Sai Om Journal of Commerce & Management A Peer Reviewed International Journal

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1 Volume 1, Issue 12 (December, 2014) Online ISSN Published by: Sai Om Publications Sai Om Journal of Commerce & Management ACCOUNTING SYSTEM IN HIGHER EDUCATION: A STUDY OF COLLEGES IN MUMBAI CITY DISTRICT Dr. Ashok Wagh Associate Professor, B. N. N. College, Bhiwandi, India [email protected] ABSTRACT Higher education is the place and seat of learning where majority of younger generation is involved. Thus, higher education becomes a major industry which creates skilled and qualified human resources. Higher education, especially given through colleges and universities involve financial activities though their chore activity is catering education to their students. Financial transactions, methods and systems of accounting used by these colleges invoke interests in the minds of many. The Arts, Science and Commerce colleges in Mumbai City District which are affiliated to University of Mumbai and are also aided by the UGC are selected in this paper to collect the data. On the basis of the collected information, inferences are drawn regarding the usage of accounting systems practised by the sample colleges. The present paper attempts to throw light upon the prevailing accounting practices in the conventional colleges. Also, an attempt is made to evaluate the data gathered through questionnaire regarding the maintaining of accounts with respect to curricular activities, cocurricular activities and extra-curricular activities in colleges. Colleges prepare their budget for the financial year keeping in view the activities that the institute designs to conduct throughout the year. Some colleges follow Cash Basis of Accounting System whereas a few follow Accrual Basis of Accounting. Even some colleges follow the hybrid or mixed system of accounting for maintaining their accounts. Further, the present paper attempts to make certain suggestions and recommendations in order to overcome the deficit in finance faced by these colleges. Keywords: Higher Education; Accounting; Cash Basis; Accrual Basis; Budgetary Control System INTRODUCTION Higher education, that is education in colleges and universities, is a tool to produce qualified human resources. Thus, higher education becomes input to the growth and development of business and industry in particular and society in general. It caters a mechanism for qualified scientists and researchers who would continuously develop the frontiers of knowledge. Also, higher education proliferates an efficient management of teaching provision. Many educationists strongly believe that teaching is the base of educational institutions. According to Ronald Barnett, The terms higher education includes college and university teaching learning towards which students progress to attain higher educational qualification. Higher education imparts in-depth knowledge in different walks of life (subject domains). It is about knowing more and more about less and less. It develops the student s ability to question and seek truth and makes him/her competent to critique on contemporary issues. It broadens the intellectual power of the individual within a narrow specialization, but also gives him/her a wider perspective of the world around. Higher education in India has grown significantly in the recent decades. The number of students enrolled for higher education in India exhibits a tremendous increase, which signals that higher education is one of the largest systems of its kind in the world in the recent past. However, the system Available online on 15

2 has been struggling with several problems like funds crunch, equity, reorientation of programmes, ethics, value associated to delivering education, teaching-learning process, assessment and accreditation of institutions, academic standards of the students, quality of research, innovativeness and creativity in the curricula and the syllabi as well as research. Such factors are directly or indirectly connected with the budget and budgetary control system in higher education. Extending the boundaries of management accounting research is a resourceful book by Otley published in the year 2001 which describes, budgetary control as consisting of planning, controlling, co-coordinating and motivation through money values and departments within an organization from an overall company control perspective, more recently notes that the assumption of budgetary control is that it is the main integrative control method for most business enterprises. The assumption being that an organization s business plan can be represented financially by the budget and that the budget can be used as a monitoring and controlling method for the complex issues of the business plan. This emphasis sees the budget linked to the overall attainment of organization performance targets. Here, Otley insists upon the managerial skill at the apex of monitory activity. According to him, for the external public a budget is the financial plan but internally, it is a more complex activity being monitored and controlled by the management. However, in 2006 Otley alters and modifies his definition of budget and budgetary control by expanding the arena of the concept. In his Trends in budgetary Control and responsibility accounting in Contemporary Issues in Management Accounting he captures, The place of the budget in management control will be taken by other performance management systems. These may include such mechanisms such as the BSC of non-financial performance measures; activity-based management (ABM) systems and other forms of business process management; benchmarking techniques for target setting, customer relationship models and so on. Managers will thus be given a variety of operating performance measures by which their performance will be assessed and managed. The views stated above configure budget and budgetary control system as mechanism of management performance which not only assesses the performance of the company but also the models of customer relationship. The present paper aims to analyze and interpret of the budgetary control system as has been practiced by Arts, Commerce and Science colleges in Mumbai City District which are affiliated to University of Mumbai. Also, to analyze and assess the areas of applications of the Budgetary Control System and techniques used thereunder, needs to be strengthened, for the effective and efficient financial management of the college administration, by Arts, Commerce and Science colleges in Mumbai City District which are affiliated to the University of Mumbai. OBJECTIVES OF THE PAPER 1. To analyze and interpret of the budgetary control system as has been practiced by Arts, Commerce and Science colleges in Mumbai City District affiliated to University of Mumbai. 2. To study Budgetary Control System as a technique for effective and efficient implementation of management functions in Arts, Sciences and Commerce colleges in Mumbai City Districts. 3. The present paper attempts to throw light upon the prevailing accounting practices in the conventional colleges. METHODOLOGY The above information is derived from the office bearers and stake holders in colleges Principals and Registrars are interviewed through a Questionnaire. The present paper attempts to make certain suggestions and recommendations in order to overcome the deficit in finance faced by these colleges. The present paper attempts to study Budgetary Control System as a technique for effective and efficient implementation of management functions, and, to assess its impact on policies and procedures practiced by the colleges in achieving their objectives by selecting some sample colleges in Mumbai VOL. 1, ISSUE 12 (December 2014) 16

3 City District which are affiliated to University of Mumbai. Mumbai is considered to be the largest city of Western India, and is also considered the gateway to India. Mumbai City District is considered as a district of Maharashtra in Konkan Division. Today, Mumbai municipality includes both districts, namely, Mumbai city and Mumbai Suburban. The city's area covers 67.7 sq.km. approximately. The Census Statistic of 2011, counts the population of India as 1,210,193,422 with 623,724,248 males and 586,469,174 females. The rate of literacy found to be a total of 74.04% with 65.46% literate females and 82.14% males. This is a 09.81% increase since the last census. In 2011, Mumbai City has population of 3,145,966 of which male and female account for 1,711,650 and 1,434,316 respectively. Average literacy rate of Mumbai City in 2011 is 88.48% as compared to 86.40% of The British rulers in India took initiative in the development of colleges in South Mumbai mainly to cater to the educational need of European population, which was settled in Fort, South and Colaba area of Mumbai and also for some Indian residents in Fort North, Dhobi Talao, Esplanade and Chowpatti area of Mumbai city. With this view, Elphinston College was established in 1857 followed by St. Xaviers and Wilson College. Eventually, by the time of Independence some colleges developed in South Mumbai, namely, Siddharth College and Jai Hind College. These colleges are situated in the core of the city. Similar development is traced in Girgaon, Chowpatti area. Beyond South Mumbai, the textile industry developed in Byculla, Parel, Lalbaugh, Naygaon, hence there was not much of development of colleges except M.D College in Parel. At present, there are 93 colleges in Mumbai city and 187 colleges in the suburb. One can also witness successive developments of educational institutions in Dadar and Matunga in the western line. The Ruiya, Khalsa, SIES College developed in the central line and Ruparel and Kirti developed in the western line. As per University of Mumbai s rule each college should have a catchment area of 5 km radius in the city. Further addition of the colleges is not possible because the existing colleges are located in close proximity with each other. Mumbai City District has as many as 93 colleges, which are affiliated to University of Mumbai, of these 45 colleges have full-fledged streams of Arts, Science and Commerce in isolation or in combination and the remaining includes Natural Science, Fine Arts, Physical Education, Education, Engineering Colleges, Management Studies, Law, and B.Sc. Marine. Every college observes certain methods and standards for recording its financial activities and transactions which is a suitable and accepted Accounting system. Therefore, it becomes necessary to trace the definition of Accounting. Dictionary of Accounting Terms traces the Accounting System as: Methods, procedures, and standards followed in accumulating, classifying, recording, and reporting business events and transactions. The accounting system includes the formal records and original source data. Regulatory requirements may exist on how a particular accounting system is to be maintained. (Joel G. Siegel and Jae K. Shim:2000: 39) In order to meet the day to day requirements, the colleges in Mumbai City District need to record the transactions either on Cash Basis or on Accrual Basis Accounting. According to The Dictionary of Accounting Terms, Cash basis accounting is a Method of recognizing revenue and expenses when cash is received or disbursed rather than when earned or incurred. (Joel G. Siegel and Jae K. Shim:2000: 57) Actually, cash basis accounting system is a system of accounting that recognizes revenue in the order in which it is received, and expenses on the same basis. Cash basis accounting does not deal with accounts receivable or accounts payable and only recognizes transaction actually paid for. This accounting system is easiest and perhaps best for organizations with few or no outstanding transactions or transactions in arrears. The colleges under study practise cash basis accounting system in their domains. It is the practice of recording the day-to-day transactions of receipts and payments on cash basis. Eventually, a college has to follow Accrual Basis Accounting along with Cash Basis Accounting. Accrual Basis Accounting cater the colleges the power to have transactions even there is no cash in VOL. 1, ISSUE 12 (December 2014) 17

4 hand. It is, therefore, essential for the colleges to follow both types of accounting systems available with them. For this purpose, it becomes necessary to see the definition of Accrual accounting. Dictionary of Accounting Terms defines accrual basis accounting as, Recognition of revenue when earned and expenses when incurred. They are recorded at the end of an accounting period even though cash has not been received/ paid. The alternative is cash basis accounting. (Joel G. Siegel and Jae K. Shim:2000: 59) It is observed that the colleges under study use cash basis for registering and reporting their financial activities to their respective authorities, such as the Director of Higher Education, Mumbai and the management of their college. These reports include the annual budget. As Cash Basis Accounting System cannot be implemented completely due to its limitations, Accrual Basis Accounting System is preferably a better system for colleges. If there is shortage or no cash, there is no transaction; hence, accrual basis accounting helps the colleges to complete their transactions even when there is no cash in hand or shortage of cash with the institution. Many colleges prefer cash basis accounting system. Some of them follow accrual basis accounting system whereas some prefer mixed accounting system. The following chart traces the practices of accounting system practised by the sample colleges. Figure-1: Accounting System: It is observed that there are 86.67% of Mumbai City District colleges follow cash basis accounting system and 06.66% of the respondent colleges follow accrual basis of accounting system whereas 06.67% of the respondent colleges follow hybrid (combination of both bases of accounting) basis of accounting system. It is concluded that majority of colleges prefer cash basis accounting system. Very few colleges prefer accrual basis accounting system whereas some prefer hybrid accounting system for their day-to-day transactions. Cash basis, therefore, is a common and suitable accounting system to colleges. Budgetary control system is a control technique whereby actual results are compared with budgets. Any differences or variances are made with the responsibility of key individuals who can either exercise control action or revise the original budgets. A budget is basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget. Budgetary control system compels business administration to think about the future that is most likely the crucial characteristic of this system. It coerces management to look into future, to outline thorough plans for attaining the objectives for each department, operation and each manager, to predict and grant the organization purpose and direction. Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as, "The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision." VOL. 1, ISSUE 12 (December 2014) 18

5 Effective Budgetary Control System involves some steps, such as formulation of budgets, recording the actual performance, comparison between the actual and budgeted performance, calculation of differences occurs in both the performances (variances), analysis of the reasons of differences in between budgeted and actual performance, reporting the management for effective administration in future and taking corrective action for further development and effective budgetary control system. The data stated in the following table focuses the position of application of Budgetary Control System in the sample colleges in Mumbai City District. The Status of Effectiveness of Budgetary Control System: Variable Response-1 Response-2 Do you have an effective Budgetary Control System in your college? No. % No. % Yes No Total Note: Response-1- Principal and Response- 2- Registrar or Office Superintendent There are 12 (i.e. 80%) of the respondent colleges which agree that they have effective Budgetary Control System in their colleges. However, there are 03 (i.e. 20%) of the respondent colleges which do not have an effective Budgetary Control System. The present study projects that majority of colleges have effective Budgetary Control System. Due to the hike in prices of the commodities in the market, it is oftentimes observed that a college feels it difficult to meet its requirements within the budgeted amount. This situation of exceeding of expenses over the budgeted amount is known as budget deficit or shortage of funds. Michael Burda and Charles Wyplosz in their book European Macroeconomics touch upon the definition of Budget deficit as, The meaning of 'deficit' differs from that of 'debt', which is an accumulation of yearly deficits. When a college s net amount received (revenues less expenditures) falls short of the projected net amount to be received, it can be said that the college has deficit revenue. This occurs when the actual amount of revenue received and/or the actual amount of expenditures do not correspond with predicted revenue and expenditure figures. This is the opposite of a revenue surplus, which occurs when the actual amount exceeds the projected amount. Majority of the sample colleges complain that they are always facing this crisis of deficit budget. The data about the budget deficit given below presents the actual situation in the sample colleges which is evident in the curricular and co-curricular activities of the colleges. The Procedural Aspect of Budget Allocation in the Colleges: Variable Does your budget allocation fall short than the actual requirement? Response-(Both) On Account of Curricular Activities Co-curricular Activities Yes % No. % No. % No NA NA NA NA Total VOL. 1, ISSUE 12 (December 2014) 19

6 Figure-2: Budget Deficit in the colleges In 11 (i.e %) of the respondent colleges the budgetary allocations fall short than the actual requirements of the respective departments or programmes; out of which for 04 (i.e %) colleges it falls short on account of curricular activities, and for 07 (i.e %) colleges it falls short on account of co-curricular activities. In 04 (i.e %) respondent colleges the budgetary allocations do not fall short than the actual requirements of the respective departments or programmes. The 04 of the respondent colleges where the budgetary allocations falls short on account of curricular activities, comes to 26.67% of the total respondent colleges and the 07 of the same, where the budgetary allocations falls short on account of co-curricular activities comes to 46.66% of the total respondent colleges under the study. The study throws light upon the fact that approximately 74% of the sample colleges face deficit budget. Generally, it is observed that in the Science stream, it is in the curricular activities the deficit is found, whereas in the Arts and Commerce streams it is in the cultural activities the same is traced. The personal interactions and interviews with the authorities concerned in this domain, enables the researcher to arrive at certain suggestions that can be incorporated in uplifting and enhancing the budget and budgetary control system that is being practised in colleges of Mumbai City District which are affiliated to University of Mumbai. In Budget and Budgetary Control System, instead of practising the rigidities of cash-basis accounting system in degree colleges, it would be beneficial if the colleges observe mercantile basis accounting which will cater them the facility of adjustment of the cash-flow and expenditure of both the academic as well as accounting years. All the colleges should follow a unique practice of accounting reporting by preparing the reports at regular intervals- quarterly. Though all colleges prepare and submit their annual report of accounts/ transactions to the parent body concerned, it is suggested that all colleges should publish their report of accounts/ transactions to the public just like a company or a firm, so that it will be transparent and will gain the confidence of the society. In this way higher education will be bridged with society. Sometimes, it may even invite donations from the public by showing its actual deficit. It is suggested that colleges should do activity based costing which will help them to generate revenue according to the requirement of the funds in the same. This micro level of costing will lead to micro level of budgeting which further will help the colleges to have balanced revenue and expenditures. CONCLUSION Majority of colleges prefer cash basis accounting system. It is observe that Cash basis is a common and suitable accounting system to colleges. The present study projects that majority of colleges have effective Budgetary Control System as Effective Budgetary Control System involves some steps, such VOL. 1, ISSUE 12 (December 2014) 20

7 as formulation of budgets, recording the actual performance, comparison between the actual and budgeted performance.. The study throws light upon the fact that approximately 74% of the sample colleges face deficit budget. Generally, it is observed that in the Science stream, it is in the curricular activities the deficit is found, whereas in the Arts and Commerce streams it is in the cultural activities the same is traced. REFERENCES 1. CIMA Official Terminology, Taxmann s Cost Accounting Ravi M. Kishore Taxmann Allied Services (P.) Ltd., New Delhi, Reprint August 2008 Edition.p Joel G. Siegel and Jae K. Shim, Dictionary of Accounting Terms. Third Edition Barron's Educational Series, Inc. 2000, Hauppauge, NY. 3. Michael Burda and Charles Wyplosz. European Macroeconomics, 2nd ed., Oxford University Press. 1995, p Otley, D.T. Extending the Boundaries of Management Accounting Research; developing systems for performance management. British Accounting Review, 33, 2001, pp Ronald Barnett (1992). Improving Higher Education: Total Quality Care Buckingham: SRHE&OU Press, 1992, p Singh Wahla, Ramnik. AICPA committee on Terminology. Accounting Terminology Bulletin No. 1 Review and Résumé.p University of Mumbai Perspective Plan to prepared by BUCD, p Mumbai District VOL. 1, ISSUE 12 (December 2014) 21