responsible to audit the accounts of various government
departments. The main purpose of this audit is to ensure that all moneys appropriated have been
spent for correct purposes. This report is presented to the government together with annual
appropriation accounts.

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PUBLIC ACCOUNTS COMMITTEE

Public accounts committee consists of members of parliament. The controller and auditor
general presents his report about the audit of government accounts to this committee. This
committee deals of with issues raised by the controller and auditor general in his report.

It is composed a chairman and at least three members. The controller and auditor general acts
as an adviser to the committee in its investigations. The report of this committee is placed before
the assembly and the treasure is responsible for implementing its recommendations.

CASH BOOK ACCOUN

Cash book is that book in which all receipts and payments of cash are recorded. Each accounting
unit maintains a cash book. There are different types of receipt and payments in different
ministries, for example, main source of receipts in the ministry of education is school fees and
the receipt of the ministry of transport and communication are motor vehicle licenses fees and so
on.

Example: 1

Record the following transactions in the cash book:-

1994 January

1. Opening balance b/d: cash $4,000 and bank $25,000

2. Received $6,250 cash in respect of trading license
3. Paid Peter & Sons $2,300 (Cheque 252) for goods supplied
4. Cash received $250 in respect of fees
5. Paid telephone charges (Cheque 252) $870
6. Paid to A.B. Garage $5,200 (Cheque 253) for repairs of government vehicles
7. Paid cash to James Lutara $280 cash in settlement of claim for travelling expenses
8. Cash for $2,100 received in respect of licenses
9. Paid wages $500 to A. Robert in cash

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Keep cash balance of $ 1,000 bank the rest of the cash together with all the Cheque on hand and
rule off the cash.
Solution
Cash Book
Date Description Cash Bank Date Description Cash Bank
1994 1994
Jan:2 Balance b/d 4,000 25,000 Jan: 3 Peter & Sons
2 Trading 5 - Supplier 2,300
licenses Telephone charge
(Cheque) 6,250 6 A.B. Garage repair 870
5 Fees 250 James Lutara wages
8 Licenses 2,100 6 A. Robert 5,200
10 Cash 10,820 wages
9 Bank 280
Balance c/d
10 500
10 10,820
1,000 27,450
12,600 35,820 12,600 35,820
1994 $ $
Jan:10 Balance b/d 1,000 27,450

Note: all Cheques received by the government departments are considered as cash and these are
entered in cash column on debit side of the cash book. These Cheques are banked later on and
then:-

Vote Book

Vote book is used by each fund in the government sector. Vote book is that book in which
various account are opened. These accounts related to various expenditure heads and sources of
revenue. Vote book is just like a ledger.

In a vote book, the vote number of any particular department for ministry is used. The amount
appropriated to that department for different purpose is recorded into respective accounts. When
expenditure is incurred for any specific purpose, it is recorded into respective account. The total
funds allocated for a specific purpose and the amount spent are compared from time to time. This
system helps to ensure that the expenditure incurred does not exceed the amounts appropriated

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 for a specific purpose. For various expenses, different code numbers are used. Some code
numbers are given as under:-

110- Travelling and accommodation expenses

120- Postal and telegram expenses

121- Telephone expenses

130- Official entertainment

174- Stationery

In a vote book, account number 110 will show total appropriation for travelling and
accommodation expenses and total amounts spent for purpose up to a specific date.

The format of the vote book is shown asunder:-

Vote Book

A/C No.____________ A.I.E.

No.________________

Allocation.________________

Commitments payments

Date Supplier Ref: Estimated Date P.V. Amount Total Balance

cost No. paid payments available

A.I.E means Authority to incur expenditure

P.V. payment voucher

For any particular department, there is only one A.I.E. for every allocation, separate page of vote
book is used. Commitments are only entered when orders or requisitions are made at estimated
amount.

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Example: 2

Complete a vote book page from the following information:-

Vote head: ministry of works

A.I.E- 222-35

A.I.E. for 5000

December 1993

1. The opening balance of ministry allocation is $100,000

2. Ordered for iron sheets and cement from Tom & Co. $25,000 (L.P.O. 5213)
6. Piad $3,000 for a lory hire to transport cement (P.V.357)

January 1994

10. Paid Tom & Co. $15,000 being part payment for goods ordered (P.V. 358)
15. Bought timber from A.B & Co. $5,000 (P.V. 359)

20. Issued L.P.O. 5214 to Patel & Sons for windows and doors $20,000 (ordered)

25. Paid $7,000 as part payment to Potel & Sons (P.V.360).

Solution

Vote book

A/C No.____________________ Vote No.___________________

A.I.E. No.222 – 35 Allocation $100,000

Commitment Payments
Date Supplier Ref: Estimated Date P.V Amount Total Balance
Cost No. Paid payments Available
1993 $ 1993 $
Dec 1 Tom & Co. L.P.O Dec: 6 P.V.357 3,000 3,000 97,000
-5213 25,000 1994
1994 Patel & L.P.O Jan 10 P.V.358 15,000 18,000 82,000

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Jan20 Sons 5214 20,000 “15 P.V.358 5,000 23,000 77,000
“25 P.V.358 7,000 30,000 70,000
Vote book is not balanced because it is not an account.

Analysis Cash Book

Analysis cash book is like the petty cash book and is usually used for the purpose of re-
imbursement to the holder of standing imprests, the payments made under various types of items
and balance at hand. In other words, the analysis cash book analysis the amounts spent from the
standing imprest which is due for re-imbursement.

The layout of analysis cash book is shown as under:-

Analysis Cash Book

Receipt Date Particulars A.I.E PAYEE A/C Amount

Annual Accounts

Each accounting unit or department of the government prepares some annual accounts. These
accounts are of diversified nature. The accounts prepared by different departments are not of the
same kind.

These accounts may consist of:

a. Income and Expenditure Account

b. Statement of Assets and Liabilities
c. General Account of Vote (G.A.V) Account
d. Exchequer Account
e. Cash (P.M.G) Account
f. Appropriation Account
g. Revenue Account
The procedure of preparing the above accounts is explained by the help of the following
examples:

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Income and Expenditure Account
The departments involved in providing some commercial services prepare income and
expenditure accounts. This account is similar to income and expenditure accounts of non trading
organizations. In this account, surplus or deficit income is calculated
Example: 3
The following balance was extracted from the books of a pension fund for the year ended 30
June 1994:-

DR CR

$ $

Payment to members 500,000

Payment of management expenses 150,000

Member`s contributions 800,000

Interest on investment 400,000

Investment account 2,000,000

Fund account 1,800,000

Cash

Paymaster General Account 350,000

3,000,000 3,000,000

Required: Prepare income and expenditure account for the year ended 30 June 1994 and a
balance sheet as at that date:-

Solution

Income and Expenditure Account

For the year ending 30 June 1994

$ $
Payment to members 500,000 Members contributions 800,000
Management expenses 150,000 Investment income 400,000
Surplus income 550,000

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 1,200,000 1,200,000

Balance Sheet

As at 30 June 1994

$ $
Fund a/c: Investments 2,000,000
Balance b/f 1,800,000 Cash
Add Paymaster General Account 350,000
Surplus income 550,000
2,350,000
2,350,000

Statement of Assets and Liabilities

A statement of assets and liabilities is similar to balance sheet of commercial enterprises. Each
accounting unit prepares a consolidated statement of its assets and liabilities as at 30 June each
year.

General Account of Vote

A G.A.V. account shows the amounts authorized by the parliament to a specific vote and total
expenditure incurred during a particular year.

Exchequer Account

This account records the amounts authorized from the consolidated fund regarding a specific
vote and amounts withdraw from this account by the paymaster general.

Cash (P.M.G.) Account

This account records the withdrawal from exchequer and amounts spent during a particular year.

The double entry system followed in case of the above accounts is as under:-

Amount authorized in the vote on account:

Example: 4

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The approved estimated and actual expenditure details of the ministry of Urban Development for
the year 1993/94 were as follows:-

Gross estimated expenditure 680,000

Estimated Appropriations in Aid 40,000

Net estimate 640,000

Drawing from exchequer 530,000

Gross expenditure 490,000

Actual Appropriations in 30,000

Required:

a. i. The General Account 0f Vote (G.A.V)

ii. The Exchequer Account
iii. The Paymaster General (P.M.G) Account
b. a statement of assets and liabilities as at 30 June 1994
Solution
General Account of Vote
$ $
June 30 July 1
1994 Expenditure a/c 490,000 1993 exchequer a/c 640,000
June 30 June 30
1994 Balance c/f 180,000 1994 Appropriation in Aid 30,000
670,000 670,000

Exchequer Account
$ $
July 1 June 30 cash (P.M.G)
1993 G.A.V 640,000 1994 A/C 530,000
Balance c/d 110,000
640,000 640,000

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 Paymaster General (Cash) Account
$ $
June 30 Exchequer A/C 530,000 June 30 Expenditure A/C 490,000
1994 1994
June 30 Appropriation June 30
1994 in Aid 30,000 1994 Balance c/d 70,000
560,000 560,000

Statement of Assets and Liabilities Account

$ $
Assets Liabilities
Exchequer A/C 110,000 G.A.V 180,000
Cash (P.M.G) 70,000
180,000 180,000

Note: the balance on General Account of Vote is to be surrendered to the treasury at a later date.

Example: 5

From the information provided in example 4, prepare the following accounts on the basis of
Actual Appropriations in Aid being $45,000.

a. G.A.V
b. Exchequer Account
c. Cash (P.M.G) Account
d. A statement of assets and liabilities as at 30 June 1994.

Solution
General Account of Vote
$ $
1994 1993
June 30 Expenditure a/c 490,000 July 1Exchequer a/c 640,000
June 30 Excess A.I.A. 5,000 1994 Appropriation
June 30 Balance c/d 180,000 June 30 in Aid 45,000
685,000 685,000

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 Exchequer Account
$ $
July 1 June 30 cash (P.M.G)
1993 G.A.V 640,000 1994 A/C 530,000
Balance c/d 110,000
640,000 640,000

Paymaster General (Cash) Account

$ $
June 30 Exchequer A/C 530,000 June 30 G.A.V. 490,000
1994 1994
June 30 Appropriation June 30
1994 in Aid 45,000 1994 Balance c/d 85,000
575,000 575,000

Statement of Assets and Liabilities Account

$ $
Assets Liabilities
Exchequer A/C 110,000 G.A.V 190,000
Cash (P.M.G) 85,000 Excess A.I.A. 5,000
195,000 195,000
Appropriation Account

Appropriation account shows the estimated expenditure, actual expenditure, amounts under spent
and amounts over spent for a particular year. The main purpose of this account is to analyze the
difference between estimated expenditure and actual expenditure.

These differences are explained by the accounting officer in the form of footnotes. Over and
understanding is explained only if there is significant difference between estimated expenditure
and actual expenditure

Example: 6

The estimate and expenditure details relating to a ministry as at 30 June 1994 were as follows:

Original Actual

Estimation Expenditure

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 $ $

000 – personal Emoluments 80,000 90,000

050 – House Allowances 15,000 13,000

080 – Passages and leave 5,000 4,500

110 – Travelling expenses 22,000 23,000

140 – Electricity and water 6,000 6,500

220 – Purchase of plant and equipment 50,000 40,000

650 – Appropriation in Aid 15,000 12,000

Supplementary estimates authorized during the year were as follows:-

000 - personal Emoluments 8,000

110 – Travelling expenses (2,000) reduction

Required: Prepare Appropriation Account for the year ended 30 June 1994.

Appropriation Account

For the year ending 30 June 1994

Approved Actual Amount Amount

Estimate Expenditure Under Spent Overspent
$
1- Personal Emoluments
Original 80,000 88,000 90,000 2,000
Supplementary 8,000 15,000 13,000 2,000
050- House allowances 5,000 4,500 500
080- passages and leave
110- Travelling expenses
original 22,000 20,000 23,000 3,000
supplementary (2,000) 6,000 6,500 500
140- electricity & water 50,000 40,000 10,000
220- purchase of plant and equipment

Gross total 184,000 177,000 12,500 5,500

Approved Actual
Estimate Expenditure

$ $
Less Appropriations in Aid (A.I.A) 15,000 12,000

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Net total 169,000 165,000

Surplus of gross estimate over expenditure 7,000 (184,000 – 177,000)

Deficiency of A.I.A 3,000 (15,000 – 12,000)

Net surplus to be surrendered to exchequer 4,000

Revenue Account

Revenue account shows the estimated and actual receipts in respect of a specific revenue head of
the government. The significant differences between estimated and actual receipt are explained
by the accounting officer in the form of footnotes to revenue account.

Example: 7

From the flowing information, prepare statement of revenue for the year ended 30 June 1994:

Revenue head – 150 – 155:

Estimated Actual

Receipt Receipt

$ $

531- Renting buildings and equipment 850,000 870,000

532 – Fees for trading licenses 430,000 400,000

533 – Fees for export and import licenses 740,000 780,000

534 – Other receipts 235,000 210,000

The following additional details are made available:

i. Balance on head as at 30 June 1993, $246,000.

ii. Balance on head as at 30 June 1994, $160,000.

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 Revenue Head 150 – 155

Statement of Revenue

For the year ended 30 June 1994

Estimated Actual
Receipt Receipt
$ $
Renting building equipment 850,000 870,000 payments to
fees of trading licenses 430,000 400,000 exchequer 2,347,000
fees for export and import balance c/d as
licenses 740,000 780,000 on 30 June 1994 160,000
other receipt 235,000 210,000
2,255,000 2,260,000

247,000
balance b/f as on 30 june 1993 2,507,000 2,507,000

In this example, the balancing figure will be considered as payment to exchequer.

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