Railways moves towards accounting reforms
Indian Railways to adopt the widely used accrual basis of accounting and will switch from the cash basis of accounting
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New Delhi: The Indian Railways will now adopt the widely used accrual basis of accounting and will switch from the cash basis of accounting which is currently being used in the organization.
This decision as highlighted by the railway minister Suresh Prabhu in his budget speech this year has been made to optimally utilize the public funds by tracking the expenditure of the desired outcomes.
“One of the biggest challenges of Railways has been that we have not been maintaining accounts to display the desired outcome of a particular expenditure and whether we have been able to reach to that destination or not,” said Suresh Prabhu at a conference on Tuesday.
Prabhu was speaking at a one-day National Conference organized by the Railways in partnership with Confederation of Indian Industry (CII) in the national capital to discuss the accounting reforms in Indian Railways with various stakeholders.
According to Prabhu, accounting reforms is a massive project and is not just confined to conversion from cash to accrual accounting but is an integrated project on management accounting, cost accounting and management information systems.
The major difference between the two methods of accounting is the timing of recognition of the revenues and expenses. The cash method recognizes these two things as and when the cash is actually received or paid out whereas the accrual method recognizes the revenues and expenses when the transaction takes place irrespective of the money received or paid during that time.
Cash method being the simpler of the two accounting methods is generally used by small and not-for-profit organizations.
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