Fund Accounting and Retention (Dharauti) Accounts

Journal Voucher (retention received in cash; e.g. Rs 40,000)

Cash comes in, so Cash A/c is debited. The office owes this money back, so Retention A/c (a liability) is credited.

Retention Journal Voucher (retention received in cash; e.g. Rs 40,000)

Retention money is not revenue of the office. It is held temporarily as a liability and later refunded or adjusted, so Retention A/c is credited, not a revenue account.

Journal Voucher

Explanation: When the retention money held back from the contractor's bill is deposited into the bank, the bank balance increases (debit) and the retention liability is settled/reduced (credit). Hence, Bank A/c is debited and Retention A/c is credited with Rs.40,000.

Journal Voucher (retention received through bank voucher; e.g. Rs 40,000)

The bank balance increases, so Bank A/c is debited. The office holds the money as a liability to be returned or adjusted later, so Retention A/c is credited.

Retention accounting is the system of recording money that a government office receives and holds temporarily as security or deposit from contractors, suppliers or other parties (for example bid security, performance security or amounts withheld from bills). It is not the office's own income, so it is kept in a separate Retention (Dharauti) account as a liability and is returned or adjusted when the purpose is over.

Three conditions in which retention should be kept:

1. Bid security: money taken from bidders while submitting a tender, held until the bid is decided and then returned to unsuccessful bidders.
2. Performance security: money taken from the contractor or supplier to ensure the contract is completed as agreed, held until completion.
3. Amount withheld from bills: a part of the contractor's bill (for example a fixed percentage) withheld during the defect liability period to ensure repair of defects, and released after that period.

Retention Journal Voucher (security deposit refunded to S&S Co.)

The security deposit was held as a liability, so refunding it debits the deposit account and credits Bank.

A special revenue fund is a fund set up to account for money received from specific revenue sources that are legally restricted to be spent for particular purposes, for example a road maintenance fund built from fuel levy collections.

Retention Journal Voucher (retention money forfeited; e.g. Rs 40,000)

When retention money is forfeited, the liability ends and the amount becomes revenue of the government, so Retention A/c is debited and a revenue account is credited.

Retention Control A/c (the control account used for integrated record and report of retention transactions).

Fund accounting is a system of accounting in which resources are recorded and reported in separate funds, each with its own self-balancing set of accounts, according to the purpose or restriction attached to it. It is mainly used by government and non-profit organisations.

Retention accounting is the accounting of money withheld from contractors' or suppliers' bills (such as security deposit and retention money) as a guarantee for work performance. It records the amount received, held, refunded, adjusted or forfeited.

Five points about the fund accounting method:

1. Separate funds: Resources are divided into funds such as general fund, special revenue fund and capital fund, according to purpose or legal restriction.
2. Self-balancing accounts: Each fund keeps its own set of accounts with assets, liabilities and fund balance that balance independently.
3. Spending only for the stated purpose: Money in a fund can be used only for the purpose for which it was raised, which ensures accountability.
4. Emphasis on stewardship: The focus is on showing how money was received and used, not on earning profit.
5. Separate reporting: Receipts, payments and balances are reported fund by fund, and then consolidated, so that donors, the legislature and the public can check compliance.

Fund is a sum of money or a pool of resources set aside for a specific purpose, such as meeting a particular expense or carrying out a specific activity.