ACP 313 – Accounting for Government and Not-for-profit Organizations – Copy 7

Topic: Government Accounting

Instructor: Leenuel M. Bernarte, CPA

Budget Process
Government budgeting is the allocation of public funds to attain the economic and social goals of the country. It also
entails the management of government expenditures to create the most impact from the production and delivery of
goods and services. Budgeting for the national government involves four (4) distinct phases:

1. Budget preparation

*Development Budget Coordination Committee (DBCC) is headed by the DBM Secretary and its members are
the Secretary of Finance, NEDA Director-General and the Bangko Sentral Governor, with the Office of the
President for general oversight.

**To meet the Constitutional requirement for the submission of the President's budget within 30 days from the
opening of each regular session of Congress, the budget preparation phase is guided by a budget calendar.
The following are submitted to the Congress:
a. Budget of Expenditure and Sources of Financing (BESF)
b. National Expenditure Program (NEP)
c. President’s Budget Message

2. Budget legislation or authorization

The budget is reviewed sequentially by the following:

The committee arrives at a common version of the General Appropriations Bill (GAB) and it is then submitted
to the President. If there are items which he/she disagrees with, then the President can exercise line-item veto
power. The President then signs it into law as the General Appropriations Act (GAA). The approved budget
becomes effective, whichever comes later of:
a. First day of the budget year concerned
b. Day signed by the President

According to Sec. 25 (7), Art. VI of the 1987 Constitution, if, by the end of any fiscal year, the Congress shall
have failed to pass the GAB for the ensuing fiscal year, the general appropriations law for the preceding fiscal
year shall be deemed re-enacted and shall remain in force and effect until the GAB is passed by the Congress.

3. Budget execution

This phase is primarily the function of the DBM, which is tasked to perform the following procedures:
a. Issue programs and guidelines to the release of funds
b. Prepare the following:
• Allotment Release Program (ARP) – Sets a limit for allotments issued in general and to a
specific agency
• Cash Release Program (CRP) – Fixes the monthly, quarterly and annual disbursement levels
c. Release allotments, which authorize an agency to enter into obligations, through:
• Agency Budget Matrix (ABM)
• Special Allotment Release Order (SARO)

d. Issue disbursement authorities so that cash may be allocated in the payment of the obligations. The
authorities may be in the form of:
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• Notice of Cash Allocation (NCA) – specifies the maximum amount of cash that can be
withdrawn from a government servicing bank for the period indicated;
• Non-Cash Availment Authority (NCAA) – for non- cash disbursements;
• Cash Disbursement Ceiling (CDC) – for DOLE and DFA to allow the use of income collected
by their foreign posts for their operating requirements;
• Notice of Transfer Allocation (NTA) – issued by central office to its regional and operating units
to cover the latter’s cash requirements

4. Budget accountability

This is the final phase of the process where agencies report their actual physical and financial performance.
This ensures that government funds have been effectively and efficiently utilized to achieve the State’s
economic goals. An agency’s accountability may be examined and evaluated through:
• Performance targets and outcomes;
• Budget accountability reports;
• Review of agency performance; and
• Audit conducted by the Commission on Audit (COA)

Government Accounting–General
Under Sec. 109, Presidential Decree (PD) No. 1445, government accounting encompasses the processes of analyzing,
recording, classifying, summarizing and communicating all transactions involving the receipt and disposition of
government funds and property, and interpreting the results thereof.

Public sector accounting in the Philippines is governed by the Government Accounting Manual (GAM), which already
superseded the New Government Accounting System (NGAS) Manual that nation government agencies have been
adopting since 2002. The GAM contains the accounting policies in accordance with the PPSAS.

1. General purpose financial statements – The complete set consists of:

a. Statement of financial position
b. Statement of financial performance
c. Statement of changes in net assets/equity
d. Statement of cash flows
e. Statement of comparison of budget and actual amounts
f. Notes to the financial statements

In addition to the set of financial statements, the following reports, schedules or statements shall be submitted
to COA:
a. Pre-closing trial balance–also called adjusted TB
b. Post-closing trial balance
c. Regional breakdown of income
d. Regional breakdown of expenses

All NGAs shall prepare and submit the following trial balances (TBs) financial statements (FSs) and supporting
schedules (SSs) as follows, within the prescribed deadline:

Monthly TBs & SSs 10 days after end of month

Quarterly TBs, FSs, & SSs 10 days after end of quarter
Yearend TBs, FS, & SS:
Provincial offices and operating units On or before January 20 of the following year
Regional or branch offices On or before January 31 of the following year
Central, head or main offices On or before February 14 of the following year

2. Books of Accounts and Registries

a. Journals
• General journal
• Cash receipts journal
• Cash disbursements journal
• Check disbursements journal
b. Ledgers–General and subsidiary
c. Registries
• Registries of revenue and other receipts
• Registries of appropriations and allotments (RAPAL)
• Registries of allotments, obligations and disbursements (RAOD)*
• Registries of budget, utilization and disbursements (RBUD)*

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*Maintained by allotment classes–personnel services (PS), maintenance and other operating expenses
(MOOE), financial expenses (FE) & capital outlays (CO).

3. Budgetary accounts
a. Appropriation – Authorization made by a legislative body to allocate funds for purposes specified by the
legislative or similar authority
b. Allotment – Also called obligational authority; Authorization issued by the DBM to NGAs to incur obligations
for specified amounts contained in a legislative appropriation in the form of budget release forms
c. Obligation
• An act of a duly authorized official which binds the government to the immediate or eventual payment
of a sum of money;
• Maybe referred to as a commitment that encompasses possible future liabilities based on current
contractual agreement.
• The incurrence of obligations shall be made thru issuance of Obligation Request and Status (ORS).

4. Revenues and other receipts

Revenue from exchange transactions

Revenues received by the NGAs from exchange transactions are recognized on an ‘accrual basis’ and are
derived from the following:
a. Sale of goods or provisions of services to third parties or to other NGAs.
• Service income
• Business income
b. Use by other entity of assets yielding interest, royalties and dividends or similar distributions.
• Interest income
• Royalties
• Dividends

Revenue from non-exchange transactions

Most NGAs derive revenues from transactions where they receive resources and provide no or nominal
consideration directly in return. The ‘cash basis of accounting’ shall be applied by all government agencies in
the recognition of revenue from non-exchange transaction until a reliable model of measurement of this revenue
is developed.
a. Tax revenue
b. Fines and penalties
c. Shares, grants and donations
d. Satisfaction of a present obligation recognized as a liability, which may be as follows:
• Trust liabilities
• Deferred credits
• Unearned revenue

Pledges
Pledges do not meet the definition of an asset because the recipient entity is unable to control the access of the
transferor to the future economic benefits or service potential embodied in the item pledged. Agencies do not
recognize pledged items as assets or revenue. Pledges may warrant disclosure as contingent assets.

Other receipts
a. Receipt of NCA– The Collecting Officer shall not issue an OR for the receipt of NCA.
b. Non-Cash Availment Authority
c. CDC
d. Tax Remittance Advice
e. Receipt of Subsidy/Assistance from other NGAs, LGUs, GOCCs and Other Funds–The Collecting Officer
shall issue OR upon receipt of cash subsidy/assistance.
f. Refund of excess cash advances granted to officers and employees
g. Performance bond/security deposits.
h. Refund of overpayment of expenses.
i. Collections made on behalf of another entity or non- government/private organizations.
j. Intra-agency and inter-agency fund transfers.

At the close of the business day, the Collecting Officers shall prepare the Report of Collections and Deposits
(RCD) for submission to Accounting Office/Unit. The report lists all the ORs issued in numerical sequence
including cancelled ones.

The Chief Accountant shall prepare the Quarterly Report of Revenue and Other Receipts (QRROR) and submit
the report to the GAS, COA, the DBM and the BTr within 30 days after the end of each quarter.

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5. Disbursements – The different modes follow:

a. Checks – to be drawn only on duly approved disbursement voucher (DV) or payroll. There are two types of
checks being issued by government agencies:
• Modified disbursement system checks – chargeable against the account of the Treasurer of the
Philippines
• Commercial checks – Chargeable against the agency account with government savings banks

b. Cash advances, such as:

• Advances to officers and employees–for official travels;
• Advances for operating expenses–granted to regular disbursing officer for operating expenses of
operating/field units and foreign posts not maintaining complete set of books
• Advances for payroll
• Advances to special disbursing officer–for special purpose or time-bound undertakings

Petty cash fund

Payments out of PCF, which shall be made through a Petty Cash Voucher (PCV), should be allowed only for
amounts not exceeding =P15,000 for each transaction, except when a higher amount is allowed by law
and/or specific authority by the COA.

Further, the PCF shall be replenished as soon as disbursements reach at least 75% or as needed.

c. Advice to debit the account

d. Tax remittance advice – Serially numbered documented prescribed by DBM that should be used in the
remittance of withheld taxes on funds coming from the DBM.
e. Working fund
f. Direct payment method – Covered by NCAA.

6. Inventories
• Recorded using perpetual inventory method
• Cost method is specific identification; if items are interchangeable, cost is determined using the weighted
average method.
• Tangible items below the capitalization threshold of P=15,000 shall be accounted as semi-expendable
property, which are recognized as expense upon issue to the end-user.

7. Investment properties & property, plant and equipment

• Accounting policy is cost model.
• Depreciation shall be for one month if the PPE is available for use on or before the 15th of the month;
otherwise, it will be depreciated in the succeeding month.
• Residual value is at least 5% of the cost, unless a more appropriate percentage is determined by the
agency subject to approval of the BOA
• Generally, infrastructure assets have no residual value; in case, such can be determined, the minimum 5%
policy shall be applied.
• The entity shall have a periodic physical count of PPE, which shall be done annually and presented on the
Report on the Physical Count of Property, Plant and Equipment (RPCPPE) as at December 31 of each
year. This shall be submitted to the Auditor concerned not later than January 31 of the following year.

8. Heritage assets

Heritage assets are those assets which have historical, cultural and environmental significance, and are
intended to be preserved in trust for future generations.

a. Characteristics
• Their value in cultural, environmental, educational, and historical terms is unlikely to be fully reflected in
a financial value based purely on a market price;
• Legal and/or statutory obligations may impose prohibitions or severe restrictions on disposal by sale;
• They are often irreplaceable and their value may increase over time, even if their physical condition
deteriorates; and
• It may be difficult to estimate their useful lives, which in some cases could be several hundred years.

b. Initial recognition
• Cost–if acquired through exchange transaction
• Fair value–if through non-exchange transaction

c. Subsequent recognition–At cost less impairment only; depreciation shall only be recognized if the heritage
assets have future economic benefits or service potential other than their heritage value

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9. Intangible assets
• Accounted using cost model.
• As a guideline, the finite useful life of intangible assets shall be 2 to 10 years.

10. Service concession arrangements

11. Financial instruments – For the purpose of measuring a financial asset after initial recognition, the financial
assets are classified into four categories, namely:
a. Financial asset at fair value through surplus or deficit
b. Held-to-maturity investments
c. Loans and receivables
d. Available-for-sale financial assets

12. Bank reconciliation

Bank reconciliation statement (BRS) is prepared using the adjusted balance method by the Chief Accountant
or designated staff in four copies–COA auditor, head of agency, accounting division and bank, if necessary.
The BRS shall be submitted within 20 days after receipt of the monthly bank statement.

Common reconciling items would be:

• Unrecognized/Understatement of NCA for regular and special account with and without any allotment
release order
• Cancelled MDS checks/ADAs
• Lapsed NCA or unused NCA at yearend
• Bank charges

Usual Transactions of Government Agencies

The following are the typical transactions showing the effects of the different accounting policies under GAM:

1. Appropriations, allotments and obligations

a. Receipt of general appropriations act–no journal entry; shall be posted to the appropriate RAPAL.
b. Receipt of allotment from the DBM– no journal entry; shall be posted to the appropriate RAPAL and RAOD.
c. Incurrence of obligation–no journal entry; ORS shall be posted to the appropriate ROAD.

2. Revenue and other receipts

a. Receipt of NCA

For Regular Agency Fund

Cash–MDS, Regular XXX
Subsidy from National Government XXX

For Special Account in the General Fund

Cash–MDS, Special Account XXX
Cash-Treasury/Agency Deposit, SA XXX

For Trust Receipts Fund

Cash–MDS, Trust XXX
Cash-Treasury/Agency Deposit, Trust XXX

b. Receipt of NCAA

Accounts Payable XXX

Subsidy from National Government XXX

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c. Receipt of CDC from DBM

Cash-Constructive Income Remittance XXX

Subsidy from National Government XXX

d. Constructive receipt of NCA for TRA and constructive remittance to BIR of taxes withheld through TRA

Cash-Tax Remittance Advice XXX

Subsidy from National Government XXX

Due to BIR XXX

Due to NGAs XXX
Cash-Tax Remittance Advice XXX

e. Receipt of subsidy/assistance from other government agencies

Cash-Collecting Officers XXX

Subsidy from Other NGAs XXX
Assistance from LGUs XXX
Assistance from GOCCs XXX

f. Remittance of collections to Bureau of Treasury

Cash-Treasury/Agency Deposit XXX

Cash-Collecting Officers XXX

Note that unless otherwise provided by law, all revenue shall be deposited in the National Treasury or in
the duly authorized depository of the Government.

g. Refund of excess cash advances granted to officers and employees.

Cash-Collecting Officers XXX

Advances for Operating Expenses XXX
Advances for Payroll XXX
Advances to Special Disbursing Officer XXX
Advances to Officers and Employees XXX

3. Disbursements

Usually, credit is made to:

• ‘Cash-Modified Disbursement System (MDS), Regular’ for MDS checks
• ‘Cash in Bank-Local Currency, Current Account’ for commercial checks

4. Liquidation of advances

a. Liquidation of payroll fund

Due to Officers and Employees* XXX

Advances for Payroll XXX
*equal to the net pay

b. Liquidation of other advances

Various Expense Accounts XXX

Advances for Operating Expenses XXX
Advances to Special Disbursing Officer XXX
Advances to Officers and Employees XXX

c. Cash overage

Cash-Collecting Officer XXX

Miscellaneous Income XXX

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d. Cash shortage

Due from Officers and Employees XXX

Advances for Operating Expenses XXX
Advances to Special Disbursing Officer XXX
Advances to Officers and Employees XXX

5. Adjusting journal entries

Adjusting journal entries are made at the end of an accounting period to allocate revenue and expenses to the
period in which they actually occurred. AJEs are required every time a financial statement is prepared to make
the statement truly reflective of the financial condition of the entity at a given period. Adjustments are of two
main types:
a. accrued items
b. deferred items.

Other adjusting items:

a. Petty cash fund adjustments–All unreplenished petty cash fund expenses shall be recognized with a
concurrent credit to the account “Petty Cash”
b. Reversion of unused NCA

Subsidy from National Government XXX

Cash-MDS, Regular XXX

All NCA releases for Regular MDS Sub-Accounts to be credited for any month shall continue to be valid only
until the last working day of the 3rd month of the quarter covered.

c. Adjustments for Unreleased Commercial Checks

Cash in Bank, Local Currency Account XXX

Appropriate Liability Account XXX

At the start of the ensuing year, another JEV shall be drawn to reverse the previous entry made and recognize
the availability of the checks for release.

This procedure shall not apply to account “Cash- Modified Disbursement System (MDS)” since there is no actual
cash with the GSBs.

d. Others that are similar to commercial accounting

• Allowance for/accumulated impairment losses
• Write-down of inventories
• Correction/reclassification entries
• Adjustment for reversal of impairment losses
• Depreciation expense
• Exchange differences on foreign currency

6. Closing journal entries–entries which close out all balances of all nominal and intermediate accounts at the
end of the year. The following shall be closed at year end:

1. Closing of revenue and expense accounts

Various revenue accounts XXX

Revenue and expense summary XXX

Revenue and expense summary XXX

Various expense accounts XXX

2. Closing of revenue and expense summary

Revenue and expense summary XXX

Accumulated surplus/(deficit) XXX

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3. Closing of cash-treasury agency deposit

Accumulated surplus/(deficit) XXX

Cash-Treasury/Agency Deposit, Regular XXX

Unless otherwise specifically provided by law, all revenue (income) accruing to the departments, offices
and agencies by virtue of the provisions of existing laws, orders and regulations shall be deposited in the
National Treasury or in the duly authorized depository of the Government and shall accrue to the General
Fund of the Government (Sec. 44, Chapter V, Book VI, E.O. No. 292)

GUIDE QUESTIONS

1. What is a subdivision of a program covering a homogenous group of activities and describing the work to be done?
A. Program
B. Project
C. Plan
D. Budget

2. It is the declared policy of the State that all resources of the government shall be managed, expended, or utilized in
accordance with laws and regulations, and safeguarded against loss or wastage through illegal or improper
disposition, with a view to ensuring efficiency, economy, and effectiveness in the operations of government. Under
Sec. 2 of PD No. 1445, the responsibility to take care that such policy is faithfully adhered to rests directly with the
A. Chief or head of the government agency
B. Department of Budget and Management
C. Legislative department
D. Commission on Audit

3. Which of the following is incorrect regarding receipts issued for cash received by a government agency?
A. Where mechanical devices (e.g. electronic official receipt) are used to acknowledge cash receipts, the COA
may approve, upon request, exemption from the use of accountable forms.
B. Except in limited instances, a government agency may issue temporary receipts to acknowledge the receipt of
public funds.
C. Pre-numbered ORs shall be issued in strict numerical sequence.
D. All copies of each receipt shall be exact copies or carbon reproduction in all respects of the original.

4. Which of the following is a unique component of a government agency’s general purpose financial statements that
is not included in the financial statements of commercial and business entities?
A. Registry of appropriations and allotments
B. Registry of allotments, obligations, and disbursements
C. Statement of comparison of budget and actual amounts
D. All of the above,

5. NGAs are authorized to disburse/pay based on the

A. Advice to debit account
B. Notice of cash allocation
C. Non-cash availment authority
D. Both B and C

6. Under GAM, what is the other term used for allotment?

A. Budgetary authority
B. Obligational authority
C. Disbursement authority
D. None of the above

7. A government official cannot disburse government funds beyond the approved budget in accordance with the
constitutional provision that “no money shall be paid out of the National Treasury except in pursuance of an
appropriation law.” Otherwise, the government official may be charged with
A. Theft
B. Graft and corruption
C. An administrative case
D. Technical malversation

8. Cash disbursement ceiling is an authority issued by the DBM usually to

A. Department of Labor and Employment
B. Department of Foreign Affairs
C. Both A and B

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D. Neither A nor B

9. This is a document which sets out the chief measures that the government intends to take in order to achieve
defined goals of development.
A. Plan
B. Project
C. Program
D. Major Final Output (MFO)

10. PD No. 1445 provides that the Commission on Audit is entrusted with the keeping of the general accounts of the
Government, the preservation of vouchers pertaining thereto for a period of
A. five years
B. seven years
C. ten years
D. fifteen years

11. The deposit of cash to the Bureau of Treasury (BTr) through AGDBs requires a debit to
A. Due from National Government Agencies
B. Cash-Modified Disbursements System (MDS), Regular
C. Cash-Treasury/Agency Deposit, Regular
D. Cash-Collecting Officers

12. To record receipt of NCA from DBM for prior year’s accounts payable and not yet due and demandable
obligations, the government agency should
A. Post the receipt to RAPAL and RAOD.
B. Post the receipt to RAPAL only.
C. Record a credit to Subsidy from National Government
D. Adjust the Accumulated Surplus/Deficit account

13. To record the liquidation of payroll fund based on the report of disbursements and supporting documents
submitted by the cashier, the government agency should
A. Post the transaction to ORS
B. Post the transaction to RAOD
C. Debit Due to Officers and Employees account
D. Debit Salaries and Wages, Regular and Personnel Economic Relief Allowance

14. Government agencies record a debit the Cash-Tax Remittance Advice account when it
A. Recognizes remittance of taxes through TRA
B. Recognizes constructive receipt of NCA for taxes
C. Closes the cash deposit account to accumulated surplus/(deficit) account
D. Recognizes refund of excess taxes paid

15. Which of the following would a government agency close to Accumulated Surplus/(Deficit) account?
A. Revenue and expense summary
B. Cash-Treasury/Agency Deposit, Regular
C. Both A and B
D. Neither A nor B

16. What is the entry to record the collection of P5,000,000 corporate income tax by the BIR in its agency books?
A. Memo entry
B. Cash – collecting officer 5,000,000
Income tax – corporation 5,000,000
C. Cash in bank – LCCA 5,000,000
Income tax – corporation 5,000,000
D. Income tax – corporation 5,000,000
Cash – disbursing officer 5,000,000

17. Agency Xander Ford had the following account balances for the year
Dr. (Cr.)
Cash in bank – Foreign Currency, Current Account P 3,000,000
Accounts receivable 6,000,000
Financial assets at fair value through surplus or deficit 10,800,000
Fixed assets 57,000,000
Books 3,000,000
Infrastructure assets 4,800,000
Semi-expendable machinery and equipment 4,200,000

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Prepaid expenses 1,200,000

Accumulated depreciation – books (3,000,000)
Determine the current assets for the current year.
A. P33,000,000
B. P57,000,000
C. P87,000,000
D. P25,200,000

Solution:
Cash in bank – Foreign Currency, Current Account P 3,000,000
Accounts receivable 6,000,000
Financial assets at fair value through surplus or deficit 10,800,000
Semi-expendable machinery and equipment (treated as Inventory) 4,200,000
Prepaid expenses 1,200,000
Total Current Assets 42,000,000

18. Agency Tender Ford had the following account balances for the year:
Current assets P 7,500,000
Investments and fixed assets 67,500,000
Other assets 3,750,000
Liabilities 13,500,000
Contingent Liabilities 3,750,000
Contingent Assets 2,250,000
Determine the Accumulated Surplus (Deficit) for the year:
A. P78,750,000
B. P63,750,000
C. P65,250,000
D. P61,500,000

Solution:
Current assets P 7,500,000
Investments and fixed assets 67,500,000
Other assets 3,750,000
Liabilities (13,500,000)
Accumulated Surplus (Deficit) 65,250,000

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