Accounting for Budgetary Accounts

Budgetary accounts consist of the appropriations, allotments and obligations. Appropriations refer to an authorization
made by law or other legislative enactment, directing the payment of goods and services out of government funds under
specified conditions or for special purposes. Allotment is the authorization issued by the DBM to the agency, which allows
it to incur obligations for specified amounts, within the legislative appropriation.

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, (ABM)
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).

Annual Cash Program - provide cash to finance the programs reflected in the ABM and the prior year’s accounts payable;
with approved total comprehensive release by DBM to 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) - 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).

Control and Recording of Appropriations, Allotments. Obligations and the NCA

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.

Records of the DBM

Approval and issuance of the ABM and the SARO

1. Registry of Appropriations and Allotments (RAPAL) - enter the pertinent data on releases for each
government agency
2. Registry of Allotments and NCA (RANCA) – allotments and NCA issued; the control and monitoring
record of the DBM and shall furnish the BTr a copy of the NCA.

Records of the BTr

Receipt of the NCA from DBM - 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.

Records of the Agency

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).
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)

Accounting of Obligations:

Obligation refers to a commitment by a government agency arising from an act of a duly authorized official which binds
the government to the immediate or eventual payment of a sum of money.

Head of the Requesting Unit - 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.
Head of the Budget Unit - 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; 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.

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.

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.

The Accountant shall credit “Cash-National Treasury-MDS” each time a payment is made charged against the NCA and
debit the specific account being paid for, either asset or expense account.

Illustrative Entry:

a. Receipt of Allotment Posting in the allotment column to the respective Registries.

b. Incurrence of obligation Posting in the obligation column of the RAO’s

ex. RAOPS for PS obligations or expenditures

Notice of Cash Allocation (NCA) - specifies the maximum amount of withdrawal that an agency can make from the National
Treasury through the issuance of MDS checks or other authorized mode of disbursement. This is issued by DBM based on
the Annual Cash Program or as requested and prescribed under the Modified Disbursement System (MDS).

Upon receipt of the NCA, the accountant shall record in the books as:
Cash-National Treasury, MDS 108 XX
Subsidy Income from National Government 651 XX

Income/Collections and Deposits System

This system covers the processes of acknowledging and reporting income/collections, deposits of collections with
Authorized Government Depository Bank (AGDB) or through the AGDB for the account of the Treasurer of the Philippines,
and recording of collections and deposits in the books of accounts of the agency.

The sources of income and collections made by Agency are:

1. Taxes 4. Borrowings
2. Operating and Service Income 5. Miscellaneous Receipts
3. Grants and Donations

Methods of Accounting for Income:

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.

Only National Government Agencies shall maintain two sets of books:

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)

2. National Government books – this shall be used to record collections, which the agency cannot use but are required to
be remitted to the Bureau of the Treasury. These shall consist of the following:
Cash Journal
General Journal
General Ledger
Subsidiary Ledger

Receipt and Collection Process

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.

Illustrative Accounting Entries:

1. Without Authority to Use (NG Bks)

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.

1. Receipt of cash payment of hospital fees

Cash – collecting officers 102 xxx

Due to National Treasury 411 xxx
Hospital fees 596 xxx

2. Remittance to the treasury

Due to National Treasury 411 xxx

Hospital fees 596 xxx
Cash-collecting officers 102 xxx
2. With Authority to Use (RA Bks)

For agencies which are authorized to use income for their operations, the collections shall be recorded as income in
the Regular Agency (RA) books

1. Issuance of bill for the rent of an office space.

Accounts Receivables xx
Rent/Lease income xx

2. Record collection of rent payment.

Cash – collecting officer xx
Accounts Receivable xx

3. Record deposit in the bank.

Cash in Bank – LCCA xx

Cash – collecting officer xx

4. Record disbursement for the repair (use of income).

Repairs and Maintenance –Buildings xx

Cash-National Treasury, MDS xx

3. Cash from another agency to implement its project (Inter-agency Transferred Funds). Under existing regulations,
the collections made by an Implementing Agency (IA) of cash from a source agency (SA) to implement the latter’s
project shall be remitted by the recipient agency, the IA, to the BTr. The IA shall request the necessary NCA from
the DBM)

6.a Receipt of the check from the SA.

Cash – collecting officers 102 xx

Due to Other NGAs( SA) 416 xx
6.b Remittance of cash to the BTr

Due from National Treasury 131 xx

Cash-collecting officers 102 xx
6.c Receipt of NCA from DBM

Cash-National Treasury, MDS 106 xx

Due from National Treasury 131 xx

6.d Purchase of technical equipment

Technical & Scientific Machinery

And Equipment 226 xx
Cash-National Treasury, MDS 106 xx
6.e Submission of liquidation report to the SA.

Due to Other NGAs 416 xx

Technical and Scientific
Machinery & Equipment 226 xx

If there is still a balance or refund of fund balances of completed projects.

Due to Other NGAs 416 xx

Cash-National Treasury, MDS 108 xx

4. Authority with Limitations

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.

1. Record collection of (ex.) seminar fees.

 Cash – collecting officer 102 xx
Seminar/Training fees 622 xx

2. Record deposit of collection.

Cash in Bank – Local Currency 111 xx

Cash – collecting officer 102 xx

3. Record payment of expenses.

Office supplies expense 755 xx

Cash in Bank – Local Currency 111 xx

To close the balance or unused income in RA and transfer to NG Bks.

Seminar/training fees 622 xx

Cash in Bank–Local Currency 111 xx

4. Record transfer in the NG Bks the unused collections.

Cash – collecting officer 102 xx

Due to NT 411 xx
( Seminar/Training fees 622- xx

5. Record remittance of excess to the Bu of Treasury through bank.

Due to NT 411 xx
(Seminar/training fees 622 xx)
Cash – collecting officer 102 xx

Income from Sale of Equipment

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).

To record sale of motor vehicle.

Cash – collecting officer 102 300,000

Accumulated Depreciation-
Land Transport Equipt 314 250,000
Land Transport Equipment 214 500,000
Gain on Sale of Asset 623 50,000

Record Remittance of collection to the NT through the bank:

Gain on Sale of Asset 623 50,000
Government Equity 471 250,000
Cash – Collecting Officer 102 300,000

Receipt of SARO for the request to purchase a new one:

 Record in the RAOCO under the Allotment Received column.

Record the NCA received:

Cash – NT, MDS 107 450,000

Subsidy Income from NG 631 450,000

To record obligation in the RAOCO:

Post the amount of obligation in the Obligation Column of the RAOCO.

To record accounts payable for the motor vehicle delivered:

Land Transport Equipment 214500,000

Accounts Payable 401 500,000

To record full payment of obligation:

Accounts Payable 401500,000

Due to BIR 412 50,000
Cash – NT, MDS 107 450,000

To record remittance of withholding tax through TRA.

Due to BIR 412 50,000

Subsidy Income from
National Government 631 50,000

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.

The Chart of Accounts consists of three-digit codes grouped as follows:

Accounts Account Codes
Assets 100-299
Asset Contra Accounts 300-399
Liabilities 400-499
Equity 500-549
Income 550-699
Tax Revenue –
National Taxes 550-579
Local Taxes 580-599
General Income –
Permits and Licenses 600-609
Service Income 610-629
Business Income 630-649
Subsidy Income 650-659
Other Income 660-679
Gain or Loss Accounts 680-699
Expenses 700-999
 Personal Services 700-749
MOOE 750-969
Financial Expenses 970-999

ACCOUNTING FOR DISBURSEMENTS AND RELATED TRANSACTIONS

The cash transactions affect every classification within the financial statements – assets, liabilities, and residual equity,
income and expenses by checks.
Disbursements constitute all cash paid out during a given period either in currency (cash) or by check; the settlement of
government payables/obligation by cash or by check; covered by Disbursement Voucher (DV), Petty Cash Voucher, or
Payroll.

How to Distinguish Disbursement from Expenditures?

EXPENDITURES - the obligations incurred by the Agency; includes both the amount actually paid and those incurred and
recorded as liabilities to be paid in the future
DISBURSEMENTS - 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

2. Maintenance and Other Operating Expenses

- travelling expenses
- training and scholarship program
- supplies and material expenses
- repairs, etc….

3. Financial Expenses
- bank charges
- commitment fees
- documentary stamps
- interest and other financial charges

B. Capital Expenditures – these expenditures need allotment for CO; involves investments and procurement of
assets that is expected to be used for a longer period of time.

C. Inter-agency fund transfers - covers the transfer of funds to other agencies for the implementation of specific
projects; taken up in the books under “Due to –“ by the receiving agency and “Due from – “ by the releasing
agency.

Basic Requirements for Disbursement:

1. Existence of a lawful and sufficient allotment certified as available by the budget officer.
2. Existence of a valid obligation certified by the Chief Accountant/Head of Acctg. Unit;
3. Legality of transactions and conformity with laws, rules and regulation.
4. Approval of the expense by the Chief of Officer or by his duly authorize representative; and
5. Submission of proper evidence to establish the claim.

DISBURSEMENT SYSTEM – involves the preparation and processing of disbursement voucher; preparation and issuance
of check, payment of cash, granting, utilization, and liquidation/replenishment of cash advances.

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.

Modes of disbursement in the government:

1. by check – thru MDS checks or commercial checks
2. by cash – cash advances granted to disbursing officer and petty cash fund
3. Advices to Debit account (ADA)

Disbursement by Checks – Checks shall be drawn only on duly approved DV or PCV; reported and recorded in the books
of accounts only when actually released to the respective payees.
Two types of checks:
 1. Modified Disbursement System (MDS) checks – issued by government agencies chargeable against the account
of the Treasurer of the Phil which are maintained with different MDS Government Servicing Banks; covered by
Notice of Cash Allocation, an authorization issued by the DBM to all government agencies to withdraw cash from
the National Treasury through the issuance of MDS checks or other authorized mode of disbursements.

2. Commercial checks – issued by government agencies chargeable against the agency checking account with GSBs;
covered by income/receipts authorized for deposits with AGDBs and funding checks received by RO/OUs from
CO/ROs respectively.

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  included in the Report of Checks Issued
 the Cashier. All unreleased and cancelled  enumerated in the “List of Unreleased Checks” to be attached to the
RCI.

Receipt of NCA – this entry will that the NCA received is the share of the agency in the income of the National Government;
proof that there was an allocation of cash for the Agency by the National Treasury; may be net of the amount of the taxes
to be withheld by the agency
Cash – National Treasury, MDS XXXX
Subsidy Income from NG XXXX

Disbursement by Cash - shall be made from cash advance drawn and maintained in accordance with COA rules and
regulations; based on duly approved payrolls/disbursement vouchers. May either for:
1. personal services or salaries and wages – equal to the net amount due the officials and employees; fully
liquidated within 5 days after the pay period; UNCLAIMED WAGES  remitted and receipted to close the
cash advance account
2. travels – accounted for as Due from officers and Employees; subject to liquidation upon completion
a. LIQUIDATION OF TRAVEL WHERE THE AMOUNT OF CASH ADVANCE =/> THE TRAVEL
EXPENSES INCURRED  LIQUIDATION REPORT FORM shall be prepared by the employee
concerned and submitted to the accounting unit as a basis for JEV preparation; close the receivable
account
b. EXCESS CASH ADVANCE – refunded and an Or shall be issued to acknowledge receipt; noted in the
LIQUIDATION REPORT
c. CASH ADVANCE < TRAVEL EXPENSES INCURRED – LIQUIDATION REPORT shall be
submitted to liquidate cash advance previously granted; DV prepared to claim reimbursement of the
deficiency in amount
3. miscellaneous expenses - recorded in separate cashbooks

REPORT OF DISBURSEMENT - serve as the liquidation report of the cash advance granted to the Disbursing Officer.

Petty Cash Fund (PCF) - fund shall be sufficient for emergency and petty expenses of the agency; replenishment 
directly charged to the appropriate expense accounts; equal to the total cash on hand and the unreplenished expenses; not
be used to purchase regular inventory items for stock nor for the liquidation of outstanding cash advances; 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 PC Custodian; DV  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.
PCC resigns or ceases - full accounting/liquidation shall be made.
1. EXCESS CASH - 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.
Petty Cash Fund record - used to record all the PCs received by the PCC as well as reimbursements received for expenses
paid; PCV  supported with valid documents to prove the propriety of disbursements, such as ORs, invoices, etc.

Advice to Debit Account (ADA) – 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. 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  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  prepared to record the transaction in the GJ.
Recording the different types of Disbursements:
a. Personal Services
Made through the following:
1. Payroll Fund in the hands of a Disbursing Officer (DO) as cash advance. Payments are made by the DO in cash
to the employees.
2. Payroll Fund deposited in an authorized depository bank, withdrawal by the employees is through the automated
teller machine (ATM).
3. Direct payment to employees by individual check.
Example, Assume the following payroll fund is established:
Salaries and wages P 36,000
Additional Compensation 10,000
Personnel Economic Relief Allowance (PERA) 6,000
Gross P 52,000
Less: Withholding tax P 2,000
GSIS contribution 3,000
PAG-IBIG contribution 3,000
PHILHEALTH contribution 2,000 10,000
Net Payroll P 42,000
=======
a) Enters the obligation – RAOPS
b) Cash Advance to be granted to the DO
c) Recognize the expenses and liabilities
d) Obligation and recording of the government share of the mandatory contributions
e) Remittance of the deductions to the respective offices.

a. Maintenance and Other Operating Expenses

Asset Method - used in recording disbursements when expenditures apply to more than the accounting period.
Example, Assume the following types of expenditures:

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:
Prepaid Rent P1,200
Cash – National Treasury, MDS P1,200

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

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.

Property and Inventory accounting System - consists of the system of monitoring, controlling and recording of
acquisition and disposal of property and inventory.
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. The sub-system are as follows:
1. Receipt, Inspection, Acceptance and Recording Deliveries of Inventory Items and Equipment,
2. Requisition and Issuance of Inventory Items
3. Requisition and Issuance of Equipment

PERPETUAL INVENTORY METHOD – purchase of supplies and materials for stock  recorded as Inventory
account; an inventory control account is maintained in the General Ledger on a current basis.
Regular purchases - recorded under the Inventory account; issuance - recorded based on the Report of Supplies and
Materials Issued. Purchases out of Petty Cash Fund - charged immediately to the appropriate expense accounts.
Perpetual inventory records  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.
Subsidiary ledger cards  contain the details of the General Ledger accounts.
Property and Supply Officer/Unit - maintain Property Cards (PC) for property, plant and equipment, and Stock Cards
(SC) for inventories. The balance in quantity per PC and SC - reconcile with the ledger cards of the Accounting Unit.

Moving Average Method - used for costing inventories. Accounting Unit - responsible in computing the cost of inventory
on a regular basis.

Financial Expenses - expenses not used in the actual operation of the agency such as interest expenses, bank charges, etc.

Purchase and/or Construction of Fixed Assets

PROPERTY, PLANT AND EQUIPMENT AND INVENTORY ACCOUNTS acquired through purchase - include
all costs incurred to bring them to the location necessary for their intended use; recorded as Asset after inspection and
acceptance of delivery.

CONSTRUCTION PERIOD THEORY – used in recording fixed assets

Depreciation - taken up starting on the month succeeding the month of purchase or completion of construction; Straight-
line method; rate of depreciation - depend on the nature of the assets, guidelines for this shall be issued by the COA.

Recording of fixed assets - the Construction Period Theory shall be followed. All expenses 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.
“Public Infrastructures” and “Reforestation Projects” accounts  closed to “Government Equity” account; asset -
recorded in the Registry of Public Infrastructures/Reforestation Projects at the end of the year.

Purchase/Construction of Fixed Assets

Example: Purchase of office equipment either thru the Procurement Service / outside suppliers.
1. Issue PO for the office equipment
2. Record the obligation, RAOCO
3. Record payment (Procurement Service/outside supplier) or recognize the liability and taxes withheld
4. Record the asset received/delivered
5. Remit taxes withheld upon receipt of TRA

Construction of Building by Contract

1. Signed the construction contract. Record the obligation – RAOCO
2. Record performance bond posted by the contract(cash-5%, bank guarantee-10%,
And surety bond-30% of the contract cost)
3. Grant 15% advances to the contractor if requested
4. Payment based on the percentage of completion billed
5. Imposed retention fees and observed if needed up to the last claims
6. Required withholding taxes to be deducted for every billing
7. Record completion and turn-over
8. Return the performance bond, retention fees and remittance of withholding taxes

Miscellaneous Transactions

Accounting for loss of cash and property - may be due to malversation, theft, robbery, fortuitous event or other causes;
CASH SHORTAGE  reported through the Report of Cash Examination. The Auditor issues an 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 – Grant of relief from accountability due to shortage or loss of fund  a copy of
the decision shall be forwarded to the Chief Accountant who shall draw a JEV to record the transaction; debited to the Loss
of Assets account and credited to the appropriate receivable account; Request for relief is denied  immediate payment
of the shortage shall be demanded from the AO. Restitution - acknowledged by the issuance of an official receipt.
Request for relief from accountability for loss of property caused by fire, theft, etc, is granted - a copy of the decision
shall be forwarded to the Chief Accountant for the preparation of the JEV; same journal entry; Request for relief is denied
- taken as receivable from the accountable officer and shall be credited to the appropriate asset account.
Accounting for Cash Overage - the amount shall be forfeited in favor of the government and an official receipt shall be
issued by the cashier; taken up as Miscellaneous Income.

Accounting for stale checks - 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 still with Cashier - cancelled and reported in the List of Unreleased Checks as cancelled, which
is attached to the RCI.
2. In the hands of the payees or holders in due course and requested for replacements - new checks maybe issued upon
submission of stale checks to the accounting unit. A certified copy of the previously paid DVs shall be attached to the
request for replacement. A JEV shall be prepared to take up the cancellation. The replacement check shall be reported
in the RCI.

Accounting for Disallowance - taken up in the books of accounts only when they become final and executory. The
accountant shall prepare the JEV to take up the Receivable-Disallowance/Charges and credit the appropriate expense
account for the current year or Prior Year’s Adjustment account if pertaining to expenses of previous years.
Cash settlement for disallowances - acknowledged through the issuance of an official receipt and reported by the cashier
in the RCD.

Accounting for overpayments - refunds shall be demanded of the employees concerned.

TRIAL BALANCES, FINANCIAL REPORTS AND STATEMENTS

Financial Reporting System. This financial Reporting System (FRS) includes the preparation and submission of trial
balances, financial statements and other reports needed by fiscal and regulatory agencies. The sub-systems are as follows:
1. Preparation and Submission of Trial Balances and Other Reports
2. Preparation and Submission of Financial Statements
The Trial Balance shows the equality of debit and credit balances of all general ledger accounts as of a given period. It is
prepared and submitted monthly, quarterly and annually. At the end of the fiscal year, the pre-closing and the post-closing
trial balances shall be prepared.
Purposes of the Trial Balance. The trial balance is prepared to:
1. prove the mathematical equality of the debits ad credits after posting;
2. uncover errors in journalizing and posting; and
3. serve as basis for the preparation of the financial statements

The Pre-closing trial balance shall be prepared after recording the adjusting journal entries in the General Journal and
posting the same to the General Ledger. It shows the adjusted balances of all accounts as of a given period. This is also
described as the adjusted trial balance.
Adjusting or Correcting Journal Entries. Under the matching principle, adjustments shall be made for economic activities
that have taken place but are not yet recorded at the time when the financial statements are prepared. Such adjusting
journal entries are made to ensure that revenues and expenses are recorded in the period when they are earned or incurred.
Adjustments are two main types: accrued items and deferred items.
Adjustment for Accrued Item. It is an adjusting entry for an economic activity already undertaken but not yet recorded into
an asset and revenue accounts or a liability and expense accounts. It requires asset/revenue adjustments and liability/expense
adjustments.

Asset/Revenue Adjustment. It involves earned revenues not yet recorded as assets and income at the end of the accounting
period. Examples are receivables for revenues already earned but not yet collected nor billed as of the year end.
Account Title Account Code Debit Credit
------------- ------------ ----- -----
Interest Receivables 117 500
Interest Income 612 500

Liability/Expense Adjustment. It involves expenses, which exist already but remain unpaid at the end of the accounting
period. Examples are salaries, wages and other expenses already incurred but not yet paid.
Account Title Account Code Debit Credit
------------- ------------ ----- ------
Salaries and Wages-Regular 701 1,000
Due to Officers and
Employees 423 1,000
Adjustment for Deferred Items. These are adjusting entries transferring data previously recorded in an asset account to an
expense account, or data previously recorded in a liability account to a revenue account. It also requires asset/expense
adjustments and liability/revenue adjustments.
Asset/Expense Adjustments. These pertains to assets, portion of which shall be recorded as expense of the agency at the
end of the accounting period. Examples are prepaid expenses, bad debts and depreciation.

Account Title Account Code Debit Credit

 ------------- ------------ ----- ------
Original Entry:
Prepaid Rent 171 1,000
Cash-National Treasury,
MDS 107 1,000

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 Allowance for Doubtful Accounts shall be provided in an amount based on collectibility of receivables balances and
evaluation of such factors as aging of the accounts, collection experiences of the agency, expected loss experiences and
identified doubtful accounts
The determination of bad debts expense shall be derived from computations based on percentages and aging of accounts
receivables as follows:
Age of Accounts Percentage
--------------- ----------
1-60 days 1%
61-180 days 2%
181-1 year 3%
More than 1 year 5%
An adjusting journal entry to take up bad debts expense is as follows:

Account Title Account Code Debit Credit

------------- ------------ ----- ------
Bad Debts 901 1,000
Allowance for Doubtful
Accounts 301 1,000
Depreciation for Property, Plant and Equipment. The cost of property, plant and equipment are allocated to the periods
benefited through the provision of accumulated depreciation. Depreciation is the systematic and gradual allocation of the
depreciable amount of assets over its useful life.
Method of Depreciation. Depreciation shall be computed using the Straight Line Method. Depreciation shall start on the
second month from purchase. A residual value equivalent to ten percent of the cost shall be set. Annual depreciation is
computed as follows
Annual Depreciation = Assets Cost less Estimated
Residual/Salvage Value
--------------------------
Estimated Useful Life

Asset Cost - Purchase or Acquired Value of the Asset

Estimated Salvage Value - 10% of the asset cost
Estimated Useful Life - Estimated number of years the asset
shall be used as determined by the Commission on Audit

A sample adjusting journal entry for depreciation expense is as follows:

Account Title Account Code Debit Credit
------------- ------------ ----- ------
Depreciation-Office Equipment 907 1,000
Accumulated Depreciation-
Office Equipment 307 1,000
Reversion of the unused or utilized Subsidy Income from National Government at the end of the year due to the DBM
policy that NCA will only be valid within the year of issue except NCA for accounts payable, which is valid one month
after its issuance. There is no need to issue an MDS Check when reverting the account.
Account Title Account Code Debit Credit
------------- ------------ ----- ------
Subsidy Income from National
Government 631 100
Cash-National Treasury, MDS 107 100

Closing Journal Entries. Closing journal entries are general entries which close out the balances of all
nominal/temporary and intermediate accounts at the end of the accounting period. The nominal and intermediate
accounts that shall be closed at the end of the accounting period are as follows:
1. Close the balance of the Subsidy Income from National Government account to Income and Expense
Summary account.
 Account Title Account Code Debit Credit
------------- ------------ ----- ------
Subsidy Income from National
Government 631 1,000
Income and Expense Summary 999 1,000

2. Close the balance of all income accounts to Income and Expense Summary account.

Account Title Account Code Debit Credit

------------- ------------ ----- ------
Other business Income 618 500
Other Income 659 400
Income and Expense Summary 999 900

3. Close the balance of all expense accounts to Income and Expense Summary account.

Income and Expense Summary 999 800

Salaries and Wages-Regular Pay 701 800

4. Close the balance of the Income and Expense Summary account to the Retained Operating Surplus account.

Income and Expense Summary 999 1,100

Retained Operating Surplus 1,100

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

6. Close the balance of the Retained Operating Surplus to Government Equity account.

Retained Operating Surplus 1,300

Government Equity 471 1,300

7. Close Public Infrastructures or Reforestation Projects accounts to Government Equity account and transfer
the corresponding amount to the respective registries.

Government Equity 471 1,300

Public Infrastructures/ 251-260
Reforestation Projects 261-262 1,300

For the purpose of preparing the financial statements for the first, second and third quarters, the closing entries
nos. 1 to 6 shall be prepared using the worksheet.

The Post-Closing Trial Balance. The Post-closing Trial Balance shall be prepared after recording the closing
journal entries in the General Journal and Posting to the General Ledger. It contains a listing of all general ledger
accounts that remain open after the closing process is completed.

GENERATION OF FINANCIAL STATEMENTS

Generation of Financial Statements and Supporting Schedules. Financial statements and their supporting schedules are the
products of the government accounting processes. These are the principal comprehensive means by which the information
accumulated and processed in the state accounting system is periodically communicated to those who use them. The
financial statements generally prepared in the National Government are: the Balance Sheet, Statement of Income and
Expenses, Statement of Government Equity, and Statement of Cash Flows.
Responsibility for Financial Statements. Responsibility for the fair presentation and reliability of financial statements rests
with the management of the reporting agency. This responsibility is discharged by applying generally accepted state
accounting principles that are appropriate to the entity's circumstances, by maintaining effective system of internal control
and by adhering to the chart of accounts prescribed by the Commission on Audit.
To achieve fair presentation and reliable information of the financial statements, the following standards shall be
observed.
a. FAIRNESS OF PRESENTATION. This refers to the overall propriety in disclosing financial information. Full
disclosure in financial aspects requires observance of the following standards of reporting:

All essential facts relating to the scope and purpose of each report and the period involved shall be included
and clearly displayed.
- All financial data presented shall be accurate, reliable, and truthful. The requirement for accuracy does not
rule out the inclusion of reasonable estimates when the making precise measurements is impracticable,
uneconomical, unnecessary, or conducive to delay. All appropriate steps shall be taken to avoid bias,
unclear facts, and presentation of misleading information.
- Financial reports shall be based on official records maintained under an adequate accounting system that
produces information objectively and discloses the financial aspects of all events or transactions taking
place. Where financial data or reports based on sources other than the accounting systems are presented,
their basis shall be clearly explained.
- The financial data reported shall be derived from accounts that are maintained in all material respects
on a consistent basis from period to period; material changes in accounting policies or methods and their
effect shall be clearly explained.
- Consistent and non-technical terminology shall be used in financial reports to promote clarity and
usefulness.
b. COMPLIANCE. The report shall be in accordance with prescribed government requirements and
international accounting standards of reporting.
c. TIMELINESS. All needed reports shall be produced promptly to be of maximum usefulness.
d. USEFULNESS. Financial reports shall be carefully designed to present information that is needed and
useful to reports users.
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS.
The Statement of Management Responsibility for Financial Statements shall serve as the covering letter in
transmitting the agencies financial statements to the Commission on Audit, Department of Budget and Management,
other oversight agencies and other parties. It shows the agency's responsibility for the preparation and presentation
of the financial statements. The statement shall be signed by the Director of Finance and Management Office or
Comptrollership Office, or the Chief of Office who has direct supervision and control over the agency's accounting
and financial transactions, and the Head of Agency or his authorized representative.
BALANCE SHEET. The Balance is a formal statement which shows the financial condition of the agency as of a
certain date. It includes information on the three elements of financial position - assets, liabilities, and government
equity. It shall be prepared from information taken directly from the year-end Post-Closing Trial Balance. The
Balance Sheet shall be supported with the following schedules/statements;
- Schedules of Accounts Receivables (SAR)
- Schedules of Accounts Payables (SAP)
- Schedules of Public Infrastructures (SPI)
- Other schedules as may be required.

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

CASH FLOWS FROM OPERATING ACTIVITIES

Cash Inflows
- Receipt of Notice of Cash Allocation (NCA) from the DBM
- Receipt of Notice of Transfer of Allocation to Agency RO/OU from CO
- Cash receipts from all sources of revenues
- Receipt of Inter-Agency cash transfers (Due to)
- Cash receipts from the sale of goods or rendition of services
- Cash receipts of interest income, rental income, dividend income, etc.
- Receipt of payment for liquidated damages
- Receipt of refund of deposits
- Receipt of refunds of cash advance or excess payments
- Collection of receivables
- Cash receipt of grants and donations
- Receipt of cash dividends from enterprises (e.g. PLDT)
Cash Outflows:
- Payments of accounts payable
- Cash purchase of merchandise for sale
- Cash advances granted for travel
- Inter-agency transfers (Due from)
- Notice of Transfer of Allocation to Agency RO/OU issued by the NGA Main Office to RO/OU and/or
attached agencies through Government Servicing Banks.
- Return of unused NCA
- Cash payment for operating expenses
- Remittance of taxes withheld not covered by TRA and other deductions (if any)
- Cash purchase of supplies and equipment
- Cash payment of retirement benefits
- Cash payment of claims for damages
- Cash payment of liabilities incurred in operations
- Cash payments for interest

CASH FLOWS FROM INVESTING ACTIVITIES

Cash Inflows:
- Proceeds from sale of marketable stocks and bonds
- Cash proceeds from the sale/disposal of equipment and other property, plant and equipment.
- Redemption of long-term investments or repayment by GOCC/GFI of long-term loans
Cash Outflows:
- Purchase of property, plant and equipment
- Purchase of land
- Investment in stocks/bonds
- Investment in GOCC/GFI
- Exposure as other long-term investments

CASH FLOWS FROM FINANCING ACTIVITIES

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

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

In general, disclosures shall include important judgment as to appropriateness of principles relating to recognition
of revenues and allocation of asset costs to current and future periods.
INTERIM REPORTS. Interim reports are the financial statements required to be prepared at any given period or at a
financial reporting period without closing the books of accounts. The following interim financial statements shall be
prepared and submitted quarterly with the Notes to Financial Statements:
a. Statement of Income and Expenses;
b. Balance Sheet; and
c. Statement of Cash Flows.
The interim financial statements shall be prepared employing the same accounting principles used for annual reports.
Adjusting and closing journal entries shall be prepared. However, only the adjusting journal entries are recorded in the
books of accounts. To facilitate the preparation of the interim financial statements, the use of the worksheet is
recommended.
Sec. 82. WORKSHEET. A worksheet is a tool for accumulating and sorting information needed for the preparation of the
financial statements. It is a columnar sheet used to adjust and close account balances for the preparation of the financial
statements. The format of the worksheet shall be as follows:
Agency Name
Worksheet
As of ______________, 20__

Unad Adjusted Closing Statement Post Balance

justed Adjustments Or Pre- Entries Of Closing Sheet
Trial Adjusted Income Trial
Bal. Trial & Exp Bal.
Bal.
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).