Railways To Shift To Accrual-Based Accounting System By 2019

Indian Railways, one of the important means of transportation in the country will pilot its old system of accounting procedure which it has been following since the time of Independence. Railways will revamp with respect to reporting financial statements and will follow the accrual based accounting system.

Currently, Railways in India follow cash-based accounting system to prepare financial statements.

The accrual-based accounting system is universally followed in the corporate sector across the globe.

Till now, the railways has been using the cash-based accounting system for preparing financial statements. It will further continue to use the same system of accounting to prepare cash-based accounts as it is a constitutional requirement.

The shift to the accrual system gives a more accurate financial picture to an organization. Railways in association with the Institute of Chartered Accountants of India (ICAI), will roll out accrual-based accounting.

In Accrual based accounting system, revenue and expenses are reported as and when they are earned and incurred; regardless of when the earnings are actually received and expenses are deducted when they are incurred, regardless of when they are paid. Whereas in the cash-based accounting system, revenue and expenses are recorded as and when they are received and paid.

"As a part of accounting reforms, accrual-based financial statements will be rolled out by March 2019. Around 130 chartered accounts placed in the field by ICAI are assisting the roll-out," a senior railway ministry official said.

"Through accrual-based accounting system, we will be able to analyze step-wise costing of every asset created and services delivered. We will also be able to arrive at micro details such as train, section and rail route costing and profitability numbers," the railway ministry official said.

The new process of accounting system will allow railways to report segment-wise revenue. The existing Cash-based accounting system will also continue to exist along with the yet to be introduced Accrual-based accounting system for preparing financial statements.

Railways have totally 17 zones and 68 smaller divisions spread across the country.