double account system

1. Double account
system
BY
Vinayak kamble
M.Com
GFGC yellapur

2. Meaning
The Double Account System is a method of
presenting the annual final accounts/annual financial
statements of public utility undertakings, like
Railways, Electricity, Gas, Water Supply, Tramways
etc.
• These undertakings are usually incorporated under
Special Acts and, as a result, the form of accounts is
prescribed by, special statute.

4. Features of
Double Account
System:
(a) Generally, a public utility undertaking needs a large
amount of capital which is invested in the acquisition of
fixed assets. Therefore, fixed assets, fixed liabilities and
current assets, current liabilities are to be separately
dealt with. Fixed Assets and fixed or long-term liabilities
are recorded in Receipts and Expenditure on Capital
Account. Similarly, current assets and current liabilities
are recorded in the General Balance Sheet.

5. Cont….
b) Revenue Account and Net Revenue Account are prepared instead of Profit
and Loss Account and Profit and Loss Appropriation Account.
(c) Normally, no adjustment of asset is made in the Capital Account.
(d)Depreciation is not deducted from the asset concerned but the same is
shown as a liability by way of a fund. And, as such, fixed assets are recorded
at book value.
(e) Any kind of funds and reserve — e.g., Sinking Fund, Depreciation Fund,
General Reserve, Capital Reserve, the Balance of Revenue/Net Revenue
Account — are shown in the liabilities side of the General Balance Sheet.
(f) Discount and Premiums are permanently treated as capital items.
(g) Loan capital (debentures) Shares and Stocks are treated as capital items.
(h) Interest on Loan and Debentures (i.e., all fixed interests) are to be charged
against Net Revenue Account.

6. Advantages of
Double Account
System:
(a) As Depreciation fund is compulsorily created
and invested in outside securities, it helps to
replace an asset without affecting the liquid
resources, viz., Cash, of the concern.
(b) The capital account helps us to understand
the source of capital in various forms and the
application of same in the form of various fixed
assets. Thus, it can easily be followed by an
ordinary person.

7. Cont…
(c) Since these concerns enjoy almost monopoly
rights given by the Govt., the Govt., may
understand whether the concern supplies the
efficient service at reasonable cost or not after
analyzing its prescribed format of accounting.
(d) The undertakings may compile at ease
various statistical returns which reflect the
service given to the public since the accounts
are published in a standardized form.

8. Disadvantages of
Double Account
System:
(a) Capital Account incorporates the value of an asset
whose life is very short. Those assets appear in the
account at their scrap value—although these are
shown at a higher value.
(b) Since all Assets are recorded at cost and not the
written-down value, the Balance Sheet does not exhibit
a real position.

9. Cont…
(c) Capital account includes the items like preliminary
expenses which are also considered in Single Account
System.
(d) It is not always possible to understand the
accounting statements and forms by the ordinary
people.
e) Proper distinctions between revenue expenditure
and capital expenditure is not possible under this
system.