In General, Why Do We Have to Study Accounting?

Whenever we hear the word “Accounting” we often associate it with figures and then relate it to
business. We failed to realize that accounting is not for business alone. Actually, nearly everyone practices
accounting in one form or another every day. Wherever we go and in everything we do which involves decision-
making, accounting is present. Whether we are at home, in school or anywhere else, accounting has always been
a part of our daily struggle for survival. This makes accounting to have a universal existence.
Even in professions which we may think their fields of studies are not related to business like
engineering, architecture, laws, medicine, etc. – you name it- they too need a working knowledge of accounting
in pursuit to the practice of their professions.
Accounting is often called the “language of business” the language we often hear in business
conversation. But how can we participate actively and communicate effectively in the business community if
we don’t speak the language. It’s the way business people set goals, measure results and evaluate performance.
In today’s business world, learning and understanding the art of accounting is not just an uphill climb
but rather a survival skill. [Introductory Remark: “Fundamentals of Accounting” (Simplified Procedural
Approach) by: Rafael M. Lopez, Jr., p.2]

Introduction
P.D. 1445 Section 109 defines
Government Accounting – encompasses the processes of analyzing, recording, classifying,
summarizing and communicating all transactions involving the receipts and disposition of government funds
and properly and interpreting the results thereof.
Processes:
1. analyzing
2. recording
3. classifying
4. summarizing
5. communicating
6. interpreting

Government Accounting
 is a service activity. Its function is to provide quantitative information primarily financial in nature
about the operations of the government, both national and local, to be used by the administration in
making decisions for a more effective and efficient public service.
 gives substance to the concept of public accountability of public officers and employees as regards:
1. safeguarding government resources against loss or wastage
2. adherence to the requirements of law and administrative policies and regulations
3. economy and efficiency in operation
4. delivering the desired results of government programs and activities

PURPOSES OF GOVERNMENT ACCOUNTING

1. to record in a usable manner the amount of money the government has received and expended or
expect to receive or spend and become obligated for and in a given period.
 2. to supply the type of information that will assist those in authority to formulate and prosecute the
program of public welfare.
3. to supply timely and sufficient information in a classified form that will assist the executive and the
legislative branches of government and the people in general in appraising the adequacy of the programs
and the efficacy of their implementation.

4 FOLDS OBJECTIVES OF GOVERNMENT ACCOUNTING (Sec. 110, P.D. 1445)

1. to produce information concerning past operations and present conditions.
2. to provide a basis for guidance for future operations.
3. to provide for control of the acts of public bodies in the receipt, disposition and utilization of funds
and property
4. to report on the financial position and the results of operations of the government agencies for the
information of all persons concerned.

Public Sector Accounting Standards Board (PSASB)

• was created by COA in 2008 in order to formulate and implement the Philippine Public Sector
Accounting Standards (PPSAS) and establish linkages with international bodies, professional organizations and
academe on accounting related fields on financial management.
Philippine Public Sector Accounting Standards (PPSAS)
• are accounting standards based on the International Public Sector Accounting Standards (IPSAS) bases
of which are the IFRS.
• Processes and considerations in the development of the PPSAS: o
1. applicability of the IPSAS to Philippine setting.
2. Philippine application guidance was issued to change the accounting principle of IPSAS
found to be in conflict with Philippine laws, rules, and regulations.
3. for improving fair presentation, if significant, disclosure requirements were amended. o
assigned the same number as the IPSAS, but if the PPSAS has no IPSAS equivalent number,
a series starting with 100 will be used and shall be withdrawn if IPSAS issued an equivalent
standard.
4. relevant accounting standards were researched to deal with financial reporting issues not
dealt with IPSAS.
5. submission of a draft for consideration of the COA, if the standard was exposed to significant
changes and unresolved issues.
Government Offices Charged with Accounting Responsibility
• Commission on Audit (COA) shall:
1. keep the general accounts of the government;
2. promulgates accounting rules and regulations and o submits reports to the President and Congress within
the time fixed by law.
• Department of Budget and Management (DBM) shall be responsible for the:
1. formulation and implementation of the National Budget;
2. responsible for the efficient and sound utilization of government funds and revenues; and
3. validation and assignment of new account codes.
• Bureau of Treasury (BTr) shall:
1. receive and keep the national funds and manage and control the disbursements;
 2. maintains accounts of all financial transactions of all national government offices/agencies.
• Government Agencies
1. responsible in directly implementing the projects of, and performing the functions delegated by the
government;
2. required by law to have budget and accounting departments/divisions who shall:
▪ maintain and keep current the accounting books and budget records reconciled with COA and
DBM
▪ provide advice on the financial condition and status of the appropriations and allotments of the
agency as its Head may require, and
▪ develop and conduct procedures designed to meet the needs of management.
Classified according to the type of governmental organizational unit:
▪ National Government Agencies (NGAs)
▪ Local Government Units (LGUs)
▪ Government-Owned and Controlled Corporations (GOCCs) and their subsidiaries shall adopt the PPSAS
except for agencies classified as Government Business Enterprise or GBEs which shall adopt the IFRS.

The Government Accounting Manual for National Government Agencies (GAM for NGAs)
• is promulgated by the COA under the authority conferred to it by the Philippine Constitution.
• is prescribed to be used by all national government agencies and local government units.
• shall serve as a guide in the:
1. preparation of the general-purpose financial statements in accordance with the PPSAS and other
financial reports
2. reporting of budget, revenue, and expenditure in accordance with the PPSAS
• aims to update the:
1. standards, policies, guidelines, and procedures in accounting for government funds and property
2. coding structure and accounts
3. accounting books, registries, records, forms, reports, and financial statements

Section 4. Basic Features and Policies. The Local Government Accounting System shall have the following
features and policies, to wit:
a. International Public Sector Accounting Standards (IPSAS). IPSAS shall be the framework in the
preparation and presentation of the local governments’ financial statements.
b. Accrual accounting. Income and expenses shall be on accrual basis of accounting. Income from taxes shall
be recognized as receivable when the taxable event occurs. Expense shall also be recognized upon
incurrence.
c. Fund Concept. Local governments, except the barangays, shall maintain three funds; namely:
1. General Fund
2. Special Education Fund
3. Trust Fund
d. Separation of Books. Separate set of books of accounts shall be maintained for each fund.
e. Budgetary Accounts. Separate set of books shall be maintained for the budgetary accounts in view of the
difference of the budgetary basis from the accounting basis.
f. Special Accounts in the General Fund. Special Accounts in the General Fund (SAGF) shall be maintained
for the following:
1. Public utilities and economic enterprises
2. Loans, interests, bonds issued and other contributions for specific purposes
3. Development projects funded from the Share in Internal Revenue Collections
4. Share from National Wealth
5. Such other special accounts which may be created by law or ordinance
g. Complete subsidiary records for all accounts (assets, liabilities and equity) shall be maintained for public
utilities and economic enterprises. Subsidiary records for the receipts, transfers and expenditures of all
other special accounts shall be maintained.
h. Chart of accounts. A new chart of accounts shall be adopted.
i. Books of accounts. The following books of accounts shall be maintained:
1. Books of original entry
i. Cash Receipts Journal
ii. Procurement Received Journal
iii. Cash Disbursement Journal
iv. Check Disbursement Journal
v. Authority to Debit Account Disbursement Journal
vi. General Journal
2. Books of Final Entry
i. General Ledger
ii. Subsidiary Ledgers
1. Special Accounts
2. General Ledger Accounts
j. Cashbooks. Treasurers and disbursing officers shall maintain the following cashbooks, as applicable:
1. Cashbook – Cash in Treasury
2. Cashbook – Cash in Bank
3. Cashbook – Cash Advances (except for Cash Advances to Officers and Employees)
k. General Purpose Financial Statements. A complete set of financial statements comprises:
1. Statement of financial position
2. Statement of financial performance
3. Statement of changes in net assets/equity
4. Statement cash flows
5. Statement of comparison of budget and actual amounts
6. Notes to financial statements, comprising a summary of significant accounting policies and
explanatory notes
l. Consolidated financial statements. Financial statements of controlled entities shall be consolidated with the
financial statements of the controlling entity.
m. Current/Non-Current Distinction. LGUs shall present current and non-current assets, and current and
non-current liabilities, as separate classifications on the face of their statement of financial position.
n. Current Asset. Asset shall be classified as current when it is expected to be realized in, or is held for sale or
consumption within, the LGU’s accounting cycle or cash or cash equivalent not restricted for exchanged
or used for at least 12 months after the reporting date.
o. Current Liability. Liability shall be classified as current when it is expected to be settled in the LGU’s
accounting cycle or twelve months after the reporting date.
p. Non-current Assets or Liabilities. All other assets or liabilities not classified as current shall be considered
as non-current.
q. Direct Method. The Cash Flow Statement shall be presented following the direct method of presentation.
r. Cash equivalents. Cash equivalents shall comprise short term investments with maturities of 3 months or less
from acquisition date that are readily convertible to known amounts of cash and which are subject to
insignificant risk in changes in value.
s. Changes in Accounting Policy. Any change in the accounting policy shall be applied to transactions, other
events and a condition retrospectively as if the policy had always been observed except to the extent that
it is impracticable to determine either the period-specific effects or the cumulative effect of the change.
t. Changes in Accounting Estimates. Any change in accounting estimate shall be applied prospectively.
u. Prior Period Errors. Omissions from, and misstatements in, the entity’s financial statements for one or more
prior periods shall be corrected through retrospective restatement in the recognition, measurement, and
disclosure of amounts of elements of the financial statements as if a prior period error had never
occurred.
v. Appropriations and Allotments. The Budget Office shall maintain the Record of Appropriations and
Allotments, which shall be the basis for the certification as to the availability of appropriations.
w. Allotments and Obligations. The Accounting Office shall maintain the Registry of Appropriations,
Allotments and Obligations, which shall be the basis in the recording of allotments and obligations in
the books of accounts.
x. Measurement of Inventory. Inventories for sale at the end of the period shall be measured at the lower of
cost or net realizable value. Inventories for distribution at no charge or nominal charge and those for
consumption shall be measured at the lower of cost and current replacement cost. Where inventories are
acquired through non-exchange transaction, their cost shall be measured at their fair value at the date of
acquisition.
y. Weighted average cost formula. Cost of each item for similar inventory items shall be computed through the
weighted average cost formula. The cost of each item is determined from the weighted average cost of
similar items at the beginning of the period and the cost of similar items purchased for the period.
z. Cost Model. After recognition as an asset, property, plant and equipment shall be carried at its cost, less any
accumulated depreciation and any accumulated impairment losses.
aa. Infrastructure assets. These are assets that display some or all the following characteristics:
1. Part of a system or network
2. Specialized in nature and do not have alternative uses
3. Immovable
4. Subject to constraints on disposal
 These assets shall be accounted for in the same manner as property, plant and equipment, and be subject
to depreciation, impairment and derecognition. These include, among others, road networks, flood controls,
sewer systems, etc.
bb. Replacement costs. Replacement cost shall be recognized as part of the cost of the property, plant and
equipment. The carrying amount of the replaced part shall be derecognized.
cc. Derecognition of Infrastructure Assets. Replaced portion of infrastructure assets shall be derecognized. If
it is not practical to determine the cost of the carrying amount of the replaced part, the replacement costs may be
used as the carrying amount of the replaced portion which is the subject of the derecognition.
dd. Cost of Property, Plant and Equipment. The cost of an item of PPE comprises:
1. Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates.
2. Any costs directly attributable to bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
3. The initial estimate of the costs of dismantling and removing the item and restoring the site on which
it is located, the obligation for which an entity incurs either when the item is acquired, or as a consequence of
having used the item during a particular period for purposes other than to produce inventories during the period.
ee. Criteria for Capitalization Threshold. Asset items classifiable as Machinery and Equipment; Furniture,
Fixtures and Books; and Other Property, Plant and Equipment with individual cost of at least P15,000 and a life
of more than one year shall be recognized as Property, Plant and Equipment. However, items with individual
values below the threshold but which work together in the form of group of network asset and whose total value
exceeds the threshold shall be recognized as part of the primary PPE. (Example: printers)
ff. Depreciation. The straight-line method of depreciation shall be used. A residual value of five percent of the
cost shall be set up (except for the road network system of which no residual value shall be recognized) and
depreciation shall start when the PPE begins to be available for use, i.e., when the PPE is in the location and
condition necessary for it to be capable of operating in the manner intended by management. Depreciation
ceases when the asset is derecognized or if the asset is fully depreciated.
gg. Impairment. Assets, except Inventories and biological assets shall be tested for impairment. Impairment is
the loss in the future economic benefits or service potential of an asset, over and above the systematic
recognition of the loss of the asset’s future economic benefits or service potential through depreciation. When
the carrying cost of an asset is higher than its recoverable cost or service potential, the asset is impaired, thus,
the need to recognize an impairment loss.
hh. Biological assets. Living animal or plant assets of the agency shall be recognized and measured on initial
recognition and at each reporting date at its fair value less cost to sell.
ii. Recognition of liability. Liability shall be recognized at the time goods and services are accepted or rendered
and supplier/creditor bills are received.
jj. Interest accrual. Interest income and/or expense shall be recognized on a time proportion basis in the books
of accounts.
kk. Rendition of accounts by accountable officers. Local treasurers, accountants and other accountable
officers shall render their accounts in accordance with COA regulations.
Responsibility, Accountability and Liability (over Government Funds and Property)
Responsibility over Government Funds and Property
1. 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.
2. 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 bounded.
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 property documented in an invoice and receipt.
Liability over Government Funds and Property
1. The unlawful use of government resources shall be the personal liability of the employee found to be directly
responsible therefor.
2. Every accountable officer shall be liable for all losses resulting from the unlawful use or negligence in the
safekeeping of government resources.
3. 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 the 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.
4. 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. (P.D. No. 1445)