8 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

Module 1

BASIC CONCEPTS OF GOVERNMENT ACCOUNTING

Overview

The implementation of the Government Accounting Manual (GAM) for National

Government Agencies is another milestone in the Philippine Government insofar as public sector
of accounting is concerned. The GAM supersede the New Government Accounting System
(NGAS) Manual that national government agencies have been using since 2002 when the
Commission on Audit (COA), based on the authority granted under Sec. 2 (2), Art. IX-D of the
1987 Constitution, prescribed the use of NGAS effective January 01, 2002. The revision of the
NGAS Manual was prompted by the implementation of the Philippine Public Financial
Management Reform Roadmap, which includes the development of the Philippine Public Sector
Accounting Standards (PPSAS) that are harmonized with the International Public Sector
Accounting Standards (IPSAS). It also introduces the Revised Chart of Accounts (RCA) and
adoption of the Unified Account Code Structure (UACS) that will enable the national government
agencies to properly recognize and present their financial transactions.

Module Objectives:

After successful Completion of this module, you should be able to:

• Define various terms in government budgeting and accounting;

• Describe the government budget/process system;
• Know and understand the budgetary cycle;
• Understand the coding system in the Revised Chart of Accounts (RCA);
• Familiarize themselves with the functions of the different government agencies responsible
for the formulation and control of government funds.

Government Accounting - encompasses the process of analyzing, recording, classifying,

summarizing, and communicating all transactions involving the receipts and disposition of
government funds and property and interpreting the results thereof (Section 109, PD 1445). PD
No. 1445 (also known as Government Auditing Code of the Philippines) governs the accounting
system in the government.

Objectives of Government Accounting:

➢ To produce information concerning past and present condition;
➢ To provide a basis for guidance for future operations;
➢ To provide for control of the acts of public bodies and officers in the receipt, disposition
and utilization of funds and property; and
➢ To report on the financial position and the results of operation of government agencies
for the information of all persons concerned. (Section 110, PD 1445)
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 9

Agencies Charged with Government Accounting Responsibility

➢ Commission on Audit (COA) - a constitutional commission tasked with the accounting

and auditing functions of the national government. The 1987 Constitution provides the
legal basis for the performance of its function:

“The Commission on Audit shall have exclusive authority, subject to the limitations in this Article,
to define the scope of its audit and examination, establish the techniques and methods required
therefor, and promulgate accounting and auditing rules and regulations, including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures, or uses of government funds and properties". (underscoring supplied) - Article IX-
D, Section 2 par. (2)

➢ Department of Budget and Management (DBM) - mandated to promote the sound,

efficient and effective management of government resources as instrument in the
achievement of national socio-economic and political development. It is responsible for
the formulation and implementation of the National Budget.

➢ Bureau of Treasury (BTr) - performs banking functions for the NG. It receives and keeps
government funds, controls the disbursements thereof, and maintains accounts of
financial transactions with each of the NGAs.

➢ Department of Finance – a government institution that formulates fiscal policy. Its basic
function is revenue generation to ensure adequate financing needs of the country. The
different bureaus under the supervision of DOF are the Bureau of Internal Revenue (BIR),
Bureau of Customs (BoC), & Bureau of Treasury (BTr).

The Philippine Budget Cycle / Budget Process

10 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

1. Budget Preparation and Presentation - a government budgetary process wherein the

President, through the assistance of the Department of Budget and Management (DBM),
shall prepare and submit to the Congress a budget of expenditures and sources of financing,
including receipts from existing and proposed revenue measures. It starts with the issuance
of a budget call by the DBM. Each department secretary (including state universities and
colleges) of the government submits the agency estimated budget for the next fiscal year to
DBM.

Upon receipt of DBM of all budget estimates of different agencies, the DBM bureaus then
review the agency proposals and prepare recommendations. The recommendations are then
presented to an Executive Review Board which is composed of DBM Secretary and senior
officials. Then it will be deliberated to entail a careful prioritization of program and
corresponding support, vis-à-vis the priority agenda of the national government. The
deliberation investigates, revise, examine assemble, coordinate and reduce or increase the
budget estimates prepared by each agency. Then, the DBM will consolidate all the budgets
to form the proposed government wide budget to be submitted to the President of the
Philippines and Cabinet for further refinements or prioritization. After the President and
Cabinet approve the propose National Expenditure Plan, the DBM prepares and finalizes the
budget documents to be submitted to the Congress within 30 days before the opening of the
regular session.

The budget preparation ends with the submission of the proposed national budget (The
President’s Budget) to Congress.

2. Budget Legislation or Authorization (Approval) - a government budgetary process which

involves the enactment by the Congress of the General Appropriations Act (GAA) based on
the budget submitted by the President which cannot be increased by the Congress. The
initiative for the enactment of the appropriation law shall come from the House of
Representatives.

The President’s Budget is then assigned to the House of Appropriation Committee. Then, the
Committee will advise schedules and conducts hearings on the budgets of different
departments and agencies and scrutinize their respective programs and projects. After that,
it will then craft the General Appropriation Bill (GAB).

The Appropriation Committee will then sponsor, present and defend the GAB in the plenary
session. After the GAB is approved in the second and third reading, it will forwarded to the
Senate. The Senate conducts its own committee hearings and plenary deliberations on the
GAB. After both the House of Representatives and Senate have finished their deliberations,
they will each constitute a panel of the Bicameral Conference Committee whose task is to
discuss and harmonize the conflicting provisions of the House and Senate versions of the
GAB to produce a harmonized version of the GAB.

The Harmonized version of GAB is submitted to both Houses, which will then vote to ratify
the GAB for submission to the President.

3. Budget Execution or Implementation - a government budgetary process which involves

the implementation of the General Appropriations Act (GAA) which includes the release of
revenue allotment under the supervision of Department of Budget and Management (DBM).
It commences with the issuance of DBM’s guidelines on the release and utilization of funds.
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 11

Each government agencies and departments are required to submit their Budget Execution
Documents (BEDs). The BEDs outline the agency plan and performance targets which
include physical and financial plan, monthly cash program, estimate of monthly income, and
list of obligations that are not yet due.

The DBM prepares an Allotment Release Program (ARP) to set limits for allotments issued
to an agency to ensure that releases fit the approved Fiscal Program of the government. The
DBM also issues Notice of Cash Allocation (NCA) to different agencies to cover their cash
requirements for their projects and obligations. After expending the government funds of
different agencies, they are required to account all the funds to ensure that is used properly.

4. Budget Accountability - a government budgetary process which involves the submission of

proper documentary reports by responsible officer, liquidation of expenditures and audit
conducted by Commission on Audit to ensure the public funds are spent in accordance with
the appropriation act. This procedure happens together with the Budget Execution or
Implementation. The DBM monitors the efficiency and fund utilization, assess the agencies’
performance and provide evaluation and recommendations which is used to set reforms and
new policies.

Each government agency submits Budget Accountability Reports (BARs) on a monthly and
quarterly basis to show how their funds are utilized and its corresponding physical
accomplishments of the project. The DBM then reviews the actual utilization of funds and
physical accomplishments shown in the BARs and compared it with the predetermined plans.

The Commission on Audit (COA) audits the agencies used of government funds. The DBM
then uses the COA audit reports in confirming the agencies’ performance.

The Government Accounting Manual (GAM)

The Commission on Audit (COA) revised the New Government Accounting System (NGAS)
prescribed under COA Circular No. 2002-02 dated June 18, 2002 because of the recent
developments brought about by the Philippine Public Financial Management Reforms and
significant changes in the field of accounting.

Legal Basis

The Government Accounting Manual (GAM) is prescribed by COA pursuant to Article IX-D,
Section 2 par. (2) of the 1987 Constitution of the Republic of the Philippines which provides that:
“The Commission on Audit shall have exclusive authority, subject to the limitations in this Article,
to define the scope of its audit and examination, establish the techniques and methods required
therefor, and promulgate accounting and auditing rules and regulations, including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and properties".
12 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

Coverage

This Manual presents the basic accounting policies and principles in accordance with the
Philippine Public Sector Accounting Standards (PPSAS) adopted thru COA Resolution No. 2014-
003 dated January 24, 2014 and other pertinent laws, rules and regulations. It includes the
Revised Chart of Accounts (RCA) prescribed under COA Circular No. 2013-002 dated January
30, 2013, as amended; the accounting procedures, books, registries, records, forms, reports,
and financial statements; and illustrative accounting entries. It shall be used by all National
Government Agencies (NGAs) in the:
a. preparation of the general purpose financial statements in accordance with the PPSAS
and other financial reports as may be required by laws, rules and regulations; and
b. reporting of budget, revenue and expenditure in accordance with laws, rules and
regulations.

Objective of the Manual

The Manual aims to update the following:

a. standards, policies, guidelines and procedures in accounting for government funds and
property;
b. coding structure and accounts; and
c. accounting books, registries, records, forms, reports and financial statements.

Basic Government Accounting and Budget Reporting Principles

Each entity shall recognize and present its financial transactions and operations conformably to
the following:
a. Generally accepted government accounting principles in accordance with the PPSAS
and pertinent laws, rules and regulations;
b. Accrual basis of accounting in accordance with the PPSAS;
c. Budget basis for presentation of budget information in the financial statements (FSs) in
accordance with PPSAS 24;
d. Revised Chart of Accounts prescribed by COA;
e. Double entry bookkeeping;
f. Financial Statements based on accounting and budgetary records; and
g. Fund Cluster Accounting

Comparison between NGAS and GAM

Features NGAS Manual GAM

1. Statement of Financial
1. Balance Sheet Position
2. Statement of Income 2. Statement of Financial
1. Financial Statements (FS) and Expenses Performance
Title 3. Statement of 3. Statement of Changes in
Government Equity Net Assets/Equity
4. Cash Flow Statement 4. Statement of Cash Flow
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 13

Four (4) Six (6)

In addition to the above:
5. Statement of Comparison of
2. Components of FS
Budget and Actual Amounts
6. Notes to Financial Statements

COA Circular 2013-002,

January 30, 2013;
COA Circular 2004-008, COA Circular 2014-003,
3. Chart of Accounts
September 20, 2004 April 15, 2014;
COA Circular 2015-007,
October 22, 2015
4. Unified Account Code
None Compliant
Structure (UACS)
Regular Agency Book and
5. Books Maintained By Fund Cluster
National Government Book
6. Estimated Useful Lives
Management Prerogative; COA
of Property, Plant and Prescribed by COA
prescribes the ranges
Equipment (PPE)
7. PPE Threshold None P15,000.00 and above (per unit)
Moving Weighted Average; Specific
8. Inventory Costing Moving Weighted Average
Identification
Fund Clustering (prescribed in UACS
Manual)
01 – Regular Agency Fund
02 – Foreign-Assisted Projects Fund
03 – Special Account-Locally
Funded/Domestic Grants Fund
9. Fund Maintenance One Fund Concept 04 – Special Account-Foreign
Assisted/Foreign Grants Fund
General Fund 05 – Internally Generated Funds/
Retained Income Fund
06 – Business Related Funds/
Revolving Fund
07 – Trust Fund
10. Cash Flow Direct Method Direct Method
11. Completed
Public Derecognized Recognized
Infrastructure
12. Statement of Financial
Position:

Assets Without distinction With distinction (Current and

Non-Current)
14 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

Liabilities Without distinction With distinction (Current and

Non-Current)
13. Statement of
Not part of Revenue from Current
Financial Performance Form part of income
Operation
Subsidies, Transfers
14. Impairment Loss None Recognized
15. Adjustment affecting Uses Prior Years’ Adjustment Direct adjustment to Equity; no more
Government Equity (PYA) Account PYA Account
* Without Authority to
use – recognized by BTr
16. Income Collection * With Authority to Recognized by the NGAs concerned
use – recognized by NGAs

17. Accounting for

Donation

With conditionality Income Liability

Without conditionality Income Revenue

With restriction None Revenue

18. Monitoring of Section C of Obligation Request and
None
Obligation/Payment Status (ORS)
At least 5% of the cost, rates
19. Residual Value of PPE 10% of the cost
determined by Management
RAOPS, RAOMO, RAOCO, RAOD-PS, RAOD-MO, RAOD-CO,
RAOFE RAOD-FE
20. Maintenance of
Registries
RBU RAPAL, RBUD

21. New Standards PPSAS Non-compliant PPSAS Compliant

22. Registry of Revenue
None New
and Other Receipts

Unified Account Code Structure (UACS)

Purpose. The objective of the government-wide Unified Accounts Code Structure (UACS) is to
establish the accounts and codes needed in reporting the financial transactions of the National
Government of the Republic of the Philippines. The UACS provides a framework for identifying,
aggregating and reporting financial transactions in budget preparation, execution, accounting
and auditing. The key purpose of the UACS is to enable the timely and accurate reporting of
actual revenue collections and expenditures against budgeted programmed revenues and
expenditures.
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 15

Reporting requirements that will be best served by the UACS include:

1. Financial reports as required by the Department of Budget and Management (DBM) and
the Commission on Audit (COA),
2. Financial Statements as required by the Public Sector Accounting Standards Board of
the Philippines,
3. Management reports as required by the executive officials/heads of departments and
agencies, and
4. Economic statistics consistent with the Government Finance Statistics (GFS) Manual
2001.

Application. The UACS will be used by all departments and agencies of the National
Government and Government-Owned and/or Controlled Corporations with Budgetary Support
from National Government including those maintaining Special Accounts in the General Fund.
The source of account descriptions and codes in the UACS object coding elements includes the
following:

1. The codes from the COA Revised Chart of Accounts prepared for accrual basis financial
reporting,
2. The addition of some sub-object codes, and
3. Additional expenditure accounts designed for cash basis budgeting, such as those for
capital outlays.

When this object coding is combined with budget classification coding for funding source,
organization, location and program, this framework collectively provides the harmonized
budgetary and accounting classification codes known as the UACS.

Responsibilities. The DBM, Department of Finance-Bureau of the Treasury (DOF-BTr) and

COA are collectively responsible for the UACS.

✓ Validation and assignment of new codes for funding source, organization, sub-object
codes for expenditure items shall be the responsibility of DBM.
✓ Validation and assignment of new Program, Activity, Project Codes shall be decided
jointly by the proponent agency and DBM.
✓ Consistency of account classification and coding structure with the Revised Chart of
Accounts shall be the responsibility of COA.
✓ Consistency of account classification and coding standards with the Government Finance
Statistics shall be the responsibility of DOF – BTr.

Elements. The key elements of the coding framework are:

1. Funding Source Codes (6 digits)

2. Organization Codes (12 digits)
3. Location Codes (9 digits)
4. Major Final Output (MFO)/Program, Activity and Project (PAP) Codes, and (9 digits)
5. Object Code (10 digits)
16 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

Revised Chart of Accounts (RCA) – Updated 2019

The Revised Chart of Accounts (RCA) (Updated 2019), as Object Code in the Unified Accounts
Code Structure (UACS), is based primarily on the rules and regulations as stated on the
Government Accounting Manual (GAM) Volume 3 – Updated 2019 (Section 1) prescribed by the
Commission on Audit (COA). During the implementation of the GAM for NGAs, the need to
provide additional accounts for some financial transactions and to modify some existing account
titles, codes and descriptions emerged. Hence, to enable agencies to properly recognize and
present their financial transactions, the Chart of Accounts is further revised to include additional
and modified accounts.

The UACS Object Code (ten digits), which consists of the RCA Code (eight digits) and the UACS
Sub-Object Code (two digits), is used in the recognition of transactions in the books of accounts
and in the generation of financial reports which requires details by sub-object codes. Examples
are Trial Balances and Financial Accountability Reports. For financial statements presentation,
the eight-digit RCA code shall be displayed. Codes are assigned to account groups to facilitate
location of accounts in the general and subsidiary ledgers, provide systematic arrangement and
classification of accounts, and facilitate preparation of consolidated financial statements/reports.

The UACS Object Code structure consists of ten (10) mandatory digits as follows:

1. Account Group represents the accounts classification as to (1) assets, (2) liabilities, (3)
equity, (4) revenue/income, and (5) expenses.

2. Major Account Group classifies the account within an account group, e.g. for asset major
accounts: cash and cash equivalents, investments, receivables, inventories, investment
property, etc.

3. Sub-Major Account Group further classifies the account within the major account group,
e.g. for cash and cash equivalents: Cash on Hand, Cash in Bank-Local Currency, Cash in
Bank-Foreign Currency, etc.

4. General Ledger (GL) Account represents the account to be presented in the detailed
financial statements, e.g. Cash-Collecting Officers, Petty Cash, etc. This is composed of two
(2) segments. The first two digits from left is the GL account code and the last digit is reserved
16 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

to indicate whether it is a contra-account, e.g. Allowance for

Impairment, Accumulated Depreciation, etc.

5. UACS Sub-Object Code represents disaggregation of

selected assets, liabilities, revenue/income, and expenses.

Responsibility for Updating the UACS Object Code. The first

eight digits of the UACS Object Code are drawn from the Chart of
Accounts prescribed by the COA. The last two digits (referred to as
UACS sub-object codes) are prescribed by the UACS Committee,
composed of representatives from the DBM, DOF and COA.
Codes which are not included in the RCA and UACS Manual may
be created by the COA and UACS Committee as the case may be
upon written request of agencies concerned.

Philippine Public Sector Accounting Standards (PPSAS)

The objective of PPSAS is to set out the recognition, measurement,
presentation and disclosure requirement for financial reporting in
the Philippine Government.

Bases of PPSAS:
a. Pronouncement issued by:
• International Public Sector Accounting Standards Board (IPSAB); create IPSAS
• International Accounting Standards Board (IASB); IFRS
• Philippine Institute of Certified Public Accountants (PICPA); and
• International Organization of Supreme Audit Institutions
b. Relevant factors, including best accounting practices and
c. Capacity of agencies to comply with PPSAS

Scope of PPSAS
a. PPSAS set out requirements dealing with transactions
and other events in general purpose financial reports
b. PPSAS are designed to apply to the general purpose
financial reports of all public sector entities other than
Government Business Enterprises (GBEs),
c. Apples to all NGAs, LGUs, GOCCs not classified as GBEs

PPSAS consists of:

a. International Public Sector Accounting Standards (IPSASs)
(Accrual Based IPSASs per 2012 Handbook) developed by
IPSASB and published by the International Federation of
Accountants (IFAC), and
b. Philippine Application Guidance (PAG)