Accounting for Local Government Units • NU LAGUNA

Accounting for Local Government Units

Hello Class! Let us talk about Accounting for Local Government Units.

The following basic features and policies shall be applied to Local Government Units (LGU)

1. Accrual Accounting

The International Public Sector Accounting Standards Board (IPSASB) develops International Public

Sector Accounting Standards (IPSASs) which apply to the accrual basis of accounting and IPSSs which

apply to the cash basis of accounting. The Conceptual Framework deals with concepts that apply to

general purpose financial reporting under the accrual basis of accounting. The IPSASB has also issued a

comprehensive cash basis IPSASs that includes mandatory and encouraged disclosures sections.

2. 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. As required

under Section 308, 309 and 310 of the Local Government Code, separate books shall be maintained for

the General Fund, Special Education Fund and Trust Fund, respectively.

3. Special Accounts in the General Fund

Special accounts maintained in the General Fund shall be supported by subsidiary ledgers for the

following:

a. Public utilities and other economic enterprises

b. Loans, interest, bonds issued, and other contributions for specific purposes

c. Development projects funded from the Share in the Internal Revenue Collections

d. Other special accounts, which may be created by law or ordinance.

4. Chart of Accounts and Accounts Codes

A coding structure and a chart of accounts with three-digit account numbering systems shall be

adopted.

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5. Books of Accounts

The accounting unit of Local Government Units shall maintain the following books of accounts:

Journals

a. Cash Receipt Journal (CRJ)

b. Cash Disbursement Journal (CDJ)

c. Check Disbursements Journal (CkDJ)

d. General Journal (GJ)

Ledgers

a. General Ledger (GL)

b. Subsidiary Ledgers:

Cash

Receivables

Inventories

Investments

Property, Plant and Equipment

Liabilities

Income

Expenses

In addition to the preceding record, the treasurers and disbursing officers shall maintain their respective

cash records, such as:

a. Cash book – Cash in Treasury

b. Cash book – Cash in Bank

c. Cash book – Cash Advances

The Treasurers/Collectors shall prepare the Report of Collections and Deposits (RCD) daily and the

Report of Accountability for Accountable Forms (RAAF) monthly.

6. Financial Statements
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Similar to the national government agencies, LGU shall prepare financial statements such as

a. Balance Sheet

b. Statement of Income and Expenses

c. Statement of Cash Flows

Notes to Financial Statements, being an integral part of the financial statements shall accompany the

above statements

7. Appropriations, Allotments and Obligations

Journal entry shall no longer be prepared to record the appropriations, receipt of allotments and

incurrent of obligations. In lieu of this, separate registries shall be maintained by the accounting unit

to control the appropriations, allotments and obligations for each of the four classes of expenditures,

namely:

a. Registry of Appropriations, Allotments and Obligations – Capital Outlay (RAAOCO)

b. Registry of Appropriations, Allotments and Obligations – Maintenance and Other Operating

Expenses (RAAOMO)

c. Registry of Appropriations, Allotments and Obligations – Personnel Services (RAAOPS)

d. Registry of Appropriations, Allotments and Obligations – Financial Expenses (RAAOFE)

8. Financial Expenses

Under the new accounting system, financial expenses, such as: bank charges, interest expenses,

commitment fees and other related expenses, shall no longer be classified as maintenance and other

operations expenses.

9. Perpetual Inventory of Supplies and Materials

Supplies and materials purchases for stock shall be recorded using the perpetual inventory system.

Regular purchases shall be coursed through the inventory account and issuance thereof shall be

recorded as the transactions take place, except those purchased out of petty cash fund, which shall be

for immediate use shall be charged to expense account.

However, there are tangible assets with serviceable life of more than one year but small enough to be
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Considered as Property, Plant and Equipment. To address this issue, the Commission prescribed the

following policies:

a. Small tangible items with estimated useful life of more than one year shall be recorded as

Inventories upon acquisition and expense upon issuance.

b. Other tangible assets not included in the list shall be classified as Property, Plant and Equipment

subject to depreciation.

10. Valuation of Inventory

Inventories shall be valued at cost and computed using the moving average method, which is a

method of calculating the cost of inventory based on weighted average on the date of issue.

11. Maintenance of Supplies and Property, Plant and Equipment Ledger Cards

The accounting unit shall maintain Supplies Ledger Cards by stock number and Property, Plant and

Equipment Ledger Cards by category of assets

12. Construction of Assets

For assets under construction, the Construction Period Theory shall be applied for costing purposes.

Bonus paid to the contractor for early completion of work shall be added to the cost of project.

Liquidated damages charged and paid for by the contractor shall be deducted from the cost of the

asset and not as an income. Any related expenditures incurred during the construction period, such as:

license fees, permit fees, clearance fees, etc. shall be capitalized.

13. Public Infrastructures

For public infrastructures, such as: roads, bridges, waterways, railways, plazas. Monuments, etc. a

Registry of Public Infrastructures (RPI) shall be maintained according to classification. The following

are the Registries to be maintained

a. Registry of Public Infrastructures – Bridges (RPIB)

b. Registry of Public Infrastructures – Roads (RPIR)

c. Registry of Public Infrastructures – Plazas, Monuments, etc (RPIP)

While under construction, these infrastructures shall be recorded under the “Constructin in Progress”
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account. Upon completion, the completed asset shall be recorded as “Infrastructure Assets” and shall

be transferred to the respective registry.at the end of the year. However, completed Public

Infrastructures funded out of loan shall be retained in the books of accounts until the loan is fully paid.

A summary of all Public Infrastructures (based on the different registries) shall be prepared annually

and included in the Notes to Financial Statement.

14. Depreciation

Depreciable assets shall be depreciated using the straight-line method. A residual value equal to 10%

of its costs shall be maintained. Depreciation shall start on the second month after the purchase or

completion of the property, plant and equipment. Public Infrastructures shall be not charged any

depreciation.

15. Reclassification of Assets

Assets declared by proper authorities as obsolete and unserviceable, including assets no longer used,

shall be reclassified as “Other Assets” separate from other inventory and property, plant and

equipment accounts.

16. Allowance for Impairment – Accounts Receivable

In order to have fair valuation of receivables, allowance for impairment – accounts receivable shall be

established and shall be provided only for trade receivables.

17. Elimination of Contingent Assets

Contingent accounts shall no longer be used. All financial transactions shall be recorded using the

appropriate accounts. Cash shortages and disallowance shall be recorded under receivable accounts

such as “Due from Officers and Employees” and “Receivable – Disallowance/Charges”

18. Recognition of Liability

Liability shall be recognized at the time goods and services are accepted or rendered and

supplier/creditor bills are received.

19. Interest Accrual

Whenever applicable and appropriate, interest income and/or expense shall be accrued and
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recognized in the books of accounts.

2o. Accounting for Borrowings and Loans

All borrowings and loans incurred shall be recorded directly to the appropriate liability accounts.

21. Elimination of Corollary and Negative Entries

Corollary entries and negative entries shall no longer be used. Acquisition/Disposition of assets shall

be debited/credited directly to the appropriate asset accounts. If an error is committed, a correcting

entry shall be prepared to adjust the original entry.

Form and Content of Budget

The local government budget primarily consists of two parts, namely:

1. The estimates of income certified collectible by the treasurer

2. The total appropriations, covering the current operating expenditures and the capital outlays.

According to National Budget Circular No. 556 dated January 5, 2015, the release of Special Allotment

Release Order (SARO) and Notice of Cash Allocation (NCA) for Budgetary Support/ Assistance to the Local

Government Units shall be made as follows:

1. The annual Internal Revenue Allotments (IRA) of provinces, cities/municipalities and barangays

chargeable against Automatic Appropriations shall be released comprehensively through SAROs

through DBM Central Office (CO)/ Regional Office (RO) as fund administrators of IRA.

2. Special shares of LGUs in the proceeds of National Taxes and Local Government Support Fund shall be

released consistent with the Special Provisions of the General Appropriations ACT (GAA) and specific

guidelines governing the allocation and use of funds.

3. Any adjustments to effect the authorized deductions from the IRA. i.e., LGU contributions to Metro

Manila Development Authority (MMDA) and loan amortization to Municipal Development Fund Office

(MDFO), shall be covered by separate SAROs before the end of the year.

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Budget Process

1. Preparation

The local treasurer shall submit to their local chief executive a certified statement covering the income

and expenditures pertaining to the preceding fiscal year; the actual income and expenditures of the first

three quarters and the estimated income and expenditures for the fourth quarter of the current year;

and the estimated income for the ensuing year. The local treasurer also certified to the reasonable

probability of realizing the estimates of income for the ensuing year.

On the other hand, each head of office shall submit a statement of the proposed expenditures

recommended by him for his office to the local chief executive.

Upon receipt of the statements of income and expenditures and the budget proposals, the local chief

executive prepares the budget for the ensuing year and submits the same to the local

council/sanggunian on or before the deadline set for the submission of the budget

2. Legislative Authorization

On or before the end of fiscal year, the local council/sanggunian approves, through the enactment of an

appropriation ordinance, the annual budget for each fund of the local government on the basis of the

statement of the certified estimated income and budget proposals submitted by the local chief

executive. The approval by the council/sanggunian of the budget of the local government unit requires

the affirmative votes of a majority of all members thereof. In case of cities, the enacted budget by the

local council/sanggunian is subject to the approval by the City Mayor. And, the approved annual budget

is deemed to be operative and enforceable as of the beginning of the fiscal year.

3. Execution and Accountability

As chief financial officer, the treasurer of the local government unit shall provide technical and staff

services in the execution and accountability phases of the budget process. The projects and activities

under each program are performed and pursued in accordance with the functions of the government

unit to realize expected results.

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Changes in Annual Budget

Changes in the annual budget may be made within the fiscal year by way of supplemental budget, which is

enacted in the same manner as the annual budget. Whenever any change is made in the budget, the

supplemental appropriation ordinance clearly indicates the various items of appropriations effected and the

date fixed in appropriation ordinance for its effectivity.

Failure to Enact an Annual Budget

Whenever the local legislative body fails to pass the annual budget before the beginning of the ensuing fiscal

year or when the enacted budget is declared unenforceable by the reviewing officer, the annual appropriations

for salaries and wages of existing positions, statutory and contractual obligations and essential operating

expenses authorized in the annual budget, are deemed re-enacted. The disbursement of funds is in

accordance with said preceding year budgets until a new budget or revised budget meeting the objections of

the reviewing officer is approved.

Budgetary Accounting

Similar to national government accounting, the budgetary accounts of the local government units are

composed of the following:

1. Appropriations – refers to an authorization made by ordinance, directing the payment of goods and

services from local government funds under specified conditions or for specific purposes. Appropriations

are estimated of expenditures in a budget when finally approved by the proper authorities. The term

appropriation is referred to as the expense budgets.

The local council/sanggunian approves the annual budget through the issuance of appropriaton

ordinance. On the first business day of the fiscal year, the entire annual budget of the local government

unit shall be recorded in the Registry of Appropriations, Allotments and Obligations including budgetary

reserves and supplemental budgets.

2. Allotments – the authorization issued by the local chief executive to a department/office of the local

government unit, which allows it to incur obligations for specified amounts within the appropriation

ordinance. Allotments are released quarterly based on the Work and Financial Plan and Request for
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Release of Allotment. The accountant upon receipt of the Advice of Allotment, shall enter the allotment

in the Registry of Appropriations, Allotments and Obligations.

3. Obligations – refers to the amounts committed to be paid by the local government unit for any lawful act

made by an accountable officer for and in behalf of the local government unit concerned.

Expenditures are amounts paid or charges incurred for all purposes, including current operating expenses,

capital outlays, and contractual and statutory obligations. They are charges that result in the reduction of

the net resources of an expendable fund. Obligations shall be entered in the registries as they are

incurred through the Allotment and Obligation Slip

INCOME/COLLECTION AND DEPOSITS

Local accountants and treasurers shall maintain separate books and deposit accounts, respectively, for each

fund in their custody or administration. Earning of the depository accounts in the name of their respective

local government units with bank shall accrue exclusively thereto. Officers of the local government authorized

to receive and collect money arising from taxes, revenue or receipts of any kind shall remit the full amount

received and collected to the treasury of such local government unit, which shall be credited to the particular

account to which the money belong.

Source of Income

Income covers all revenues and receipts collected or received, forming the gross accretion of funds of the local

government; while revenue refers to income derived from the regular system of taxation enforced under the

authority of law or ordinance, and as such, accrue regularly every year. Income encompasses revenue.

Receipt is income realized from operations and activities of the local government or those received bu it in the

exercise of its corporate functions. It also refers to authorized contributions or aids from other entities except

provisional advances for budgetary purposes. Loans for specific projects or activities are considered as

receipts. The main sources of income of local government units are as follows:

1. Tax revenues, fees and charges

2. Share from Internal Revenue Collections

3. Share from National Wealth

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The sources of income are further classified into general income accounts and specific income accounts. The

following shall comprise, among others the general income and specific income accounts applicable to local

government units:

General Income Accounts:

1. Subsidy from other local governments

2. Subsidy from other funds

3. Subsidy from special accounts

4. Sales revenue

5. Dividend revenue

6. Interest revenue

7. Gain on sale of securities

8. Gain on sale of assets

9. Sale of confiscated goods and properties

10. Foreign exchange gains

11. Miscellaneous operating and service income

12. Fines and penalties – government service and business operations

13. Income from grants and donations

Specific Income Accounts:

1. Property taxes

2. Taxes on goods and services

3. Other taxes

4. Other specific income

Methods of Accounting Income

The following accounting methods will be adopted in recording income:

1. Accrual Method – Accrual method of accounting shall be used to record share from internal revenue

collections in the books of accounts. Upon receipt of the Notice of Funding Check Issued from the
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Department of Budget and Management, share from internal revenue collections shall be taken up as

Due from National Government Agencies and credited to Internal Revenue Allotment. Cash in Bank

account shall be debited upon receipt of Bank Credit Advice as to receipt of the share from internal

revenue collections regardless of whether or not the Notice of Funding Check issued has been received

from the Department of Budget and Management.

2. Modified Accrual Method – Modified accrual method of accounting shall be used for real property taxes;

that is, Real Property Tax Receivable and Special Education Tax Receivable shall be established at the

beginning of the year. This is in view of the need to record in the books the actual receivables from said

taxes and not mere income estimates from real property taxes. However, to avoid appropriating

uncollected revenues, which might result to huge cash overdraft, the same shall be credited to Deferred

Real Property Taxes Income/Deferred Special Education Tax Income. Real Property Tax Income and

Special Education Tax Income shall be recognized upon receipt of collection.

Fines and penalties arising from real property taxes shall be distributed to concerned local government

units in accordance with the sharing prescribed under the local government code for real property tax and

the additional one percent tax for the special education fund.

3. Cash Basis – Cash basis of accounting shall be sued for all other taxes, fees, charges and other revenues.

Other Receipts

Other receipts of the local government units shall be comprised of, but not limited to the following:

1. Borrowings – proceeds of repayable obligations, generally with interest from the bank, national agency,

another local government unit, and private sector. All borrowings incurred shall be recorded directly to

the appropriate liability accounts. Upon receipt of the advice from the bank or lending agency informing

the release of the proceeds, the accountant shall prepare a Journal Entry Voucher to record the

transaction.

2. Sale of Property, Plant and Equipment – Sale of property, plant and equipment refers to the proceeds

from the sale of fixed assets, such as: land, buildings, equipment, furniture and fixtures, etc.

3. Refund of Cash Advances – Cash advances for official travel shall be recorded as a receivable from the
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Concerned official or employee as “Advances to Officers and Employees”. Refunds made shall be

credited to the receivable account previously recorded. Cash advances for salaries and wages shall be

recorded as debits to the account “Payroll Fund” and any refund shall be credit to the same account. The

journal entry to record the cash advances is similar to the recording in national government accounting.

4. Receipt of Performance/Bidders’ Bonds – Similar to national government accounting, performance bond

posted by contractor or supply to guaranty full and faithful performance of their work may be in form of

cash, certified check or surety. Performance bond in cash or certified check shall be acknowledged

through the issuance of official receipt and recorded in the books by the accountant using a Journal Entry

Voucher.

Accounting for Collections and Deposits

The local Treasurer/Cashier shall deposit intact all collections with the authorized depository bank daily or not

later than the next banking day. He shall record all deposits made in the cashbook and prepare the Report of

Collections and Deposit (RCD). The barangay treasurer shall deposit all collections intact with the

city/municipal treasurer, or in a depository bank account maintained in the name of the barangay, within five

(5) days from receipt thereof. The accountant shall determine the account classification of the amounts

collected covered by the RCD and the supporting papers submitted by the Treasurer/Cashier and shall

accomplish the Journal Entry Voucher for the recording.

DISBURSEMENTS

Disbursements refer to the settlement of government payables/obligations by cash or by check. Typical

transactions for which disbursements are made are as follows:

1. Personnel Services

2. Maintenance or Other Operating Expenses

3. Capital Outlay

4. Financial Expenses

Disbursements shall be covered by Disbursements Vouchers (DV) or payrolls and paid either by check or in cash.

The Allotment and Obligation Slip (ALOBS) shall be an integral part of the Disbursement Voucher.
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Payment by Check

Checks shall be drawn only on duly approved disbursement voucher. It shall be drawn by the local treasurer

and countersigned by the local administrator. In case of temporary absence or incapacity of the aforesaid

officials, these duties shall devolve upon their immediate assistants. In case of municipalities where no

administrator has been appointed, checks drawn shall be countersigned by the municipal Mayor. In case,

however, of expenditures appropriated for the operation of the Sanggunian, check drawn shall be

countersigned by the provincial Vice Governor, the City Vice Mayor, of the Municipal Vice Mayor, as the case

may be.

Payments by Cash

Disbursements by cash shall be made from a cash advance drawn and maintained in accordance with

Commission on Audit rules and regulations. Cash payment shall be made only on duly approved

payrolls/disbursement vouchers. Cash advances for salaries and wages, by regular and special disbursing

officers shall be recorded through a debit to Payroll Fund and a credit to Cash in Bank – Local Currency Current

Account.

To account for cash disbursements from regular to special cash advances, the accountable/disbursing officer

shall prepare the Report of Disbursements and submit the original and duplicate copy with

vouchers/payroll/petty cash vouchers to the accountant. The accountant shall verify the report including the

completeness of the supporting documents, prepare the Journal Entry Voucher and record the transaction in

the Cash Disbursements Journal.

In case of cash advance for travel, the Liquidation Report form shall be prepared by the officers/employees

concerned and submitted to the accounting unit as basis for preparation of the JEV to record liquidation. In the

event, the amount of cash advance is more than the actual travel expenses, the excess shall be refunded. In

case, however, the amount of cash advance is less than the travel expenses incurred, a Disbursement Voucher

shall be prepared to liquidate the previous cash advance and serve as a claim for reimbursements of the

deficiency in amount.

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Payment Out of the Petty Cash Fund

Petty Cash Fund shall be maintained under the imprest system. The fund shall be sufficient for the non-

recurring, emergency and petty expenses of the local government unit for one month. Disbursements from

the fund shall be through the Petty Cash Voucher, which shall be signed by the payee to acknowledge the

amount received. The official receipt shall be attached to the Petty Cash Voucher. Each Petty Cash Voucher

shall not exceed P1,000.00.

Purchase or Construction of Property, Plant and Equipment

Property, Plant and equipment are charged against appropriations/allotments for capital outlay when

obligated. Property, plant and equipment acquired through purchase shall include all costs incurred to bring

the asset to location necessary for its intended use, such as: freight, installation costs, etc. in the books of

accounts, the purchase price is recorded as asset.

Property, plant and equipment to be constructed may be classified as agency asset and public infrastructure.

Agency assets are those to be used by the local government unit concerned; while public infrastructures are

those to be used by the general public. In recording both types of assets, the Construction Period Theory shall

be applied. Under the construction period theory, expenses, like license fees and bonus paid to contractor for

early completion of the project, shall be added to the total cost of the project; while liquidation damages paid

by the contractor for the delay in completing the project shall be deducted from the total cost.

During the construction period, the agency assets and public infrastructures shall be taken up in the books as

Construction in Progress with the appropriate asset classification. As soon as the project is completed, the

Construction in Progress account for agency asset is closed to the appropriate asset account.

For public infrastructures funded out of regular income, the Construction in Progress is transferred to the Public

Infrastructures account upon completion. At the end of the year, the latter account is closed to the

Government Equity and the asset is recorded in the Registry of Public Infrastructures.

However, completed public infrastructures funded out of a loan shall be closed to the Government Equity

account only upon full payment of the loan. A disclosure of Public Infrastructures completed and funded from

loans shall be made in the Notes to Financial Statements.

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Purchase of Supplies

Purchase of supplies and materials for st9ock, regardless of whether or not consumed within the accounting

period, shall be recorded as assets using the Inventory account following the perpetual inventory method.

However, supplies and materials purchased out of petty cash fund for immediate use or for emergency shall be

expensed.

Items with serviceable life of more than one year but small enough to be considered as property, plant and

equipment shall be recorded as inventories upon acquisition and expense upon issuance. Other tangible assets

not included in the list shown in Chapter 4 shall be classified as property. Plant and equipment, subject to

depreciation.

Miscellaneous transactions

Miscellaneous transactions refer to transactions that are unique and not recurring in the ordinary course of

operations of the government. These transaction types seldom take place or ideally should not happen at all.

The following may be considered miscellaneous transactions:

1. Loss of cash and property accountability

2. Cash Overage

3. Dishonored checks

4. Lost/ Destroyed/Stale/Obsolete and Fraudulently Encashed Check

5. Settlement of suspensions/disallowance/ charges

6. Refund of overpayment

Loss of Cash and Property Accountability

Loss of cash and property may be due to malversation, theft, robbery, or other causes. Cash shortage

discovered during cash examination conducted by auditors is reported through the Report of Cash

Examination within ten (10) working days from the completion of examination pursuant to COA

Memorandum No. 84-373A.

In case of shortage in property accountability, the auditor shall issue an audit report. As soon as a shortage is

definitely established, the auditor shall issue a memorandum pertaining thereto and the accountant shall
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draw a Journal Entry Voucher to record the shortage as a receivable from the accountable officer concerned.

In case of loss of property due to other causes (e.g. theft, force majeure, fire, 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 Note to Financial Statements pending

result of request for relief from accountability.

When a request for relief from accountability was granted, a copy of the decision shall be forwarded to the

chief accountant, who shall draw a JEV to record the transaction by debiting the Loss of Assets account and

credit to the appropriate receivable account. However, in case the request for relief is denied, immediate

payment of the amount due shall be demanded from the accountable officer. Restitution shall be

acknowledged by the issuance of an official receipt.

Cash Overage

In case the cash examination disclosed cash overage, as determined by the auditor, the amount shall be

forfeited in favor of the government and an official receipt shall be issued by the collector/teller. The cash

overage shall be recorded as a credit to Other Specific Income of LGU and debited to Cash in Treasury.

Dishonored Checks

A check is said to be dishonored when upon presentation for payment, such payment is refused or cannot be

obtained. Upon receipt of the debit memo and the dishonored check from the bank, constructive

cancellation of the official receipt covering the dishonored check shall be immediately effected by the

treasurer on the copy in his possession. The treasurer shall immediately photocopy the dishonored checks

and record as credit in the Cashbook – Cash in Bank and cancel payment in the taxpayer’s index card.

Upon notification of the cancellation, the collector/teller shall note the cancellation in the triplicate copies of

the receipt. The treasurer shall then inform the auditor, who shall effect the cancellation in the duplicate

copy of the official receipt, in case the same has already been submitted for audit. The treasurer shall

forward the debit memo and the photocopy of the dishonored check to the accountant. The accountant

shall cancel the official receipt in his possession and prepare the JEV by crediting the Cash in Bank account

and debiting the appropriate income account.

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Cancellation of Lost Check Issued

A check is considered lost when it is misplaced, waylaid or left behind inadvertently/negligently by the payee

or holder in due course or by the custodian/carrier thereof and after diligent search cannot be found or

located; or when it is lost due to fortuitous event, theft or robbery. Upon submission of sworn statement from

the payee that a check issued by the local government unit is lost, the treasurer shall immediately notify the

bank concerned for the stoppage of payment. He shall forward the sworn statement to the accountant, who

shall prepare the JEV to cancel the payment made. Copy of the JEV shall be forwarded to the treasurer as a

basis for him to debit the amount in the Cashbook – Cash in Bank.

Spoiled and Stale Check

Checks may be cancelled when spoiled or stale. A check is considered spoil when it is torn, mutilated,

defaced or with erasures/errors affecting the genuineness of any material information contained therein. It is

stale, if it has been outstanding for over six month from date of issue or as prescribed by the depository

bank. At least one month before a check become stale, the treasurer shall send a written notice to the payee

of the existence of the check. A spoiled or stale check shall be marked cancelled on its face.

For spoiled checks which are immediately cancelled and for which the Report of Checks (RCI) Issued has not

yet prepared, the cancelled check shall be attached to the RCI and reported chronologically with the other

checks issued and the word “Cancelled” shall be indicated on the report.

For stale checks which have been unclaimed and thus, the original Disbursement Voucher and supporting

documents are still with the treasurer, the cancelled check shall be presented in the RCI after the last check

issued for the period indicated in the report. The original Disbursement Voucher and supporting documents

shall be returned to the accountant, who shall prepare a JEV to record the transaction as Accounts Payable.

For checks which became spoiled or stale in the hands of the payee and which require replacement, a new

check may be issued upon submission of the spoiled or stale check to the treasurer. A certified copy of the

disbursement voucher shall be requested from the auditor for presentation to the administrator/local chief

executive, who shall countersign the check. The cancelled check shall be reported and attached to the RCI
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prepared at the period of cancellation. The replacement check shall also be reported chronologically in the

RCI.

The journal entries to record the cancellation and the eventual replacement are similar to the recording of

lost checks as shown in the preceding section.

Suspensions, Disallowance and Charges

Disallowance and charges shall be recorded in the books of accounts only when they become final and

executory. The accountant shall prepare the JEV to debit the Receivable – Disallowance and Charges account

and credit the appropriate expense account for the current year or prior years’ adjustment, which is

pertaining to expense of previous years.

Cash settlement of disallowance shall be recorded through the JEV by debiting Cash in Treasury and crediting

Receivable – Disallowance and Charges account.

Suspension in audit and settlement thereof shall not be recorded in the books of accounts.

GENERAL FUNDS

The general fund consists of money and resources not accruing to any other fund and shall be available for

payment of expenditures, obligations, or purposes not specifically declared by law as chargeable to or

payable from any other fund, though transfers of money or resources therefrom to other funds of local

government may be made by proper appropriation.

SPECIAL EDUCATION FUND

The Special Education Fund consist of the respective shares of provinces, cities and municipalities in the

proceeds of the additional one percent (1%) tax on the assessed value of real property for education purposes

under the Real Property Tax Code. This amount accruing to special education fund shall be automatically

released to the local schools.

In case of provinces, the proceeds of the special education fund shall be divided equally between the

provincial and municipal school boards, and allocated as determined and approved by the local school boards

concerned intended only for the following purposes:

1. Operation and maintenance of public schools

2. Construction and repair of school buildings, facilities and equipment.

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3. Education research

4. Purchase of books and periodicals

5. Sports development

Basis of Recording Special Education Tax

Based on Real Property Tax Account Register/Taxpayer’s index card, the Special Education Tax Receivable

shall be established at the beginning of the year, where the treasurer shall furnish the chief accountant with a

duly certified list of the name of taxpayers and the amount due and collectible for the year. Based on the list,

the chief accountant shall record the Special Education Tax Receivables using the Journal Entry Voucher.

In case of delinquencies, payment for special education taxes prior to calendar shall be recognized as a direct

credit to Special Education Tax Income account.

The additional one percent (1%) tax on real property shall be collected simultaneously with the basic real

property tax and a single official receipt shall be issued indicating the amount applicable for the basic tax and

additional one percent. In case of reporting, the collecting officer shall report the collections and deposits

separately. Procedures for the turn over of collections, deposits and reporting shall be the same as that

prescribed in the General Fund.

Accounting for Special Education Fund

The treasurer an/or the concerned accountable officers shall maintain separate cashbook for the special

education fund. The chief accountant, on the other hand, shall maintain separate registries for appropriation,

allotment and obligations and books of accounts. In addition, he shall prepare separate financial reports,

such as: Trial Balance, Balance Sheet, Statement of Income and Expenses, Statement of Cash Flows and

supporting schedules to be submitted on time. For disbursements, separate set of Journal Entry Voucher

shall also be prepared, which shall be numbered in accordance with the prescribed codes.

The duly authorized Allotment and Obligation Slips (ALOBS), which shall form an integral part of the

disbursement voucher/payroll, shall be forwarded to the Budget Officer, who will verify and certify the

existence of appropriation for the proposed expenditures. This shall then be forwarded to the chief

accountant, who shall certify as to obligations of allotments and record in the appropriate Registry of
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Appropriations, Allotments and Obligations. As to cash availability, the treasurer shall certify for the fund in

the disbursement voucher and purchase request, including infrastructure projects undertaken in the contract.

TRUST FUND

Trust Fund consists of private and public money received, by local government or of a local government

official as trustee, agent or administrator, as a guaranty for the fulfillment of some obligations. A trust fund

shall only be used for the specific purpose for which is was intended.

Grants and donations coming from foreign funding institutions, other levels of government and private

institutions/individuals for specific projects/purpose shall accrue to the Trust Fund. The equity of the local

government unit on projects under a trust agreement shall also accrue to the Trust Fund. These receipts shall

be credited to the Government Equity account.

Accounting for Trust Fund

Cash collections for the Trust Fund shall be acknowledged by issuance of official receipt. Collection

procedures shall be the same as that prescribed for collections in the general fund. In case of receipt through

the bank, the accountant shall draw a JEV based on the bank credit memo.

The treasurer and/or concerned accountable officer shall maintain separate cashbooks for the trust fund. The

accountant, on the other hand, shall maintain separate books of accounts for trust fund, and prepare

separate financial reports, such as: Trial Balance, Balance Sheet, Statement of Cash Flows and supporting

schedules, to be submitted on time.

Disbursements from trust fund shall be in accordance with the specific purpose stated in the trust

agreement/approved budget between the trustor and trustee (LGU) as certified by the chief accountant as to

existence of funds held in trust.

SPECIAL ACCOUNTS IN THE GENERAL FUND

Local government units shall maintain special accounts, through the use of complete subsidiary ledgers for

each number of the same economic enterprise, if any, in the General Fund for the following:

1. Public utilities and other economic enterprises

2. Loans, interests, bond issued and other contributions for specific purposes.
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3. Development projects funded from the share of the local government concerned from the Internal

Revenue Collections

4. Other special accounts which may be created by law or ordinance

Accounting for Special Accounts

Special accounts shall be maintained through the use of complete subsidiary ledger. In case the local

government unit maintains a number of the same economic enterprise, each shall have its own set of

subsidiary ledger. Accounting procedures for the operations of the special accounts are adopted for the

following purposes:

1. To determine whether the income generated by the public utilities or economic enterprises are sufficient

to meet their respective operating costs

2. To provide adequate information as to the assets, liabilities and equity of each special account.

Fund/Special Codes

FUND CODE
General fund 100
Special education fund 200
Trust fund 300

SPECIAL ACCOUNTS SUB-CODE

General fund proper 01
Market operaton 02
Slaughterhouse operation 03
Waterworks system 04
Electricity, light and power system 05
Telephone system 06
Toll roads, bridges and ferries 07
Transportation system 08

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SPECIAL ACCOUNTS SUB-CODE

Hospital 09
School 10
Sport center 11
Recreational center 12
Housing projects 13
Convention/conference center 14
Parking space 15
Ice plant 16
Cemetery 17
20% Development Fund 18
80% Share from Energy Sources 19
Share from Development of National Wealth 20
Loans 21
Interests 22
Bond Issues 23

ACCOUNTING FOR SUPPLIES OR PROPERTY

Pursuant to Section 356c of the Local Government Code, supplies or property include

everything except real property, which may be needed in the transaction of public business

or in the pursuit of any undertaking, project or activity whether in the nature of equipment,

furniture, stationery, materials of construction or personal property of any sort, including

non-personal or contractual services such as the repair and maintenance of equipment and

furniture, as well as trucking, hauling, janitorial, security and related services.

Purchase of supplies and materials for stock, regardless of whether or not they are

consumed within the accounting period, shall be recorded as inventory following the

perpetual inventory method.

The moving average method shall be used for costing inventories.

Classification of Supplies or Property

1. Expendable Supplies or Property

These are articles, which are normally consumed in use within one year or converted in

the process of manufacture or construction or those having a life expectancy of more

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than one year but which shall have decreased substantially to value after being put to

use for only one year.

2. Non-expendable Supplies or Property

These are articles, which are not consumed in sue and ordinarily retain their original

identity during the period of use, whose serviceable life is more than one year and

which add to the assets of the government.

3. Non-personal Services

These articles include, but is not limited to repairing, cleaning, redecorating and

furnishing of necessary repair parts or other supplies as part of the services

performed.

Do you understand, class?

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Reference

Punzalan, A.. & Cardona, M. (2018). Government Accounting 2018 ed.

Ittelson, T. (2017). Nonprofit Accounting & Financial Statements: Overview for

Board, Management and Staff

Reck , Jacqueline & Wilson, Earl. (2015). Accounting for Governmental & Nonprofit
Entities (Irwin Accounting)

Copley, Paul. (2017). Essentials of Accounting for Governmental and Not-for-Profit

Organizations (Irwin Accounting)

Larkin, R. & Tommaso, Marie. (2016). Wiley Not-for-Profit GAAP 2016:

Interpretation and Application of Generally Accepted Accounting Principles

Freeman, R. & Shoulders, C. (2017). Governmental and Nonprofit Accounting (11th

Edition)

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