A distinct feature of the system of Government Accounts is its minute elaboration with which the financial transactions of Government under both receipts and payments are differentiated and classified. A proper system of classification of accounts would also provide the management with more purposeful accounting information to monitor programmes and serve the legislature in a meaningful appreciation of allocation of resources and purposes of Government expenditure.

The structure of classification was revised with effect from 1-4-1987 in the context of the change in emphasis and growth of developmental activities of Government with the twin objectives of reflecting Government transactions in terms of functions, programmes and schemes and securing a direct correlation between accounting classification and plan head of development.

Under the provisions of Section 10(1)(a) of Comptroller & Auditor General of India’s (D.P.C.S.) Act, 1971, the Comptroller & Auditor General of India is responsible for compiling the accounts of each State from the initial and subsidiary accounts rendered by the treasuries, offices or departments responsible for keeping of such accounts to the Accountants General under his control. The accuracy of the accounts prepared by the Accountants General depends on the correct classification of transactions.

Methodology

1. The accounts of Government are kept in the following three parts :-

Part I -Consolidated Fund
Part II -Contingency Fund
Part III -Public Account

In Part I namely consolidated Fund, there are two main divisions, viz:-
(1) Revenue – consisting of sections for ‘Receipt Heads (Revenue Account)’ and ‘Expenditure Heads (Revenue Account)”;
(2) Capital, Public Debt, Loans, etc.-consisting of sections for ‘Receipt Heads (Capital Account)’ ‘Expenditure, Heads (Capital Account)’ and ‘Public Debt, Loans and Advances, etc.’

The Revenue division deals with the proceeds of taxation and other receipts classed as revenue and the expenditure met therefrom, the net result of which represents the revenue surplus or deficit for the year.

In Capital division, the section ‘Receipts Heads (Capital Account)’ deals with receipts of capital nature which cannot be applied as a set off to capital expenditure.

The section ‘Expenditure Heads (Capital Account)’ deals with expenditure met usually from borrowed funds with the object of increasing concrete assets of a material and permanent character. It also includes receipts of a capital nature intended to be applied as a set off against expenditure.

The section ‘Public Debt, Loans and Advances, etc.’ comprises loans raised and their repayments by Government such as ‘Internal Debt’ and ‘Loans and Advances’ made (and their recoveries) by Government. This section also includes certain special types of heads for transactions relating to Appropriation to the ‘Contingency Funds’ and ‘Inter-State Settlement’.

In Part II, namely Contingency Fund, of the accounts, the transactions connected with the Contingency fund established under Article 267 of the Constitution of India are recorded.

In Part III, namely Public Accounts, of the accounts, the transactions relating to ‘Debt’ (other than those included in Part I), ‘Deposits’, ‘Advances’, ‘Remittances’ and ‘Suspense’ are recorded. The transactions under ‘Debt’, ‘Deposits’ and ‘Advances’, in this part are those in respect of which Government incurs a laiability to repay the moneys received or has a claim to recover the amounts paid, together with the repayments of the former (‘Debt’ and ‘Deposits’) and the recoveries of the latter (‘Advances’). The transactions relating to ‘Remittances’ and ‘Suspense’ in this part embrace all merely adjusting heads under which appear such transactions as remittances of cash between treasuries and currency chests transfers between different accounting circles, etc. The initial debits or credits to these heads will be cleared eventually by corresponding receipts or payments either within the same circle of account or in another account circle.

2.Sections and Heads of Accounts
Within each of the sections in Part I mentioned above, the transactions are grouped into sectors such as ‘Tax Revenue’ ‘Non-Tax Revenue’ and ‘Grants-in aid and contributions’ for the receipt heads (revenue account), and ‘General Services’, ‘Social Services’ ‘Economic Services’ and ‘Grants-in aid and contributions’ for expenditure heads, Specific functions or services (such as Education, Sports, Art and Culture, Health and Family Welfare, Water Supply, Sanitation, Housing and Urban Development, etc., in respect of Social Services) are grouped in Sectors for expenditure heads. In Part III (Public Account) also, the transactions are grouped into sections, such as ‘Small Savings’, ‘Provident Funds’, ‘Reserve Funds’, etc. The Sectors are sub-divided into major heads of account. In some cases, the Sectors are, in addition, sub-divided into sub-sectors before their division into major heads of account.

The major heads are divided into minor heads, with a number of subordinate heads, generally known as sub-heads. The sub-heads are further divided into detailed heads. Under each of these heads, the expenditure is shown distributed between charged and voted. Sometimes major heads are also divided into sub-major heads before their further division into minor heads. Apart from the Sectoral and sub-sectoral classification the Major Heads, Sub-Major Heads, Minor Heads, Sub-heads, Detailed Heads and Object Heads together constitute a six-tier arrangement of the classification structure of the Government Accounts. The major, minor and sub-heads prescribed for the classification of expenditure in the general accounts are not necessarily identical with the Grants, sub-heads and other units of allotments which are adopted by the Government for Demands for Grants presented to the Parliament
or Legislatures but in general a certain degree of correlation in maintained between the Demands for Grants and the Finance Accounts.

The major heads of accounts, falling within the sectors for expenditure heads, generally correspond to functions of Government, while the minor heads, subordinate to them, identify the programmes undertaken to achieve the objective of the function represented by the major head. The sub-head represents the scheme, the detailed head, the sub-scheme end object head of the object level of classification.

3. Coding Pattern

Major Heads

From 1st April 1987 a four digit Code has been allotted to the major heads, the first digit indicating whether the major head is a Receipt head or Revenue Expenditure had or Capital Expenditure head or a Loan head.

The first digit of code for Revenue Receipt heads is either ‘0’ or ‘1’. Adding 2 to the first digit of the code of the Revenue Receipt head will give the number allotted to corresponding Revenue Expenditure head; adding another 2, the Capital Expenditure head; and another 2, the Loan head of Account. For example, for Crop Husbandry code 0401 represents the Receipt head, 2401, the Revenue expenditure head, 4401, Capital Outlay head and 6401, Loan head.
Such a pattern is, however, not relevant for those departments which are not operating Capital/Loan heads of accounts e.g. Department of Supply. In a few cases, where receipt and expenditure are not heavy, certain functions have been combined under a single major head, the functions themselves forming sub-major heads under that Major head.

Sub-Major Heads

A two digit code has been allotted, the code starting from 01 under each major head. Where no sub-major head exists it is allotted a Code ‘00’. The nomenclature ‘General’ has been allotted Code ‘80’ so that even after further sub-major heads are introduced the Code for ‘General’ will continue to remain the last one.

Minor Heads

These have been allotted a three digit code, the codes starting from ‘001’ under each sub major/major head (where there is no sub-major head). Codes from ‘001’ to ‘100’ and few codes ‘750’ to ‘900’ have been reserved for certain standard minor heads. The coding pattern for minor heads has been designed in such a way that in respect of certain minor heads having a common nomenclature under many major/sub-major heads, the same three digit code is adopted as far as possible.

Under this scheme of codification, the receipt major heads (revenue account) are assigned the block numbers from 0020 to 1606, expenditure major heads (revenue account) from 2011 to 3606, expenditure major heads (capital account) from 4046 to 5475, major heads under ‘Public Debt’ from 6001 to 6004 and those under ‘Loans and Advances’, Inter-State Settlement and ‘Transfer to Contingency Fund’ from 6075 to 7999. The code number 4000 has been assigned for Capital receipt major head. The only major head ‘Contingency Fund’ in Part II ‘Contingency Fund’ has been assigned the code number 8000. The major heads in the Public Accounts are assigned the code numbers from 8001 to 8999.

4. The transactions included in these accounts represent mainly the actual cash receipts and disbursements during the financial year April to March as distinguished from amounts due to or from Government during the same period. The cash basis system is, however, not entirely suitable for recording the transactions and presenting the true state of affairs of Government commercial undertakings run on commercial principles. The detailed accounts of this class of undertakings are, therefore, maintained outside the regular accounts in proper commercial form and are subject to test check by the Indian Audit and Accounts Department.

5. The figures of actuals shown in these accounts are net, after taking into account the recoveries, although the Demands for Grants presented to Legislature and the Appropriation Accounts are for gross expenditure and exclude credits and recoveries which are otherwise taken as reduction of expenditure.

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