The existing system of accounting of Loan transactions can be categorised in two parts as under-

1.Loans and Advances received by State Government.

2.Loans and Advances made by State Government.

Loans and Advances received by State Government: -

Public debt represents the Loans and Advances received by State Government. The sources from and the conditions under which the State Government can borrow upon the security and the responsibility of Accountant General (A & E) in relation to the borrowings of Government are laid down in Para 472 to 476 of M.S.O Tech Vol. I. The sources fall under the following categories:-

• Internal Debt of the State Government.
• Loans and Advances from the Central Government.

Internal Debt of the State Government:-

It represents borrowings of the State Government from sources other than loans from the Central Government. This includes loans raised from open market, loans from the State Bank of India and other Banks, Ways and Means Advances from Reserve Bank of India and loans from autonomous bodies like the Life Insurance Corporation of India, the National Bank for Agriculture and Rural Development, National Co-operative Development Corporation, Housing Development Finance Corporation and Housing and Urban Development Corporation.

Loans and Advances from the Central Government:-

Under Article 293 (2) of the Constitution, the Government of India may, subject to such conditions as may be laid down by or under any laws made by Parliament, make loans to the State Government.

Loans and Advances made by State Government :-

The State Government occasionally makes loans and advances to pubic and quasi-public bodies, co-operative institutions and to individuals. Some of these loans and advances are made under special laws, other for special reasons or as a matter of recognized policy.