Miscellaneous Transactions

These are the transactions that are unique and not recurring in the ordinary course of government operations. These seldom take place or should not happen at all. Accounting for loss of cash and property. This may be due to malversation, theft, robbery, fortuitous event or other causes. Cash shortage discovered during cash examination conducted by auditors is reported through the Report of Cash Examination. The Auditor issues and audit report in case of shortage in property accountability. As soon as a shortage is definitely established, the auditor shall issue a memorandum pertaining thereto and the accountant shall draw a JEV to record the shortage as a receivable from the accountable officer concerned. In case of loss of property due to other causes like theft, force majeure , etc., a report thereon shall be prepared by the accountable Officer concerned for purposes of requesting relief from accountability. No accounting entry shall be made but the loss shall be disclosed in the notes to financial statements pending result or request for relief from accountability. Grant of Relief from Accountability. When a request for relief from accountability for shortage or loss of funds is granted, a copy of the decision shall be forwarded to the Chief Accountant who shall draw a JEV to record the transaction. The loss shall be debited to the Loss of Assets account and credited to the appropriate receivable account. In case the request for relief is denied, immediate payment of the shortage shall be demanded from the AO. Retitution shall be acknowledged by the issuance of an official receipt. In case the request for relief from accountability for loss of property caused by fire, theft, etc, is granted a copy of the decision shall likewise be forwarded to the Chief Accountant for the preparation of the JEV. The loss shall be debited to the Loss of Assets account and credited to the appropriate asset account. If request for relief is denied, the loss shall be taken as receivable from the accountable officer and shall be credited to the appropriate asset account. Accounting for Cash Overage. In case the cash examination of the auditor disclosed an overage, the amount shall be forfeited in favor of the government and an official receipt shall be issued by the cashier. The cash overage shall be taken up as Miscellaneous Income. Accounting for stale checks. Checks may be cancelled when it become stale. The depository bank considers a check stale, if it has been outstanding for over six months from date of issue or as prescribed. A stale check shall be marked cancelled on its face and reported as follows: 1. Unclaimed stale checks which are still with Cashier shall be cancelled and reported in the List of Unreleased Checks as cancelled. The List of Unreleased Checks is attached to the RCI. 2. For stale checks which are in the hands of the payees or holders in due course and requested for replacements, new checks maybe issued upon

submission of stale checks to the accounting unit. A certified copy of the previously paid DVs shall be attached to the request for replacement. A JEV shall be prepared to take up the cancellation. The replacement check shall be reported in the RCI. Accounting for Disallowance. Disallowances shall be taken up in the books of accounts only when they become final and executory. The accountant shall prepare the JEV to take up the Receivable-Disallowance/Charges and credit the appropriate expense account for the current year or Prior Years Adjustment account if pertaining to expenses of previous years. Cash settlement for disallowances shall be acknowledged through the issuance of an official receipt and reported by the cashier in the RCD. Accounting for overpayments. Sometimes overpayments or even double payments of expenditures do happen in agencies. These could be avoided with the institution of peroper 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. TRIAL BALANCES, FINANCIAL REPORTS AND STATEMENTS Financial Reporting System. This financial Reporting System (FRS) includes the preparation and submission of trial balances, financial statements and other reports needed by fiscal and regulatory agencies. The sub-systems are as follows: 1. Preparation and Submission of Trial Balances and Other Reports 2. Preparation and Submission of Financial Statements The Trial Balance shows the equality of debit and credit balances of all general ledger accounts as of a given period. It is prepared and submitted monthly, quarterly and annually. At the end of the fiscal year, the pre-closing and the post-closing trial balances shall be prepared. Purposes of the Trial Balance. The trial balance is prepared to: 1. prove the mathematical equality of the debits ad credits after posting; 2. uncover errors in journalizing and posting; and 3. serve as basis for the preparation of the financial statements The Pre-closing trial balance shall be prepared after recording the adjusting journal entries in the General Journal and posting the same to the General Ledger. It shows the adjusted balances of all accounts as of a given period. This is also described as the adjusted trial balance. Adjusting or Correcting Journal Entries. Under the matching principle, adjustments shall be made for economic activities that have taken place but are not yet recorded at the time when the financial statements are prepared. Such adjusting journal entries are

made to ensure that revenues and expenses are recorded in the period when they are earned or incurred. Adjustments are two main types: accrued items and deferred items. Adjustment for Accrued Item. It is an adjusting entry for an economic activity already undertaken but not yet recorded into an asset and revenue accounts or a liability and expense accounts. It requires asset/revenue adjustments and liability/expense adjustments. Asset/Revenue Adjustment. It involves earned revenues not yet recorded as assets and income at the end of the accounting period. Examples are receivables for revenues already earned but not yet collected nor billed as of the year end. Account Title Account Code Debit Credit -------------------------------Interest Receivables 117 500 Interest Income 612 500 Liability/Expense Adjustment. It involves expenses, which exist already but remain unpaid at the end of the accounting period. Examples are salaries, wages and other expenses already incurred but not yet paid. Account Title Account Code -----------------------Salaries and Wages-Regular 701 Due to Officers and Employees 423 Debit Credit ----- -----1,000 1,000

Adjustment for Deferred Items. These are adjusting entries transferring data previously recorded in an asset account to an expense account, or data previously recorded in a liability account to a revenue account. It also requires asset/expense adjustments and liability/revenue adjustments. Asset/Expense Adjustments. These pertains to assets, portion of which shall be recorded as expense of the agency at the end of the accounting period. Examples are prepaid expenses, bad debts and depreciation. Account Title Account Code -----------------------Original Entry: Prepaid Rent 171 Cash-National Treasury, MDS 107 Adjusting Entry: Rent Expenses Prepaid Rent 786 171 Debit ----1,000 1,000 900 900 Credit ------

Bad Debts. Trade receivables shall be valued at their face amounts minus, whenever appropriate, allowance for doubtful accounts. Bad debts expense and/or any anticipated adjustments, which in the normal course of events will

reduce the amount of receivables from the debtors to estimated realizable values, shall be set up at the end of the accounting period. The Allowance for Doubtful Accounts shall be provided in an amount based on collectibility of receivables balances and evaluation of such factors as aging of the accounts, collection experiences of the agency, expected loss experiences and identified doubtful accounts The determination of bad debts expense shall be derived from computations based on percentages and aging of accounts receivables as follows: Age of Accounts Percentage -----------------------1-60 days 1% 61-180 days 2% 181-1 year 3% More than 1 year 5% An adjusting journal entry to take up bad debts expense is as follows: Account Title ------------Bad Debts Allowance for Doubtful Accounts Account Code Debit Credit --------------------901 1,000 301 1,000

Depreciation for Property, Plant and Equipment. The cost of property, plant and equipment are allocated to the periods benefited through the provision of accumulated depreciation. Depreciation is the systematic and gradual allocation of the depreciable amount of assets over its useful life. Method of Depreciation. Depreciation shall be computed using the Straight Line Method. Depreciation shall start on the second month from purchase. A residual value equivalent to ten percent of the cost shall be set. Annual depreciation is computed as follows: Annual Depreciation = Assets Cost less Estimated Residual/Salvage Value -------------------------Estimated Useful Life Asset Cost - Purchase or Acquired Value of the Asset Estimated Salvage Value - 10% of the asset cost Estimated Useful Life - Estimated number of years the asset shall be used as determined by the Commission on Audit A sample adjusting journal entry for depreciation expense is as follows: Account Title Account Code Debit Credit --------------------------------Depreciation-Office Equipment 907 1,000 Accumulated DepreciationOffice Equipment 307 1,000

Reversion of the unused or utilized Subsidy Income from National Government at the end of the year due to the DBM policy that NCA will only be valid within the year of issue except NCA for accounts payable, which is valid one month after its issuance. There is no need to issue an MDS Check when reverting the account.

Account Title Account Code -----------------------Subsidy Income from National Government 631 Cash-National Treasury, MDS 107

Debit Credit ---------100 100

Closing Journal Entries. Closing journal entries are general entries which close out the balances of all nominal/temporary and intermediate accounts at the end of the accounting period. The nominal and intermediate accounts that shall be closed at the end of the accounting period are as follows: 1. Close the balance of the Subsidy Income from National Government account to Income and Expense Summary account. Debit ----1,000 1,000 Credit ------

Account Title Account Code -----------------------Subsidy Income from National Government 631 Income and Expense Summary 999

2. Close the balance of all income accounts to Income and Expense Summary account. Account Title Account Code -----------------------Other business Income 618 Other Income 659 Income and Expense Summary 999 3. Debit ----500 400 Credit -----900

Close the balance of all expense accounts to Income and Expense Summary account. 999 701 800 800

Income and Expense Summary Salaries and Wages-Regular Pay 4.

Close the balance of the Income and Expense Summary account to the Retained Operating Surplus account. 999 1,100 1,100

Income and Expense Summary Retained Operating Surplus

5. Close the balance of the Prior Year's Adjustments accounts to Earnings Surplus account. Prior Year's Adjustment Retained Operating Surplus 6. 684 200 200

Retained

Close the balance of the Retained Operating Surplus to Government Equity account. 1,300 471 1,300

Retained Operating Surplus Government Equity 7.

Close Public Infrastructures or Reforestation Projects accounts to Government Equity account and transfer the corresponding amount to the respective registries. 471 1,300 251-260 261-262

Government Equity Public Infrastructures/ Reforestation Projects

1,300

For the purpose of preparing the financial statements for the first, second and third quarters, the closing entries nos. 1 to 6 shall be prepared using the worksheet. The Post-Closing Trial Balance. The Post-closing Trial Balance shall be prepared after recording the closing journal entries in the General Journal and Posting to the General Ledger. It contains a listing of all general ledger accounts that remain open after the closing process is completed. GENERATION OF FINANCIAL STATEMENTS Generation of Financial Statements and Supporting Schedules. Financial statements and their supporting schedules are the products of the government accounting processes. These are the principal comprehensive means by which the information accumulated and processed in the state accounting system is periodically communicated to those who use them. The financial statements generally prepared in the National Government are: the Balance Sheet, Statement of Income and Expenses, Statement of Government Equity, and Statement of Cash Flows. Responsibility for Financial Statements. Responsibility for the fair presentation and reliability of financial statements rests with the management of the reporting agency. This responsibility is discharged by applying generally accepted state accounting principles that are appropriate to the entity's circumstances, by maintaining effective system of internal control and by adhering to the chart of accounts prescribed by the Commission on Audit. To achieve fair presentation and reliable information of the financial statements, the following standards shall be observed.

a. FAIRNESS OF PRESENTATION. This refers to the overall propriety in disclosing financial information. Full disclosure in financial aspects requires observance of the following standards of reporting: All essential facts relating to the scope and purpose of each report and the period involved shall be included and clearly displayed. - All financial data presented shall be accurate, reliable, and truthful. The requirement for accuracy does not rule out the inclusion of reasonable estimates when the making precise measurements is impracticable, uneconomical, unnecessary, or conducive to delay. All appropriate steps shall be taken to avoid bias, unclear facts, and presentation of misleading information. Financial reports shall be based on official records maintained under an adequate accounting system that produces information objectively and discloses the financial aspects of all events or transactions taking place. Where financial data or reports based on sources other than the accounting systems are presented, their basis shall be clearly explained. The financial data reported shall be derived from accounts that are maintained in all material respects on a consistent basis from period to period; material changes in accounting policies or methods and their effect shall be clearly explained. Consistent and non-technical terminology shall be used in financial reports to promote clarity and usefulness.

b.

COMPLIANCE. The report shall be in accordance with prescribed government requirements and international accounting standards of reporting. TIMELINESS. All needed reports shall be produced promptly to be of maximum usefulness. USEFULNESS. Financial reports shall be carefully designed to present information that is needed and useful to reports users.

c. d.

STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS. The Statement of Management Responsibility for Financial Statements shall serve as the covering letter in transmitting the agencies financial statements to the Commission on Audit, Department of Budget and Management, other oversight agencies and other parties. It shows the agency's responsibility for the preparation and presentation of the financial statements. The statement shall be signed by the Director of Finance and Management Office or Comptrollership Office, or the Chief of Office who has direct supervision and control over the

agency's accounting and financial transactions, and the Head of Agency or his authorized representative. BALANCE SHEET. The Balance is a formal statement which shows the financial condition of the agency as of a certain date. It includes information on the three elements of financial position - assets, liabilities, and government equity. It shall be prepared from information taken directly from the year-end Post-Closing Trial Balance. The Balance Sheet shall be supported with the following schedules/statements; Schedules of Accounts Receivables (SAR) Schedules of Accounts Payables (SAP) Schedules of Public Infrastructures (SPI) Other schedules as may be required.

Although the allotments and obligations of the agency are not recorded in the books of accounts, the Statement of Allotments, Obligations and Balances (SAOB) shall be submitted to the Commission on Audit by the Budget Officer/Agency Officer concerned. This statement shall to be included among the aforementioned schedules for information of government officials and oversight agencies. STATEMENT OF INCOME AND EXPENSES. The Statement of Income and Expenses shows the results of operation/performance of the agency at the end of a particular period. This statement shall be prepared by the Accounting Unit from information taken directly from the Pre-Closing Trial Balance. STATEMENT OF GOVERNMENT EQUITY. The Statement of Government Equity shows the financial transactions, which resulted to the change in Government Equity account at the end of the year. STATEMENT OF CASH FLOWS. The Statement of Cash Flows is a statement summarizing all the cash activities of an agency. This includes the operating, investing and financing activities of the entity and provides information on the cash receipts and cash payments during the period. The primary purpose of the Statement of Cash Flows is to give relevant information on the agency's overall cash position, liquidity and solvency. Using the Statement of Cash Flows, managers, investors, and creditors could easily assess if the agency could meet its obligations in operating, investing and financing activities. PREPARATION OF THE STATEMENT OF CASH FLOWS. To facilitate the preparation of the Statement of Cash Flows, the use of a Working Paper is encouraged. It shall show the increase or decrease in the cash account between two periods. The net increase in cash provided by 1) operating 2) investing and 3) financing activities in addition to the cash balance at the beginning shall equal to the cash balance at the end of the period. 1) OPERATING ACTIVITIES. Operating activities involves the principal resources producing activities of the enterprise and other activities that are not investing or financing (SFAS 22). Generally, these include the cash

effect on transactions that enter in the Income and Expense Summary account.

2)

INVESTING ACTIVITIES. Investing activities involves the acquisition and disposal of long-term assets and other investments not included in cash equivalent (SFAS 22). These activities include cash transactions covering non-operating assets, such as the purchase of property, equipment, short and long-term investments and other non-current assets. Non-cash investing activities are not included in the statement of cash flows.

3)

FINANCING ACTIVITIES. Financing activities are derived from the equity capital and borrowings of the agency (SFAS 22). These include cash transactions involving the government equity and non-operational liabilities. Non-cash financing activities are not included in the statement of cash flows. The increase or decrease in the cash accounts are analyzed and the following computations are made: CASH FLOWS FROM OPERATING ACTIVITIES Cash Inflows - Receipt of Notice of Cash Allocation (NCA) from the DBM - Receipt of Notice of Transfer of Allocation to Agency RO/OU from CO - Cash receipts from all sources of revenues - Receipt of Inter-Agency cash transfers (Due to) - Cash receipts from the sale of goods or rendition of services - Cash receipts of interest income, rental income, dividend income, etc. - Receipt of payment for liquidated damages - Receipt of refund of deposits - Receipt of refunds of cash advance or excess payments - Collection of receivables - Cash receipt of grants and donations - Receipt of cash dividends from enterprises (e.g. PLDT) Cash Outflows: - Payments of accounts payable - Cash purchase of merchandise for sale - Cash advances granted for travel - Inter-agency transfers (Due from) - Notice of Transfer of Allocation to Agency RO/OU issued by the NGA Main Office to RO/OU and/or attached agencies through Government Servicing Banks. - Return of unused NCA - Cash payment for operating expenses

- Remittance of taxes withheld not covered by TRA and other deductions (if any) - Cash purchase of supplies and equipment - Cash payment of retirement benefits - Cash payment of claims for damages - Cash payment of liabilities incurred in operations - Cash payments for interest CASH FLOWS FROM INVESTING ACTIVITIES Cash Inflows: - Proceeds from sale of marketable stocks and bonds - Cash proceeds from the sale/disposal of equipment and other property, plant and equipment. - Redemption of long-term investments or repayment by GOCC/GFI of long-term loans

Cash Outflows: - Purchase of property, plant and equipment - Purchase of land - Investment in stocks/bonds - Investment in GOCC/GFI - Exposure as other long-term investments CASH FLOWS FROM FINANCING ACTIVITIES Cash Inflows: - Cash received from domestic and foreign loans - Issuance of treasury bills Cash Outflows: - Payment of domestic and foreign loans - Redemption of treasury bills outstanding - Payment of cash dividend The net increase in cash provided by operating activities, investing activities and financial activities for the year, and the cash balance at the start of the year, shall equal the cash balance at the end of the year. Such amount shall tally with the total cash account shown in the balance sheet. NOTES TO FINANCIAL STATEMENTS. Notes to Financial Statements are integral parts of financial statements, which pertain to additional information necessary for fair presentation in conformity with generally accepted accounting principles. These may explain the headings captions or amounts in the statements of present information that cannot be expressed in money terms, and description of accounting policies.

Information shall be presented in a way that will facilitate understanding and avoid erroneous implications. The headings, captions and amounts shall be supplemented by enough additional data so that the meaning would be clear and not overshadowed by so much information that important matters are buried in mass trivia. Where Notes to Financial Statements appear on a separate page, indicate the phrase "See accompanying Notes to Financial Statements" placed at the bottom of said statements. Material changes in classification of accounts shall be indicated and explained as notes to financial statements. The four types of disclosure considered necessary are as follows: a. CUSTOMARY OR ROUTINE DISCLOSURE. Information about measurement bases of important assets, restrictions on assets and government equity, important long-term commitments not recognized in the body of the statements, information on terms of owner's equity and long-term debt, and certain other disclosures required by pronouncements of the Philippine Institute of Certified Public Accountants, Accounting Standards Council, and regulatory bodies that have jurisdiction are necessary for full disclosure. DISCLOSURE OF CHANGES IN ACCOUNTING PRINCIPLES. Changes in accounting principles, practices, or the methods of applying them, together with the financial effect, and the justification for the change shall be disclosed in the financial statements or a note thereto. In particular, it shall include any of the following: - Selection from existing acceptable alternatives - Principles and methods peculiar to the agency - Unusual application of generally accepted accounting principles. c. DISCLOSURE OF SUBSEQUENT EVENTS. Disclosure of events that affect the agency directly and that occur between the date of, or end of the period covered by, the financial statements and the date of completion of the statements is necessary if knowledge of the events might affect the interpretation of the statements, even though the events do not affect the propriety of the statements themselves. DISCLOSURE OF ACCOUNTING POLICIES. Description of the accounting policies adopted by the reporting entity is required as an integral part of the financial statements. It is usually captioned "Summary of Significant Accounting Policies", and placed as first item in the Notes. It shall be limited to description of the policies and no quantitative data shall be included. Examples of accounting policy disclosures commonly required: - Consolidation principles - Accounting for long-term investments - Adoption of policy on increasing benefit entitlements of the program members.

b.

d.

The effect of the increase shall be disclosed. - Basis of revenue recognition In general, disclosures shall include important judgment as to appropriateness of principles relating to recognition of revenues and allocation of asset costs to current and future periods. INTERIM REPORTS. Interim reports are the financial statements required to be prepared at any given period or at a financial reporting period without closing the books of accounts. The following interim financial statements shall be prepared and submitted quarterly with the Notes to Financial Statements: a. Statement of Income and Expenses; b. Balance Sheet; and c. Statement of Cash Flows. The interim financial statements shall be prepared employing the same accounting principles used for annual reports. Adjusting and closing journal entries shall be prepared. However, only the adjusting journal entries are recorded in the books of accounts. To facilitate the preparation of the interim financial statements, the use of the worksheet is recommended. Sec. 82. WORKSHEET. A worksheet is a tool for accumulating and sorting information needed for the preparation of the financial statements. It is a columnar sheet used to adjust and close account balances for the preparation of the financial statements. The format of the worksheet shall be as follows: Agency Name Worksheet As of ______________, 20__ Unad justed Trial Bal. Titl e a. b. c. d. Cod e D r C r Adjusted Closin Or Preg Adjustments Adjusted Entries Trial Bal. Dr C Dr Cr Dr Cr r Statemen Post t Closin Of g Income Trial & Exp Bal. Dr Cr Dr Cr Balance Sheet

Dr

C r

Account Title and Code columns show the accounts of the General Ledger. The Unadjusted Trial Balance columns reflect the amount balances of the General Ledger accounts. Adjustments columns show adjusting journal entries effected for the accounts. Adjusted/Pre-Closing Trial Balance columns show the balances of all the accounts after adjustments are added/deducted from the balances of accounts in the unadjusted trial balance.

e. f.

Closing Entries debit and credit columns show the amounts debited and credited to close the nominal accounts. Statement of Income and Expenses columns show all the debit and credit amount balances of the nominal accounts (subsidies, income and expenses) and intermediate accounts. Post-Closing Trial Balance columns show the debit and credit amount balances of all accounts after posting the closing entries. Balance Sheet columns show all the debit and credit amount balances of all real accounts in the post-closing trial balance (assets, liabilities, and government equity).

g. h.