DySAS Center for CPA Review (DCCPAR)

2nd Floor Mitra Bldg. (Mercury Drug)

San Pedro St., Davao City

FINANCIAL ACCOUNTING Batch 11 – May 2006

Review Material Mr. John C. Frivaldo, MBA, CPA

GOVERNMENT ACCOUNTING

Definition
- is the process of analyzing, classifying, summarizing and communicating all
transactions involving the receipts and disposition of government funds and
property, and interpreting the results thereof.

Objectives

1. to produce information concerning past and present operations

2. to provide a basis for guidance for future operations
3. to provide for control of the acts of public bodies and offices in the receipt,
disposition and utilization of funds and property
4. to report on the financial position, performance and cash flows of government
agencies

Characteristics

1. Government accounting involves the receipt and disposition of government funds

and property.
2. The primary purpose of government business is to render service to the public in
contrast to the usual profit motive of private business.
3. Individual ownership (capital stock) does not exist in government accounting.
4. Officers and administrators of the government business are governed in almost
every act by special laws, rules, and regulations.
5. The government derives most of its income from taxes and fees.
6. Government accounting deals with the financial management of the national
government and its instrumentalities such as the local government and GOCCs.

Basic Features

1. Emphasis on compliance with laws and regulations than accounting concepts and
theories
2. Modified accrual basis
3. One fund concept
4. Accounting books
a. Regular agency books
b. National government books
5. Standard Government Chart of accounts
6. Accounting reports
a. Trial balance
b. Balance sheet
c. Statement of income and expenses
d. Cash flow statement
7. Budgetary control
8. Notice of cash allocation
9. Inventory accounting
10. Depreciation
11. Elimination of corollary and negative entry
Treasury Disbursement Coding System
- refers to the use of uniform codes in all treasury warrants and Treasury
Check Account for All Agencies checks drawn to analyze and monitor actual
disbursements in the National Treasury.
- complements the fund and obligation accounting system as control
mechanism.

Constitutional Provisions

1. All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a
special fund was created has been fulfilled or abandoned, the remaining balance
if any, shall be transferred to the general fund of the government.
2. The President shall submit to the Congress within 30 days from the opening of
every regular session, as the basis of the general appropriations bill, a budget of
expenditures and sources of financing, including receipts from existing and
proposed revenue measures.
3. No money shall be paid out of the Treasury except in pursuance of an
appropriation made by law.
4. A special appropriation bill shall specify the purpose for which it is intended and
shall be supported by funds actually available as certified by the National
Treasurer or to be raised by a corresponding revenue proposal therein.
5. The President may contract or guarantee foreign loans on behalf of the Republic
of the Philippines with the prior concurrence of the Monetary Board and subject
to such limitations as may be provided by law. The Monetary Board shall, within
30 days from the end of every quarter of the calendar year, submit to Congress
a complete report of its decisions on applications for loans to be contracted or
guaranteed by the Government or GOCCs which would have the effect of
increasing the foreign debt, and containing other matters as may be provided by
law.
6. No law shall be passed authorizing any transfer of appropriations. However, the
President, the President of the senate, the Speaker of the House of
Representatives, the Chief Justice of the Supreme Court and the Heads of
Constitutional Commissions may, by law, be authorized to augment any item in
the general appropriations law for their respective offices from savings in other
items of their respective appropriations.
7. All appropriations, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the
House of Representatives but the Senate may propose or concur with
amendments.
8. Discretionary funds appropriated for particular officials shall be disbursed only for
public purposes to be supported by appropriate vouchers and subjects to such
guidelines as may be prescribed by law.
9. No public money or property shall be appropriated, directly or indirectly for the
use, benefit or support of any sect, church, denomination, sectarian institution,
or system of religion, or of any priest, preacher, minister or other religious
teacher or dignitary.

National Budget System

- consists of the methods and practices of the government for planning,

programming and budgeting.
- includes the adoption of sound economic and fiscal policies.
- is primarily concerned with the availability and use of money to provide the
necessary services expected of the government.

National Government Budget

- is a statement of estimated receipts based on existing and proposed revenue

measures, and of estimated expenses, which serves as the basis for the
general appropriation bill.
Phases in the Budget Process or Cycle

1. Budget Preparation
2. Budget Authorization
3. Budget Execution
4. Budget Accountability
5. Line item Budget
6. Expected results
7. Program
8. Project
9. Resources

Funds

1. General fund
2. Special fund
3. Trust or fiduciary fund
4. Depository fund

Government Offices charged with Accounting Responsibility

1. Commission on Audit
- have the power, authority and duty to examine, audit and settle all accounts
pertaining to the revenues and receipts of, and expenditures or uses of funds
and property pertaining to the:
e. government, or any of its subdivisions, agencies or instrumentalities
f. constitutional bodies, commissions and offices
g. government-owned and controlled corporations
h. non-government entities receiving subsidy or equity, directly or indirectly
from the government
- keep the general accounts of the Government and for such period as may be
provided by law, preserve the vouchers and supporting papers pertaining
thereto.

2. Department of Budget and Management

- shall be responsible for the design, preparation and approval of accounting
systems of government agencies
- shall issue the “budget call” for the budget preparation
- shall summarize all budget proposals and submit the same to the President
and the Cabinet before finalization and submission to Congress
- shall monitor the budget execution

3. Department of Finance (Bureau of Treasury)

- receive and keep national funds, manage and control disbursements thereof
- maintain accounts of financial transactions of all national government offices,
agencies and instrumentalities

4. Government Agencies discharging the functions of government to enable it to

attain its commitment to the people

Definition of Terms

1. Appropriation – is an authorization by the legislative body to make payments

out of government funds under specified conditions and specific purposes.
2. Allotment – is an authorization by the Department of Budget and Management
to the head of an agency to incur obligations within a specified amount pursuant
to an appropriation.
3. Obligation – is the amount committed or contracted by an administrative
official and for which the government is liable.
4. Annual Appropriation – is the appropriation for incurring obligations for the
current fiscal year only.
 5. Continuing Appropriation – is an appropriation which extends beyond one
fiscal year. If the continuing appropriation is for a definite period in excess of
one year, it is called multi-year appropriation. If the continuing appropriation is
for an indefinite period in excess of one year, it is called a no-year
appropriation.
6. Standing Appropriation – is an appropriation made annually or for some
period prescribed by law by virtue of standing legislation which does not require
periodic action by the legislature.
7. Special Appropriation – is an appropriation for a particular purpose which has
not been included in the annual appropriation law on account of lack of material
time or on account of its importance the legislative body and the President
deem it wise to consider it separately and independently.

Standard Government Chart of Accounts

- is a list of ledger accounts prepared for use of the national government, local
government, and GOCCs except financial institutions.
- is prescribed by Commission on Audit.
- consists of Balance Sheet accounts and Income and Expense accounts.

Major Classifications of Revenue or Income

1. General Income accounts

2. Special Income accounts

Major Classifications of Expenses

1. Personal Services
2. Maintenance and Other Operating Expenses
3. Financial Expenses

National Clearing Account

- links the books of accounts maintained by COA, Bureau of Treasury, and

National Government Agencies. The operations of these entities taken
together constitute the National Government Accounting System for the
General Fund. The net balance of the NCA upon consolidation of the
accounts in the three sets of books shall be zero. Thus, the NCA does not
appear in the balance sheet of the National Government viewed as a single
entity.

Fundamental Principles of Government Fiscal Operations

1. No money shall be paid out of the National Treasury except in pursuance of an

appropriation law.
2. Government funds or property shall be spend or used solely for public purposes.
3. Trust funds shall be available and may be spend only for the special purpose for
which the trust was created.
4. Fiscal responsibility shall, to the greater extent, be shared by all those exercising
authority over the financial affairs, transactions and operations of the
government agency.
5. Disbursements or disposition of government funds or property shall invariably
bear the approval of the proper officials.
6. Claims against government funds shall be supported with complete
documentation.
7. All laws and regulations applicable to financial transactions shall be faithfully
adhered to.
8. Generally accepted principles and practices of accounting as well as of sound
management and fiscal administration shall be observed, provided they do not
contravene existing laws and regulations.
Local Government Accounting System

1. The fundamental principles of government fiscal operations governing the

national government are also applicable to the local government.
2. The local chief executive is principally responsible for the fiscal administration of
the local government. The responsibility is shared by the local legislative body,
the local treasurer, the Department of Finance, the Department of Budget and
Management and the COA.
3. The local government shall formulate local budget based on functions, activities
and projects.
4. The local government also prepares the pre-closing trial balance, the statement
of income and expenses, and balance sheet at the end of each fiscal year.

Local Government Funds

1. Local Funds
a. General Fund
b. Infrastructure Fund
2. Special Education Fund
3. Trust Fund
4. Special Accounts maintained in the General Fund
a. Public utilities and other economic enterprises
b. Barrio development fund
1. One of the following is not considered government income.
(a) proceeds from loans and borrowings
(b) government buildings
(c) grants and aids received from foreign governments
(d) taxes B

2. What are the books of accounts in the government?

(a) books of COA
(b) books of COA and books of treasury
(c) books of COA and books of agency
(d) books of COA, books of treasury and books of agency D

3. Which is incorrect concerning government accounting?

(a) Laws, rules and regulations guide the accounting procedure for government
accounting.
(b) Depreciation is taken up regularly in government accounting.
(c) The use of corollary entry is not adopted.
(d) In government accounting, emphasis is on fair presentation, so that reports are
stated as “opinion”. D

4. The objectives of government accounting include (choose the incorrect one):

(a) to report on the financial position and results of operations of government
agencies
(b) to provide for control of the acts of public bodies and offices in the receipt,
disposition, and utilization of funds and property
(c) to provide information concerning past and present operations and to provide a
guidance for future operations
(d) to present fairly the financial position, performance and cash flows of
government-owned corporations D

5. This consists of money and resources of the local government which are available for
the payment of expenditures, obligations or purposes not specifically declared by law
as accruing and chargeable to, or payable from, any other fund.
(a) general fund (c) special education fund
(b) trust fund (d) depository fund A

6. What is the role of the Bureau of Treasury in relation to government accounting

responsibility?
(a) to receive and keep national funds and manage or control disbursements thereof
(b) to design, prepare, and approve the accounting systems of government agencies
(c) to keep the general accounts of the national government
(d) to prepare the annual financial report of the national government, its
instrumentalities and government-owned or controlled corporations A

7. It represents all funds received by the government from taxes, grants, aids and
borrowings.
(a) government income (c) cash fund
(b) government revenue (d) borrowings A

8. In government accounting, the control accounts for revenue and expenditures are
found in:
(a) the budget and operations account
(b) both the balance sheet and budget and operations account
(c) national clearing accounts
(d) balance sheet accounts A

9. He is principally responsible for the fiscal administration of the local government.

(a) local chief executive (c) provincial treasurer
(b) municipal accountant (d) commission on audit A
10. The main concern is availability and use of funds for public services.
(a) Commission on Audit (c) National Treasury
(b) Department of Finance (d) National Budget System D

11. Which department prepares the national budget which serves as the basis of the
general appropriation law?
(a) Executive department (c) Judiciary department
(b) Legislative department (d) Each government agency A

12. Which is not charged with the government accounting responsibility?

(a) Commission on Audit (c) Bureau of Treasury
(b) Department of Budget and Management (d) Legislative Department D

13. Budget accountability includes (choose the incorrect one):

(a) safeguarding government resources
(b) adherence to legal requirements, administrative policies and regulations, and
efficiency and economy in operations
(c) results of government programs and activities are reflected in accomplishments,
benefits and effectiveness
(d) payment for misappropriated amount D

14. Which is an ordinary income?

(a) Tax (c) Repayment of advances
(b) Grant or aid from foreign country (d) Loan or borrowing A

15. It is an appropriation which does not require periodic legislative action and referred
to as “automatic appropriation”.
(a) standing appropriation (c) supplemental appropriation
(b) special appropriation (d) contingent appropriation A

16. It is an amount committed to be paid by the government arising from an act of a

duly authorized administrative officer and which binds the government to the
immediate and eventual payment of money.
(a) obligation (c) allotment
(b) appropriation (d) commitment A

17. Which government body keeps the general account of government, promulgates
accounting rules and regulation, and submits to the President and Congress an
annual financial report of the government?
(a) Commission on Audit
(b) Department of Budget and Management
(c) Bureau of Treasury
(d) Department of Finance A

18. This is a sum of money or other government resources set aside for the purpose of
carrying out specific activities or attaining certain objectives in accordance with
specific regulations, restrictions, or limitations, and constitute an independent fiscal
and accounting entity.
(a) cash disbursement ceiling (c) fund
(b) appropriations (d) budget C

19. In government accounting, it is not correct:

(a) to regularly take up depreciation.
(b) to adopt a combination of the cash basis and accrual basis.
(c) to correct a debit error by a debit entry but in the negative.
(d) to emphasize on correctness, so reports are “certified correct”. B

20. The functions and activities necessary for the performance of a major purpose for
which a government entity is established.
(a) program (c) resources
(b) project (d) internal control A
21. It is a list of ledger accounts prescribed by COA for use of the national government,
local government and government-owned or controlled corporations except financial
institutions.
(a) standard government chart of accounts (c) balance sheet
(b) chart of accounts (d) statement of operations A

22. No money shall be paid out of the National Treasury except in pursuance of an
appropriation law. This explicitly describes what salient feature of government
accounting?
(a) fund accounting (c) obligation accounting
(b) budgetary accounting (d) treasury disbursement coding system B

23. Who may contract or guarantee foreign loans on behalf of the Republic of the
Philippines with the prior concurrence of the Monetary Board and subject to such
limitations as may be provided by law?
(a) President of the Republic of the Philippines
(b) President of the Senate
(c) Speaker of the House of Representatives
(d) Chief Justice of the Supreme Court A

24. No money shall be paid out of the National Treasury except in pursuance of:
(a) appropriation (c) obligation
(b) allotment (d) special executive order A

25. It is the government control mechanism which provides for the maximum amount
which an agency can commit the resources of the government.
(a) fund accounting (c) budgetary accounting
(b) obligation accounting (d) accounting system
B

26. It is the authorization from the Department of Budget and Management to any
agency to incur obligation up to a specified amount that must be within the
legislative appropriation.
(a) obligation (c) allotment
(b) appropriation (d) fund release C

27. Which is false concerning constitutional provisions related to government budgeting?

(a) No law shall be passed authorizing any transfer of appropriation.
(b) All money collected or any tax levied for a special purpose may be paid out for
any public purpose.
(c) Discretionary funds appropriated for particular officials shall be distributed only
for public purposes.
(d) No money shall be appropriated for any sect, church or denomination. B

28. A feature of government accounting that provides uniform accounting for incurring
and liquidating obligations. The books used in this phase of accounting are the
general journal and analysis of obligations, the journal of disbursements by
disbursing officers, the journal of warrants issued and the journal of checks issued.
(a) obligation accounting system (c) budgetary system
(b) advice of allotment (d) obligation incurred A

29. This financial statement is submitted by government accounting to Commission on

Audit. It shows the excess (deficit) of income over expenditures for the fiscal period
then ended.
(a) statement of changes in financial position
(b) preliminary trial balance
(c) statement of operations
(d) final trial balance C

30. Government accounting and commercial accounting are similar in the following,
except:
(a) Double entry basis (c) Periodic financial reports and statements
(b) Books of original entry (d) Basis of accounting D
31. One of the following is not considered government income:
(a) proceeds from loans and borrowings
(b) government buildings
(c) grants and aids received from foreign governments
(d) taxes B

32. This financial statement is submitted by government accounting to the Commission

on Audit. It shows the excess (deficit) of income over expenditures for the fiscal
period then ended.
(a) statement of changes in financial position
(b) preliminary trial balance
(c) statement of operations
(d) final trial balance C

33. What are the rules on the use of government funds?

(a) no obligations shall exceed allotment
(b) no liquidation shall exceed obligation
(c) no allotment shall exceed appropriation
(d) all of these D

34. These are the subsidiary ledger accounts showing the details of income and
expenditures.
(a) balance sheet accounts (c) subsidiary ledger accounts
(b) budget and operation accounts (d) statement of operations accounts B

35. Which is not a fundamental principle of government fiscal operations?

(a) Fiscal responsibility shall, to a greater extent, be shared by all those exercising
authority over financial affairs, transactions, and operations of the government
agency.
(b) Claims against government funds shall be supported with complete
documentation.
(c) All laws and regulations applicable to financial transactions shall be faithfully
adhered to.
(d) Generally accepted accounting principles must be observed in recording
government financial transactions. D

36. Congressional authorization in the form of law to make payment out of the public
treasury for specific purposes after compliance with certain conditions is known as:
(a) appropriation (c) budgeting
(b) allotment (d) obligation A

37. The process of analyzing, classifying, summarizing and communicating all

transactions involving the receipt and disposition of government funds and property
and interpreting the results thereof is:
(a) government fiscal administration (c) government accounting
(b) budgetary accounting (d) obligation accounting C

38. Which is not a characteristic of the local government accounting system?

(a) The fundamental principles of government fiscal operations governing the
national government are also applicable to the local government.
(b) The local government is not required to formulate its budget for the fiscal year.
(c) The local government follows the standard government chart of accounts.
(d) The fundamental accounting principles and procedures observed by the local
government do not differ from those adopted by the national government. B

39. It is the trial balance prepared after the adjusting and closing entries have been
posted.
Preliminary Final Preliminary Final
(a) Yes Yes (c) No Yes
(b) Yes No (d) No No C

40. A feature of government accounting that provides for the ceiling or maximum
amount an agency can spend or incur in the performance of its functions is known
as:
(a) budgetary accounting (c) obligation accounting
(b) responsibility accounting (d) fund accounting C