Acc 312 Midterms

CHAPTER 1
OVERVIEW OF GOVERNMENT ACCOUNTING
TOPIC OVERVIEW:
This chapter introduces the basic concepts of government accounting. It describes the entities
charged with accounting responsibility and the Government Accounting Manual for National
Government Agencies.
LEARNING OBJECTIVES:
After studying this chapter, the students should be able to:

1. Differentiate government accounting from the accounting for business entities.
2. State the government entities charged with accounting responsibility.
3. Describe briefly the GAM for NGAs.
4. State the basic principles used in government accounting.
5. State the recognition criteria for assets.
INTRODUCTION
"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." (State Audit Code of the Philippines,
P.D. No. 1445, Sec. 109)
The objectives of government accounting are:
a. To produce information concerning past operations and present conditions;

b. To provide a basis for guidance for future operations;
c. To provide for control of the acts of public bodies and officers in the receipt, disposition and
utilization of funds and property; and
d. To report on the financial position and the results of operations of government agencies for the
information of all persons concerned.
Like the accounting for business entities, government accounting is also a process of producing
information that is useful in making economic decisions. Government accounting, however,
places greater emphasis on the following:
a. Sources and utilization of government funds; and

b. Responsibility, accountability and liability of entities entrusted with government funds and
properties.
 The sources of government funds include receipts from taxes and other fees, borrowings,
and grants from other governments and international bodies.
 The utilization of government funds includes expenditures on programs, projects,

unanticipated losses from calamities and the like.
RESPONSIBILITY, ACCOUNTABILITY AND LIABILITY OVER GOVERNMENT
FUNDS AND PROPERTY
Responsibility over Government Funds and Property
Government resources shall be utilized efficiently and effectively in accordance with the law.
The head of a government agency is directly responsible in implementing this policy and is
primarily responsible for government resources entrusted to his agency. Those who are entrusted
with the possession of government resources are directly responsible to the head of the agency.
All those who are exercising authority over a government agency shall share fiscal responsibility.
(State Audit code of the Philippines, P.D. No. 1445)
Accountability over Government Funds and Property
1. A government officer entrusted with the possession of government resources is responsible for
the safekeeping therefor in accordance with the law. Every accountable officer shall be properly
bonded. (P.D. No. 1445 and E.o. No. 292)
2. The transfer of government funds from one officer to another shall, except as allowed by law,
be made only after the authorization of the COA. The transfer shall be properly documented in
an invoice and receipt. (PD. No. 1445)
Liability over Government Funds and Property
The unlawful use of government resources shall be the personal liability of the employee found
to be directly responsible therefor.
Every accountable officer shall be liable for all losses resulting from the unlawful use or
negligence in the safekeeping of government resources.
No accountable officer shall be relieved from liability merely because he has acted under the
direction of a superior officer in unlawfully utilizing the government resources entrusted to him,
unless before that act, he has notified the superior officer, in writing, that the utilization is illegal.
The superior officer shall be primarily liable while the accountable officer who fails to serve the
required notice shall be secondarily liable.
An accountable officer shall immediately notify the COA for any loss of government funds from
unforeseen events (force majeure) within 30 days. Failure to do so will not relieve the officer of
liability.
Main Concept:
Government resources must be utilized efficiently and effectively in accordance with the law.
Government officials are responsible in implementing this policy, are accountable for the
government resources in their custody, and are liable for any loss.
ACCOUNTING RESPONSIBILITY
The following offices are charged with government accounting responsibility:
 Commission on Audit (COA)

 Department of Budget and Management (DBM)
 Bureau of Treasury (BTr)
 Government agencies
Commission on Audit (COA)
The Commission on Audit (COA):
a. Has the exclusive authority to promulgate accounting and auditing rules and regulations.
b. Keeps the general accounts of the government, supporting vouchers, and other documents.
c. Submits financial reports to the President and Congress.
Department of Budget and Management (DBM)
The Department of Budget and Management (DBM) is responsible for the formulation and
implementation of the national budget with the goal of attaining the nation's socio-economic
objectives.
Bureau of Treasury (BTr)
The Bureau of Treasury (BTr) functions under the Department of Finance and is the cash
custodian of the government. The BTr is authorized to:
a. Receive and keep national funds and manage and control the disbursements thereof; and
b. Maintain accounts of financial transactions of all national government offices, agencies and
instrumentalities.
Government Agencies
Government agency refers to any department, bureau or office of the national government, or any
of its branches and instrumentalities, or any political subdivision, as well as any government
owned or controlled corporation (GOCC), including its subsidiaries, or other self-governing
board or commission of the government. (P.D. No. 1445)
The government agencies are responsible in directly implementing the projects of, and
performing the functions delegated by, the government.
Each agency (entity) shall maintain accounting books and budget registries which are reconciled
with the cash records of the BTr and the budget records of the COA and DBM.
Government agencies are required by law to have accounting units/divisions/departments.
Even a barangay (the smallest administrative division in the Philippines) is required to have an
accounting unit, e.g., the barangay's "bookkeeper."
 Entity refers to a government agency, department or operating/field unit.

 Financial Reporting is the process of preparation, presentation and submission of general
purpose financial statements and other reports. The objective of financial reporting is to
provide information about the entity that is useful to users for accountability purposes
and decision-making.
The GAM for NGAs
An "old" government accounting system had been used for about five decades before it was
replaced by the New Government Accounting System (NGAS) in 2002. However, on January 1,
2016, the NGAS was replaced by the Government Accounting Manual for National Government
Agencies (GAM for NGAs).
The GAM for NGAs was promulgated primarily to harmonize the government accounting
standards with international accounting standards, particularly the International Public Sector
Accounting Standards (IPSAS). The IPSASs are based on the International Financial Reporting
Standards (IFRS).
The Philippine Government has adopted the IPSAS through the Philippine Public Sector
Accounting Standards (PPSAS). The provisions of the PPSAS are incorporated in the GAM for
NGAs.
Since the PPSAS are based on the IPSAS, which are in turn based on the IFRSs/PFRSs, most of
the concepts that we will be learning in this book would be very familiar to you.
LEGAL BASIS
The GAM for NGAs is promulgated by the Commission on Audit (COA) based on the authority
conferred to it by the Philippine Constitution:
COVERAGE
The GAM for NGAs provides the basic concepts to be used in:
a. Preparing general purpose financial statements in accordance with the Philippine Public Sector
Accounting Standards (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
The GAM for NGAs 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.
(GAM for NGAs; Chapter 1, sec. 3)
BASIC ACCOUNTING AND BUDGET REPORTING PRINCIPLES
The financial records and reports of government entities shall comply with the following:
a. Philippine Public Sector Accounting Standards (PPSAS) and relevant laws, rules and
regulations;
b. Accrual basis of accounting;
Under the accrual basis of accounting, transactions are recognized when they occur (and not only
when cash is received or paid). Therefore, transactions are recognized in the periods to which
they relate.
c. Budget basis for presentation of budget information in the financial statements;
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.
The books of accounts are maintained by fund cluster (i.e., according to the types of funds being
accounted for) as follows:
Code Fund Clusters
01 Regular Agency Fund
02 Foreign-Assisted Projects Fund
03 Special Account-Locally Funded/Domestic Grants Fund
04 Special Account-Foreign-Assisted/Foreign Grants Fund
05 Internally Generated Funds
06 Business Related Funds
07 Trust Receipts
For example, separate accounting books (Journals and Ledgers) and budget registries shall be
maintained for Regular Agency Fund. Another separate accounting books and budget registries
shall be maintained for Foreign Assisted Projects Funds, and so on.
QUALITATIVE CHARACTERISTICS OF FINANCIAL REPORTING
Information reported shall meet the qualitative characteristics. Qualitative characteristics are the
attributes that make information useful to users.
a. Understandability — information is understandable when users can reasonably be expected to

comprehend its meaning.
Accordingly, users are assumed to have
i. reasonable knowledge of the entity's activities; and

ii. willingness to study the information.
Information about complex matters is not excluded simply because it may be too difficult for
certain users to understand.
b. Relevance — Information is relevant if it can assist users in evaluating past, present or future
events or in confirming or correcting past evaluations. In order to be relevant, information must
also be timely.
c. Materiality — Materiality affects the relevance of information. Information is material if its

omission or misstatement could influence the decisions of users. Materiality depends on the
nature or size of the item or error, judged in the particular circumstances of its omission or
misstatement.
d. Timeliness — Information loses its relevance if there is undue delay in its reporting. The
complexity of an entity's operations is not a sufficient reason for failing to report on a timely
basis.
e. Reliability — reliable information is free from material error and bias, and can be depended on
by users; .to represent faithfully that which it , purports to represent or could reasonably be
expected to represent.
Trade-offs between Relevance and Reliability
To provide timely information, it may be necessary to report before all aspects of a transaction
are known, thus impairing reliability. Conversely, if reporting is delayed until all aspects are
known, the information may be highly reliable but of little use to users who need to make
decision in the interim. To achieve a balance between relevance and reliability, the overriding
consideration is how users' needs are best satisfied.
f. Faithful representation
For information to represent faithfully transactions and other events, it should be presented in
accordance with the substance of the transactions and other events, and not merely their legal
form.
g. Substance over form — the substance of transactions or other events is not always consistent
with their legal form. If information is to represent faithfully the transactions and other events
that it purports to represent, it is necessary that they be accounted for and presented in
accordance with their substance and economic reality, and not merely their legal form.
h. Neutrality — Information is neutral if it is free from bias. Information shall not be selected or
presented in a manner that is designed to influence the user's decision in order to achieve a
predetermined outcome.
i. Prudence — is the exercise of a degree of caution when making estimates under conditions of
uncertainty, such that assets or revenue are not overstated and liabilities or expenses are not
understated. However, prudence does not allow the creation of hidden reserves or excessive
provisions, the deliberate understatement of assets or revenue, or the deliberate overstatement of
liabilities or expenses, because the financial statements would not be neutral and, therefore, not
reliable.
j. Completeness — Information should be complete within the bounds of materiality and cost.
k. Comparability - Information is comparable when users are able to identify similarities and
differences between that information and information in other reports. Comparability applies to
the comparison of financial statements of different entities and comparison of the financial
statements of the same entity over different periods. Comparability requires that users must be
informed of the entity's policies, changes to those policies, and the effects of those changes and
that financial statements show corresponding information for preceding periods.
COMPONENTS OF GENERAL PURPOSE FINANCIAL STATEMENTS
General Purpose Financial Statements are those intended to meet the needs of users who are not
in a position to demand reports tailored to meet their particular information needs. (PPSAS 1.3)
The complete set of general purpose financial statements 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; and
f. Notes to the Financial Statements, comprising a summary of significant accounting policies
and other explanatory notes.
Notice that the financial statements listed above are similar to those of a business entity.
However, the financial statement unique to a government entity is the "Statement of Comparison
of Budget and Actual Amounts" (letter 'e'). We will elaborate on this later.
ELEMENTS OF THE FINANCIAL STATEMENTS
ASSETS
Assets — are resources controlled by an entity as a result of past events, and from which future
economic benefits or service potential are expected to flow to the entity.
a. The key features of an asset are:
b. The benefits must be controlled by the entity;
c. The benefits must have arisen from a past event; and
d. Future economic benefits or service potential must be expected to flow to the entity.
Control means the ability to benefit from an asset or prevent others from benefitting from that
asset.
Possession or ownership normally evidences control. However, this is not always true. For
example, under a finance lease, the lessor retains legal ownership over the leased asset but
control is transferred to the lessee.
Benefit means the ability to use, exchange, lease, sell, or use the asset to settle liabilities, or
distribute it to owners.
Indicators of future economic benefits:

a. distinguishable from the source of the benefit i.e. the particular physical resource or legal right;
b. does not imply that assets necessarily generate cash flows, the benefits can also be in the form
of 'service potential';
c. in determining whether a resource or right needs to be accounted for as an asset, the potential
to contribute to the objectives of the entity should be the prime consideration;
d. capacity to contribute to activities/objectives/programs; and
e. the fact that an asset cannot be sold does not preclude it from providing future economic
benefits.
Past event — A transaction or event giving rise to control of future economic benefits must have
occurred. A mere intention to acquire assets in the future does not result to the recognition of
assets in the present.
RECOGNITION OF AN ASSET
An asset is recognized when:

a. it is probable that the future economic benefits will flow to the entity; and
b. the asset has a cost or value (e.g., fair value) that can be measured reliably.
Probable inflow of future economic benefits:

a. The chance of benefits arising is more likely rather than less likely (e.g. greater than 50%).
b. Benefits can be expected on the basis of available evidence or logic.
Reliable measurement:
a. Valuation method is free from material error or bias.
b. Faithful representation of the asset's benefits
c. Reliable information will, without bias or undue error, faithfully represent those transactions
and events.
LIABILITIES
Liabilities — are present obligations of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of -resources embodying economic
benefits or service potential.
EQUITY
Net assets/equity - is the residual interest in the assets of the entity after deducting all its
liabilities.
REVENUE
Revenue — is the gross inflow of economic benefits or service potential during the reporting
period when those inflows result in an increase in net assets/equity, other than increases relating
to contributions from owners.
Contributions from owners are future economic benefits that have been contributed to the entity
by external parties which do not result to liabilities of the entity and for which the contributor
obtains interest in the net assets of the entity (i.e., right to dividends and ' right to net assets in
cases of liquidation).
Revenue funds — comprise all funds derived from the income of any agency of the government
and available for appropriation or expenditure in accordance with law. (Section 3, P.D. No. 1445)
EXPENSES
Expenses are decreases in economic benefits or service potential during the reporting period in
the form of outflows or consumption of assets or incurrence of liabilities that result in decreases
in net assets/equity, other than those relating to distributions to owners.
Distributions to owners are future economic benefits distributed by the entity to its owners, either
as a return on investment or as a return of investment.
CHAPTER 1 SUMMARY:
 Aside from providing information that is useful in making economic decisions,

government accounting also aims to demonstrate the accountability of the entity for the
resources entrusted to it.
 The following are charged with government accounting responsibility: COA, DBM, BTr
and other government agencies.
 The GAM for NGAs provides the principles and procedures to be applied in the financial
reporting of government entities. It was promulgated by the COA primarily to harmonize
the government accounting standards with international standards.
 Basic principles: Compliance with PPSAS and other relevant laws, Accrual basis, Budget
basis, Revised chart of accounts, Double entry, Financial statements based on accounting
and budgetary records, and Fund cluster accounting.
 Qualitative characteristics: Understandability, Relevance, Materiality, Timeliness,

Reliability, Faithful representation, Substance over form, Neutrality; Prudence,
Completeness, and Comparability.
 An item is recognized as asset if all of the following criteria are met:

1. the item meets the definition of an asset;
2. probable inflow of future economic benefits; and
3. reliable measurement of cost or other value (e.g., fair value).
Reference:
Millan, Z. V. (2018) Government Accounting & Accounting for Non-Profit Organizations,
Bandolin Enterprise, Sto. Tomas, Baguio City
CHAPTER 2
THE BUDGET PROCESS
TOPIC OVERVIEW:
This chapter explains the budget preparation, legislation, execution, and accountability of the
government.
LEARNING OBJECTIVE:
1. Enumerate the steps in the budget process.
2. Describe the principles of responsibility accounting.
THE NATIONAL BUDGET

Government accounting is primarily budgetary accounting. Government accounting does not
only aim to provide information on past events and transactions but also budget information in
accordance with PPSAS 24.
The Philippine Constitution and other laws require government funds to be utilized in
accordance with a national budget that is duly approved by legislation. Government accounting,
therefore, is concerned with providing information useful in assessing the conformance of
utilizations of government funds with the approved budget.
The national budget (government budget) is the government's estimate of the sources and uses of
government funds within a fiscal year. This forms the basis for expenditures and is the
government's key instrument for promoting its socio-economic objectives.
The formulation and eventual utilization of the national budget are summarized in the budget
cycle.
The Budget Cycle

The budget cycle has four phases, namely:
1. Budget Preparation
2. Budget Legislation
3. Budget Execution
4. Budget Accountability
Budget Preparation
The budget preparation in the Philippines uses a "bottom-up" approach. Under "bottom-up"
budgeting, several parties participate in the budget preparation, starting front the lowest to the
highest levels of the government. Government agencies are also tasked to increase the
participation of citizen-stakeholders in the budget preparation. The opposite of "bottom-up"
budgeting is "top-down" budgeting wherein the budget preparation starts from the agency heads.
In 2011, the Philippine Government attempted to a start a new tradition by shifting from the old
"incremental" system of budgeting to the "zero-based budgeting" approach. (The Philippine
Public Transparency Reporting Project, January 11, 2011)
Incremental budgeting
 The current year's budget is formulated based on the previous year's budget, which is just
adjusted for any variances experienced in the past. Presumably, the proposed programs
and expenditures in the previous year are automatically approved in the current year.
 Uses a "roll-over" approach.
 Prone to abuse.
Zero-based budgeting
 The current year's budget is formulated without regard to the previous year's budget.
Government agencies are required to justify their current year's proposed programs and
expenditures, irrespective of whether these are new or carried over from the previous year.
 Uses a "back-to-zero ' or "clean slate" approach.

 Promotes efficient and effective utilization of funds.
1. Budget call - The budget preparation starts when the Department of Budget and Management
(DBM) issues a Budget Call to all government agencies. The budget call contains, among other
things, the next fiscal year's targets, the agency's budget ceiling, and other guidelines in the
completion and submission of agency budget proposals.
Relevant terms:
Balanced budget - prepared in such a way that estimated revenues exceed estimated
expenditures. If actual revenues exceed actual expenditures, the government earns a surplus. If
expenditures exceed revenues, the government incurs a deficit.
Annual budget - covers a period of one year and forms the basis for the annual appropriation.
Special budget provides for items not adequately covered or not included in the general
appropriations act.
Line item budget - focuses on specific expenditures such as salaries and wages, travel expenses,
freight, supplies, materials and equipment.
Performance budget - a plan of activities to be undertaken, including their related costs, with
the emphasis on meeting targets and desired results. The main focus is on the work to be done or
services to be rendered.
Obligations budget - focuses on expenditures incurred in the current year which are to be paid
either in the same year or in the following year.
2. Budget hearings - Budget hearings are conducted after the agencies submit their budget
proposals. Each agency defends its budget proposal before the DBM. The DBM deliberates on
the budget proposals, makes recommendations, and consolidates the deliberated proposals into
the National' Expenditure Program (NEP) and Budget of Expenditures and Sources of Financing
(BESF). The DBM then submits the proposed budget to the President.
3. Presentation to the Office of the President - The President and Cabinet members review the
proposed budget. After the President approves the proposed budget, the DBM finalizes the
budget documents to be submitted to the Congress. At this point, the proposed budget is referred
to as the "President's Budget.”
The "President's Budget" contains the following documents which are intended to assist the
Congress in their review and deliberation of the proposed national budget:
a) President's Budget Message - this contains the President's explanation of the country's
fiscal policy and budget priorities.
b) National Expenditure Program (NEP) - this contains the details of all the government
entities' proposed expenditures in the coming year.
c) Budget of Expenditures and Sources of Financing (BESF) - this contains the estimated
expenditures accompanied by estimates of expected sources of financing.
d) Other documents aimed to provide further explanation of selected items in the NEP (e.g.,
details of key programs and projects and staffing summary).
Budget Legislation
Government funds shall only be spent in pursuance of an appropriation made by law. Therefore,
due process must be undertaken to legalize the proposed budget.
4. House Deliberations - Upon receipt of the President's Budget, the House of Representatives
conducts hearings to scrutinize the various agencies' respective proposed programs and
expenditures. Thereafter, the House of Representatives prepares the General Appropriations Bill
(GAB).
5. Senate Deliberations - The Senate conducts its own deliberations on the GAB. These
normally start after the Senate receives the GAB from the House of Representatives. However;
for expediency, hearings in the Senate start even as Representatives deliberations are ongoing.
6. Bicameral Deliberations - After deliberations in both houses are finished, a committee called
the Bicameral Conference Committee is formed to harmonize any conflicts between the
Representatives and Senate versions of the GAB.
The harmonized GAB (Bicam version) is submitted back to both Houses for ratification. After
ratification, the final GAB is submitted to the President for enactment.
7. President's enactment - The President enacts the budget, which is now known as the General
Appropriations Act (GAA). Before enactment though, the President may exercise his veto power
as conferred to him under the Philippine Constitution.
The Approved Budget

Approved Budget is the expenditure authority derived from appropriation laws, government
ordinances, and other decisions related to the anticipated revenue or receipts for the budgetary
period. The approved budget consists of the following:
UACS Code
New General Appropriations 01
Continuing Appropriations 02
Supplemental Appropriations 03
Automatic Appropriations 04
Unprogrammed Funds 05
Retained Income/Funds 06
Revolving Funds 07
Trust Receipts 08
*The Unified Accounts Code Structure (UACS) refers to the standard coding system used in
financial reporting of the National Government.
Appropriation is the authorization made by a legislative body to allocate funds for purposes
specified by the legislative or similar authority.
1. New General Appropriations - are annual authorizations for incurring obligations during a
specified budget year, as listed in the GAA.
2. Continuing Appropriations - are the authorizations to support obligations for a specific
purpose or project, such as multi-year construction projects which require the incurrence of
obligations even beyond the budget year.
3. Supplemental Appropriations - are additional appropriations authorized by law to augment the
original appropriations which proved to be insufficient for their intended purpose due to
economic, political or social conditions supported by a Certification of Availability of Funds
from the BTr.
4. Automatic Appropriations - are the authorizations programmed annually or for some other
period prescribed by law which do not require periodic action by Congress.
5. Unprogrammed Funds - are standby appropriations authorized by Congress in the annual
GAA which may be availed only when any of the following instances occur:
 revenue collections exceed the original revenue targets in the Budget of Expenditures and
Sources of Financing (BESF) submitted by the President to the Congress;
 new revenues are collected or realized from sources not originally considered in the
BESF; or
 newly-approved loans for foreign-assisted projects are secured or when conditions are
triggered for other sources of funds such as perfected loan agreements for foreign assisted
projects.
6. Retained Income/Funds - collections which are authorized by law to be used directly by
agencies concerned for their operation or specific purposes.
7. Revolving Funds - receipts derived from business-type activities of departments/agencies
which are authorized by law to be constituted as such and deposited in an authorized government
depository bank. These funds shall be self-liquidating and all obligations and expenditures
incurred by virtue of said business-type activity shall be charged against said fund.
8. Trust Receipts - receipts by any government agency acting as trustee, agent or administrator
for the fulfilment of some obligations or conditions.
Budget Execution
This is the phase where government funds are spent.
8. Release guidelines and BEDs - The DBM issues guidelines on the release and utilization of
funds while the various agencies submit their Budget Execution (BEDs). A BED summarizes an
agency's fiscal year plans and performance targets. It includes the following:
 Physical and financial plan,
 Monthly cash program,
 Estimate of monthly income, and
 List of obligations that are not yet due and demandable.

The following are the major recipients of the budget:
1. National Government Agencies (NGAs) - include all agencies within the executive, legislative
and judicial branches of government, e.g., commissions, departments, Land Bank of the
Philippines, Social Security System, etc.
2. Local Government units (LGUs) - include (a) autonomous regions, (b) provinces and cities
independent from a province, (c) component cities (cities which are part of a province) and
municipalities, and (d) barangays.
3. Government Owned and Controlled Corporations (GOCCs) - corporations that are owned or
controlled, directly or indirectly, by the government and vested with functions relating to public
needs.
The members of the Congress (Senators and Congressmen) and the Judiciary Branch are also
recipients of a portion of the budget.
1. The portion received by members of the Congress is referred to as the Priority Development
Assistance Fund (PDAF) a.k.a. "Pork Barrel." This is intended to fund priority development
programs of the government.
2. The portion received by members of the Judiciary is referred to as the Judiciary Development
Fund (JDF). At least 80% of the fund is intended for the cost of living allowances of the
members and personnel of the Judiciary, the remainder, not exceeding 20%, is for the acquisition
and maintenance of office equipment and facilities. (PD NO. 1949)
In 2014, the Aquino Administration introduced the Disbursement Acceleration Program (DAP)
which aims to speed-up public spending. The DAP is not a fund but a mechanism of releasing
funds, particularly from savings and unprogrammed funds.
 Savings are available portions or balances of items under the General Appropriations Act
(GAA) which result from: a) the completion or final discontinuance or abandonment of a
program, activity, or project; b) unpaid compensation for vacant or unfilled positions and
leaves of absence without pay; or c) the implementation of efficiency measures that
enable agencies to deliver services at lower cost. Such savings may then be used to
augment funds for programs, activities, or projects which are included in the GAA (i.e.
nonexistent budget items cannot be funded).
 Unprogrammed funds (see previous definition).

Both the PDAF and the DAP received various criticisms from the public -in 2013 and 2014,
following the Janet Lim-Napoles alleged pork scam. The PDAF and DAP was later on thought to
have been abolished by the Supreme Court. However, "The 2015 budget is still filled with pork
barrel funds despite the Supreme Court decision declaring the Disbursement Acceleration
Program (DAP) and the Priority Development Assistance Fund (PDAF) as
Unconstitutional, according to a budget watchdog." (Source: The Philippine Star, December 21,
2014)
9. Allotment - The DBM formulates the Allotment Release Program (ARP) to set the limit for
allotment releases during the upcoming year. This is used as a control device to ensure that
releases conform to the national budget. Alongside is a Cash Release Program (CRP), which sets
the disbursement limits for the year, for each quarter and for each month.
 Allotment - is an authorization issued by the DBM to government agencies to incur
obligations for specified amounts contained in a legislative appropriation in the form of
budget release documents. It is also referred to as Obligational Authority.
It is illegal for a government entity to incur obligations without having first received the
"Allotment." Moreover, the type and amount of obligations to be incurred must conform
to those that are specified in the "Allotment."
 Obligation - is an act of a duly authorized official which binds the government to the
immediate or eventual payment of a sum of money. Obligation maybe referred to as a
commitment that encompasses possible future liabilities based on current contractual
agreement.
The following are the documents used in releasing allotments to government agencies:
1. General Appropriations Act Release Document (GAARD) - serves as the obligational authority
for the comprehensive release of budgetary items appropriated in the GAA, categorized as For
Comprehensive Release.
2. Special Allotment Release Order (SARO) - covers budgetary items under For Later Release
(negative list) in the entity's submitted Budget Execution Documents (BEDs), subject to
compliance of required documents/clearances. Releases Of allotments for Special Purpose Funds
(e.g., Calamity Fund, Contingent Fund, E-Government Fund, Feasibility Studies Fund,
International Commitments Fund, Miscellaneous Personnel Benefits Fund and Pension and
Gratuity Fund) are also covered by SAROs.
3. General Allotment Release Order (GARO) is a comprehensive authority issued to all national
government agencies, in general, to incur obligations not exceeding an authorized amount during
a specified period for the purpose indicated therein. It covers automatically appropriated
expenditures common to most, if not all, agencies without need of special clearance or approval
from competent authority, i.e. Retirement and Life Insurance Premium.
10. Incurrence of Obligations - government agencies incur obligations which will be paid by
the government, e.g., entering into contracts, hiring of personnel, purchase of supplies, etc.
11. Disbursement Authority - the DBM issues disbursement authority to the government
agencies. This is the point where government agencies obtain access to the government funds.
The following are the documents used in releasing disbursement authority to government
agencies:
I. Notice of Cash Allocation (NCA) - authority issued by the DBM to central, regional and
provincial offices and operating units to cover their cash requirements.
The NCA specifies the maximum amount of cash that can be withdrawn from a government
servicing bank in a certain period. The NCA is based on the agency's submitted Monthly Cash
Program.
2. Notice of Transfer of Allocation - authority issued by an agency's Central Office to its regional
and operating units to cover the latter's cash requirements.
3. Non-Cash Availment Authority - authority issued by the DBM to agencies to cover the
liquidation of their actual obligations incurred against available allotments for availment of
proceeds from loans/grants through supplier's credit/constructive cash.
4. Cash Disbursement Ceiling - authority issued by the DBM to agencies with foreign operations
(e.g., Department of Foreign Affairs 'DFA') allowing them to use the income collected by their
Foreign Service Posts to cover their operating requirements.
Disbursements are most commonly made through checks that are chargeable against the account
of the Treasurer of the Philippines (i.e., Treasury Single Account). Checks issued under this
scheme are called "Modified Disbursement System (MDS) Checks."
Other modes of disbursements include payments through cash, commercial check, bank
transfer/bank debit, or credit card. We will elaborate on these later in Chapter 5.
Remember the following:

1. Appropriation - authorization by a legislative body to allocate funds for specified purposes
2. Allotment - authorization to agencies to incur obligations (i.e., obligational authority)
3. Obligation - amount contracted by an authorized officer for which the government held liable
4. Disbursement - actual amount paid out of the budgeted amount
Budget Accountability
This phase occurs concurrently with the Budget Execution phase. As the budget is being
executed, it is regularly monitored to determine the conformance of actual results with planned
targets.
12. Budget Accountability Reports - government agencies are required to submit the following
accountability reports:
a) Monthly Report of Disbursements shows the disbursements of the entity during the
month, classified according to the type of disbursement authority. This report is
submitted to the COA and DBM within 30 days after the end of each month.
b) Quarterly Physical Report of Operation - shows the agency's physical accomplishments
in a given quarter vis-a-vis its physical targets.
c) Statement of Appropriations, Allotments, Obligations, Disbursements and Balances
shows the agency's authorized appropriations, allotments received, obligations incurred,
disbursements made and the balances of unreleased appropriations, unobligated
allotments, and unpaid obligations.
d) Summary of Appropriations, Allotments, Obligations, Disbursements and Balances by
Object of Expenditures similar to 'c' above but provides details of expenditures (e.g.,
salaries and wages, traveling expenses, etc.).
e) List of Allotments and Sub-Allotments - shows the allotments received by the agency
from the DBM and the sub-allotments issued by the agency's Central Office or Regional
Office to lower operating units.
f) Statement of Approved Budget, Utilizations, Disbursements and Balances this report is
prepared by agencies that have authority to use their revenue. It shows the budgeted
revenue, the utilizations and disbursements thereof, and the unutilized amount.
g) Summary of Approved Budget, Utilizations, Disbursements and Balances by Object of
Expenditures similar to 'f' above but provides details of expenditures.
h) Quarterly Report of Revenue and Other Receipts shows the actual revenues and other
receipts remitted to the BTr and deposited in authorized government depository banks in
a given quarter.
Reports 'b' to 'h' above are prepared on a quarterly basis and are submitted to the COA
and DBM within 30 days after the end of each quarter.
i) Aging of Due and Demandable Obligations shows the names of creditors, the amounts
owed to them, and the number of days these obligations are outstanding. This report is
submitted to the COA and DBM within 30 days after the end of the year.
A Consolidated Statement of Allotments, Obligations, and Balances per Summary of
Appropriations (based on reports 'c' and ‘d’ above) shall be submitted on or before February 14
of the following year.
13. Performance reviews - The DBM and COA perform periodic reviews of the agencies'
performance and budget accountability and report to the President.
14. Audit - the COA audits the agencies.
The budget reports, together with other budget records, provide information in preparing the
Statement of Comparison of Budget and Actual Amounts, which is one of the components of a
complete set of financial statements of a government entity. We will discuss this statement later.
Story: The Budget cycle

I. Budget Preparation
Papa and Mama are leaving for a I-month trip so they asked you and your little sister to make an
estimate of the money you will need while they are gone (Budget Call). You started your
estimate by asking first Little Sister of her needs ('bottom-up' budgeting). Same time last year,
Papa and Mama also went for a 1-month trip and they had you made a similar estimate. However,
instead of giving them that old estimate, you decided to make a new one in order to better reflect
current circumstances ( 'zero-based' budgeting).
You defended your estimate with Mama (Budget hearings).
Mama submitted the estimate to Papa for approval (Presentation to the Office of the President).
II. Budget Legislation
Papa consulted Lolo (a retired Lawyer) to review your estimate (House Deliberations).
After reviewing the estimate, Lolo gave the estimate to Lola (a retired CPA) for further study
(Senate Deliberations).
Lolo and Lola had some disagreements, so they asked Umpong, your dog, to harmonize the
conflicts (Bicameral Deliberations). After harmonizing the conflicts, Umpong submitted the
"Bicam" version of the estimate back to both Lolo and Lola for ratification.
Lolo and Lola submitted the ratified estimate to Papa for enactment (President's enactment).
Your approved budget for the month is P100 (Appropriation).
III. Budget Execution
Papa left the money to Uncle. Uncle gave you guidelines on how the money will be released to
you, based on your estimates of the timing of disbursements (Release guidelines and BEDS).
Uncle told you that you can now incur obligations up to a maximum of P80 (Allotment).
You then went to Aling Masing's Store to purchase groceries, good for 1 month, worth P50, on
credit (Incurrence of Obligations).
Uncle gave you P25 cash to cover your cash disbursement needs for the 1st week (Disbursement
Authority - Notice of Cash Allocation). You gave Little Sister her share of P5 (Notice of
Transfer of Allocation).
Your disbursements in the 1st week were as follows:
You: P5 installment payment to Aling Masing and P12 on personal needs
Little Sister: P5 on personal needs
Total disbursements in 1st week P22
IV. Budget Accountability

Your budget accountability reports after the 1 st week will show the following information
(Budget Accountability Reports):
Appropriation: P100
Allotment received: P80
Unreleased appropriation: (P100 - P80) = P20
Obligations incurred: (P50 to Aling Masing + P12 on your personal needs + P5 on Little Sister's
personal needs) = P67
Unobligated allotment: (P80 allotment - P67) = P13
Disbursements: P22
Unpaid Obligations: (P67 obligations incurred - P22 disbursements) = P45 (payable to
Aling Masing)
Unused NCA = (P25 NCA - P22 disbursements) = P3
Uncle periodically updates Papa and Mama regarding your budget execution through call and
text (Performance Review).
Papa and Mama will audit you when they return (Audit).
The End
Notice that appropriation, allotments and disbursement authorities are systems of budgetary
controls. Instead of releasing t the allocated funds of PIOO to you all at once, it is released on a
piecemeal basis, based on your estimate of the timing of needs (Budget Execution Documents
'BEDs'). This is to prevent the incurrence of overdraft (i.e., obligations exceeding the
appropriated funds).
Responsibility Accounting
To better evaluate the budget accountability of an entity, government accounting adheres to the
concept of responsibility accounting.
Responsibility accounting is a system of providing cost and revenue information over which a
manager has direct control of. This enables the evaluation of a manager's performance based
only on matters that are directly under his control. Therefore, budget deviations can be readily
attributed to the managers accountable therefor.
Responsibility accounting requires the identification of responsibility centers and the distinction
between controllable and non-controllable costs.
 Responsibility center - is a part, segment, unit or function of a government agency,
headed by a manager, who is accountable for a specified set of activities.
 Controllable costs - a cost is considered controllable at a given level of managerial

responsibility if the manager has the power to incur it within a given period of time.
 Non-controllable costs are costs incurred indirectly and allocated to a responsibility level.
Except for some which derive most of their income from collection of taxes and fees,
government agencies are basically cost centers whose primary purpose is to render service to the
public at the lowest possible cost.
Each of the managers of an agency that is a cost center is evaluated based on his ability to meet
budgeted goals for controllable costs. All costs are controllable by top management because of
the high extent of its authority. Fewer costs are controllable in lower management levels because
of the decreased scope of authority.
Chapter 2 Summary:
 The Budget cycle: (1) Budget Preparation, (2) Budget Legislation, (3) Budget Execution,
(4) Budget Accountability
 Under "bottom-up" budgeting, several parties participate in the budget preparation,

starting from the lowest to the highest levels of the government.
 Under "zero-based" budgeting, the current year's budget is formulated without regard to
the previous year's budget. Government agencies are required to justify their current
year's proposed programs and expenditures, irrespective of whether these are new or
carried over from the previous year.
 Appropriation - is the authorization made by a legislative body to allocate funds for

purposes specified by the legislative or similar authority.
 Allotment is an authorization issued by the DBM to government agencies to incur

obligations for specified amounts contained in a legislative appropriation in the form of
budget release documents. It is also referred to as Obligational Authority.
 Obligation - is an act of a duly authorized official which binds the government to the
immediate or eventual payment of a sum of money.
 Under responsibility accounting, a manager's performance is evaluated only in terms of
the costs that he controls.
Reference:
CHAPTER 3
THE GOVERNMENT ACCOUNTING PROCESS
TOPIC OVERVIEW:
This chapter explains the accounting process or accounting cycle in a government entity.
1. Record the basic transactions of a government entity.
2. Prepare a worksheet.
Introduction
The government accounting process comprises the activities of analyzing, recording, classifying,
summarizing and communicating transactions involving the receipt and disposition of
government funds and property, and interpreting the results thereof. This process is similar to that
of a business entity, except that it incorporates budgetary controls, such as recording in the budget
registries and preparing periodic budget accountability reports.
Books of Accounts and Registries

The books of accounts and registries of government entities consist of:
1. Journals
a) General Journal
b) Cash Receipts Journal
c) Cash Disbursements Journal
d) Check Disbursements Journal
2. Ledgers
a) General Ledgers
b) Subsidiary Ledgers
3. Registries
a) Registries of Revenue and Other Receipts (RROR)
b) Registry of Appropriations and Allotments (RAPAL)
c) Registries of Allotments, Obligations and Disbursements (RAOD)
d) Registries of Budget, Utilization and Disbursements (RBUD)
Technically, only the Journals and Ledgers are considered accounting records. These are similar
to the accounting records of a business entity. The Registries are budget records. These are used
to monitor the budget. You may think of the registries like "logbooks" or something, rather than
accounting books with debit and credit columns. The accounting unit of the agency maintains the
Journals and Ledgers while the budget division of the agency maintains the Registries.
Recall that separate accounting records and budget registries are maintained for each fund cluster
(i.e., Regular Agency Fund, Foreign Assisted Projects Fund, etc. - see Chapter 1).
Budget Registries
1. Registries of Revenue and Other Receipts (RROR) - used to monitor the budgeted amounts,
actual collections and remittances of revenue and other receipts.
2. Registry of Appropriations and Allotments (RAPAL) - used to monitor appropriations and
allotments. This is to ensure that allotments will not exceed appropriations.
3. Registries of Allotments, Obligations and Disbursements (RAOD) - used to monitor the

allotments received, obligations incurred against the corresponding allotment, and the actual
disbursements made. This is to ensure that obligations incurred will not exceed allotments while
actual disbursements will not exceed the obligations incurred.
Separate RAOD shall be maintained for each object of expenditure.
Object of Expenditures
The classifications of expenditures by object are as follows:
a. Personnel Services (PS) - pertain to all types of employee benefits, e.g., salaries, bonuses,
allowances, cash gifts, etc.
b. Maintenance and Other Operating Expenses (MOOE) - pertain to various operating expenses
other than employee benefits and financial expenses, e.g., travel, utilities, supplies, etc.
c. Financial Expenses (FE) - pertain to finance costs, e.g., interest expense, bank charges, etc.
Financial expenses also include losses on foreign exchange transactions.
d. Capital Outlays (CO) - pertain to capitalizable expenditures, expenditures on the construction
of public infrastructures, acquisition costs of equipment, etc.
Accordingly, the following separate RAODs shall be maintained: (a) RAOD-PS; (b) RAOD-
MOOE; (c) RAOD-FE; and (d) RAOD-CO.
4. Registries of Budget, Utilization and Disbursements (RBUD) - used to record the approved
special budget and the corresponding utilizations and disbursements charged to retained income.
Separate RBUDs are also maintained for each object of expenditure, i.e., (a) RBUD-PS; (b)
RBUD-MOOE; (c RBUD-FE; and (d) RBUD-CO.
Keeping of the General Accounts

The COA shall keep the general accounts of the Government and preserve the vouchers and other
supporting documents.
Basic Recordings
Appropriation
Entity A (a government agency) receives its GAA consisting of the following:
Personnel Services (PS) 100,000
Maintenance and Other Operating Expenses (MOOE) 60,000
Financial Expenses (FE) -
Capital Outlays (CO) 200,000
Total appropriation for the current year 360,000
The receipt of the appropriation is posted (recorded) in the Registry of Appropriations and
Allotments (RAPAL) as follows:
Allotment
Entity A (a government agency) receives its allotment from the DBM consisting of the following:
Personnel Services (PS) 90,000
Maintenance and Other Operating Expenses (MOOE) 40,000
Financial Expenses (FE) -
Capital Outlays (CO) 170,000
Total allotment 300,000
The receipt of allotment is posted (recorded) in the Registry of Appropriations and Allotments
(RAPAL) and Registries of Allotments, Obligations and Disbursements (RAOD) as follows:
RAPAL
RAODs
Incurrence of Obligation
Obligation Request and Status (ORS)
Obligations shall be incurred through the issuance of Obligation Request and Status (ORS). The
Requesting Office shall prepare this document, supported by valid claim documents like
disbursement vouchers, payrolls, purchase/job orders, itinerary of travel, etc.
The Head of the Requesting Office shall certify the necessity and legality of the obligation and the
validity of the supporting documents. The Head of the Budget Division shall certify the availability
of the allotment.
Entity A enters into the following contracts:
a. Personnel Services - Employment contracts (Job Order) amounting to P70,000.
b. Maintenance and Other Operating Services - Purchase contract for office supplies worth
P25,000.
c. Capital Outlays - Purchase contract for office equipment worth P160,000.
The ORS is prepared as follows:
To simplify the illustration, only one ORS is presented for the three contracts. Separate ORS
should be prepared for each of them.
The obligations are recorded in the Registries of Allotments, Obligations and Disbursements
(RAODs) as follows:
Notice of Obligation Request and Status Adjustment (NORSA)
If the obligations recorded in the RAOD and ORS above need to be adjusted, the subsequent
adjustment shall be made through the use of the Notice of Obligation Request and Status
Adjustment (NORSA). The adjustment shall be effected through a positive entry (addition) or a
negative entry (reduction), as appropriate.
Up to this point, nothing is recorded yet in the accounting books. The recordings above are made
on the budget registries. Journal entries shall be made only after:
a) the employees have rendered services;
b) the office supplies are delivered and received; and
c) the office equipment is delivered and received
Only after these events occur that the entity's financial statement elements are affected, and thus,
an accountable event has occurred that needs to be recognized.
In the meantime, the "obligations" recorded in the registries (but not yet in the accounting books)
are referred to as "Not Yet Due and Demandable".
Notice that government entities and business entities use the term "obligation" or the phrase
"incurrence of obligation" differently.
Government entity
- Obligation is an act of a duly authorized official which binds the government to the immediate
or eventual payment of a sum of money. Obligation maybe referred to as a commitment that
encompasses possible future liabilities based on current contractual agreement.
Business entity
- Obligation is another term for liability.
Disbursement Authority - Notice of Cash Allocation (NCA)

Entity A receives Notice of Cash Allocation (NCA) from the DBM amounting to net of tax.
This time a journal entry shall be made in the accounting books because the financial statement
elements of the entity are now affected, i.e., increase in cash and increase in revenue. The entry is
as follows:
Cash-Modified Disbursement System (MDS), Regular 200,000
Subsidy from National Government 200,000
To recognize receipt of NCA from the DBM
The registries used to monitor the NCA are the following:
a. Registry of Allotments and Notice of Cash Allocation (RANCA) - used to determine the amount
of allotments not covered by NCA and to monitor the available balance of NCA.
b. Registry of Allotment and Notice of Transfer of Allocation (RANTA) - used to determine the
amount of allotments not covered by Notice of Transfer of Allocation (NTA) and to monitor the
available balance of NTA.
The NCA is posted (recorded) in the RANCA as follows:

I. JOURNALS
a. General Journal - used to record transactions not recorded in the Special Journals.
Special Journals:
b. Cash Receipts Journal - used to record the Report of Collection and Deposit and Cash Receipts
Register of collecting officers.
 Report of Collection and Deposit (RCD) — prepared by a collecting officer to report

his/her collections and deposits to an Authorized Government Depository Bank (AGDB).
 Cash Receipts Register (CRReg) used by field offices without a complete set of books to
record their cash collections and deposits in the books of their mother unit
(central/regional/division office).
c. Cash Disbursements Journal - used to record the cash disbursements of the Disbursing Officer.
d. Check Disbursements Journal - used to record the check disbursements of the Disbursing
Officer.
II. LEDGERS
a. General Ledger - summarizes all transactions recorded in the journals. Accounts in the general
ledger are arranged according to their sequence in the Revised Chart of Accounts.
b. Subsidiary Ledgers - show details of each control account in the general ledger.
"The NCA specifies the maximum amount of withdrawal that an entity can make from a
government bank for the period indicated. The Collecting Officer shall not issue an official receipt
(OR) for the receipt of NCA." (GAM for NGAs, Chapter 5, Sec. 38) Since the receipt of the NCA
does not constitute a collection that is recordable in the Cash Receipts Journal, it is recorded in the
General Journal as follows:
The journal entry for the NCA is posted to the general ledger as follows:
Disbursements
Employees have rendered services and are now entitled to compensation.
Journal entries shall be made because the financial statement elements of the entity are affected,
i.e., increase in expenses and increase in liability/decrease in cash. The recordings are as follows:
a. Set up of payable to officers and employees upon approval of payroll.
Salaries and Wages 35,000
Personal Economic Relief Allowance (PERA) 5,000
Gross Compensation 40,000
Withholding Tax (10,000)
GSIS (2,000)
Pag-IBIG (2,000)
PhilHealth (1,000)
Total Deductions (15,000)
Net 25,0000
Salaries and Wages, Regular 35,000

Due to BIR 10,000
Due to GSIS 2,000
Due to Pag-IBIG 2,000
Due to PhilHealth 1,000
Due to Officers and Employees 25,000
To recognize payable to officers and employees
upon approval of payroll
b. Posting of payable to the Section C of ORS
c. Grant of Cash Advance for Payroll
Advances for Payroll 25,000

Cash Modified Disbursement System (MDS), Regular 25,000
To recognize grant of cash advance for payroll
d. Posting of disbursement to the payment column of Section C of the ORS and disbursements
column of the RAOD
 The Section c of the ORS will show the following information:

 The recording in the RAOD-PS is as follows:
At this point, the payment and disbursement columns in the ORS and RAOD-PS, respectively,
show only the P25,000 payment. This amount will be updated after the entity remits the other
P15,000 amount withheld to the other government agencies. In the meantime, the P15,000
withheld are treated as “Due and Demandable”.
e. Liquidation of Payroll Fund

To recognize liquidation of Payroll Fund
Remittance of Amounts Withheld

Entity A remits the P15,000 withheld to the other government agencies. The breakdown is re-
provided below:
Withholding Tax 10,000
GSIS 2,000
Pag-IBIG 2,000
PhilHealth 1,000
Total Deductions 15,000
Remittance of Withholding Taxes

Tax Remittance Advice (TRA)
The Tax Remittance Advice is used to recognize:
a. In the books of government agencies, the constructive remittance of taxes withheld to the Bureau
of Internal Revenue (BIR) or customs duties withheld to the Bureau of Customs (BOC), and
constructive receipt of NCA for those taxes and customs duties;
b. In the books of the BIR and BOC, the constructive receipt of tax revenue and customs duties;
and
c. In the books of BTr, the constructive receipt of the taxes and customs duties remitted.
The remittance of tax withheld is recorded as follows:
Books of Entity A
Cash-Tax Remittance Advice 10,000
To recognize the constructive receipt of NCA for TRA
Due to BIR 10,000

To recognize the constructive remittance of taxes withheld to
the BIR through TRA
Notice that there is actually no physical transfer of cash to the BIR (i.e., debit and credit to Cash-
TRA), thus the term constructive. The TRA is another form of disbursement authority, thus it is
recorded similarly to the receipt of the regular NCA (i.e., credit to Subsidy from National
Government). This means that Entity A has the authority to use the amount withheld in its
operations. Amounts used from the TRA will be reported in Entity A’s Monthly Report of
Disbursements.
The TRA is recorded by other government agencies as follows:
Books of BIR
Income Tax 10,000
To recognize the constructive receipt of taxes remitted by
National Government Agencies (NGAs) through TRA
Books of BTr
Subsidy to NGAs 10,000
To recognize the constructive receipt of remittance of taxes by
National Government Agencies (NGAs) through TRA
The use of account Cash-Tax Remittance Advice is as if Entity A remits the cash to the BIR and
BTr, which the latter then remits back to Entity A, without the cash being physically transferred.
The use of TRA is necessary in order for the BIR to record the taxes as its income and for the BTr
to record the withholding agency’s disbursement authority as subsidy.
Remittance to GSIS, Pag-IBIG, and PhilHealth
Due to GSIS 2,000
Cash – Modified Disbursement System (MDS), Regular 5,000
To recognize remittance to GSIS, Pag-IBIG, and PhilHealth
The Obligation Request and Status (ORS) and the RAOD-PS are updated for the payments above.
Billings, Collections and Remittances
a. Entity A bills revenue of P100,000 for rent income.
Accounts Receivable 100,000
Rent/Lease Income 100,000
To recognize billing of income
b. Entity A collects P100,0000 from the billed revenue and remits the collection to the BTr.
Cash – Collecting Officers 100,000
To recognize collection of billed income
Cash – Treasury/Agency Deposit, Regular 100,000

To recognize remittance of income to BTr
P.D. No. 1445 requires that all collections must be remitted to the National Treasury, unless
another law specifically allows otherwise.
The billing of revenue is recorded in the General Journal while the collection and remittance are
recorded in the Cash Receipts Journal as follows:
Reversion of Unused Notice of Cash Allocation (NCA)

Government entities are required to revert any unused NCA at the end of the accounting period.
The unused NCA is computed as follows:
Cash – Modified Disbursement System (MDS), Regular
Receipt of NCA 200,000
25,000 Advances for Payroll
5,000 Remittances to GSIS, Pag-IBIG, &
PhilHealth
170,000 end
To recognize reversion of unused NCA
Notice that the entry above is the exact opposite of the entry to record the receipt of the NCA.
Recording in:
Transaction Registries and Other
Journal and Ledger
Records
a. Appropriation RAPAL None
b. Allotment RAPAL and appropriate None
RAODs
c. Incurrence of Obligations ORS and appropriate RAODs None
d. NCA RANCA Dr. Cash – MDS, Regular
Cr. Subsidy from NGA
e. Disbursements Updating of ORS and Dr. Expense/Asset
appropriate RAODs Cr. Payable
Dr. Payable
Cr. Cash-MDS, Regular
f. Tax Remittance Advice Updating of ORS and Dr. Cash-TRA
appropriate RAODs Cr. Subsidy from NGA
Dr. Due to BIR

Cr. Cash-TRA
g. Billings, Collections, & RROR, RCD/CRReg Dr. Accounts Receivable
Remittances Cr. Income
Dr. Cash-CO
Cr. Accounts Receivable
Dr. Cash-Treasury/Agency
Deposit, Regular
Cr. Cash-CO
h. Reversion of Unused NCA RANCA Dr. Subsidy from NGA
Cr. Cash-MDS, Regular
The Revised Chart of Accounts

A chart of accounts is a list of all the accounts used by an entity. Government entities shall use the
account titles and account codes in the Revised Chart of Accounts (RCA) issued by the COA.
The RCA includes numerous accounts. Only a few of these accounts are shown below:
The Government Accounting Cycle
In this section, we will have an overview of the accounting cycle of a government entity. Here is
a list of the things that we will be learning:
1. Appropriation
2. Allotment
3. Incurrence of Obligation
4. Disbursement Authority – NCA
5. Disbursements
6. Billings, Collections & Remittances
7. Unadjusted trial balance
8. Adjusting entries
9. Closing entries
10. Preparation of financial statements
The trial balance of Entity A (a government entity) at the beginning of the period is shown
below:
Accounts Debit Credit
Buildings 500,000
Accumulated Depreciation – Buildings 150,000
Office Equipment 150,000
Accumulated Depreciation – Equipment 60,000
Accounts Payable 20,000
Accumulated Surplus (Deficit) 470,000
Total 700,000 700,000
1. Appropriation
Entity A receives its GAA amounting to P1,000,000. The appropriation is posted (recorded) in the
Registry of Appropriations and Allotments (RAPAL).
2. Allotment
Entity A receives its allotment amounting to P960,000 from the DBM. The allotment is posted
(recorded) in the Registry of Appropriations and Allotments (RAPAL) and Registries of
Allotments, Obligations, and Disbursements (RAOD).
3. Incurrence of Obligation
Entity A incurs obligations amounting to P700,000. The obligations are recorded on the Obligation
Request and Status (ORS) documents and Registries of Allotments, Obligations, and
Disbursements (RAOD).
4. Disbursement Authority – NCA
Entity A receives the following Notice of Cash Allocations (NCA), net of tax:
a. For current year’s appropriation, 600,000
b. For prior year’s accounts payable and not yet due and demandable obligations, 25,000
The journal entries are as follows:
To recognize the constructive receipt of NCA from the DBM
To recognize the constructive receipt of NCA from the DBM
The NCA is posted (recorded) in the Registry of Allotments and Notice of Cash Allocation
(RANCA).
5. Disbursements
I. Personnel Services (PS)
a. Set up payable to officers and employees upon approval of payroll.
GSIS (9,000)
Pag-IBIG (2,000)
PhilHealth (1,000)
Net 218,0000

Due to BIR 20,000
Due to GSIS 9,000
To recognize payable to officers and employees
upon approval of payroll
b. The payable is recorded in the ORS.
c. Grant of Cash Advance for payroll.

Cash - Modified Disbursement System (MDS), Regular 218,000
To recognize grant of cash advance for payroll
d. The disbursement is recorded in the ORS and RAOD.

e. Liquidation of Payroll Fund
To recognize liquidation of Payroll Fund
II. Maintenance and Other Operating Expenses (MOOE)
Purchase of office supplies
a. Receipt of delivery of purchased office supplies from prior year’s obligation

Office Supplies Inventory 5,000
To recognize delivery of office supplies
The payable is recorded in the ORS.
b. Receipt of delivery of purchased office supplies worth P70,000 from current year’s
obligation.

To recognize delivery of office supplies
The payable is recorded in the ORS.
Payment of accounts payable:

Entity A pays the following accounts payable:
c. From prior year’s accounts payable

Less: Withholding Taxes 2,000
Net 18,000

Due to BIR 2,000
To recognize payment of accounts payable
d. From prior year’s obligation

Net 4,000
Due to BIR 1,000
e. For current year’s accounts payable

Net 57,000
Due to BIR 3,000
Operating Expenses:
f. Entity A pays for the following expenses:
Water 1,000
Electricity 5,000
Telephone 2,000
Janitorial 10,000
Security 12,000
Total 30,000
Less: Withholding taxes 2,000
Net 28,000
Water Expenses 1,000

Electricity Expenses 5,000
Telephone Expenses 2,000
Janitorial Expenses 10,000
Security Expenses 12,000
Due to BIR 2,000
To recognize issuance of MDS checks as payment for expenses
Cash advances for travel:

g. Entity A grants a cash advance of P2,000 for the traveling expenses of an officer:
Advances to Officers and Employees 2,000
Cash - Modified Disbursement System (MDS), Regular 2,000
To recognize grant of cash advance for travel
h. Liquidation of Cash Advance

Traveling Expenses – Foreign 1,800
Advances to Officers and Employees 1,800
To recognize liquidation of cash advance for travel
i. Receipt and deposit of refund of excess cash advance:

Cash – Collecting Officers 200
Advances to Officers and Employees 200
To recognize refund of excess cash advance for travel
Cash – Treasury/Agency Deposit, Regular 200

Cash – Collecting Officers 200
To recognize remittance of the refund of excess cash advance
for travel
Issuance of office supplies to end users

j. Entity A issues office supplies worth P63,000 to end users.
Office Supplies Expense 63,000
To record the issuance of office supplies to end users
III. Capital Outlays (CO)

Purchas of office equipment
a. Receipt of delivery of purchased office equipment worth P300,000 from current year’s
obligation.

To recognize delivery of office equipment
b. Payment of accounts payable

Net 280,000
Due to BIR 20,000
IV. Remittances of amounts withheld

a. Entity A remits the taxes withheld through TRA.
To recognize the constructive receipt of NCA for TRA
Due to BIR 48,000

To recognize the constructive remittance of taxes withheld to
the BIR through TRA
b. Entity A remits the following to the GSIS, Pag-IBIG and PhilHealth:

GSIS 9,000
Pag-IBIG 2,000
PhilHealth 1,000
Total 12,000
Due to GSIS 9,000

To recognize remittance to GSIS, Pag-IBIG, and PhilHealth
6. Billings, Collections and Remittances
a. Entity A bills the following revenue/income:
Power supply system fees 100,000

Landing and parking fees 80,000
Total 180,000

Power Supply System Fees 100,000
Landing and Parking Fees 80,000
To recognize billing of income
b. Entity A collects P100,000 accounts receivable from the billing above and remits P90,000 of
the collection.

To recognize collection of current year’s billed income
To recognize remittance of income to the BTr
c. Entity A collects P45,000 accounts receivable from prior year’s billing and remits total
collection.
To recognize collection of prior year’s billed income

d. Entity A collects unbilled service income of P370,000 and remits P340,000 of the total
collection.
Permit fees 200,000

Registration fees 160,000
Other service income 10,000
Total 370,000

Permit fees 200,000
Registration fees 160,000
Other service income 10,000
To recognize collection of unbilled service income

e. Entity A collects unbilled tax revenue through direct deposit in Authorized Agent Banks:
Immigration Tax 100,000

To recognize collection and remittance of income to the BTr
through Authorized Government Depositary Banks
(AGDB)/Government Servicing Banks (GSB)
7. Unadjusted Trial Balance

An unadjusted trial balance is a list of the accounts in the General Ledger together with their
balances. Its purpose is to test the quality of total debits and total credits in the accounts.
8. Adjusting Entries
1. Reversion of unused Notice of Cash Allocation (NCA).
2. Depreciation expenses:
 Buildings – P50,000
 Equipment – P30,000
3. Allowance for impairment on accounts receivable of P2,000.
The adjusting entries are as follows:
To recognize reversion of unused NCA
Depreciation – Buildings & Other Structures 50,000

Accumulated Depreciation - Buildings 50,000
To recognize depreciation of buildings
Depreciation – Machinery and Equipment 30,000

Accumulated Depreciation - OE 30,000
To recognize depreciation of office equipment
Impairment Loss – Loans and Receivables 2,000

Allowance for Impairment – A/R 2,000
To recognize loss allowance on accounts receivable
9. Closing entries
The following are the necessary closing entries:
a. Closing of the Cash – Treasury /Agency Deposit, Regular account to the Accumulated
Surplus/Deficit account.
b. Closing of the Subsidy from National Government account to the Revenue and Expense
Summary account.
c. Closing of income and expense accounts to the Revenue and Expense Summary account and
closing of the net balance of Revenue and Expense Summary account to the Accumulated
Surplus/Deficit account.
Accumulated Surplus/Deficit 575,200
To recognize closing of cash deposit account

Revenue and Expense Summary 667,000
To recognize closing of subsidy account

Permit Fees 200,000
Registration Fees 160,000
Other Service Income 10,000
PERA 50,000
Traveling Expenses – Foreign 1,800
Depreciation – Building 50,000
Impairment Loss – L/R 2,000
To recognize closing of income and expense accounts

Accumulated Surplus/(Deficit) 890,200
To recognize closing of revenue and expense summary
10. Presentation of financial statements

The Statement of Financial Position and Statement of Financial Performance are shown below.
The other components of financial statements are prepared and discussed in Chapter 14.
Entity A
Statement of Financial Position
(Regular Agency Fund)
As at December 31, 20x1
ASSETS Notes
Current Assets
Cash and Cash Equivalents P 45,000
Receivables 78,000
Inventories 12,000
Total Current Assets 135,000
Noncurrent Assets
Property, Plant, and Equipment 1 660,000
Total Noncurrent Assets 660,000
TOTAL ASSETS P 795,000
Current Liabilities
Financial Liabilities 10,000
Total Current Liabilities 10,000
TOTAL LIABILITIES P 10,000
TOTAL ASSETS less TOTAL LIABILITIES P 785,000
NET ASSETS/EQUITY
Accumulated Surplus/Deficit 785,000
TOTAL NET ASSETS/EQUITY P 785,000
Entity A
Statement of Financial Performance
(Regular Agency Fund)
For the Year Ended December 31, 20x1
REVENUE Notes
Tax Revenue 2 P 100,000
Service and Business Income 3 550,000
TOTAL REVENUE P 650,000
Less: CURRENT OPERATING EXPENSES

Personnel Services 4 P 250,000
Maintenance and Other Operating Expenses 5 94,800
Non-cash Expenses 6 82,000
TOTAL CURRENT OPERATING EXPENSES P 426,800
SURPLUS/(DEFICIT) FROM CURRENT OPERATIONS P 223,200
Net Financial Assistance/Subsidy 667,000
SURPLUS/(DEFICIT) FOR THE PERIOD P 890,200
Entity A
Notes to Financial Statements
December 31, 20x1
Note 1: Property, Plant, and Equipment

This account consists of the following:
Buildings P 500,000
Total Cost P 950,000
Accumulated Depreciation – Buildings P 200,000

Accumulated Depreciation – Office Equipment 90,000
Total Accumulated Depreciation P 290,000
Property, Plant, and Equipment P 660,000
Note 2: Tax Revenue

Immigration Tax P 100,000
Tax Revenue P 100,000
Note 3: Service and Business Income

Permit Fees P 200,000
Registration Fees 160,000
Other Service Income 10,000
Service and Business Income P 550,000
Note 4: Personnel Services
Salaries and Wages, Regular P 200,000
PERA 50,000
Personnel Services P 250,000
Note 5: Maintenance and Other Operating Expenses

Traveling Expenses – Foreign P 1,800
Maintenance and Other Operating Expenses P 94,800
Note 6: Non-cash Expenses

Depreciation – Buildings and Other Structures P 50,000
Impairment Loss – Loans and Receivables 2,000
Non-cash Expenses P 82,000
Reference:
Assessment:
Record the following transactions or events. If no journal entry is needed, state the registry or other
document where the transaction or event is recorded. If a journal entry is needed, just provide the
journal entry.
a. Receipt of notice of appropriation amounting to P 1,000,000
b. Receipt of allotment from the DBM amounting to P 980,000
c. Incurrence of obligations amounting to P 880,000
d. Receipt of Notice of Cash Allocation amounting to P 850,000
e. Accrual of P 500,000 salaries upon approval of payroll. The breakdown is as follows:
GSIS (25,000)
Pag-IBIG (20,000)
PhilHealth (12,000)
Net 318,000
f. Granting of cash advance for the payroll

g. Liquidation of the cash advance for payroll
h. Receipt of delivery of purchased office supplies worth P200,000 from current year’s obligation
i. Payment of P180,000 accounts payable. Taxes withheld amounted to P10,000
j. Remittance of all taxes withheld to the BIR
k. Remittance of other accounts withheld to the other government agencies concerned
l. Billing of revenue for Power Supply System Fees amounting to P 200,000
m. Collection of P 200,000 from billed revenue and remittance of the total collection to the
National Treasury
n. Reversion of unused NCA
CHAPTER 4
REVENUES AND OTHER RECEIPTS
TOPIC OVERVIEW:
This chapter explains the fundamental principles and sources of revenue and other receipts of a
government entity.
1. State the sources of revenue of a government entity.
2. Explain the recognition and measurement of revenue.
Introduction
Revenue is the gross inflow of economic benefits or service potential during the reporting period
when those inflows result in an increase in equity, other than increases relating to contributions
from owners.
Revenue includes only those that are received or receivable by the entity in its own account.
Receipts refer to actual cash collections from all sources during a period.
Fundamental Principles for Revenue

a) All revenues of an entity shall be remitted to the National Treasury and included in the
General Fund of the National Government, unless another law specifically allows
otherwise.
b) All moneys and property received by a public officer, acting in any capacity or upon any
occasion, shall be accounted for as government funds and government property, unless
another law specifically states otherwise.
c) Amounts received in trust and from business-type activities of the government may be
separately recorded and disbursed in accordance with relevant rules.
d) Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds, or Funds
other than the General Fund only when authorized by law.
e) A collecting officer shall immediately issue an official receipt (OR) upon collecting a
payment of any nature.
f) Where mechanical devices (e.g. electronic official receipt) are used to acknowledge cash
receipts, the COA may approve, upon request, the exemption from the use of accountable
forms.
g) Temporary receipts shall never be used to acknowledge the receipt of public funds.
h) Pre-numbered official receipts (ORs) shall be issued in strict numerical sequence.
Duplicate copies shall be the exact copies of the original.
i) A collecting officer shall accept payments to the government in the form checks, upon
proper endorsement and identification of the payee or endorsee. The collecting officer
shall not use government funds to encash private checks.
j) Receipts of government funds shall be acknowledged in accordance with the law
indicating the date of receipt, from whom and on what account the fund was received.
(P.D. No. 1445 & Chapter 2, sec. 4 for NGAs)
Types of Funds
General fund - a fund which is available for any purpose other than those which other funds have
been designated to.
Special fund - a fund designated for special purposes.
Trust fund (Fiduciary fund) - fund held by a government agency or public officer acting as
trustee, agent, or administrator for the fulfillment of a condition.
Revenue fund - comprises all funds derived from the income of any government agency and
available for appropriation or expenditure in accordance with the law.
Depository fund - fund held in an authorized depository bank over which the recipient agency
retains control for the lawful purposes for which the fund was received.
Special Account in the General Fund (SAGF) - established to facilitate the funding of priority
activities of the government. The SAGF is sourced from specific fees, grants and donations, and
other sources identified under the law. The following are relevant legal provisions regarding the
SAGF:
 All income and collections for Special and Fiduciary Funds shall be remitted to the
Treasury and treated as SAGF.
 The SAGF shall be considered as being automatically appropriated for purposes

authorized by law, except when the General Appropriations Act (GAA) provides
otherwise.
 SAGF shall be released to government agencies subject to the approval of the President.
Special Purpose Funds (SPFs) - are "funds that the President allocates for special programs and
projects. Unlike for other funds, SPFs are not under the accountability of any particular
government agency/office or unit." (2012 Annual Financial Report of the Republic of the Philippines)
Sources of Revenue
Revenues may arise from exchange and non-exchange transactions.
Exchange transactions (Reciprocal transfers) are transactions in which one entity receives assets
or services, or has liabilities extinguished, and directly gives approximately equal value to
another entity in exchange. (PPSAS 9.11)
Examples: sale of goods and rendering of services.
Non-exchange transactions (Non-reciprocal transfers) are transactions in which an entity either
receives value from another entity without directly giving approximately equal value in exchange,
or gives value to another entity without directly receiving approximately equal value in exchange.
(PPSAS 9.10)
Examples: tax revenue, fines and penalties and donations.

When the consideration transferred does not approximate the fair value of the resources received,
the entity determines whether the transaction includes a combination of exchange and non-
exchange transactions. Each component shall be recognized separately. (PPSAS 23.10)
If it is not immediately clear whether a transaction is an exchange or non-exchange transaction,
the substance of the transaction shall be examined to determine its type. For example, the sale of
goods is normally an exchange transaction. However, if the transaction price is subsidized, the
transaction falls within the definition of a non-exchange transaction.
The receipt of trade discounts, quantity discounts, or other reductions in price does not
necessarily mean that the transaction is a non-exchange transaction. (PPSAS 23.11)
Exchange Transactions
Revenues from exchange transactions arise from the following:
i. Sale of Goods or Provisions of Services to third parties or other government entities.
Examples:
Service Income - Permit Fees, Registration Fees, Franchising Fees, Licensing Fees, Legal Fees,
Passport and Visa Fees, Processing Fees, and the like.
Business Income - School Fees, Examination Fees, Rent/Lease Income, Communication
Network Fee, Income from Hostels/Dormitories, Sales Revenue, Hospital Fees, Share in the
Profit of Joint Venture, and the like.
ii. Use by other entity of assets yielding interest, royalties and dividends or similar
distributions.
Examples:
Interest income - charges for the use of cash or cash equivalents, or amounts due to the entity;
Royalties - fees paid for the use of the entity's assets such as trademarks, patents, software, and
copyrights; and
Dividends - share of the National Government from the earnings of its capital/equity
investments in Government Owned or Controlled Corporations (GOCCs) and other entities.
Recognition of Revenue from Exchange Transactions

Sale of Goods:
Revenue from the sale of goods shall be recognized when all of the following conditions are
satisfied:
i. Significant risks and rewards of ownership of the goods are transferred to the buyer;
ii. The entity does not retain continuing managerial involvement or effective control over the
goods sold;
iii. It is probable that economic benefits will flow to the entity;
iv. Revenue can be measured reliably; and
v. Costs relating to the transaction can be measured reliably.
Rendering of Services:
Revenue from the supply of services is recognized on a straight line basis over the period the
services are rendered.
However, revenue is recognized by reference to the stage of completion (e.g., percentage of
completion method) if the outcome of the transaction can be estimated reliably, such as when all
of the following conditions are satisfied:
i. The stage of completion of the transaction at the reporting date can be measured reliably;
ii. It is probable that economic benefits will flow to the entity;
iii. Revenue can be measured reliably; and
iv. Costs relating to the transaction can be measured reliably.
For practical purposes, when services are performed by an indeterminate number of acts over a
specified time frame, revenue is recognized on a straight line basis over the specified time frame
unless there is evidence that some other method better represents the stage of completion. (PPSAS
9.24)
When the outcome of the transaction involving the rendering of services cannot be estimated
reliably, revenue is recognized only to the extent of the expenses recognized that are recoverable.
(PPSAS 9.25)
Interest, Royalties & Dividends

a) Interest is recognized on a time proportion basis that takes into account the effective yield
on the asset;
b) Royalties are recognized as they are earned in accordance with the substance of the
relevant agreement; and
c) Dividends are recognized when the entity's right to receive payment is established.
A government entity normally recognizes revenue from service income when the services are
rendered, except when this is not practicable, in which case, revenue is recognized when fees
collected. Similarly, revenue from business income (except sale of goods) is recognized when
fees are billed, or if not practicable, fees are collected. (GAM for NGAs, Chapter 5, sec. 7)
Measurement of Revenue from Exchange Transactions

Revenue from exchange transactions are measured at the fair value of the consideration received
or receivable. Any trade discounts and volume rebates shall be taken into account.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm's length transaction.
Example:
Entity A sells goods with a list price of P10,000, on account, with the following trade discount
10%, 10%, and 5%. Revenue is recognized as follows:
Sales Revenue 7,695
To recognize sale of goods on account
When cash flows are deferred, the fair value of the consideration may be less than its nominal
amount. In this case, the fair value of the consideration receivable is determined by discounting
all future cash flows using an imputed rate of interest. The difference between the fair value and
the nominal amount of the consideration is recognized as interest revenue.
When the consideration is received in advance, it is initially recognized as a liability and
subsequently recognized as revenue only when the revenue recognition criteria are met.
Exchanges of Goods or Services

Exchanges of goods or services with:
a) Similar nature and value do not give rise to revenue.
b) Dissimilar nature and value give rise to revenue measured using the following order of
priority:
i. Fair value of the goods or services received, adjusted by the amount of any cash
transferred.
ii. Fair value of the goods or services given up, adjusted by the amount of any cash
transferred.
Non-exchange Transactions
Revenue from non-exchange transactions are derived mostly from taxes, fines and penalties, gifts,
donations and goods in-kind. These are received without directly providing something of equal
value in return.
 Taxes are compulsory payments intended to provide revenue to the government. Taxes do
not include fines and penalties.
 Fines and penalties are monetary sanctions received as a consequence of breach of laws.
 Gifts, Donations and Goods/Services In-kind are voluntary transfers of assets and
services that one entity makes to another, normally free from stipulations.
Recognition of Revenue from Non-exchange Transactions

Revenue from non-exchange transactions are recognized on a cash basis until a reliable
measurement model is developed. Accordingly, the asset and revenue or liability arising from a
non-exchange transaction are recognized when collected or when these are measurable and
legally collectible. (GAM for NGAs, Chapter 5, Sec. 12)
Tax revenue
 Tax revenue is recognized at a gross amount and not reduced for expenses paid through
the tax system.
Expenses paid through the tax system are those expenses which should be paid
irrespective of whether the taxpayer pays taxes, or uses a particular mechanism to pay
taxes.
 Tax revenue shall not be grossed up for the amount of tax expenditures.
Tax expenditures are preferential provisions of the tax law that provide certain taxpayers
with concessions that are not available to others. Tax expenditures are foregone revenue,
not expenses.
Transfers
Transfers are inflows of future economic benefits or service potential from non-exchange
transactions, other than taxes. (PPSAS 23)
Transfers include fines, gifts, donations and goods services in-kind, debt forgiveness, bequests,
and grants. All of these transactions transfer resources without approximate equal value in
exchange and are not taxes but some are with conditions.
Fines and Penalties

Fines and penalties are recognized as income in the year they are collected. (GAM for NGAs,
Chapter 2, sec, 33)
However, fines are recognized as revenue when the receivable meets the recognition criteria for
asset and are measured at the best estimate of inflow of resources to the entity. (GAM for NGAs,
Chapter 5, sec. 24)
An entity collecting fines in the capacity of an agent shall not treat those fines as revenue.
Gifts, Donations and Goods In-kind

Gifts, donations and goods in-kind are recognized as revenue when it is probable that future
economic benefits or service potential will flow to the entity. Those that are received without
conditions are recognized immediately as revenue. Those with conditions are initially recognized
as liability and recognized as revenue only when the conditions are satisfied.
Services In-kind
Services In-kind are not recognized as revenue due to the uncertainties affecting the entity's
ability to control those services and measure them at fair value. Examples of services in-kind
include technical assistance from foreign bodies, community services rendered by persons
convicted of offenses, volunteer services, and the like. Services in-kind received may be
disclosed in the notes.
Measurement
Assets, liabilities and revenue arising from a non-exchange transaction are measured as follows:
Assets - at the acquisition-date fair value.
Liabilities - at present value, when the effect of time value of money is material.
Revenue - at the amount of increase in net assets. If the non-exchange transaction is initially
recognized as a liability, the subsequent reduction in that liability (e.g., because the condition is
satisfied) is recognized as revenue.
Debt Forgiveness
When a lender cancels the debt of a government entity, the debtor recognizes revenue equal to
the carrying amount of the debt forgiven.
However, when a controlling entity cancels the debt of a wholly owned controlled entity, the
cancelled debt is treated as contribution from owners and not revenue.
Bequests
Bequests are transfers made according to the provisions of a deceased person's will. A bequest
that satisfies the recognition criteria for asset is recognized as revenue, measured at the fair value
of the resources received or receivable.
Grant with Condition

An asset received under a grant with condition is initially recognized as liability and recognized
as revenue only when the condition is satisfied.
Illustration:
The national government (NG) received a foreign grant of P10,000,000 conditioned on the
construction of a flood control system which must be completed within the next 2 years,
otherwise the grant must be returned to the grantor. The Department of Public Works and
Highways (DPWH) is the implementing entity.
The journal entries are as follows:
a. Receipt of grant
Books of the NG - BTr
Cash in Bank – Local Currency, Bangko Sentral ng Pilipinas 10,000,000
Other Deferred Credits 10,000,000
Books of DPWH
Cash – Modified Disbursement System (MDS), Regular 10,000,000
Subsidy from National Government 10,000,000
b. Disbursements for materials and labor amounting to P10,000,000

Cash in Bank – Local Currency, Bangko Sentral ng 10,000,000
Pilipinas
Books of DPWH
Construction in Progress – Infrastructure Assets 10,000,000
Cash – Modified Disbursement System (MDS), Regular 10,000,000
c. Completion of the Project

Other Deferred Credits 10,000,000
Income from Grants and Donations in Cash 10,000,000
Books of DPWH
Flood Control Systems 10,000,000
Construction in Progress – Infrastructure Assets 10,000,000
Pledges
Pledges are unenforceable undertakings to transfer assets to the recipient entity.
Pledges are not recognized as revenue because they do not meet the recognition criteria for asset,
i.e., at present, the entity has not yet obtained control over the item pledged.
If the pledged item is subsequently transferred to the recipient entity, it is recognized as a gift or
donation. Pledges may warrant disclosure as contingent assets.
Concessionary Loans
Concessionary loans - are loans received by an entity at below market terms.
The entity considers whether the difference between the transaction price (loan proceeds) and the
fair value of the loan on initial recognition is a non-exchange transaction. If it is so, the
difference is recognized as revenue, except if a present obligation exists, in which case the
difference is recognized as a liability and recognized as revenue only when the obligation is
satisfied.
Impairment Losses and Allowance for Impairment Losses

When an amount already recognized as revenue becomes uncollectible, it is recognized as
expense (impairment loss) rather than as an adjustment to the revenue originally recognized.
Entities shall evaluate the collectability of accounts receivable on an ongoing basis based on
historical bad debts, customer/recipient credit-worthiness, current economic trends and changes
in payment activity. An allowance is provided for known and estimated bad debts. (GAM for
NGAs, Chapter 5, Sec. 9)
Other Receipts
Other receipts include, but are not limited to, the following:
a. Receipt of subsidy from the National Government (i.e., disbursement authority), such as
receipt of:
i. Notice of Cash Allocation (NCA)
ii. Tax Remittance Advice
iii. Non-Cash Availment Authority
iv. Cash Disbursement Ceiling
b. Receipt of subsidy or assistance from other government agencies including LGUs and GOCCs.
The Collecting Officer shall issue an official receipt (OR) upon receipt of any of these
subsidies/assistance. The journal entries are as follows:
Subsidy from Other NGAs 60,000
Assistance from LGUs 30,000
Assistance from GOCCs 10,000
To recognize receipt of subsidy/assistance from other
government agencies
Cash – Treasury/Agency Deposit, Trust 100,000
To recognize remittance of collections to the BTr
c. Receipt of excess cash advance granted to officers and employees (e.g., receipt of excess cash
advance for travel)
d. Receipt of refund of overpayment of expenses
Appropriate expenses account 10,000
To recognize collection of refund of overpayment of expenses
Cash – Treasury/Agency Deposit, 10,000

(Regular, Special Account, Trust)
e. Receipt of performance bond or security deposit. A performance bond is a security deposit

required from a contractor or supplier to guaranty the full and faithful performance of a contract.
It may be in the form of cash or certified check. The journal entries are as follows:
Guaranty/Security deposits Payable 100,000
To recognize collection of performance bond/security deposits

f. Collections made on behalf of another entity.

The collecting entity records the collection as a credit to the "Due to NGAs" account. Upon
receipt of remittance, the recipient entity records the collection as a credit to the "Trust
Liabilities" account.
g. Intra-agency and Inter-agency fund transfers.
Intra-agency Fund Transfer (transfers within the same agency)

Due to (Central Office, Regional Office, Operating Units 100,000
or Other Funds)
To recognize receipt of intra-entity fund transfer

Inter-agency Fund Transfer (transfers between different agencies)

Due to (NGAs, LGUs or GOCCs) 100,000
To recognize receipt of inter-entity fund transfer

Chapter 4: Summary
 All revenues shall be remitted to the BTr and included in the General Fund, unless
another law specifically allows otherwise. Recording in other types of funds (e.g., Special
Fund) shall be made only when authorized by law.
 Receipts shall be properly acknowledged through pre-numbered ORS. Receipts can be in

the form of checks.
 Revenues of a government entity may arise from exchange and non-exchange

transactions. Exchange transactions involve giving and receiving resources while non-
exchange transactions involve either giving or receiving but not both.
 Revenue from exchange transactions are measured at the fair value of the consideration
received or receivable.
Reference:
CHAPTER 5
DISBURSEMENTS
TOPIC OVERVIEW:
This chapter explains the fundamental principles for disbursement of public funds, the concept of
authority to disburse, the basic requirements and certifications for disbursements, the modes of
disbursements, and the accounting for disallowances and overpayments.
1. State the main concepts in the disbursement of government funds.
2. Account for the different modes of disbursements.
Introduction
Disbursements constitute all payments in cash, in whatever manner (i.e., through cash, check, or
other means). Disbursements shall be supported by Disbursement Vouchers (including Petty
Cash Vouchers) or Payroll.
Fundamental Principles for Disbursement of Public Funds
a) All government resources shall be used only in accordance with the law and only for
public purposes.
b) Trust funds shall be used only for their specific purpose.
c) Fiscal responsibility shall be strictly shared by all those exercising authority over a
government agency.
d) The use of government resources shall be approved by proper officials.
e) Claims against government funds shall be supported with complete documentation.
f) All laws and regulations applicable to financial transactions shall be faithfully adhered to,
including generally accepted principles and practices of accounting, management and
fiscal administration, provided that they do not contravene existing laws and regulations.
(P.D. No. 1445)
Expenditures funded by borrowings are included in the expenditure program of the entity. The
loan proceeds shall not be used without the corresponding release of funds through a Special
Budget. (GAM for NGAs, Chapter 2, Sec. 35)
Authority to Disburse/Pay
An entity can make disbursements only after it has received disbursement authority, based on the
following:
 Notice of Cash Allocation (NCA)

 Notice of Transfer of Allocation (NTA)
 Tax Remittance Advice (TRA)
 Non-Cash Availment Authority (NCAA)
 Cash Disbursement Ceiling (CDC) - authority issued by the DBM to agencies with
foreign operations (i.e., Department of Foreign Affairs 'DFA' and Department of Labor
and Employment 'DOLE') allowing them to use the income collected by their Foreign
Service Posts (FSPs) to cover their operating requirements.
The entries related to CDC are as follows:
Books of DFA or DOLE
Cash – Collecting Officers xxx

Passport and Visa Fees xxx
To recognize collection of revenue of FSPs
Cash in Bank – Foreign Currency, Current Account xxx

Cash – Collecting Officers xxx
To recognize deposit of collections to authorized
servicing bank of the FSPs
Cash – Constructive Income Remittance xxx

Subsidy from National Government xxx
To recognize receipt of CDC from DBM
Rents – Building and Structures xxx

Cash in Bank – Foreign Currency, Current Account xxx
To recognize payment of expenses charged to CDC
Basic Requirements & Certifications for Disbursements
The following are required when disbursing funds:
a) The Budget Officer (or Head of Budget Unit) shall certify the availability of allotment;
b) The Chief Accountant (or Head of Accounting Unit) shall charge obligations against
available allotment;
The foregoing are to ensure that no overdraft shall be incurred. An overdraft is incurred if
obligations exceed the allotment. The incurrence of overdraft is prohibited.
c) The Chief Accountant (or Head of the Accounting Unit) shall certify the availability of
funds/cash and the completeness of the supporting documents before the Head of Agency
(or his authorized representative) can enter into any contract involving the expenditure of
public funds;
All disbursements require the certification of the Chief Accountant (or Head of
Accounting Unit). Certifications must be based on valid and properly authorized claims.
Any certification for fictitious obligation is void. The certifying official shall be
dismissed from service and shall be held criminally liable. Others who are involved in the
fictitious transaction are also liable. (GAM for NGAs, Chapter 2, sec. 37)
d) The requesting and approving officials shall ensure that the disbursements are legal and
conform to applicable rules and regulations;
e) The Head of the Requesting Unit shall certify the necessity and legality of disbursements.
Payments shall be made through Disbursement Vouchers (DVs) or Payroll and supported
by the original copies of supporting documents; and
f) The Head of Agency (or his authorized representative) shall approve all DVs or Payrolls.
(GAM for NGAs, Chapter 2, Sec. 36)
Modes of Disbursements
The different modes of disbursements are as follows:
* Check
* Cash
* Cashless payments:
 Advice to Debit Account (ADA)
 Electronic Modified Disbursement System (eMDS)
 Cashless Purchase Card System (Credit Card)
 Non-Cash Availment Authority (NCAA)
(GAM for NGAs, Chapter 2, Sec. 29 and Chapter 6, Sec. 7)
Disbursements through Check
Checks are used whenever payments cannot conveniently, or are not authorized to, be made
through cash or ADA. The following are the two types of checks issued by government entities:
 Modified Disbursement System Checks - checks chargeable against the account of the
Treasurer of the Philippines maintained with different Modified Disbursement
Government Servicing Banks (MDS-GSBs).
 Commercial Checks - checks chargeable against the Agency Checking Account with
GSBs. These are covered by income/receipts authorized to be deposited with Authorized
Government Depository Banks (AGDBs).
All checks drawn, whether released or unreleased to payees, including cancelled checks, are
recorded chronologically in the Checks/ADA Disbursement Record maintained by the
Cash/Treasury Unit.
Illustration:
Entity A disburses P10,000 for electricity expense. The entries are as follows:
MDS Check
Electricity Expense 10,000
Commercial Check
Electricity Expense 10,000
Cash in Bank – Local Currency, Current Account 10,000
Disbursements through Cash
Cash disbursements constitute payments through cash advances, including payments out of the
petty cash fund. Cash advances are governed by the following rules:
a) Cash advances shall be made only for a legally authorized specific purpose (i.e.,
payments for personnel services, petty expenses; and MOOE for field operating
requirements).
b) Cash advances, other than advances for travel, shall be given only to duly appointed
Disbursing Officers who must be properly bonded. The amount of cash advance shall not
exceed the maximum cash accountability under the bond.
c) Only designated Disbursing Officers are allowed to perform disbursing functions and
only permanently appointed officials shall be designated as disbursing officers.
d) A cash advance must be liquidated as soon as the purpose for which it was given has
been served.
Cash advances for payroll shall be liquidated within 5 days after the end of the pay period.
Unclaimed salaries shall be refunded and issued official receipt to dose the account.
Cash advances for travel shall be liquidated as follows:
Local travel - within 30 days upon return to the personnel's workstation.
Foreign travel - within 60 days upon return to the Philippines. No official or employee is
allowed to go on an official foreign travel if he is due to retire within 1 year after the
foreign travel.
e) No additional cash advance shall be given to any official or employee unless the previous
cash advance given to him is first liquidated.
f) Transfer of cash advance from one officer to another is prohibited.
g) A cash advance shall not be used to encash checks or to liquidate a previous cash advance.
Illustration:
Entity A disburses P10,000 for certain expenses through cash advance. The entries are as follows
Advances for/to … (Appropriate Account) 10,000

To record the grant of cash advances
Expenses (Appropriate Account) 10,000

Advances for/to … (Appropriate Account) 10,000
To record the liquidation of cash advances
Disbursements through Advice to Debit Account (ADA)
The ADA, or more specifically the List of Due and Demandable Accounts Payable - Advice to
Debit Account (LDDAP-ADA), is an accountable form used as an authorization issued by a
government agency to the MDS-GSB instructing the bank to debit a specified amount from its
available NCA to pay the creditors/payees listed in the LDDAP-ADA.
The ADA works like a check, except that one ADA can be drawn to pay various payees, as long
as they all maintain accounts in the same bank where the ADA is drawn. Separate ADAs shall be
prepared for payees using other MDS-GSBs. ADA payments are directly credited to the payees'
accounts.
Simply stated, an ADA is an authorization for a fund transfer (between accounts in same bank)
or a bank transfer (between accounts with different banks) from the issuing agency's NCA bank
account to the bank accounts of specified payees.
The following expenditures shall not be paid through ADA:
 Payment of Terminal Leave and Retirement Gratuity benefits;

 Remittance of GSIS, PhilHealth, and Pag-IBIG contributions;
 Payments to utility companies (e.g., electricity, water, telephone, internet, petroleum, and
the like).
 Other payables which cannot be conveniently nor practicably paid using the ADA.
Illustration:
Entity A pays P100,000 accounts payable through ADA.

To record the grant of cash advances
Disbursements through electronic Modified Disbursement System
The eMDS is like the ADA except that disbursements are made directly from the accounts of the
BTr that are maintained with the Land Bank of the Philippines (LBP). Agencies subscribed
under LBP's eMDS can make online disbursements for selected transactions.
Disbursements through Cashless Purchase Card (CPC) System
Disbursements under the CPC System are made through the use of an electronic card (i.e., credit
card). The authorized credit card company is the Citibank. Guidelines in the use of CPC System
are as follows:
a) CPC purchases shall be only for specific eligible items and only with specific merchants.
Merchants - refer to the sellers or suppliers authorized by Citibank.
b) Only authorized individuals shall be allowed to use the CPC subject to monthly credit
limits. Changes in credit limits or cardholders require the prior approval of the
Committee.
c) Agency officials who approved the CPC are jointly accountable with the cardholders.
d) The CPC System shall comply to, and shall not in any way change, the existing
disbursement policies and procedures prescribed under the law.
e) The amount covered by the CPC shall form part of the cash advance levels of the
participating agencies. The CPC shall not be used to justify the increase in cash advance
levels of participating agencies.
f) The CPC shall initially be used for purchases of small value, non-common use items
which are not available with the Procurement Service.
g) Unauthorized items purchased using the CPC shall be the personal liability of the
cardholder; without prejudice to the revocation of the cardholder's privileges and other
penalties that the participating agencies may impose.
h) Participating agencies shall immediately inform the Citibank of any discrepancy

regarding items which they dispute as having been procured using the CPC.
i) Participating agencies shall ensure the timely payment of CPC billings. In case of delays,
late payment charges shall be the personal liability of the employee directly responsible
for the delay. The NCA shall never be used to pay late payment charges.
j) The cardholder shall submit all receipts from use of the CPC to the accounting unit.
These shall be used in inspecting actual goods purchased and in paying credit card
billings.
k) The accounting unit shall check if the procured items are those allowed by law to be
purchased using the CPC and compare the charge slips with the amounts in the billing
statement.
l) In case the CPC is lost or stolen, the cardholder shall immediately notify the Program
Administrator and the Citibank. The Program Administrator shall determine whether the
cardholder was negligent and whether the cardholder's privileges shall be reinstated or
permanently suspended. The cardholder shall be liable for any CPC charges during the
period the card was lost or stolen.
Illustration:
Entity A purchases office supplies worth P10,000 through CPC.

To recognize delivery of office supplies based on the charge slip
and Inspection and Acceptance Report (IAR)

To recognize settlement of CPC billing statement
Disbursements through Non-Cash Availment Authority (NCAA)

Non-Cash Availment Authority (NCAA) is the authority issued by the DBM to agencies to cover
the liquidation of their actual obligations incurred against available allotments for availment of
proceeds from loans/grants through supplier's credit/constructive cash.
Disbursements through NCAA (also called ‘Direct Payment Method' or ‘Direct Payment Scheme
of Loan Availment') are made through the Journal Entry Voucher (JEV) issued by the BTr to the
agency to record payment of goods and services made directly by the lending institution to the
supplier or contractor. The JEV is recorded in the General Journal.
Illustration:
Entity A acquires communication equipment for P1,000,000 on account and subsequently settles
the account through direct payment scheme.
Communication Equipment 1,000,000

Accounts Payable 1,000,000
To recognize receipts of PPE procured through the direct
payment scheme
Accounts Payable 1,000,000

To recognize receipt of NCAA and payment of payable
Notice that no cash is involved in the acquisition of the equipment, settlement of the accounts
payable, and recognition of the loans payable. The lending institution directly pays the supplier.
Disbursements through Tax Remittance Advice (TRA)
TRA is used for the constructive remittance of taxes or customs duties withheld to the BIR or
BOC, respectively. (See discussion in Chapter 3)
Accounting for Disallowances
Disallowances refer to expenditures made by an agency that are subsequently invalidated or

disallowed by the COA because they are found to be irregular, unnecessary, excessive,
extravagant or unconscionable. Disallowances are recorded in the books of accounts only when
they become final and executory.
Illustration:
Entity A acquired office supplies for P100,000. It was found out that the correct amount should
have been P90,000.
The disallowance pertains to:
Current Year Prior Year
Receivables- 10,000 Receivables- 10,000
Disallowances/Charges Disallowances/Charges
Office Supplies Expense 10,000 Accumulated Surplus/(Deficit) 10,000
To recognize the overpayment of purchased To recognize the overpayment of purchased
office supplies office supplies in prior year
Cash – Collecting Officers 10,000 Cash – Collecting Officers 10,000

Receivables-Disallowances/Charges 10,000 Receivables- 10,000
Disallowances/Charges
To recognize the settlement of disallowance To recognize the settlement of disallowance
Cash-Treasury/Agency 10,000 Cash-Treasury/Agency 10,000

Deposit, Regular Deposit, Regular
Cash – Collecting Officers 10,000 Cash – Collecting Officers 10,000
To recognize the deposit of collections To recognize the deposit of collections
Notice that the accounting for disallowances by a government entity is similar to the accounting
for current and prior period errors by a business entity.
Accounting for Overpayments
"Sometimes overpayments or even double payment of expenditures do happen in agencies.

These could be avoided with the institution of proper controls but some could not be avoided
because of built-in procedures. One example is the payment of payrolls. Payrolls are prepared in
advance and some agencies pay their employees through the banking system. All these are done
before reports of attendance are submitted, making it impossible to know the exact amount to be
paid in case there are absences without pay during the pay periods. In case of overpayments,
refunds shall be demanded of the employees concerned." (GAM for NGAs, Chapter 6, Sec. 48)
Correcting entries for overpayments are similar to the accounting for disallowances.
Chapter 5 Summary:
Disbursement authorities:
 Notice of Cash Allocation (NCA);

 Notice of Transfer of Allocation (NTA);
 Tax Remittance Advice (TRA);
 Non-Cash Availment Authority (NCAA); and
 Cash Disbursement Ceiling (CDC)
All disbursements require the following certifications:
 Availability of allotment - Budget Officer

 Availability of funds and completeness of supporting documents - Chief Accountant
 Necessity and legality of disbursements - Head of the Requesting Unit
All disbursements shall be made through Disbursement Vouchers (DVs) or Payroll which are
approved by the Head of Agency.
Modes of Disbursements:
* Check;
* Cash;
* Cashless payments:
 Advice to Debit Account (ADA),

 Electronic Modified Disbursement System (eMDS),
 Cashless Purchase Card System (Credit Card),
 Non-Cash Availment Authority (NCAA), and
Reference:
CHAPTER 6
FINANCIAL ASSETS
TOPIC OVERVIEW:
This chapter gives an overview about the financial assets of a government entity. This explains
the government accounting for cash and cash equivalents, receivables, investments, and
derivatives.
1. Define financial asset and give examples.
2. Account for cash and cash equivalents.
3. Account for receivables.
4. Account for investments.
Introduction
Financial instrument is any contract that gives rise to both a financial asset of one entity and a
financial liability or equity instrument of another entity. (PPSAS 28.9)
Financial asset is any asset that is:
a) Cash;
b) An equity instrument of another entity;
c) A contractual right to receive cash or another financial asset from another entity;
d) A contractual right to exchange financial instruments with another entity under
conditions that are potentially favorable; or
e) A contract that will or may be settled in the entity's own equity instruments.
Equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities.
The issuer of a financial instrument shall classify the instrument, or its component parts, on
initial recognition as a financial asset, a financial liability or an equity instrument in accordance
with the substance of the contractual arrangement and the definitions of a financial asset, a
financial liability and an equity instrument. (GAM for NGAs, Chapter 7, sec. 23)
Example:
Bank deposit is a financial instrument. It is a contract that gives rise to both a financial asset (i.e.,
Cash in bank) on the part of the depositor and a financial liability (i.e., Deposit liability) on the
part of the bank. The depositor has a contractual right to withdraw his cash while the bank has a
contractual obligation to deliver cash when the depositor withdraws.
Cash is the most basic financial instrument because it is the medium of exchange and the basis
of measurement of all financial statement elements.
Initial Recognition
A financial asset is recognized when an entity becomes a party to the contractual provisions of
the instrument. (PPSAS 29.16)
Initial Measurement
Financial assets are initially measured at fair value plus transaction costs, except for financial
assets at fair value through surplus or deficit whose transaction costs are expensed.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue, or
disposal of a financial instrument. An incremental cost is one that would not have been incurred
if the entity had not acquired, issued or disposed the financial instrument. Transaction costs
include: (a) fees and commissions paid to agents, advisers, brokers and dealers; (b) levies by
regulatory agencies and securities exchanges (e) transfer taxes and duties.
CASH AND CASH EQUIVALENTS

Cash - comprises cash on hand, cash in bank and cash treasury accounts.
Adjustments for Unreleased Commercial Checks

Unreleased checks are checks drawn but not yet given to the payees as of the end of the period.
Unreleased checks are reverted back to cash as follows:
Cash in Bank, Local Currency Account xxx

Accounts Payable (or other liability account) xxx
Unreleased checks are not physically cancelled. At the start of the following year, the adjusting
entry above is reversed to recognize the availability of the checks for release. This procedure
does not apply to the "Cash-Modified Disbursement System (MDS)" account because there is no
actual cash with the Government Servicing Bank. Recall that any unused NCA is reverted back
to the National Government, and therefore, the balance of the "Cash-Modified Disbursement
System (MDS)” account is zeroed-out at the end of each period.
Accounting for Cancelled Checks

Checks are cancelled when they become stale, voided or spoiled. A check is considered stale if it
has been outstanding for over 6 months from its date. Replacement checks may be issued for
cancelled checks that were already released to payees, upon submission of the cancelled checks
to the Accounting Unit. Cancelled checks are reverted back to cash as follows:
Current year
Cash-Modified Disbursement System (MDS), Regular xxx
Accounts Payable xxx
To record the cancellation of stale/voided/spoiled MDS
checks
Prior period
Accumulated Surplus/(Deficit) xxx
Accounts Payable xxx
To record the cancellation of stale/voided/spoiled MDS
checks in prior year
For prior period MDS checks, the "Accumulated Surplus/(Deficit)" account is debited. This is
because, again, the "Cash-Modified Disbursement System (MDS)" account is zeroed-out at the
end of each period.
For cancelled commercial checks, the "Cash in Bank-Local Currency, Current" account is
debited for both current year and prior period.
If a replacement check is issued, the replacement check is recorded in the regular manner, i.e.,
debit to accounts payable and credit to cash.
Petty Cash Fund

Petty Cash Fund (PCF) refers to the amount granted to duly designated Petty Cash Fund
Custodian for payment of authorized petty or miscellaneous expenses which cannot be
conveniently paid through checks or ADA. (GAM for NGAs, Chapter 6, sec. 2)
Guidelines:
a) The Head of Agency shall approve the amount of PCF to be established, which shall be
sufficient to defray recurring petty expenses for one (1) month.
b) The PCF Custodian shall be properly bonded whenever the established amount of PCF
exceeds P5,000.
*Bonded means, an insurance shall be taken on the custodian. In the event that the custodian misuses the
fund, the entity can claim from the insurance company, and the insurance company in turn will go after
the custodian.
c) The PCF shall be maintained using the Imprest System. At all times, total cash on hand
and unreplenished expenses shall be equal to the PCF ledger balance.
d) The PCF shall be kept separately from other advances or collections and shall not be used
to pay for regular expenses such as rentals, electricity, water, and the like.
e) PCF payments shall not exceed P 15,000 for each transaction, except when otherwise
authorized by law or by the COA. Splitting of transactions to avoid exceeding the ceiling
is prohibited.
A canvass from at least 3 suppliers is required for purchases amounting to P 1,000 and above,
except for purchases made while on official travel.
PCF disbursements shall be supported by properly accomplished and approved Petty Cash
Vouchers, invoices; ORS, or other evidence of disbursements,
Replenishment shall be made as soon as disbursements reach at least 75% or as needed.
At the end of the year, the PCF Custodian shall submit all unreplenished Petty Cash Vouchers to
the Accounting Unit for recording in the books of accounts.
The unused balance of the PCF shall not be closed at year-end. It shall be closed only upon the
termination, separation, retirement or dismissal of the PCF Custodian, who in turn shall refund
any balance to close his/her cash accountability.
Illustration:
After careful estimates of recurring monthly petty expenses, the Head of Entity A approves the
establishment of a P50,000 petty cash fund.
Petty Cash 50,000
To record the establishment of PCF
Just like the accounting by business entities, no journal entries are made as disbursements are
made out of the PCF. Journal entries will be made when the PCF is (a) replenished or (b)
adjusted at the end of the period for unreplenished expenses.
A cash count of the PCF reveals the following:

Coins and currencies P 12,500
Vouchers:
Office Supplies Expense P 10,000
Fuel, Oil, and Lubricants 15,000
Postage and Courier Expenses 8,000
Other Maintenance and Operating Expenses 4,500 37,500
Total per count 50,000
Accountability 50,000
Shortage (Overage) -
Case 1: The PCF is replenished.
Other Maintenance and Operating Expenses 4,500
To record the replenishment of PCF
Case 2: The PCF is not replenished.

Other Maintenance and Operating Expenses 4,500
Petty Cash 37,500
To adjust the PCF for unreplenished disbursements
Case 3: The PCF Custodian retires and the PCF is closed.

Cash – Collecting Officer 12,500
Petty Cash 12,500
To record the return of unused PCF upon retirement of
the Petty Cash Custodian
Accounting for Cash Shortage/Overage of Disbursing Officer

The disbursing officer is liable for any cash shortage while any cash overage that he cannot
satisfactorily explain to the auditor is forfeited in favor of the government.
Relevant provision of law:

"The failure of a public officer to have duly forthcoming any public funds or property with
which he is chargeable, upon demand by any duly authorized officer, shall be prima facie
evidence that he has put such missing funds or property to personal use." (Revised Penal Code, Art. 217)
Cash shortage
Due from Officers and Employees xxx
Advances for/to (Appropriate account) xxx
To recognize cash shortage of disbursing officer
Cash – Collecting Officer xxx

Due from Officers and Employees xxx
To recognize restitution of cash shortage
Cash – Treasury/Agency Deposit, Regular xxx

To recognize the remittance of restituted cash shortage
to the BTr
Cash overage
Miscellaneous Income xxx
To recognize forfeiture of cash overage of the
disbursing officer

To recognize the remittance of forfeited cash overage to
the BTr
Dishonored Checks
A dishonored check is a check that is not accepted when presented for payment, e.g., a check
returned by the bank because of lack of sufficient funds - 'bounced' check.
The drawer of the dishonored check is liable for the amount of the check and all penalties
resulting from the dishonor, without prejudice to his criminal liability for a 'bounced' check.
Guidelines:
a. When a check is dishonored, the Collecting Officer shall:
i. issue a Notice of Dishonored Checks to the drawer and any endorser; and
ii. cancel the related OR.
b. If the Collecting Officer fails to issue the notice, the dishonored check becomes his personal
liability. The drawer and any endorser not given the notice will be relieved from any liability.
c. A check refused by the drawee bank when presented within 90 days from its date is a prima
facie evidence that the drawer has knowledge about the insufficiency of his funds, unless the
drawer pays the check in full or makes arrangement with the drawee bank for the full payment of
the check within 5 banking days after receiving the notice of the dishonor.
d. A dishonored check shall be settled by payment in cash or certified check. The dishonored
check shall not be returned to the payor unless he returns first the previous OR therefor.
Journal entries
Dishonored checks are recorded to the "Other receivables, account as follows:
Collections remitted to BTr

Current year
Other receivables xxx
To recognize the cancellation of current year’s
deposited collections due to dishonored checks
Prior year
Accumulated Surplus/(Deficit) xxx
To recognize the cancellation of prior year’s deposited
collections due to dishonored checks
Collections remitted to Authorized Government Depository Bank

Current year
Cash in Bank – Local Currency Account, Current Account xxx
Prior year
Cash in Bank – Local Currency Account, Current Account xxx
Bank Reconciliation
A bank reconciliation statement is a report that is prepared for the purpose of bringing the
balances of cash (a) per records and (b) per bank statement into agreement.
A bank statement is a report issued by a bank which shows the credits and debits to the
depositor's account during a period, as well as the account's cumulative balance.
Guidelines:
a. Bank reconciliations shall be prepared as internal control to ensure the correctness of cash
records and as deterrent to fraud,
b. The Chief Accountant or designated staff shall prepare separate bank reconciliations for each
bank account maintained by the entity within 10 days from receipt of the monthly bank statement.
c. The Adjusted Balance Method shall be used. Under this method, the unadjusted book and bank
balances are brought to an adjusted balance that is reported on the Statement of Financial
Position.
d. Bank reconciliations shall be prepared in four (4) copies to be submitted within 20 days from
receipt of bank statement to the following: COA Auditor, Head of Agency, Accounting Division,
and Bank, if necessary.
e. A Journal Entry Voucher (JEV) shall be prepared to record any reconciling items.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value. (PPSAS 2.8)
Only debt instruments acquired within 3 months before their scheduled maturity date can qualify
as cash equivalents.
Receivables
Receivables represent claims for cash or other assets from other entities. Examples:
a. Accounts receivable refers to amounts due from customers arising from regular trade and
business transactions.
b. Notes receivable represents claims, usually with interest, for which a formal instrument of
credit is issued as evidence of debt, such as promissory notes.
c. Loans receivable - used in the BTr-NG books to recognize loans extended by the National
Government to Government Financial Institutions ‘GFIs' or GOCCs, covered by loan agreements.
d. Other receivables, such as, interest receivable, due from employees/officers/ other NGAs,
lease receivables, dividends receivable, and the like. (GAM for NGAs, Vol. 3)
Receivables are initially measured at fair value plus transaction costs and subsequently measured
at amortized cost.
Investments
Categories of Financial Assets
For purposes of subsequent measurement, financial assets are classified as follows:
a. Financial asset at fair value through surplus or deficit is one that is either:
 Held-for-trading, or
 Designated as at fair value through surplus or deficit on initial recognition. Any financial
asset can be classified in this category if its fair value can be reliably measured.
b. Held-to-maturity investments are non-derivative financial assets with fixed or determinable

payments and fixed maturity that an entity has the positive intention and ability to hold until
maturity.
c. Loans and receivables are non-derivative financial assets with fixed or determinable payments
and are not quoted in an active market.
d. Available-for-sale financial assets are non-derivative financial assets that are designated as
available for sale or are not classifiable under the other categories
Investments in unquoted equity instruments whose fair value cannot be reliably measured are
measured at cost.
Illustration 1: Initial Measurement

Entity A acquires an investment for P100,000. Transaction costs amount to P10,000.
Case 1: The investment is classified as financial asset held for trading.

Financial Assets Held for Trading 100,000
Other Financial Charges 10,000
Cash in bank-Local Currency, Bangko Sentral ng Pilipinas 110,000
Case 2: The investment is classified as held-to-maturity investments

Investment in Treasury Bills-Local 110,000
Case 3: The investment is classified as available-for-sale assets.

Investment in Stocks (or Bonds) 110,000
Illustration 2: Subsequent Measurement

Assume the investment in Illustration 1 is investment in stocks. The fair value at the end of the
period is P120,000.
Case 1: The investment is classified as financial asset held for trading.

Financial Assets Held for Trading 20,000
Gain from Changes in Fair Value of Financial Instruments 20,000
Case 2: The investment is classified as available-for-sale assets.

Investment in Stocks 10,000
Unrealized Gain/(Loss) from Changes in Fair Value of Financial Assets 10,000
Interest income from debt instruments, other than those which are classified as financial asset at
fair value through surplus or deficit, is recognized using the effective interest method.
Therefore, if the investment in the illustration above in is in the form of bonds and is classified as
available-for-sale financial assets, the unrealized gain (loss) would have been computed as the
difference between the fair value at year-end and the carrying amount adjusted for the
amortization of bond discount or premium.
Only debt securities can be classified as held-to-maturity. Thus, this category is omitted in
Illustration 2 above. Held-to-maturity investments are subsequently measured at amortized cost,
and therefore, changes in fair value are ignored.
Illustration 3: Held-to-maturity investments

On January 1, 20x1, Entity A acquires 5-year, 5%, P 1,000,000 face amount bonds for P957,876
and classifies them as held-to-maturity investments. The issuer pays annual interest every
December 31. The effective interest rate is 6%.
Investment in Bonds 957,876

To record investment in bonds
Amortization Table
Interest Discount
Date Interest Income Present Value
Collection Amortization
01/01/x1 P 957,876
12/31/x1 P 50,000 P 57,473 P 7,473 965,349
12/31/x2 50,000 57,921 7,921 973,270
12/31/x3 50,000 58,396 8,396 981,666
12/31/x4 50,000 58,900 8,900 990,566
12/31/x5 50,000 59,434 9,434 1,000,000

Investment in Bonds 7,473
Interest income 57,473
To record investment in bonds
Subsequent journal entries follow the same pattern.
Variation: Available-for-sale financial assets

Assume the bonds are classified as available-for-sale financial assets and the fair value at year-
end is P1,010,000. The unrealized gain that is recognized in net assets would have been
(P1,010,000 fair value P965,349 carrying amount adjusted for discount amortization). The same
amount of interest income would be recognized.
Impairment of Financial Assets

An entity shall assess at the end of each reporting period whether there is any objective evidence
that a financial asset or group of financial assets is impaired. If any such evidence exists, the
entity shall measure the amount of loss as the difference between the carrying amount of the
asset and the present value of estimated future cash flows discounted at the financial asset's
original effective interest rate. The carrying amount of the asset shall be reduced either directly
or through the use of an allowance account. The amount of the loss shall be recognized in surplus
or deficit.
In case of Accounts Receivable, the Allowance for Impairment shall be provided in an amount
based on collectability of receivable balances and evaluation of such factors as aging of accounts,
collection experiences of the agency, expected loss experiences and identified doubtful accounts.
(GAM for NGAs, Chapter 7, sec. 10)
Derecognition of Financial Assets

Derecognition is the process of removing a previously recognized asset, liability or equity from
the statement of financial position.
A financial asset is derecognized when:

a. The contractual rights to the cash flows from the financial asset expire or are waived; or
b. The financial asset is transferred and the transfer qualifies for derecognition, such as when the
risks and rewards of ownership and control of the financial asset are relinquished.
The derecognition of financial assets is subject to the provisions of the State Audit Code of the
Philippines (P.D. No. 1445) on the writing off of receivables and other policies issued by the
COA. (GAM for NGAs, Chapter 7, sec. 10)
Illustration: Impairment and Derecognition

Entity A, a government hospital, receives promissory notes from several patients amounting to
P1,000,000.
Notes Receivable 1,000,000
Hospital Fees 1,000,000
To recognize receipts of promissory notes
At year-end, it was estimated that P300,000 notes are impaired.
Impairment Loss-Loans and Receivables 300,000
Allowance for Impairment-Notes Receivable 300,000
To recognize impairment of notes receivable
A subsequent audit reveals that P100,000 of the impaired notes cannot be collected anymore.
The COA authorizes the derecognition (write-off) of these notes.
Allowance for Impairment-Notes Receivable 100,000
Notes Receivable 100,000
To recognize the derecognition of notes receivable
Derivatives
A derivative is a financial instrument or other contract that derives its value from the changes in
value of some other underlying asset or other instrument.
Characteristics of a derivative
a. Its value changes in response to the change in an underlying;
b. It requires no initial net investment (or only a very minimal initial net investment); and
c. It is settled at a future date.
An "underlying" is a specified price, rate, or other variable (e.g., interest rate, security or
commodity price, foreign exchange rate, index of prices or rates, etc.), including a scheduled
event (e.g., a payment under contract) that may or may not occur.
Purpose of a derivative
The very purpose of derivatives is risk management. Risk management is the process of
identifying the desired level of risk, identifying the actual level of risk and altering the latter to
equal the former. (GAM for NGAs, Chapter 7, sec. 19)
Hedging
Hedging is a method of offsetting a potential financial loss or the structuring of a transaction to
reduce risk involving financial instruments.
Hedge accounting recognizes the offsetting effects on surplus or deficit of changes in the fair
values of the hedging instrument and the hedged item.
Hedging Relationships
a. Fair value hedge - a hedge of the exposure to changes in fair value of a recognized asset or
liability or an unrecognized firm commitment, or an identified portion of such an asset, liability
or firm commitment, that is attributable to a particular risk and could affect surplus or deficit.
b. Cash flow hedge - a hedge of the exposure to variability in cash flows that (i) is attributable to
a particular risk associated with a recognized asset or liability (such as all or some future interest
payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect
surplus or deficit.
c. Hedge of a net investment in a foreign operation.
Components of a Hedging Relationship
a. Hedging Instrument – a designated derivative or a designated non-derivative financial asset or

non-derivative financial liability whose fair value or cash flows are expected to offset changes in
the fair value or cash flows of designated hedged item.
b. Hedged Item - an asset, liability, firm commitment, highly probable forecast transaction or net
investment in a foreign operation that (a) exposes that entity to risk of changes in fair value or
future cash flows and (b) is designated as being hedged.
Chapter Summary:
 Financial asset is any asset that is: cash or right to receive cash or other financial asset, an
equity instrument of another entity or contractual right to exchange financial instruments
under potentially favorable condition. Examples: cash and cash equivalents, receivables,
investments in debt and equity securities, and derivative assets.
 The Petty Cash Fund of a government entity is:

o maintained using the imprest system
o sufficient to defray recurring petty expenses for 1 month
o used for disbursements not exceeding P15,000 per transaction
o replenished as soon as disbursements reach at least 75% or as needed
 A government entity prepares monthly bank reconciliations using the adjusted balance
method.
 Only debt instruments acquired 3 months or less before their scheduled maturity date can
qualify as cash equivalents.
 Receivables are initially measured at fair value plus transaction costs and subsequently
measured at amortized cost.
 For subsequent measurement purposes, a government entity classifies its financial assets
into the following categories: (a) Financial asset at fair value through surplus or deficit;
(b) Held-to-maturity investments; (c) Loans and receivables; and (d) Available-for-sale
financial assets.
Reference:
CHAPTER 7
INVENTORIES
TOPIC OVERVIEW:
This chapter explains the accounting for inventories by a government entity and the procedures
in the receipt and disposition of inventories.
1. Account for inventories by a government entity.
2. Describe the procedures in the receipt and disposition of inventories by a government entity.
Introduction
Inventories are assets:
a) Held for sale or distribution in the ordinary course of operations (Finished goods);
b) In the process of production for sale or distribution (Work in process); or
c) In the form of materials or supplies to be consumed in the production process or
distributed in the rendering of services (Raw materials and supplies).
More specifically, the inventories of a government entity consists of the following:
a) Inventory Held for Sale (e.g., medicines for sale in government pharmacies)
b) Inventory Held for Distribution (e.g., rice and other welfare goods held for distribution)
c) Inventory Held for Manufacturing (e.g., raw materials, work-in-process)
d) Inventory Held for Consumption (e.g., office supplies inventory)
e) Semi-Expendable Property consists of machinery, equipment, furniture and fixtures and
similar items that are not capitalized as PPE because their costs are below the P15,000
capitalization threshold for PPE.
Measurement
Inventories are initially measured at cost and subsequently measured as follows:
Goods held for sale – Lower of Cost and Net Realizable Value (LCNRV)
Goods held for distribution – Lower of Cost and Current Replacement Cost
Cost comprises the following:

a) Purchase cost, excluding trade discounts, rebates, and other similar deductions in
purchase price.
b) Direct costs incurred in bringing the asset to its intended location and condition (e.g.,
freight costs, conversion costs such as costs of labor and production overhead for
manufactured items).
Cost excludes the following:

a) Abnormal amounts of wasted materials, labor, and production overhead;
b) Selling costs; and
c) Administrative overheads
Exceptions:
a) Inventories received from non-exchange transactions (e.g., donations) are initially
measured at acquisition-date fair value.
b) Agricultural produce are initially measured at fair value less costs to sell at the point of
harvest.
For these items, their initial measurements are deemed their costs for purposes of subsequent
measurement at the lower of cost or NRV/current replacement cost.
Net Realizable Value (NRV) is estimated selling price less estimated costs of completion and
estimated selling/disposal costs.
Current replacement cost is the cost the entity would incur to acquire the asset on the reporting
date.
Cost Formulas
Cost of goods sold and cost of inventories on hand are determined using the following cost
formulas:
a. Specific identification - this shall be used for items that are not ordinarily interchangeable (i.e.,
unique) and those that are segregated for specific projects.
Under this formula, specific costs are attributed to identified items of inventory. Accordingly,
cost of sales represents the actual costs of the specific items sold while ending inventory
represents the actual costs of the specific items on hand.
b. Weighted average cost - this shall be used for large numbers of items of inventory that are
ordinarily interchangeable. This shall be applied under a perpetual inventory system.
Under this formula, a new weighted average unit cost is computed after every purchase. The
computed average costs are used in determining the cost of goods sold and inventory on hand.
Accordingly, cost of sales and ending inventory are stated at average costs, rather than at the
actual costs of the inventories sold or on hand. This method is commonly referred to in
traditional accounting by business entities as the "moving average" cost formula.
Government entities shall use the perpetual inventory system. Under this system, purchases,
sales, and other transactions affecting inventory are recorded in the "inventory" and "cost of
sales" accounts, as appropriate. Moreover, stock cards and stock ledgers are maintained. These
enable the retrieval of information on costs and quantities of inventories sold and on hand at any
given point of time. However, purchases of supplies and materials out of the petty cash fund for
immediate use or on emergency cases are charged directly as expense.
The FIFO cost formula and the periodic inventory system are not used by government entities.
Recognition as an Expense
The carrying amount of an inventory is recognized as expense in the period it is sold, distributed,
exchanged, or consumed. The write-down of inventory to its NRV or current replacement as
appropriate, is also recognized as expense.
Illustration:
Entity A acquires inventory for ₱1,000 on account.
Inventory Held for Sale

Merchandise Inventory 1,000
Inventory Held for Distribution

Welfare Goods for Distribution 1,000
Inventory Held for Manufacturing

Raw Materials Inventory 1,000
Inventory Held for Consumption
Semi-Expandable Property
Semi-Expandable Machinery 1,000
Entity A recognizes the cost of inventory of ₱800 as expense.

Cost of Sales 800
Merchandise Inventory 800

Welfare Goods Expense 800
Welfare Goods for Distribution 800
Inventory Held for Consumption

Office Supplies Expense 800
Office Supplies Inventory 800
Semi-Expandable Property
Semi-Expandable Machinery and Equipment Expenses 800
Semi-Expandable Machinery 800
Inventory Held for Manufacturing

Work in Process Inventory 2,000
Raw Materials Inventory 800
Direct Labor 900
Manufacturing Overhead 300
Amounts are for illustration purposes only.
Finished Goods Inventory 2,000

Work in Process Inventory 2,000
Cost of Goods Sold 2,000

Finished Goods Inventory 2,000
Inventories costing ₱200 are found to have a net realizable value of ₱150 and current
replacement cost of ₱180.

Impairment Loss - Inventories 50
Merchandise Inventory 50

Impairment Loss - Inventories 20
Welfare Goods for Distribution 20
RECEIPT AND DISPOSITION OF INVENTORIES
Receipt
1. End users prepare the Purchase Request (PR) form to request for the purchase of items not
available on stock. The PR is the basis in preparing the Purchase Order.
'End users' refer to the individuals who will actually be using the items. For example, the end
users of office supplies are those who are working in the office; the end users for cleaning
materials are the janitors. As an internal control, only the appropriate end users are allowed to
make purchase requests for the items they need. It would be inappropriate for an office clerk to
make a purchase request for cleaning materials.
2. The authorized official prepares the Purchase Order (PO). The PO is a document issued to the
supplier when making a purchase. It indicates the specifications, quantities, and agreed prices of
the items being purchased. The PO serves as the contract between the entity and the supplier.
Recall that a canvass from at least 3 suppliers is required for purchases amounting to ₱1,000 and
above.
3. When the purchased items are delivered, the Property/Supply Division signs the "received"
portion of the Delivery Receipt (DR) and prepares the Inspection and Acceptance Report (IAR).
The IAR will be used by the Property Inspector in inspecting and accepting the delivered items.
The Property/Supply Division forwards the DR, IAR and PO to the Property Inspector.
4. The Property Inspector inspects the conformance of the delivered items with the specifications
in both the PO and DR and indicates the result of the inspection (i.e., acceptance or rejection) in
the IAR. Rejected deliveries will be returned to the supplier.
The Property Inspector forwards the copies of DR, IAR and PO to both the Property/ Supply
Division and Accounting Division for recording.
5. The Property/Supply Division, through the Stock Card Keeper, records the accepted deliveries
in the Stock Card (SC). The SC shows the quantities of all receipts and issuances of inventory, as
well as the available balance at any given point of time.
6. The Accounting Division records the accepted deliveries in the books of accounts and in the
Supplies Ledger Card (SLC). The SLC shows both the quantities and monetary amounts of all
receipts and issuances of inventory, as well as the available balance at any given point of time.
As an internal control, the SC (maintained by the Property/Supply Division) and SLC

(maintained by the Accounting Division) are periodically reconciled.
7. The Property/Supply Division prepares the Disbursement Voucher (DV) then forwards it,
together with supporting documents, to the Accounting Division for processing of payment.
Disposition
8. End users prepare the Requisition and Issue Slip (RIS) to request for the issuance of items
available on stock. The Head of the requesting individual shall approve the RIS. The approved
RIS is then forwarded to the Property/Supply Division.
9. The Property/Supply Division prepares the Report of Supplies and Materials Issued (RSMI).
The RSMI will be used by the Stock Card Keeper in updating the SC and the Accounting
Division in journalizing the items issued.
10. The Accounting Division records the items issued in the books of accounts and updates the
SLC.
11. The following are other documents used in the disposition of inventories:
Waste Materials Report - prepared by the Property or Supply Custodian to report wasted
materials, such as destroyed spare parts and other spoilages.
Report on the Physical Count of Inventories - used in reporting the results of physical counts. It
shows the balance of inventory, as well as any shortages or overages.
Report of Accountability for Accountable Forms - used to report the movement and status of
accountable forms in the possession of an officer.
Inventory Custodian Slip - prepared when issuing semi-expendable property.
Chapter 7 Summary:
 The inventories of government entities include the following: Inventory Held for Sale,
Inventory Held for Distribution (e.g., welfare goods held for distribution), Inventory Held
for Manufacturing, Inventory Held for Consumption (e.g., office supplies), and Semi-
Expendable Property (PPE-like items below the P15,000 capitalization threshold for
PPE).
 Goods held for sale are subsequently measured at the lower of cost and NRV while goods
held for distribution are subsequently measured at the lower of cost and current
replacement cost. The FIFO cost formula and the periodic inventory system are not used
by government entities.
Reference:

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CHAPTER 1

OVERVIEW OF GOVERNMENT ACCOUNTING

After studying this chapter, the students should be able to:

"Government accounting encompasses the processes of analyzing, recording, classifying,

The objectives of government accounting are:

a. To produce information concerning past operations and present conditions;

a. Sources and utilization of government funds; and

 The utilization of government funds includes expenditures on programs, projects,

Responsibility over Government Funds and Property

Accountability over Government Funds and Property

Liability over Government Funds and Property

The following offices are charged with government accounting responsibility:

 Commission on Audit (COA)

The Commission on Audit (COA):

Department of Budget and Management (DBM)

Bureau of Treasury (BTr)

Government agencies are required by law to have accounting units/divisions/departments.

 Entity refers to a government agency, department or operating/field unit.

The GAM for NGAs

The GAM for NGAs aims to update the following:

BASIC ACCOUNTING AND BUDGET REPORTING PRINCIPLES

QUALITATIVE CHARACTERISTICS OF FINANCIAL REPORTING

a. Understandability — information is understandable when users can reasonably be expected to

Accordingly, users are assumed to have

i. reasonable knowledge of the entity's activities; and

c. Materiality — Materiality affects the relevance of information. Information is material if its

Trade-offs between Relevance and Reliability

COMPONENTS OF GENERAL PURPOSE FINANCIAL STATEMENTS

The complete set of general purpose financial statements consists of:

a. Statement of Financial Position;

ELEMENTS OF THE FINANCIAL STATEMENTS

Indicators of future economic benefits:

An asset is recognized when:

Probable inflow of future economic benefits:

 Aside from providing information that is useful in making economic decisions,

 Qualitative characteristics: Understandability, Relevance, Materiality, Timeliness,

 An item is recognized as asset if all of the following criteria are met:

THE NATIONAL BUDGET

The Budget Cycle

 Uses a "roll-over" approach.

 Uses a "back-to-zero ' or "clean slate" approach.

The Approved Budget

 Physical and financial plan,

 Monthly cash program,

 Estimate of monthly income, and

 List of obligations that are not yet due and demandable.

 Unprogrammed funds (see previous definition).

Remember the following:

Story: The Budget cycle

IV. Budget Accountability

 Controllable costs - a cost is considered controllable at a given level of managerial

 Under "bottom-up" budgeting, several parties participate in the budget preparation,

 Appropriation - is the authorization made by a legislative body to allocate funds for

 Allotment is an authorization issued by the DBM to government agencies to incur

Books of Accounts and Registries

3. Registries of Allotments, Obligations and Disbursements (RAOD) - used to monitor the

Keeping of the General Accounts

Disbursement Authority - Notice of Cash Allocation (NCA)

The registries used to monitor the NCA are the following: