Professional Documents
Culture Documents
GOVERNMENT ACCOUNTING
AND AUDITING TNCR
The government is the largest financial organization in terms of assets, liabilities, capital,
sources of income and items of expenditures. It is also the largest entity in terms of number and
quality of personnel, facilities and instrumentalities, which are used to serve the social, political
and economic needs of the nation. The government has as many departments, commissions or
offices as necessary to be able to carry out its functions, like promotion of social welfare,
development of national wealth, defense of the state from internal and external aggression,
promotion of justice, promotion of trade and industry, general government and protection of
private rights of the people.
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.
OBJECTIVES
1.To provide quantitative information concerning past operations and present conditions.
2.To provide a basis for guidance for future operations.
3.To provide for control of the account of public entities and officers in the receipt, disposition
and utilization funds and properties, and
4.To report on the financial position and the result of the operations of the government agencies
for the information of all persons concerned.
2. Purpose - Private enterprises are organized primarily to make profits. The government
is set up mainly to render service at lowest possible cost to its constituents.
4. Financing - Private enterprise is supported for its finance primarily by the voluntary
contribution from its members or stockholders which constitute as their share of capital or
investment in the business. The government is vested the exclusive right to demand involuntary
contributions from its constituent in the form of taxes.
1. Objective –
CA – is geared towards income measurements aside from control of company
resources,
GA - is control of government funds to see to it that they are properly utilized and
provide data to management for decision.
2. Basis of Accounting -
CA – either cash or accrual method is used but not a combination of both.
GA - the modified accruals basis of accounting is used.
4. Control Mechanism –
CA – none
GA – Fund accounting, obligation accounting and CDC accounting
5. Books of Accounts –
CA - only one set is kept
GA - two books are kept (a) Regular Agency (RA) Book and (b) National
Government(NG) Books.
The ultimate authority for decision-making in the Philippine government rests with the people.
This authority is exercised through duly elected representatives, acting as agents of the people.
It is the sovereign right of the people to change them if the authority is misused or abused.
The President, as chief executive, formulates national policies, which specify the goals of
government and determine the courses of action that the government should take in different
aspects of public affairs.
On the basis of national policy, the President submits a budget to the legislative body for
consideration and processed until approved and passed into a law.
At all levels of government, decision-making should comply with existing laws and regulations.
Questions and issues involving the settlement of money claims, determination of dispute or
settlement of a controversy on the issue as to legality and/or propriety of such claims are
submitted for resolution to the COA in connection with the discharge of its audit function.
Questions involving legal interpretation and/or application of law are submitted for decision to
the courts.
The financial resources of the Government are very limited. It relies heavily on collected
taxes. This means that it has to operate through a system of fiscal and accounting controls. The
following control mechanisms adopted as sub-systems of government accounting are not
adopted in commercial accounting:
Fund Accounting
Obligation Accounting
Cash Disbursement Ceiling (CDC) Accounting
Fund Accounting. A fund is a sum of money or other resources set aside for the
purpose of carrying out specific activities or attaining certain objectives in accordance with
specific regulations, restriction, and limitations.
The two major classification of funds as to purpose for which they may be used:
1. General Fund – one which is generally available for all functions of the
government.
2. Special Fund - one which, by legislative action, segregates specified revenues
for limited purposes.
Obligation accounting refers to the accounting practice, procedures and techniques for
recording obligations in the government.
The Head of the agency is made immediately and primarily responsible for all
government funds and property pertaining to his agency. Secondary responsibility is made to
rest on the persons entrusted with the actual possession or custody of the funds or property.
They are the accountable officers and are immediately responsible to the agency head.
The imposition of primary responsibility on the agency head for government funds and
property is in keeping with the concept of fiscal responsibility which now lodge with agency
head.
The head of the agency shall exercise the diligence of a good father or a family in
supervising accountable officers to prevent the incurrence of loss of government funds and
property, otherwise, he shall be jointly and solidarily liable with the person primarily
accountable thereof.
The Commission on Audit serves as the external auditor of the government agencies.
It is a constitutional office and its mandates are provided in Section 2, Art. IX-D of the 1987
Constitution of the Philippines. The COA examine, audit and settle all accounts pertaining to
revenues or receipts and expenditures or uses of government funds and property, keeps the
general accounts of the national government , prescribes the standard chart of accounts,
promulgates accounting rules and regulations and exercise technical supervision over the
accounting functions of each agency. The office is mandated by the Constitution to submit to
the President and the legislative body within the time frame fixed by law, an annual audit report
of the government, its subdivision, agencies and instrumentalities including government owned
or controlled corporations and recommend measures necessary to improve efficiency and
effectiveness.
The DBM is responsible for the design, preparation, and approval of the accounting
systems of government agencies, determines the accounting and other item of information
needed to monitor budget performance and assess effectiveness of the agency operation. It
prescribes the forms, schedules of submission and other component of reporting system
needed to accomplish and submit the required information. It acts on agencies’
recommendations for the modification or changes to prescribed systems for procedures to effect
simplicity and/or meet the requirements of the peculiarities of the agencies concerned. It
approves the Agency Budget Matrix and issues the allotments to agencies in accordance with
the approved budget and issues Notice of Cash Allocation.
The Bureau of Treasury (BTr) performs banking function for the national government.
It receives and keeps government funds, controls the disbursements thereof and maintain
accounts of the financial transactions of national government agencies. It is required to prepare
and submit to the COA and other fiscal activities, a daily statements of cash receipts,
disbursements and fund balances in the National Treasury.
These agencies are required to establish and maintain a system of accounting for their financial
resources and operation in accordance with pertinent rules and regulations. Accounts should
be kept in such details as is necessary to meet the need of agency management and furnish
information to fiscal and control agencies such as COA, DBM and BTr.
In government, authority is often used interchangeably with the term "power". However,
their meanings differ: while "power" is defined as 'the ability to influence somebody to do
something that (s)he could not have done', "authority" refers to a claim of legitimacy, the
justification and right to exercise that power.
Section 1 of PD 1445 provides:”It is the declared policy of the State that all government
resources shall be managed, expended and utilized in accordance with law and regulations and
safeguard against loss or wastage through illegal or improper disposition, with a view to
ensuring efficiency, economy and effectiveness in the operations of government. The
responsibility to see to it that such policy is faithfully adhered to rests directly with the chief or
head of the government agency concerned.”
This declaration articulates the concern of the state for the safekeeping of the public’s
resources. It focuses on how the resources shall be handled by those given the public trust to
manage, spend or use such resources.
Pursuant to this policy the State requires from public officers and employees the following:
1. Compliance with laws and regulations
- Laws and rules
- Agency policies
- Agency manuals of operations; and
- Provisions of contracts, MOA
2. Safeguarding of government resources from loss and waste
3. Achieving goals and objectives
When public officers and employees submit to the Commission their transactions,
accounts, financial reports and statements and other performance and operation reports, they
are asserting or claiming that they have complied with the foregoing accountability
requirements.
What is Assertions?
When the agencies issue their financial reports and statements they are asserting the
following:
1. Existence or Occurrence - This deals with whether assets or liabilities of the audited
agency actually exist at a given date, and whether recorded transactions have occurred
during the given period.
2. Completeness – This deals with whether all transactions and accounts that should be
presented in the financial statements are included.
3. Rights and Obligations - This deals with whether assets are actually owned by the
agency and liabilities are the obligation of the agency at a given date.
4. Valuation or Allocation - This deals with whether or not the asset, liability, revenue and
expenses components have been included in the financial statements at appropriate
amounts.
5. Presentation and Disclosure – This deal on whether particular components of the
financial statements are properly classified, described and disclosed.
Assertions on Achievement of Goals and Objectives (Performance or Value for Money
Accountability)
When the agencies prepare and submit to proper authorities their reports on the
performance of an activity or a project, the agency is asserting that they used and managed the
resources for that activity or project in an economical, efficient and effective manner.
Performance of government entities is measured from the point of view of economy, efficiency
and effectiveness.
Economy refers to the reasonableness of cost incurred. Measuring economy will determine
whether the agency has been performing at the least possible cost or under the terms most
advantageous to the government.
Efficiency refers to the relationship between goods or services produced and resources used
to produce them. The measurement of efficiency involves the determination of whether an
agency is managing or utilizing its resources in an efficient manner as well as establishing the
causes of any inefficiencies, including inadequacy in management information systems,
administrative procedures or organizational structure.
Effectiveness is concerned with the relationship between the outputs and the goals of the
agency. Measuring effectiveness will determine whether the desired results are achieved,
whether the objectives set by the agency are met, and whether the agency has considered
alternatives that yield desired results at a lower cost.
Accounting principles are propositions, a general law or rule adopted, which on the basis
of reasons, demonstrated usefulness and general acceptance as the best way of carrying out
the function and achieving the objectives of financial accounting.
Objectives:
1. Guide the accountants in identifying, measuring and communicating financial accounting
information;
2. Assure proper reporting and reasonable degree of uniformity and comparability among
the financial statements of different government entities; and
3. Provide auditors with the framework for making judgment about the fairness of financial
statements on the basis of some uniform standards.
A principle is generally accepted if it has substantial authoritative support. There are two
sources of support: primary and secondary sources
Primary sources:
2. Provision of law - Sec. 112 of the PD 1445 provides that generally accepted
accounting principles should be observed in government accounting entities as
provided they do not contravene existing laws and regulations.
Secondary source:
The Government Auditing Code of the Philippines requires that each government
agency shall record its financial transactions and operations in conformance with the generally
accepted accounting principles and accordance with pertinent laws and regulations. The
principles to be followed by government entities includes the following:
1. The accounts of the agency shall be kept in such detail and at the same time be
adequate to furnish the information needed by fiscal or control agencies of the
government.
2. The highest standard of honesty, objectivity and consistency shall be observed in the
keeping of accounts to safeguard against inaccurate or misleading information.
3. The government accounting system shall be on double-entry basis with the general
ledger in which all financial transactions are recorded, Subsidiary record shall be kept
where necessary.
4. The Chart of Accounts has three-digit coding system and provides for responsibility
accounting.
6. Matching Principles, The principle that requires the matching of revenues and expenses
is adopted.
- Modified accrual method is used
- Depreciation accounting for property, plant and equipment using the straight line
method is followed.
- Allowance for doubtful accounts is taken up. Dormant accounts are transferred o
a separate registry,
- Asset method is followed for prepaid expenses.
7. On financial statement:
9. All lawful expenditures and obligation incurred during the year shall be taken up as
accounts of that year.
ACCOUNTING POLICIES
Sec. 2. COVERAGE. This Manual shall be used by all national government agencies.
Sec. 4. BASIC FEATURES AND POLICIES. The NGAS has the following basic
features and policies, to wit:
b. One Fund Concept. This system adopts the one fund concept. Separate fund
accounting shall be done only when specifically required by law or by a donor
agency or when otherwise necessitated by circumstances subject to prior approval
of the Commission.
c. Chart of Accounts and Accounts Codes. A new chart of accounts and coding
structure with a three-digit account numbering system shall be adopted. (See
Volume III, The Chart of Accounts)
d. Books of Accounts. All national agencies shall maintain two sets of books, namely:
Regular Agency (RA) Books. These shall be used to record the receipt
and utilized of Notice of Cash Allocation (NCA) and other income/receipts which
the agencies are authorized to use and to deposit with Authorized Government
Depository Bank (AGDB) and the National Treasury. These shall consist of
journals and ledgers, as follows:
Journals
* Cash Receipts Journal (CRJ)
* Cash Disbursement Journal (CDJ)
* Check Disbursement Journal (CkDJ)
* General Journal (GJ)
Ledgers
* General Ledgers (GL)
* Subsidiary Ledgers (SL) for:
* Cash
* Receivables
* Inventories
* Investments
* Property, Plant and Equipment
* Construction in Progress
* Liabilities
* Income
* Expenses
With the implementation of the computerized agency accounting system, only the
General Journal shall be used together with the ledgers by both books.
f. Two-Money Column Trial Balance. The two - money column trial balance showing
the account balances shall be used.
h. Notice of Cash Allocation (NCA). The receipts of NCA by the agency shall be
recorded in the books as debit to account "Cash-National Treasury, Modified
Disbursement System (MDS)" and credit to account "Subsidy Income from
National Government". (Refer to the latest issuance by DBM as regards to
releases of NCA)
l. Maintenance of Supplies and Property, Plant and Equipment Ledger Cards. For
appropriate check and balance, the Accounting Units of agencies, as well as the
Property Offices, shall maintain Supplies Ledger Cards/Stock Cards by stock
number and Property, Plant and Equipment Ledger Cards/Property Cards by
category of property, plant and equipment, respectively.
u. Accounting for Borrowings and Loans. All borrowings and loans incurred shall be
recorded to the appropriate liability accounts.
v. Elimination of corollary and negative journal entries. The use of corollary and
negative journal entries shall be stopped. Acquisition/Disposition of assets shall be
debited/credited to the appropriate assets accounts. If an error is committed,
correcting entry to adjust the original entry shall be prepared.
w. Petty Cash Fund. The Petty Cash Fund shall be maintained under the imprest
system. As such, all replenishment shall be directly charged to the expense
account and at all times, the Petty Cash Fund shall be equal to the total cash on
hand and unreplenished expenses. The Petty Cash Funds shall not be used to
purchase regular inventory/items for stock.
ACCOUNTING SYSTEM
Sec. 5 General Accounting Plan. The General Accounting Plan (GAP) shows the overall
accounting system of a government agency/unit. It includes the source documents, the flow of
transactions and its accumulation in the books of accounts and finally their conversion into
financial information/data presented in the financial reports.
Budgetary Accounts System - The Budgetary Accounts System encompasses the processes of
preparing the Agency Budget Matrix (ABM), monitoring and recording of allotments received by
the agency from the DBM, releasing of Sub-Allotment Release Order (SARO- to Regional
Offices (RO) by Central Office (CO), issuance of Sub-SARO to operating units (OUs) by the RO
and recording and monitoring obligations.
Budgetary Accounts - Consist of the appropriations, allotments and obligations. Appropriations
refer to the authorization made by law or other legislative enactment for payments to be made
with funds of the government under specified conditions and/or for specified purposes.
Appropriations shall be monitored and controlled through registries and control worksheets by
the DBM and COA, respectively.
Agency Budget Matrix (ABM) - The ABM refers to a document showing the disaggregation of
agency expenditures into components like, among others, by source of appropriation, by
allotment class and by need of clearance.
A government budget is a plan for financing the government activities of a fiscal year
prepared and submitted by responsible executive to a representative body whose approval and
authorization are necessary before the plan can be executed. It is more than mere estimate or
statement of receipts and expenditures; it is a definite proposal to be approved or rejected.
Basically, budgeting is planning and controlling. Careful plans for the future should be
laid and those who direct the operation of the government must be held strictly responsible for
carrying out the plan.
Purposes of budgeting:
1. Establish in advance the objective or end result of the budget period.
2. Provides the means of coordinating the activities of the various sub-divisions and
departments of the business.
3. Provide a period-to-period basis of comparison to show whether the plan is being
realized and if not realized indicate when changes must be made if current objectives
are to be obtained.
4. To serve as basis for orderly management of public finances.
The budget is an estimate of the proposed expenditures for specified purposes and
period, and embodies the means of financing them during the same period. It provides the
means for controlling the estimated amounts to be raised as well as the proposed amounts to
be spent for specified objects. It is a program that guides all activities relating to collections and
expenditures; It is the framework of the accounts by which the transactions affecting such
collections and expenditures shall be recorded; thus, the proper classification of income and
expenditures should be reflected in the accounts so that recorded data may give adequate
support to future budget estimates.
A close linkage exists between government budgeting and state accounting. The accounting
system provides the essential information needed to make resource allocation decisions,
monitor budgetary performance, and assess the effectiveness of operations. The budget
provides the framework within which transactions should be recorded, classified and
summarized in the accounting system to permit comparison of actual results with budgeted
standards.
Kinds of Budgets
1. As to Nature
a. Annual Budget – a budget which covers a period of one year. It is the basis of an
annual appropriation.
c. Special budget – a budget of special nature and generally submitted in special forms on
account of the fact that itemizations are not adequately provided in the Appropriation Act
or that amounts are not at all included in the Appropriations Act.
2. As to Basis
a. Performance Budget – a budget emphasizing the programs or services conducted and
based on functions, activities and projects which focus attention upon the general
character and nature of the work to be done, or upon the services to be rendered, rather
than the things to be acquired, such as personal services, supplies and equipment. It is
management-oriented measures actual or estimated results in the basis, terms of
benefits accruing to the public and their costs.
b. Line-Item Budget – a budget the basis of which are the objects of expenditures such as
salaries and wages, travelling expenses, freight, supplies, materials and equipments,
tec.
The term “zero-base” refers to the yearly analysis, evaluation and justification of each
activity, project or program, starting from a “zero” performance and budgeting level. ZBB
does not accept the prior year’s budget as a starting point for analysis. The analysis of
the levels of funding and performance as well as the expected impact of the objectives at
each level will give enough leeway for management to decide whether to eliminate
entirely a low priority to make way for a new one or to cut back the performance and
funding level of the program to permit another to expand.
c.1 Setting a baseline budget that will correspond to the minimum level of operating
requirements at which each agency of the national government will be able to perform its
basic functions; and
c.2 Prioritization of the allocable balance (i.e. what is left of the budget ceiling after
deducting the baseline budget) among the proposed projects and programs of agencies.
Agency baseline – refers to the cost of performing regular agency functions, including an
allowance for inflation, but excluding the cost of non-recurring programs and
projects.
Priority Program/Project Fund - the remaining balance after deducting the baseline
budget requirements of the national government.
b. Long-term budget – is a budget prepared for a four or five year period or longer; longer
range estimate of revenue and expenditures requirements.
The National Budget System consists of the methods and practices of the government for
planning, programming and budgeting. It shall include the adoption of sound economic and
fiscal policies and the execution of the programs and projects geared towards the
accomplishment of political, economic and social objectives. Its primary concern is the
availability and use of money to provide the services required or expected from the government.
The legal basis of the current national budget system is the Budget Reform Decree or PD No.
1177. The first premise of the Budget Reform Decree is that the national budget is an
instrument for development and as such requires careful design and implementation of budget
preparation, legislation, execution and accountability.
What is a national budget?
A national budget is the government’s estimate of its income and expenditures. It is the financial
translation of the program and projects that best promote the development of the country. It is
what the government plans 1) to spend for its programs and projects and 2) where the money
will come from. It is based on what the government thinks it will spend during the year and the
sources of what it hopes to have as funds either from the revenues or from borrowings with
which to finance such expenditure.
Our national budget is allocated for the implementation of various programs and
projects, the operation of government offices, payment of salaries of government employees
and payment of public debts. These expenditures may be looked at in terms of expense class,
sector, implementing unit of government and region.
1. Current operating expenditures – appropriations for the purchase of goods and services
for the conduct of normal government operations within a budget year (e.g. salaries,
maintenance and other operating expenses, interest payments etc.)
2. Capital outlays – appropriations for the purchase of goods and services the benefits of
which extent beyond the budget year and which add to the assets of government
including investments in the capital stock of government owned-or controlled
corporations.
3. Net Lending – net advances by the national government for the servicing of government
guaranteed corporate debt and loans outlays by the national government to government
corporations; and
4. Debt amortization – contribution to the sinking fund which is utilized for principal
repayment of our loans.
The national budget also serves as a stabilization role. It pumpprimes the economy, that
is, when the economy is in recession and private sector activity is weak, the government
through its budget speeds up and increases its spending. The intention is to stimulate demand
for goods and purchases and the creation of more job opportunities.
Conversely, during economic booms when the private sector is active and economic
growth is high, the government through the budget, assumes a more conservative spending,
taxing, and borrowing stance so as not to compete with the private sector in the demand for
goods and credit. The objective is to slow down the rise in interest rates and prices, and avoid
overheating the economy.
Furthermore, the budget serves as a tool for the redistribution of the country’s financial
resources. This is most clearly manifested ion the sustained funding for the social services
sector. Through various social programs especially those targeted for the poor, the
government hopes to raise the rate of return on human capital; provide immediate relief to the
needy; and extend better opportunities for slef-help, livelihood and employment activities.
Furthermore, the maturity of the country’s debt also determines the size of the budget
and how it differs from year to year. When the loans which were incurred in the past fall due,
scheduled payments for a given year are included in the year’s expenditure program. Also,
government’s assumption of liabilities of government corporation and financial institutions
contributes to the increase in the allocation of debt servicing. These, in turn, increase the
budget deficit which contributes to higher interest payments and a bigger over-all budget.
Commodity price increase equated to inflation also require that the budget be adjusted
so that it would still be able to buy the quantity of goods and services that the government is
aiming for.
Borrowings come from domestic and foreign sources. Domestic borrowings are
sources from the auction of Treasury bills, notes and bonds. Foreign borrowings,
in turn are classified either as project and program loans being offered by foreign
creditors such as the Asian Development Bank and the International Bank for
Reconstruction and Development. Project loans are foreign loans obtained to
finance a specific project such as the building of roads or bridges, while Program
loans are multi-purpose foreign loans for the enhancement of a specific sector and
conditioned on basic changes in certain economic, monetary or fiscal policies,
among others.
Why does the government borrow from foreign sources? Why can’t it make do with what is
collected locally.
Our government has to provide for the requirements of capital outlays projects such as
roads and bridges, that are important to the attainment of our development objectives. In
effect, capital outlays are investments for continuous economic activities and for future
expansions. They generate local production and income.
Relying only on domestic or local resources to finance such projects will limit our
government’s capacity to provide these needed support. If the government takes too large a
share of domestic resources, local private demand will have less for their own projects and
activities. As a result, credit will be tight, interest charges will be high and prices of goods and
services will go up.
The absence of a long-term domestic capital market and the limited savings in the
country, moreover, render the domestic resources insufficient to finance the enormous
requirements of development. By borrowing from foreign sources, the government takes
advantage of long-term loans which are readily available abroad with lower interest rates in
international capital markets.
It should be emphasized that our national government uses borrowing proceeds solely to
finance carefully selected capital projects supportive of the country’s development goals.
Wisely chosen and efficiently implemented, these projects are expected to build up the
productive capacity of our economy and eventually pay back the loans obtained.
BUDGET PROCESS
Government budgeting is undertaken using a process that consists of four (4) phases,
namely: 1) budget preparation
2) budget legislation or authorization
3) budget execution or implementation
4) budget accountability or review
Budget Preparation
This process starts with the determination of budgetary priorities and activities guided by our
national development plan, within the ceilings or constraints imposed by available revenues
and borrowing limits and inclusion of amounts needed for approved priorities and activities into
the expenditure levels.
The Development Budget Coordinating Committee (DBCC) determines the overall expenditure
levels, the revenue projections, the deficit levels and the financing plan. The DBCC submits
these to the Cabinet and to the President for approval.
The DBCC is composed of the Budget Secretary as Chairman and the Economic Planning
Secretary, the Bangko Sentral ng Pilipinas and the Finance Secretary as members. It is
assisted by an Executive Technical Board.
Once approved, the DBM issued a Budget Call, a document reminding the different agencies
in the government to prepare their respective budgets in accordance with approved overall
budget ceilings and parameters. Upon receipt of the budget call, the agencies are also
expected to have already started conducting their own internal budget consultations to firm up
and to fit in their departmental plans and priorities for the specific year with the overall sectoral
development strategy of government, as laid down in the Medium Term Development Plan.
DBM hold consultations with agencies to set indicative expenditure ceiling of department or
agencies as set by DBCC to be used in preparation of official budget estimates to avoid.
minimize bloated agency budget proposal
Agencies issue guidelines to their regional offices which are expected to conduct regional
budget hearings with RDC and NGO. In this hearing, programs, plans and priorities in the
regions are reviewed which will be incorporated in the budget proposal.
The regional offices submit their RDC – approved budget to their respective head offices in
Manila which, in turn, collate all the regional budget proposals submitted by their different
regional offices all over the Philippines and consolidate these into a single agency budget
proposal of the department.
The DBM conducts consultation-workshops with RDCs and department heads on their criteria
for the allocation of the agency budget to their regional offices. The intention is to ensure that
the regional distribution of the national budget is consistent with the development plans and
directions of the regions. This is in line with the allied policies of decentralization and creating
greater popular participation in government concerns.
The DBM then undertakes a series of review activities to evaluate the merits of the budget
proposals and determine the areas where possible cuts could be made. The objective is to
make the overall expenditure level consistent with that determined by the DBCC and approved
by the President.
The President submits the overall budget that he/she approved to Congress in the form of a
detailed Expenditure Program (National Expenditure Program) accompanied by the Budget of
Expenditures and Sources of Financing, The President’s Budget Message and the Regional
Allocation of the Expenditure Program.
In Congress, the proposed budget goes first to the House of Representatives, which assigns
the task of initial budget review to its Appropriations Committee.
The House Committee summons the different national agencies of the government to explain
and to justify their budget. The proposed budget is then presented to the House Body as a bill
(Gen. Appropriations Bill).
From the House of Representatives, the budget bill goes to the Senate and is referred to the
Senate Finance Committee. The Senate Finance Committee, likewise, asks the various
agencies to explain their respective budgets as contained in the budget bill. It then proposes
amendments to the House Budget Bill to the Senate Body for approval.
To thresh out differences and arrive at a common version, a conference committee is created
composed of members coming from both houses.
Once a common budget bill has been approved by both houses voting separately, it is
submitted to the President for signing into law. It then known as a General Appropriations Act.,
which mandates the DBM, as the staff arm of the President to execute or implement the
expenditures program.
This is the operational aspect of budgeting. After the President signs the GAA into law, the
DBM requires the different agencies of government to prepare the Agency Budget Matrix
(ABM) to be accompanied by the Annual Cash Program.
The allotment (based on the ABM) is the authority of the government agency to incur
obligations and enter into contract. It is possible that sometimes the allotment is issued for the
funding of projects even if these will take one year to finish. This is done to enable the agency
to enter into contracts and begin the projects. However, pursuant to DBM Circular Letter
#2008-11, the releases of Notices of Cash Allocation (NCAs) is being modified. NCAs to
cover regular requirements of agencies shall be comprehensively released with a monthly
breakdown of NCA requirements of the agency receiving NCA directly from DBM. Basis of
releases is the Monthly Cash Program (MCP), a budget execution document, reflects the monthly
disbursement requirement of OUs.
All NCAs programmed and credited for the month whether part of the comprehensive release or
constituting the additional NCA releases, shall be valid only until the last working day of the
said month, thus, any un utilized NCA corresponding to the book balance (net of outstanding
checks) shall automatically lapse at the end of that month.
DBM shall provide the MDS-GSB and agency concerned, a monthly schedule of the NCA
releases, ex. Monthly NCA requirement of the agency.
Upon receipt of the NCA, the MDS-GSB shall ensure that the amount programmed for the
month, if there is any, shall be credited immediately to the Regular MDS accounts of the
agency. Thereafter, the NCA requirements for the subsequent months shall be credited on the
first working day of the month consistent with the schedule to be provided by DBM.
The NCA specifies the maximum amount of withdrawal that an agency can make from the
government servicing bank for the period indicated.
DOF and DBM will meet every month to confirm or adjust the estimated cash availability and the
program of NCA releases. In the event that cash balance of the government reaches a level
where the budget cost cannot be met, DBM implements the across-the-board budget reduction.
(Refer to the DBM Circular Letter #528 for the guidelines of NCA Releases for FY 2011)
Budget Accountability
This refers to the evaluation of actual performance and initially approved work targets.
Obligation incurred, personnel hired and work accomplished are compared with the plans and
targets submitted by the agencies at the time that their respective budgets are prepared. This
work is entrusted with the DBM and COA.
In order that the appropriation may be released, the agency, in consultation with the
DBM, is required to prepare and to submit the Agency Budget Matrix (ABM), the official
document used as the basis in the release of the obligational authority. This is prepared by
appropriation/financing sources to support expenditures to be made during the year broken
down by allotment class/expenses. The ABM shall contain, among others, the following
information:
a. The amount to be released categorized under “Not Needing Clearance” column,
b. The amount that will be released through the issuance of Special Allotment Release
Order (SARO) categorized under “Needing Clearance” column including continuing
appropriations based on the Statement of Allotments, Obligations and Balances
(SAOB).
An Annual Cash Program, which shall provide cash to finance the programs reflected
in the ABM and the prior year’s accounts payable, is also submitted with the ABM. Upon
approval of the total comprehensive release by the DBM, it will be released to the agency.
For request “Non-Needing Clearance”, the Notice of Cash Allocation (NCA) is issued as
requested. Pursuant to the Tax Remittance Advice (TRA) system as provided in Joint Circular
No. 1-200 of the DOF, DBM and COA dated January 3, 2000, the NCA released to the agency
is reduced by the amount of the taxes withheld to be remitted by the DBM for the Agency thru
the TRA based on the request of the agency duly supported by the Summary of Taxes Withheld
(STW).
The COA does not journalize the appropriations. The control of the release of allotments
and the NCA shall be made by the DBM and the BTr, thru the registries that they shall maintain.
The Agency shall also monitor the allotments and the obligations it incurs in the registry that it
shall also maintain.
The agency shall journalize the NCA it receives as debit to Cash-National Treasury-MDS
and credit to Subsidy Income from the National Government. In effect it identifies the share of
the agency in the income of the National Government.
Upon the approval and issuance of the ABM and the SARO, the DBM shall enter the
pertinent data on releases for each government agency in the Registry of Appropriations and
Allotments (RAPAL). The DBM shall maintain the Registry of Allotments and NCA (RANCA) for
the allotments and the NCA issued to the agency. The RANCA shall be the control and
monitoring record of the DBM and shall furnish the BTr a copy of the NCA.
Upon receipt of the NCA from DBM, the BTr shall enter it in the Registry of NCA and
Replenishment (RENREP). It shall also enter the transfer of cash from its bank account(s) to
the appropriate MDS account.
Upon receipt of the approved ABM and ARO, the Budget Officer shall record the
allotment to the respective registries through the Allotment and Obligation Slips (ALOBS).
Although the agency will not journalize its appropriation and allotments, it shall maintain four
registries for the obligations it incur:
- Registry of Allotment and Obligations – Capital Outlay (RAOCO)
- Registry of Allotment and Obligations – Maintenance and Other Operating
Expenses (RAOMO)
- Registry of Allotment and Obligations – Personal Services (RAOPS)
- Registry of Allotment and Obligations – Financial Expenses (RAOFE)
Recording of Allotments
Upon receipt of the approved ABM and ARO, it shall be recorded in the respective
registries through the Allotment and Obligation Slips (ALOBS). Separate registries shall be
maintained for the four classes of Program/Project/activity(PPA) to wit:
RAO-PS
RAO-MO
RAO-CO
RAO-FE
Accounting of Obligations:
The Head of the Requesting Unit shall prepare the Obligation Request (ObR) or Budget
Utilization Request (BUR) and Disbursement Voucher. He shall certify on the necessity and
legality of charges to appropriations/allotment under his direct supervision as well as the validity,
propriety and legality of supporting documents.
The Head of the Budget Unit shall certify the availability of allotment and obligations
incurred in the ObR or budget and utilization in the BUR. Obligations shall be taken up in the
registries maintained by the Budget Unit through the ALOBS prepared/processed by the office.
The Budget Officer verifies the completeness of the documents. If complete, then prepares the
ALOBS. Verifies the availability of the allotment based on the RAOs. If no allotment is
available, returns the documents to the office concerned, if there is an available balance of
allotment to cover the obligations, prepares the ALOBS and record in the appropriate RAOs.
The obligation is recognized and will be entered in the appropriate RAO when the
obligation is incurred as evidenced by the approved ALOBS. Obligations shall be posted in the
“Obligation Incurred” column of the RAOs to arrive at the balance of allotment still available at a
given period. There is no need to prepare a new ALOBS for corrections/adjustments made by
the accounting unit after the processing of the claims but before payment is made.
Adjustment in the RAOs shall be effected thru a positive entry (if additional obligation is
necessary) or a negative entry (if reduction) in the Obligation Incurred column.
The Head of the Accounting Unit, for contract or purchase order, shall certify the
availability of funds based on the ObR or BUR duly certified by the Budget Officer and certify the
availability of cash and completeness of supporting documents in the DV.
A new ALOBS for the following adjustments of obligations as negative entries in the
Obligation Incurred column shall be made:
1. Refund of cash advance granted during the year;
2. Overpayment of expenses during the year;
3. Disallowances/charges which become final and executory
To support the negative entries, a certified copies of OR for the overpayment/refunds shall
be furnished to the Budget Unit.
Illustrative Entry:
Upon receipt of the NCA, the accountant shall record in the books as:
1. Accrual Method – used when income is realized (earned) during the accounting
Period regardless of cash receipt. Account Receivable is set up
and the general or specific income accounts according to nature
and classification are credited.
2. Modified Accrual – income of an agency is recorded as “Deferred Credits to Income”
and the appropriate receivable account is debited. The income
account is recognized upon receipt of collection and the “Deferred
Credits to Income” account is adjusted accordingly.
3. Cash Basis - shall be used for all other taxes, fees, charges and other revenues
where accrual method is impractical. The income account is
credited upon collection of the cash or its equivalent.
All collecting officers shall deposit intact all their collections with AGDB daily or not later
than the next banking day and shall record all the deposits made in the Cash Receipts Record.
1. Regular Agency books – this shall be used to record the regular transactions
of the agency like the receipt and utilization of Notice of Cash
Allocation (NCA), and collections of income and other receipts
which the agency are authorize to use. This shall consist of journals and
ledgers, as follows:
Journals:
Cash Receipts Journal (CRJ)
Cash Disbursement Journal (CDJ)
Check Disbursement Journal (CkDJ)
General Journal (GJ)
Ledgers:
General Ledger (GL)
Subsidiary Ledgers (SL)
1. The Collecting Officer (CO)receives payment from creditors and issues Official Receipt.
2. The CO records collections in Cash Receipt Record.
3. The CO deposits collections.
4. The CO records deposit in Cash Receipt Record.
5. The CO prepares the Report of Collections and Deposits and forwards to accounting unit
with copies of official receipts and validated Deposit Slips.
6. The accounting unit prepares Journal Entry Voucher (JEV) and records in the Cash
Receipts Journal.
Types of collections as to authority to use:
1. Without authority to use.
2. With authority to use.
3. Authority with limitations
4. Income from sale of equipment.
5. Grants and donations intended for agency use.
6. Miscellaneous collections.
As a general rule, all revenues regardless of amount and frequency of collection are to
be remitted to the National Treasury. Such income shall be recorded in a separate
books of accounts NG Books.
For agencies which are authorized to use income for their operations, the collections
shall be recorded as income in the Regular Agency (RA) books
4. Release of NCA by DBM after request is be made to the Bu of Treasury to use the
deposited collections as augmentation of MOOE.
If the authority is subject to the limitation that any excess shall be remitted to the
National Treasury, such collections for seminar and convention fees, the collections
shall be recorded in the NG books. The expenses shall be journalized, the
balance/excess to be remitted to the National Treasury.
Due to NT 411 xx
(Seminar/training fees 622 xx)
Cash – collecting officer 102 xx
Proceeds from the sale of non-serviceable, obsolete and other unnecessary equipment,
including cars, vans and the like, may be requested for appropriation to purchase a new one
and for the repair and maintenance of existing vital equipment. It should be noted that the
purchase of cars and vans is subject to the prior authority required under the existing rules.
Illustration:
The Agency A of the national government sold a non-serviceable car with the following
information:
Cost P500,000
Accumulated depreciation 250,000
Sales Price 300,000
The proceeds from sale were accordingly remitted to the National Treasury through the
bank. The agency received Special Allotment Release Order (SARO) in the amount of
P500,000 for the purchase of a new car with Notice of Cash Allocation (NCA) in the amount of
P450,000, net of withholding tax of P50,000. After approval of the purchase order issued, the
motor vehicle was delivered and accordingly, paid in full, net of withholding tax. The said tax
was afterwards remitted to the Bureau of Internal Revenue through a Tax Remittance Advice
(TRA).
EXERCISES:
1. VSMMC received an inter-fund transfer from DOH, Region 10, to implement a medical mission
program in the amount of P200,000. The funds was intended to purchase the needed equipments.
The project ended with a fund balance of P15,000 and was returned to the source agency together
with the liquidation report and turn-over of equipments.
2. The Bureau of Plant Industry conducted a seminar regarding “Horticulture”. The agency
collected a total amount of P100,000, which was deposited with the agency depository bank and
paid the following expenses of the seminar: Office Supplies, P25,000; Rent, P 20,000; and Printing
and Binding, P7,000. The excess of the amount collected was appropriately remitted to the NT.
REVISED CHART OF ACCOUNTS UNDER THE NGAS
Chart of Accounts – is a list of account titles and codes that guides the bookkeeper in
recording
government transactions.
- It provides the framework within which the accounting records are
constructed.
Standard Chart of Accounts (SGCA) – is a list of general ledger accounts prepared for the
use of National, Local and Government Owned or Controlled Corporations
design to achieve the objectives of uniformity in accounting and reporting,
facility in consolidating financial reports and adaptability in computerization.
- It consists of Balance sheet accounts and Budget/Operation accounts.
Coding – the systematic assignment of number, letters or other symbols to distinguish items
within a given classification from each other.
Purposes: 1. To save time and clerical work in recording items of accounts, funds,
projects, allotments and expenditures;
2. To facilitate location of accounts in the general and subsidiary ledger;
3. To facilitate systematic arrangement and classifying of accounts; and
4. To comply with the requirements of mechanized accounting.
Most of the transactions in the government involves the receipt and disbursement of
cash. The cash transactions affect every classification within the financial statements – assets,
liabilities, residual equity, income and expenses.by check. Thus it is essential that cash
transactions are recorded correctly for reliability in the financial statements. .
Disbursements constitute all cash paid out during a given period either in currency
(cash) or by check. It may also mean the settlement of government payables/obligation by cash
or by check. It shall be covered by Disbursement Voucher (DV), Petty Cash Voucher, or
Payroll.
Expenditures are the obligations incurred by the Agency. It includes both the amount
actually paid and those incurred and recorded as liabilities to be paid in the future.
While Disbursements are payments made for such government obligations by cash or
check.
Typical transactions for disbursements include the following major classes of payments:
A. Current Operating Expenses
1. Personal Services
- Salaries and wages
- Other Compensation
- Personnel benefits
- Other personnel benefits
3. Financial Expenses
- bank charges
- commitment fees
- documentary stamps
- interest and other financial charges
B. Capital Expenditures – these expenditures need allotment for CO. As
opposed to the current operating expenses, this involves
investments and procurement of assets that is expected to be used
for a longer period of time.
All disbursement of the government require the certification as: 1) to validity, propriety,
legality of the claim by the head of office who has control of the funds , and 2) certification that
funds are available for the purpose.
Disbursement by Checks – Checks shall be drawn only on duly approved DV or PCV. These
shall be reported and recorded in the books of accounts only when actually released to the
respective payees.
All checks issued including cancelled checks shall be recorded chronologically in the Check
Disbursement Record (CKDR) and indicate the date checks were actually released.
All checks actually released to the claimants including the cancelled ones shall be
included in the Report of Checks Issued, which shall be prepared daily by the Cashier. All
unreleased and cancelled as of the report date shall be enumerated in the “List of
Unreleased Checks” to be attached to the RCI.
The agency received Notice of Cash Allocation for payment of its obligations. It maybe
either for payment of prior year’s or current year, the same is recorded as:
This entry will show that the NCA received, is the share of the Agency in the income of the
National Government, and is proof that there was an allocation of cash for the Agency by
the National Treasury.
The NCA received by the agency may be net of the amount of the taxes to be withheld
by the agency.
Disbursement by Cash - shall be made from cash advance drawn and maintained in
accordance with COA rules and regulations. Cash payments are to be based on duly
approved payrolls/disbursement vouchers. May either for:
1. personal services or salaries and wages
2. travels
3. miscellaneous expenses, which shall be recorded in separate cashbooks.
For Personal Services/payroll fund, the cash advance shall only be equal to the net
amount due the officials and employees. The cash advance for the payroll shall be fully
liquidated within five (5) days after the pay period. Any unclaimed wages shall be remitted
and receipted to close the cash advance account.
Cash advances granted for travel shall be accounted for as Due from Officers and
Employees and these are subject to liquidation upon completion. For liquidation of travel
where the amount of cash advance is equal to or more than the travel expenses incurred,
the Liquidation Report form shall be prepared by the officers/employees concerned and
submitted to the accounting unit as basis for JEV preparation. This shall close the
receivable account.
The excess cash advance shall be refunded and an OR shall be issued to acknowledge
receipt thereof and shall be noted in the Liquidation Report. In the case the amount of cash
advance is less than the travel expenses incurred, a Liquidation Report shall be submitted
to liquidate the cash advance previously granted and a DV shall be prepared to claim
reimbursement of the deficiency in amount.
The Report of Disbursement shall serve as the liquidation report of the cash advance
granted to the Disbursing Officer.
Petty Cash Fund(PCF) - another mode of disbursement and the fund shall be sufficient
for emergency and petty expenses of the agency. As such, all replenishment shall be
directly charged to the appropriate expense accounts and at all times, the PCF shall be
equal to the total cash on hand and the unreplenished expenses.
The PCF shall not be used to purchase regular inventory items for stock nor for the
liquidation of outstanding cash advances. It shall be used only for disbursements which
cannot be conveniently paid by check.
Disbursement through Petty Cash Fund - shall be through the PC Voucher which shall be
approved by authorized officials and signed by the payee to acknowledge receipt of the
amount from the PCCustodian. A DV shall be prepared to replenish the fund.
At the end of the year, the PCC shall submit to the Accounting unit all outstanding
PCVs. In case the fund could not be replenished for lack of funds, a JEV shall be prepared
to recognize all unreplenished expenses in the books and the PCF account shall be
credited. At the start of the year, as soon as cash becomes available, the fund shall be
replenished by a debit to account “Petty Cash Fund” and credit to the appropriate “Cash in
Bank” account to restore the fund to its original amount.
In case the PCC resigns or ceases as the custodian of the fund, full
accounting/liquidation shall be made. Any excess cash shall be refunded and all the PCVs
together with the original supporting documents shall be surrendered to the Accounting Unit
which shall prepare a JEV to take up the expenses in the books and credit account “Petty
Cash Fund”. In no case shall the remaining cash of the former custodian be transferred to
the incoming PCC.
The Petty Cash Fund record shall be used to record all the PCs received by the PCC as
well as reimbursements received for expenses paid. All PCV shall be supported with valid
documents to prove the propriety of disbursements, such as ORs, invoices, etc.
Advice to Debit Account (ADA) – This is a system by which no check is issued to the
payee in payment of government obligations, but instead, the current account number of the
payee in the bank where the government maintains a deposit, shall be obtained by the
accounting unit. If payment is to be made, the ADA shall be issued by the Accounting Unit
of the agency to the bank where it maintains an account. All payments shall be made to the
credit of the payee’s account and a debit to the account maintained by the government
agency in the same bank. A JEV shall be prepared to record the transaction in the GJ.
a. Personal Services
Under the new accounting system payment of salaries and wages and other
remuneration to the personnel of the GENCY may be made through the following:
Under NGAS, the Asset Method will be used in recording disbursements when expenditures
apply to more than the accounting period.
Rent: The government signed a contract for the rental of office space with 3 months
advance payment of P1,200 starting November.
The Agency enters the obligation of P1,200 in the RAOMO, and records the payment as:
Supplies and Materials: Assume the following transactions about office supplies:
1. Issued Purchase Order (PO) for office supplies, P60,000.
a. Obligation
b. Payment (thru Procurement Service). Compare with purchases made to outside
supplier.
c. Record the asset received/delivered
d. Record the used supplies.
e. Remittance of withholding tax thru TRA
Like the prepaid expenses, the expense shall be taken up upon utilization/consumption.
Cash Advances: Petty Cash Fund, Travelling Expenses
a. Obligation
b. Record the granting of cash advances
c. Record liquidations. Determine if there are refunds, reimbursements or
additional claims.
d. remittance of refunds to the Bureau of Treasury and adjust obligations.
The system starts with the receipt of the purchases inventory items and equipment. The
requesting office need of the inventory items and equipment after determining that the items
are not available in stock shall prepare and cause the approval of the Purchase Request
(PR). Based on the approved PR and after accomplishing all the required procedures
adopting a particular mode of procurement, the agency shall issue a duly approved
Purchase Order. Procedures relative to the obligation of the purchase order and payment of
the deliveries follow the procedures in the obligation accounting system and disbursement
system.
Perpetual Inventory Method – purchase of supplies and materials for stock regardless of
whether or not they are consumed within the accounting period, shall be recorded as
Inventory account. Under the perpetual inventory method, an inventory control account is
maintained in the General Ledger on a current basis.
Regular purchases shall be recorded under the Inventory account and issuance thereof
shall be recorded based on the Report of Supplies and Materials Issued. Purchases out of
Petty Cash Fund shall be charged immediately to the appropriate expense accounts.
The accounting Unit shall maintain perpetual inventory records, such as the Supplies
Ledger Cards for each inventory stock, Property, Plant and Equipment Ledger Cards for
each category of plant, property and equipment including work and other animals, livestock,
etc. The subsidiary ledger cards shall contain the details of the General Ledger accounts.
For check and balance, the Property and Supply Officer/Unit shall maintain Property
Cards (PC) for property, plant and equipment, and Stock Cards (SC) and for inventories.
The balance in quantity per PC and SC should always reconcile with the ledger cards of the
Accounting Unit.
The Moving Average Method of costing shall be used for costing inventories. This is a
method of calculating cost of inventory on the basis of weighted average on the date of
issue. The Accounting Unit shall be responsible in computing the cost of inventory on a
regular basis.
Financial Expenses
These are expenses which are not used in the actual operation of the agency such as
interest expenses, cank charges, etc.
Property, Plant and Equipment and Inventory Accounts acquired through purchase shall
include all costs incurred to bring them to the location necessary for their intended use, like
transportation cost, freight charges, installation costs, etc. These are recorded in the books
of accounts as Asset after inspection and acceptance of delivery.
Fixed assets are charged against capital outlay. Since corollary entry is no longer made,
the asset account is taken up upon purchase. Under the depreciation accounting adopted,
depreciation will be taken up starting on the month succeeding the month of purchase or
completion of construction. Straight-line method will be followed. The rate of depreciation
shall depend on the nature of the assets, guidelines for this shall be issued by the COA.
In recording of fixed assets, the Construction Period Theory shall be followed. All
expenses such as interests, license fees, etc., during the construction period shall be
capitalized.
During the construction period , property, plant and equipment shall be classified and
recorded as “Construction in Progress” with the appropriate asset classification. As soon as
these are completed, the “Construction in Progress” account shall be transferred to the
appropriate asset accounts.
Example: Purchase of office equipment either thru the Procurement Service / outside suppliers.
1. Issue PO for the office equipment
Record the obligation, RAOCO
2. Record payment (Procurement Service/outside supplier) or recognize
the liability and taxes withheld
3. Record the asset receive/delivered
4. Remit taxes withheld upon receipt of TRA
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.
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.
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
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.
Adjusting Entry:
Rent Expenses 786 900
Prepaid Rent 171 900
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 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%
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.
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.
2. Close the balance of all income accounts to Income and Expense Summary account.
3. Close the balance of all expense accounts to Income and Expense Summary
account.
4. Close the balance of the Income and Expense Summary account to the Retained
Operating Surplus account.
5. Close the balance of the Prior Year's Adjustments accounts to Retained Earnings
Surplus account.
Prior Year's Adjustment 684 200
Retained Operating Surplus 200
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.
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.
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.
- 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.
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;
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.
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 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 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 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.
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.
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__
Title Code Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
a. Account Title and Code columns show the accounts of the General Ledger.
b. The Unadjusted Trial Balance columns reflect the amount balances of the General Ledger
accounts.
c. Adjustments columns show adjusting journal entries effected for the accounts.
d. 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. Closing Entries debit and credit columns show the amounts debited and credited to close
the nominal accounts.
f. 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.
g. Post-Closing Trial Balance columns show the debit and credit amount balances of all
accounts after posting the closing entries.
h. 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).