Rule 74 of The General Financial Rules 2017 Cash based Accounting
Original Rule Text
Visual Summary
Accounts reflect actual cash flow.
Records cash received and paid out.
Specific book adjustments allowed.
Executive Summary
Rule 74 of The General Financial Rules, 2017 mandates that all Government accounts operate on a cash basis. This means that financial transactions are recorded when cash is actually received or disbursed, rather than when obligations are incurred or revenues are earned. The rule allows for specific exceptions through authorized book adjustments, provided they align with the Government Accounting Rules, 1990, or special orders from the Central Government, advised by the Comptroller and Auditor General of India. This principle ensures that the accounts reflect the true cash flow within a financial year.
In-Depth Analysis of Rule 74
Rule 74 establishes a foundational principle for government accounting: the cash basis of accounting. This method is distinct from accrual accounting, which recognizes revenues and expenses when they are earned or incurred, regardless of when cash changes hands. For government operations, the cash basis provides a clear picture of liquidity and actual cash movements within a fiscal period.
Breakdown of the Rule:
- Cash Basis Mandate: The primary directive is that all government accounts must be prepared on a cash basis. This simplifies tracking of actual funds available and spent.
- Actual Receipts and Disbursements: Transactions are recorded only when cash is physically received or paid out. This contrasts with recording amounts “due to” or “by” the government.
- Authorized Book Adjustments: The rule acknowledges that certain non-cash adjustments may be necessary. These exceptions are strictly limited to those authorized by the Government Accounting Rules, 1990, or specific orders from the Central Government, issued with the advice of the Comptroller and Auditor General of India. This ensures oversight and prevents arbitrary deviations.
- Financial Year Focus: The accounting reflects cash movements strictly within a given financial year, providing a clear annual snapshot of the government’s cash position.
Practical Example:
Consider a government department that receives an invoice for services rendered in March but makes the payment in April. Under Rule 74’s cash basis accounting, this expenditure would be recorded in the financial year ending March 31st if the payment was made by March 31st. However, if the payment is made on April 5th, it would be recorded in the new financial year, even though the service was consumed in the previous year. Similarly, a tax revenue assessed in March but collected in April would be accounted for in the new financial year. This strict adherence to cash movement provides a transparent view of the government’s cash position at any given point.
Related Provisions
Understanding Rule 74 is enhanced by considering other rules that govern government accounts and financial management:
- Rule 71 of The General Financial Rules, 2017 (Preparation and presentation of Accounts): This rule outlines the annual preparation and submission of Union Government accounts, which are fundamentally based on the cash accounting principles established in Rule 74.
- Rule 75 of The General Financial Rules, 2017 (Period of Accounts): This rule specifies the financial year (April 1st to March 31st) for recording transactions, directly aligning with the cash-based accounting period.
- Rule 77 of The General Financial Rules, 2017 (Main Divisions and structure of Accounts): This rule details the three parts of government accounts (Consolidated Fund, Contingency Fund, Public Account), all of which operate under the cash basis principle.
Learning Aids
Mnemonics:
- CASH: Cash Actually Shows How funds move.
Process Flowchart:
Multiple Choice Questions
1. What is the primary basis for preparing Government accounts under Rule 74 of The General Financial Rules, 2017?
- A) Accrual basis
- B) Cash basis
- C) Hybrid basis
- D) Commitment basis
Show Answer
Correct Answer: B) Cash basis
2. According to Rule 74 of The General Financial Rules, 2017, transactions in Government accounts represent:
- A) Amounts due to or by Government
- B) Estimated receipts and expenditures
- C) Actual cash receipts and disbursements
- D) Future financial obligations
Show Answer
Correct Answer: C) Actual cash receipts and disbursements
3. Which of the following can authorize exceptions to the cash basis accounting under Rule 74 of The General Financial Rules, 2017?
- A) Departmental heads without external consultation
- B) Private auditors
- C) Government Accounting Rules, 1990 or special orders advised by CAG
- D) State Governments
Show Answer
Correct Answer: C) Government Accounting Rules, 1990 or special orders advised by CAG
4. Rule 74 of The General Financial Rules, 2017 focuses on recording financial transactions within which period?
- A) A calendar year
- B) A financial year
- C) A project lifecycle
- D) A five-year plan
Show Answer
Correct Answer: B) A financial year
5. If a government department receives an invoice in March but pays it in April, under Rule 74 of The General Financial Rules, 2017, when is the expenditure recorded?
- A) In March (previous financial year)
- B) In April (current financial year)
- C) It depends on the invoice date
- D) It is not recorded until the service is fully consumed
Show Answer
Correct Answer: B) In April (current financial year)
Frequently Asked Questions
What is the core principle of Rule 74 of The General Financial Rules, 2017?
The core principle is cash-based accounting, meaning government accounts record actual cash receipts and disbursements within a financial year, rather than amounts due or accrued.
Are there any exceptions to cash-based accounting under Rule 74 of The General Financial Rules, 2017?
Yes, specific book adjustments are permitted if authorized by the Government Accounting Rules, 1990, or by general or special orders from the Central Government, provided they are advised by the Comptroller and Auditor General of India.
Why is cash-based accounting preferred for government accounts as per Rule 74 of The General Financial Rules, 2017?
Cash-based accounting provides a clear and immediate picture of the government’s actual cash position and liquidity, focusing on the physical movement of funds within a financial year. This simplifies financial reporting and control over public moneys.
Key Takeaways
- Government accounts operate on a strict cash basis.
- Transactions are recorded only upon actual cash receipt or disbursement.
- Limited exceptions for book adjustments require specific authorization and CAG advice.
- Ensures transparency in actual cash flow within a financial year.
Conclusion
Rule 74 of The General Financial Rules, 2017 is fundamental to maintaining financial discipline and transparency in government operations. By mandating cash-based accounting, it ensures that financial statements accurately reflect the actual inflow and outflow of public funds, providing a clear and unambiguous picture of the government’s fiscal health and enabling effective financial management.