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Chapter 3. ACCOUNTING SYSTEM A. GENERAL ACCOUNTING PLAN Sec. 05. General Accounting Plan.

The General Accounting Plan shows the overall accounting cycle in the Local Government Unit. Transactions shall emanate from the different offices/departments of the local government units (LGUs). These offices/departments will provide/produce the source documents and other accounting forms leading to the perfection of the transaction, whether it be budgetary, collections or disbursements. The source documents and accounting forms shall be the basis for the preparation of reports by the Office of the Treasurer. The Office of the Accountant shall record the transactions to the registries or to the corresponding books of original entry. Posting to the books of final entry and preparation of the financial reports shall also be undertaken by the Office of the Accountant. The General Accounting Plan (Table 1) is presented as to the following type of transactions: a. Appropriations, Allotments and Obligations b. Collections and Deposits c. Disbursements By cash By check d. Miscellaneous and Other transactions B. BUDGETARY ACCOUNTS Sec. 06. Budgetary Accounts. Budgetary accounts are composed of appropriations, allotments and obligations. Sec. 07. Accounting for Appropriations. Appropriation 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.

INSERT HERE TABLE 1 GENERAL ACCOUNTING PLAN (MS Excel file)

The local sanggunian approves the annual budget thru the issuance of appropriation 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 (RAAO). The appropriations, in the amounts approved by the legislative body and confirmed by the reviewing authorities, are recorded in the registries maintained by the accountant where they may be compared with the actual developments of the period.
Budgetary reserves which are stand by appropriations ready for release in case of calamities, as well as supplemental budget are similarly recorded in the RAAO. In case the LGU is operating on a re-enacted budget, said re-enacted budget shall likewise be recorded in the registry. Once current budget is approved, the necessary adjustments shall be made in the registry. Separate registries shall be maintained for the four classes of expenditures per responsibility center, to wit: a. Registry of Appropriations, Allotments and Obligations - Capital Outlays (RAAOCO) b. Registry of Appropriations, Allotments and Obligations - Maintenance and Other Operating Expenses (RAAOMO) c. Registry of Appropriations, Allotments and Obligations - Personal Services (RAAOPS) d. Registry of Appropriations, Allotments and Obligations - Financial Expenses (RAAOFE) Sec. 08. Accounting for Allotments. Allotment is the authorization issued by the Local Chief Executive (LCE) to a department/office of the LGU, 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 Release of Allotment. The Accountant, upon receipt of the Advice of Allotment, shall enter the allotment in the RAAOs. Sec. 09. Accounting for Obligations. Obligations refer to the amounts committed to be paid by the LGU for any lawful act
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made by an accountable officer for and in behalf of the local government unit concerned. Obligations shall be taken up in the registries as they are incurred. For each obligation, the requesting department/office shall prepare the Allotment and Obligation Slip (ALOBS) signed by the department or office head as requesting official and forward this, together with the supporting documents, to the Budget Officer. The Budget Officer shall certify to the existence of appropriation that has been legally made for the purpose by signing the appropriate box in the ALOBS and assign the ALOBS number thereto. The Accountant shall review the ALOBS and certify as to obligation of the allotment by signing the appropriate box in the ALOBS. He shall also fill up the Status of Obligation. The Accountant shall record the amount of obligation in the RAAOs. Sec. 10. Adjustment of Obligations. The Chief Accountant shall record paid disbursement vouchers in the Status of Obligation portion (Payments) of the ALOBS. Any balance appearing in the ALOBS after full payment of obligations shall form part of unobligated allotment. The Chief Accountant shall adjust accordingly the amount of recorded obligations in the RAAO using the same ALOBS number as reference. At the end of each month, the Chief Accountant and the Budget Officer shall reconcile their records on allotments available for obligation. Sec. 11. Accounting Procedures for Budgetary Accounts. Summarized hereunder is the process in accounting for budgetary accounts: PROCESS a. Records in the appropriate RAAOs the approved appropriation per Appropriation Ordinance. Forwards the advice of allotments to the Office of the Accountant and returns the work plan to the concerned departments/ offices.
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PERSON / UNIT RESPONSIBLE Office of the Accountant

b.

Office of the Budget Officer

PROCESS c. in the RAAOs. d. Prepares ALOBS based on disbursement vouchers/purchase requests and/or supporting documents. Signs the appropriate box for requesting office. Forwards the same to the Office of the Budget Officer. Certifies the ALOBS as to the existence of appropriations based on the appropriation ordinance. Assigns ALOBS number and forwards the same to the Office of the Accountant. Certifies the ALOBS as to the obligations of allotments. Records the obligation in the appropriate column of the RAAOs and in the Status of Obligation portion (Obligation) of the ALOBS. Records paid disbursement vouchers in the Status of Obligation portion (Payments) of the ALOBS. Any balance appearing in the ALOBS after full payment of obligations shall form part of unobligated allotment. Adjust accordingly the amount of recorded obligations in the RAAOs. At the end of each month, reconcile records on allotments available for obligation. Enters the allotments

PERSON / UNIT RESPONSIBLE Office of the Accountant Heads of departments/offices

e.

Budget Officer

f.

Chief Accountant

g.

Office of the Accountant

h.

Budget Officer and Chief Accountant

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Sec. 12. Terminology and Classification. A common terminology and classification shall be used consistently throughout the budget, the accounts and the financial reports. For this purpose, the following specific expenditures shall be recorded in the appropriate RAAOs: a. RAAOCO Investments outlay (e.g. stocks, bonds) Land, Land Improvements and Leasehold Improvements outlay Buildings and Other Structures outlay (e.g. school buildings, markets and slaughterhouses, hospital and health centers, etc.) Public Infrastructures outlay (e.g. parks, plaza, monuments, bridges etc.) Furniture and Fixtures outlay Work Animals outlay Breeding stocks Machineries and Equipment outlay (e.g. dump trucks, construction equipment, industrial machineries, technical and scientific equipment, etc.) Aircrafts, Trains and Motor Vehicles outlay (e.g. motorcycles, cars, vans, etc.) Artesian Wells, Reservoirs, Pumping Stations and Conduits outlay Books outlay Ordnance outlay IT Equipment and Software outlay Other Property, Plant and Equipment outlay Reforestation Projects Arts, Archeological Specimen and Other Exhibits b. RAAOPS Salaries and Wages (e.g. regular pay, part-time pay, overtime and night pay, holiday pay, etc.)

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Allowances (e.g. PERA, hazard pay, RATA, etc.) Benefits (e.g. bonus, cash gifts, productivity, pension, etc.) Government Shares on Employees Contributions c. RAAOMO Subsidies (e.g. Subsidy to LGUs, Subsidy to Other Funds, etc.) Livestock (e.g. swine, hogs, chicken, goats, etc.) Crops Supplies (e.g. office, medical, dental and laboratories, spare parts, gasoline and oil, etc.) Repairs and Maintenance Printing and Binding Travel Consultancy Light, Water and Gas Communication (e.g. telephone, telegraph, internet, postage, etc.) Auditing Services Other Services (e.g. janitorial, security, hauling, etc.) Extraordinary and Miscellaneous Expenses All other expenditures in the Chart of Accounts for MOOE, except depreciation, obsolescence, bad debts, loss on sale of assets, loss of assets, discount on Real Property Tax and Special Education Tax. d. RAAOFE Bank Charges Interest Expenses Commitment Charges Other Financial Charges (e.g. underwriting fees, guarantee fees) Loan Amortization

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C. INCOME/COLLECTIONS AND DEPOSITS Sec. 13. Separation of Books and Depository Accounts. Local accountants and treasurers shall maintain separate books and depository accounts, respectively, for each fund in their custody or administration. Sec. 14. Depository Accounts. Local treasurer shall maintain depository accounts in the name of their respective local government units with banks, preferably government-owned, located in or nearest to their respective areas of jurisdiction. Earnings of its depository accounts shall accrue exclusively thereto. Sec. 15. Remittance of Government Monies to the Local Treasury. Officers of the local government authorized to receive and collect monies 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 or accounts to which the monies in question properly belong. Sec. 16. Sources of Income of LGUs. The main sources of income of LGUs are as follows: a. Tax revenues, fees and charges b. Share from Internal Revenue Collections c. Share from National Wealth The sources of income are further classified into general income accounts and specific income accounts. Sec. 17. General Income Accounts. The following shall comprise the General Income Accounts applicable to LGUs: a. b. c. d. e. f. g. h. Subsidy from Other LGUs Subsidy from Other Funds Subsidy from Special Accounts Sales Revenue Dividend Income Interest Income Gain on Sale of Securities Gain on Sale of Assets
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i. Sale of Confiscated Goods and Properties j. Foreign Exchange (FOREX) Gains k. Miscellaneous Operating and Service Income l. Fines and Penalties Government Services and Business Operations m. Income from Grants and Donations Sec. 18. Specific Income Accounts. The following major classification comprise the specific income accounts for LGUs: 1. 2. 3. 4. Property Taxes Taxes on Goods and Services Other Taxes Other Specific Income

Sec. 19. Methods of Accounting for Income. The following accounting methods shall be adopted in recording income: a. 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 Department of Budget and Management (DBM), Share from Internal Revenue Collections shall be taken up as Due from NGAs and credited to Share from Internal Revenue Collections. However, Cash in Bank 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 DBM. Modified Accrual Modified accrual method of accounting shall be used for real property taxes. At the beginning of the year, Real Property Tax Receivable and Special Education Tax Receivable shall be established. This is in view of the need to record in the books not mere income estimates from real property taxes but actual receivables from said 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
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b.

Property Tax Income/Special Education Tax Income shall be recognized upon receipt of collection. c. Cash Basis Cash basis of accounting shall be used for all other taxes, fees, charges and other revenues.

Sec. 20. Basis of Recording Real Property Tax/Special Education Tax. Real Property Tax Receivables/Special Education Tax Receivables shall be established at the beginning of the year based on Real Property Tax Account Register/Taxpayers index card. At the beginning of the year, the Treasurer shall furnish the Chief Accountant of a duly certified list showing the name of taxpayers and the amount due and collectible for the year. Based on the list, the Chief Accountant shall draw a Journal Entry Voucher (JEV) to record the debit to Real Property Tax Receivable/Special Education Tax Receivable and crediting to Deferred Real Property Tax Income/Deferred Special Education Tax Income. Upon collection of Real Property Taxes from taxpayers, the account Deferred Real Property Tax Income/Deferred Special Education Tax Income shall be debited while the Real Property Tax Income due to the municipality is recognized/credited. The share of the Province and Barangay shall also be credited to Due to LGUs. Every end of the week, thereafter the Municipal Accountant shall furnish the Provincial Accountant with a summary of the JEVs showing the breakdown of the amounts Due to LGUs. The summary, which shall be supported with copies of the JEVs, shall be the basis of the Provincial Accountant to draw the JEV taking up the RPT Income. The account Due from LGU shall be debited and Real Property Tax Income credited. At the end of the month, the Municipal Accountant shall likewise prepare the Abstract of Real Property Tax to facilitate the distribution of real property tax collection. A copy of the abstract shall be furnished the Provincial Accountant, for purposes of reconciliation with the weekly summary of JEVs. Sec. 21. Delinquencies for Real Property Tax/Special Education Tax Prior to CY 2002. Payment of delinquencies for real property taxes/special education taxes prior to CY 2002 shall be

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recognized as a direct credit to Real Property Tax Income/Special Education Tax Income account. Sec. 22. Discount on Real Property Tax/Special Education Tax. Discounts for advance and prompt payment of Real Property Tax and the additional one percent (1%) tax accruing to the Special Education Fun shall be recognized in the year the taxes are due. Said discounts shall be apportioned to the concerned LGUs in accordance with the sharing prescribed for real property tax and additional one percent (1%) tax under the Local Government Code. Sec. 23. Fines and Penalties. Fines and Penalties, either from tax revenue or other specific income, shall be recognized as income of the year it was collected. Fines and Penalties arising from real property taxes shall be distributed to concerned LGUs in accordance with the sharing prescribed under the Local Government Code for Real Property Tax and the additional one percent (1%) tax for the Special Education Fund. Sec. 24. Other Receipts. Other receipts of the local government units shall be comprised of, but not limited to, the following: a. b. c. d. Borrowings Sale of Property, Plant and Equipment Refund of Cash Advances Receipt of Performance/Bidders Bonds

Sec. 25. Borrowings. Borrowings are 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 direct 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 draw a Journal of Entry Voucher taking up the transaction. Sec. 26. Sale of Property, Plant and Equipment. Sale of property, plant and equipment refers to the proceeds from the sale of land, buildings, equipment, furniture and other similar property which are recorded in the books as Property, Plant and Equipment. The appropriate Property, Plant and Equipment account shall be credited upon transfer of ownership.
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Sec. 27. Refund of Cash Advances. Cash advances for official travel shall be taken up as a receivable from the concerned official or employee. Refunds made shall be credited to the receivable account previously set up. Cash advances for salaries and wages shall be recorded as debits to the account Cash Disbursing Officer. Any refund made shall be credited to this account. Sec. 28. Receipt of Performance Bonds. Performance bond posted by contractor or supplier to guaranty full and faithful performance of the their work may be in the form of cash, certified check or surety. Performance bond in cash or certified check shall be acknowledged by the issuance of official receipt and recorded in the books by the Accountant drawing a JEV for the purpose. In case of surety bond, an acknowledgment receipt shall be issued by the authorized official. Sec. 29. Reporting for Collections and Deposits. Collectors/tellers shall issue a receipt to acknowledge collections made. The receipt maybe in the form of pre-numbered Official Receipts, or cash tickets and the like. At the close of each business day, these collectors/tellers shall accomplish the Report of Collections and Deposits (RCD) in four copies. The original and two copies, together with the duplicates of the official receipts issued, shall be submitted to the treasurer/cashier to whom the cash collected shall be turned over. The fourth copy of the RCD shall be retained by the collector/teller concerned. Barangay Treasurers deputized to collect taxes imposed by provinces, cities and municipalities shall follow the same procedures in turning over their collections to the treasurer/cashier concerned. In the case of collectors assigned to the field, where travel time from their places of assignment to the Treasurers Office is more than one day, turnover of collections shall be made at least once a week or as soon as the collections reach P5,000.00. Sec. 30. Verification of Collections and Accountable Forms. The Treasurer/Cashier shall verify the Report of Collections and Deposits; check the statement of accountable forms as to initial balances on hand, receipts, issues and the ending balances on hand; make a physical count of the accountable forms remaining in the custody of the collector/teller and check the same against the new balances on hand column. He shall indicate his
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verification by affixing his signature at the back of the triplicate copy of the last official receipt issued. He shall count the money turned over to him and sign the certification and receipt portion of all copies of RCD. Sec. 31. Designation of Liquidating Officers. The Treasurer may designate liquidating officers from among the collectors/tellers whenever necessary. a. Collectors/tellers shall turn over their collections to their designated liquidating officer. The RCD shall however be prepared in five copies, four copies to be submitted to the liquidating officer, the fifth copy to be retained by the collector/teller. b. The liquidating officer shall perform the procedures for the receipt and verification of collections turned over to him. He shall also accomplish the RCD in four copies to summarize the collections turned over to him by the collectors/tellers as well as his own collections. c. The liquidating officer shall turn over intact the cash collections to the Treasurer/Cashier together with the originals and two copies of the RCDs of collectors/tellers and the duplicates of the official receipts issued. The Treasurer/Cashier shall acknowledge receipt of the cash and all accompanying documents by signing all copies of the RCD of liquidating officer on the certification and receipt portion of the form. The fourth copy of the RCD of the liquidating officer and RCDs of collectors/tellers shall be retained by the liquidating officer. Sec. 32. Deposit of Collections. The Treasurer/Cashier shall deposit intact all his collections as well as all collections turned over to him by the collectors/tellers 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 RCD.

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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. Sec. 33. Deposit of Field Collections. Collections by field collectors shall be remitted to the Cashier or designated liquidating officer of the field office of the LGU. When travel distance of the field office to the local treasury may expose government funds to the risk of loss while in transit, the Cashier or designated liquidating officer, upon authorization by the Treasurer, may deposit the collections in the authorized depository bank near the field office of the LGU. The procedures in reporting collections and deposits prescribed in this Chapter shall be observed. Sec. 34. Accounting for Collections and Deposits. The Accountant shall determine the account classification of the collections covered by the RCD and the supporting papers submitted by the Treasurer/Cashier and shall accomplish the Journal Entry Voucher. The accountant shall also maintain the Abstract of Real Property Tax Collections to facilitate the distribution and remittance of the shares of the different government units concerned in the real property tax collections. Sec. 35. Receipts and Collection Process. The following is a summary of the receipt and collection process in the LGU: PROCESS a. Receive payment from taxpayers/ creditors and issue Official Receipt (OR). Prepare Report of Collections and Deposits. Remit to the Liquidating Officer (if one is designated) or Treasurer. Check remittances and verifies accountable forms of collectors/tellers. Consolidates collections and remits to the Treasurer/Cashier. Prepares RCD.
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PERSON / UNIT RESPONSIBLE Collector/Teller

b.

Liquidating Officer

PROCESS c. Receive remitted collections, consolidates the same and prepares RCD. Records in the Cashbook Cash in Treasury. Deposit collections in the appropriate bank account per authorized depository bank. Records deposit in the Cashbook Cash in Bank. Forward RCD to Accounting Unit with copies of ORs and validated deposit slips. Prepare Journal of Entry Voucher and record in the Cash Receipt Journal.

PERSON / UNIT RESPONSIBLE Treasurer

d.

Treasurer

e.

Treasurer

f.

Accountant

Sec. 36. Proforma Accounting Entries. The following are pro-forma accounting entries for income, collection and deposit:
Particulars INCOME 1. Real Property Tax Basic A. Books of the Municipality a. Setting-up of RPT Receivable RPT = P1,000 RPT Sharing: Municipal - 40% Province - 35% Barangay - 25% b. Receipt of Payment Real Property Tax Receivable Deferred Real Property Tax Income 124 448 1,000 1,000 Account Title Acct. Code Debit Credit

Cash in Treasury Real Property Tax Receivable

101 124

100 100

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Particulars c. Distribution of Collection RPT Sharing: Municipal - 40% Province - 35% Barangay - 25% d. Deposit of Collections e. Remittance of Share (Province) f. Remittance of Share (Barangay) B. Books of the Province

Account Title Deferred Real Property Tax Income Real Property Tax Due to LGUs

Acct. Code 448 711 431

Debit 100

Credit

40 60

Cash in Bank LCCA Cash in Treasury Due to LGUs Cash in Bank LCCA Due to LGUs Cash in Bank LCCA

110 101 431 110 431 110

100 100 35 35 25 25

a. Upon receipt of the Summary of the JEV from the Municipal Accountant b. Upon receipt of share

Due from LGUs Real Property Tax

131 711

35 35

Cash in Bank LCCA Due from LGUs

110 131

35 35

2. Operating and Service Income a. Receipt of Income Cash in Treasury Receipts from Markets Garbage Fees Cash in Bank LCCA Cash in Treasury 101 783 772 110 101 100 90 10 100 100

b. Deposit of Collections

3. Share from Internal Revenue Collections a. Receipt of Notice of Funding Check Issued from the DBM and credit memo from the bank for Share from Internal Revenue Collections b. Receipt of Notice of Cash in Bank LCCA Share from Internal Revenue Collections 110 746 1,000 1,000

Due from NGAs

130

1,000

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Particulars Funding Check Issued from the DBM for Share from Internal Revenue Collections 4. Grants and Donations a. Receipt of grants and donations in cash (Donations in kind shall be booked-up using the appropriate asset account) b. Receipt of grants and donations in kind Motor Vehicle: Original Cost P1,000 Less: Acc. Depn. 200 Book Value P 800 5. BORROWINGS a. Receipt of borrowed funds from bank Principal - P1,000 Bank Charges - 10 Interest Expense- 12 b. Receipt of borrowed funds from other agency Principal P1,000 Interest Expense - 6 c. Payment of loan amortization

Account Title Share from Internal Revenue Collections

Acct. Code 746

Debit

Credit 1,000

Cash in Treasury Income from Grants and Donations

101 651

100 100

Motor Vehicles Invested Equity (At the end of Year) Invested Equity Government Equity

218 537 537 501

800 800 800 800

Cash in Bank LCCA Loans Payable Current, Domestic Bank Charges Interest Expenses Cash in Bank LCCA Cash in Treasury Loans Payable Current, domestic Interest Expenses Cash in Bank LCCA Loans Payable Current, Domestic Cash in Bank - LCCA

110 403 951 952 110 101 403 952 110 403 110

1,000 1,000 10 12 22 1,000 1,000 6 6 200 200

6. SUBSIDIES a. Subsidy from Other Funds (General Fund to Special Education Fund) GENERAL FUND BOOKS Transfer of subsidy Subsidy to Other Funds 897 500

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Particulars to Special Education Fund (Aid to SEF to finance its projects)

Account Title Cash in Bank LCCA

Acct. Code 110

Debit

Credit 500

SPECIAL EDUCATION FUND BOOKS Receipt of subsidy funds from Other funds Cash in Treasury Subsidy from Other Funds 101 605 500 500

b. Special Accounts (subsidy from General Fund proper to Operation of Public Market) BOOKS OF GENERAL FUND PROPER Transfer of subsidy to Special Account Subsidy to Special Accounts Cash in Bank LCCA 898 110 500 500

BOOKS OF SPECIAL ACCOUNT (OPERATION OF PUBLIC MARKET) Receipt of subsidy from General Fund Proper Cash in Bank LCCA Subsidy from Special Accounts 110 606 500 500

7. REFUND OF CASH ADVANCES a. Cash Advance by an Officer for Local Travel a. To take up the cash advance b. To take up refund of cash advance Due from Officers & Employees Cash in Bank LCCA Cash in Treasury Due from Officers & Employees 128 110 101 128 10 10 10 10

b. Cash Advance by a Disbursing Officer for Salaries and Wages a. To take up the cash advance Cash Disbursing Officers Cash in Bank LCCA 107 110 10 10

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Particulars

Account Title

Acct. Code

Debit

Credit

b. To take up refund of cash advance

Cash in Treasury Cash Disbursing Officers

101 107

10 10

8. RECEIPT OF CASH BONDS a. To take up receipt of performance bond in cash b. To take up deposit of performance bond c. To take up refund of performance bond Cash in Treasury Performance/ Bidders/ Bail Bonds Payable Cash in Bank LCCA Cash in Treasury Performance/ Bidders/ Bail Bonds Payable Cash in Bank LCCA 101 414 110 101 414 110 50 50 50 50 50 50

D. DISBURSEMENTS Sec. 37. 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. 2. 3. 4. Personal Services Maintenance and Other Operating Expenses Capital Outlay Financial Expenses

Disbursements shall be covered by Disbursement 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 DV. Sec. 38. Certification on Disbursements. Disbursements from the general fund shall require the following certifications on the DV: 1. Certification and approval of vouchers and payrolls as to validity, propriety and legality of the claim (Box A of
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DV) by the head of the department or office who has administrative control of the fund concerned. In case of temporary absence or incapacity of the department head or chief of office, the officer next-in-rank shall automatically perform his function and shall be fully responsible therefor. 2. Necessary documents supporting the disbursement vouchers and payrolls as certified to and reviewed by the Accountant. (Box B of DV) 3. Certification that funds are available for the purpose by the Local Treasurer. (Box C of DV) Sec. 39. Approval of Disbursements. Approval of disbursements by the Local Chief Executive (LCE) himself shall be required whenever local funds are disbursed, except for regularly recurring administrative expenses such as: payrolls for regular or permanent employees, expenses for light, water, telephone and telegraph services, remittances to government creditor agencies such as GSIS, BIR, PHILHEALTH, LBP, DBP, NPO, PS of the DBM and others, where the authority to approve may be delegated. Disbursement vouchers for expenditures appropriated for the operation of the Sanggunian shall be approved by the provincial Vice Governor, the city Vice Mayor or the municipal Vice Mayor, as the case may be. Sec. 40. Payments by Check. Checks shall be drawn only on duly approved disbursement vouchers. 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 the case of municipalities where no Administrator has been appointed, checks shall be countersigned by the municipal Mayor. In case, however, of expenditures appropriated for the operation of the Sanggunian, checks drawn shall be countersigned by the provincial Vice Governor, the city Vice Mayor, or the municipal Vice Mayor, as the case may be. Sec. 41. Recording Check Disbursements in the Cashbooks. All checks issued including cancelled checks shall be recorded chronologically in the Cashbook Cash in Bank.

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Sec. 42. Release of Checks. The Treasurer shall release the check only to the payee or his duly authorized representative. For purposes of releasing checks, the Treasurer shall maintain a Check Register where all checks issued shall be recorded chronologically and where the claimants shall be required to acknowledge receipt thereof. Sec. 43. Reporting of Checks Issued. The checks released to claimants shall be reported in the Report of Checks Issued (RCI) which shall be prepared daily by the Treasurer for each fund. It shall be submitted to the Accountant for preparation of Journal of Entry Voucher based on individual checks issued and recording in the Check Disbursements Journal. Sec. 44. Check Disbursement Process . The steps in disbursements through issuance of check is shown below: PROCESS PERSON / UNIT RESPONSI BLE Concerned Office

a.

Gather supporting documents, and approved ALOBS, prepare DV and forward to Head of Department. Sign Box A of DV and submit to the Accounting Unit. Check completeness of documents, assign number to DV, sign Box B and forward to Treasurer. Verify claim, certify cash availability (Box C) and forward to approving officer.

b. c.

Supervisor/Head of Department Accounting Unit

d.

Treasurer

Note: If funds are not available, return to Accountant for recording in the
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PROCESS

PERSON / UNIT RESPONSI BLE

books as Accounts Payable (AP). For AP, JEV shall be prepared by Accounting Unit and JEV number reflected in the DV. JEV for AP is recorded in General Journal. Accountant retains copy of DV and forwards to Treasurer. e. Approve transaction (Box D) and forward DV to Cashier. Prepare, sign check and forward check with DV to countersigning officer. Countersign check and forward to Accountant for preparation of the Accountants Advice of Local Check Disbursements. Prepare Accountants Advice of Local Check Disbursements and submit to bank. Return DV, check and supporting documents to Cashier/Treasurer. Record check in the Check Register and release check to claimant. Record disbursement in Cashbook Cash in Bank. Prepare Report of Checks Issued. Forward RCI with DV and supporting documents to Accounting Unit. Prepare the
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Local Chief Executive or authorized approving officer Treasurer

f.

g.

Administrator/ Vice-Mayor for the Local Sanggunian Disbursements Accountant

h.

i.

Treasurer

j.

JEV

Accounting Unit

PROCESS

PERSON / UNIT RESPONSI BLE

based on individual checks/voucher; sign Prepared By portion (approved by Chief Accountant), and record JEV in the Check Disbursements Journal. Post monthly to the General Ledger/Subsidiary Ledgers. k. Forward RCI, DV, supporting documents and JEV to the Office of the Auditor. Accountant

Sec. 45. Payments in Cash. Disbursements by cash shall be made from a cash advance drawn and maintained in accordance with COA rules and regulations. Cash payments shall be made only on duly approved payrolls/disbursement vouchers. Cash advances, by regular and special disbursing officers shall be recorded through a debit to Cash Disbursing Officers and a credit to Cash in Bank Local Currency, Current Account (LCCA). Sec. 46. Reporting of Cash Disbursements. To account for cash disbursements, from regular and special cash advances, the Accountable/Disbursing Officer shall prepare the Report of Disbursements and submit the original and duplicate copy with vouchers/payrolls/petty cash vouchers to the Accountant. He shall ensure that receipt of the report and supporting documents, are properly acknowledged by the Accountant. The Accountant shall verify the report including the completeness of the supporting documents, prepare the Journal of Entry Voucher (JEV) and record the transaction in the Cash Disbursements Journal. Sec. 47. Cash Advances for Travel. Cash advances for travel shall be recorded as debit to the account Due from Officers and Employees and a credit to Cash in Bank Local Currency, Current Account.

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For liquidation of travel where the amount of cash advance is equal to or more than the travel expenses incurred, the Liquidation Report form shall be prepared by the officers/employees concerned and submitted to the accounting unit as basis for preparation of the JEV to record liquidation. In case 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 reimbursement of the deficiency in amount. Sec. 48. Payments 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 LGU for one month. Disbursements from the fund shall be through the Petty Cash Voucher (PCV) which shall be signed by the payee to acknowledge the amount received. The official receipt shall be attached to the PCV. Petty cash fund shall be set up at the beginning of the year. An ALOBS shall be prepared for the fund, recorded in the RAAO and obligated as Other Expenses. Payments out of the fund shall be made through the use of PCVs duly supported by official receipts and other required documents. Each PCV shall not exceed Php1,000.00. A Disbursement Voucher shall be prepared for replenishments of the petty cash fund during the year duly supported by a list/summary of PCVs, the PCVs and its supporting documents. ALOBS shall be prepared for each replenishment and recorded in the RAAO based on actual expenses incurred. At the end of the year, the petty cash fund shall be fully liquidated by preparing a Report of Disbursement supported by the list/summary of PCVs, the PCVs and its supporting documents. The ALOBS setting up the fund at the beginning of the year shall be cancelled. Another ALOBS shall be prepared taking up the liquidation and recorded in the RAAO based on the actual expenses incurred. Unused cash shall be returned to the Treasurer who shall issue an Official Receipt to acknowledge the amount returned. A new
31

Cash Advance for Petty Cash Fund shall be set up in the ensuing year. Sec. 49. Cash Disbursement Process. Disbursement process for payment of salaries and wages out of cash advances is as follows: PROCESS PERSON / UNIT RESPONSI BLE Concerned offices

a. Processing of Payrolls to be paid by cash is the same as that of steps (a) to (e) for check disbursements. b. Gather duly certified and approved payrolls to be paid out of cash advance. Prepare DV for cash advance corresponding to the net amount of payroll/s. Sign Box A of DV and submit to the Accounting Unit. c. Check completeness of documents/ previous cash advance liquidated, assign number to DV, sign Box B and forward to Approving Officer. d. Approves DV and forward to Treasurer for preparation of checks.

Office of the Treasurer

Accounting Unit

Local Chief Executive

e. Prepare and sign check, and forward check with DV to countersigning officer. f. Countersign check and forward to Accountant for preparation of Advice.

Treasurer

Administrator

g. Prepare Accountants Advice of Local Check Disbursements and


32

Accountant

PROCESS

PERSON / UNIT RESPONSI BLE

return DV, check and supporting documents to Cashier/Treasurer. h. Encash check and pay claimants. Record disbursement in Cashbook Cash Advances. i. Return unused cash to the Treasurer/ Cashier. An official receipt (OR) shall be issued by the Treasurer/Cashier to acknowledge the return of unused cash and indicate check no. of cash advance granted on the face of OR. Record the refund as credit to cash advance and attach OR to the Cashbook Cash Advances. Prepare Report of Disbursement, attach paid payrolls/ supporting documents and copy of OR for unused cash advance returned to Treasurer/Cashier. Sign "Certified Correct portion of Report of Disbursement and submit to Accounting Unit. Treasurer/ Disbursing Officer Disbursing Officer

j.

Disbursing Officer

k. Prepare JEV to record the liquidation of cash advance. Record JEV in the Cash Disbursements Journal (CDJ). Post monthly to the General Ledger/ Subsidiary Ledger. l. Forward Report of Disbursement and supporting documents including JEV to the Office of the Auditor.

Accountant

Accountant

33

Sec. 50. Purchase or Construction of Property, Plant and Equipment. Property, plant and equipment include land and land improvements, buildings, equipment, motor vehicles, books, machineries, ordnance, etc. and public infrastructure. These are charged against appropriations/allotments for capital outlay when obligated. Property, plant and equipment acquired through purchase shall include all costs incurred to bring it to the location necessary for its intended use, like transportation, freight, installation costs, etc. In the books of accounts, the purchase is immediately recorded as asset. Property, plant and equipment to be constructed may be classified as agency assets and public infrastructures. Agency assets are those to be used by the LGU concerned, like buildings, while public infrastructures are those to be used by the general public. The construction period theory shall be used in recording both types of assets. This means that expenses such as license fees and bonus paid to contractor for completing the work ahead of schedule, etc. during the construction period shall be added to the total cost of the project. However, liquidated damages charged to the contractor for delayed completion should be deducted from the total cost. During the construction period, 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 for agency asset is closed to the appropriate asset account. For public infrastructures funded out of regular income, the Construction in Progress account 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 (RPI). 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

34

funded from loans shall be made in the Notes to Financial Statements. Sec. 51. Purchase of Supplies. Purchase of supplies and materials for stock regardless of whether or not they are consumed within the accounting period shall be recorded as assets using the Inventory account following the Perpetual Inventory Method (refer to Chapter 7 Supplies or Property). However, supplies and materials purchased out of the Petty Cash Fund for immediate use or for emergency shall be taken up as expenses. Sec. 52. Pro-forma Accounting Entries. Pro-forma accounting entries for disbursement transactions are shown below:
Particulars Account Title
Acct. Code

Debit

Credit

1. Payment through Cash Advances a. Cash advance for personal services Enter obligation in RAAOPS for P18,000 Salaries and Wages, P5,000 Additional Compensation, and P3,000 Personnel Economic Relief Allowance (PERA). 1. Grant of cash advance for payroll Cash Disbursing Officers Cash in Bank LCCA Salaries and Wages Regular Pay PERA Additional Compensation Withholding Taxes Payable GSIS Payable PAG-IBIG Payable Cash Disbursing Officers 107 110 21,000 21,000

2. Liquidation of cash advance for payroll

801 804 805 410 411 412 107

18,000 3,000 5,000 2,000 1,500 1,500 21,000

Enter obligation in RAAOPS for P1,500 Life and Retirement Insurance Contributions and P1,500 PAG-IBIG Contributions. 3. Government share for Life and Retirement

35

Particulars life and retirement insurance and PAGIBIG Contributions

Account Title Insurance Contributions PAG-IBIG Contributions GSIS Payable PAG-IBIG Payable

Acct. Code

Debit 1,500 1,500

Credit

817 818 411 412

1,500 1,500

b. Petty Cash Fund For establishment of fund, Enter obligation in RAAOMO as Other Expenses for P6,000 1. Release of cash advance for petty cash fund miscellaneous expenses Petty Cash Fund Cash in Bank LCCA 105 110 6,000 6,000

Enter obligation in RAAOMO for Office Supplies P2,500, Travelling Expenses P500, Office Equipment Maintenance P1,000 and Other Expenses of P800. 2. Replenishment of petty cash fund during the year Traveling Expenses Local Office Supplies Expenses Office Equipment Maintenance Other Expenses Cash in Bank LCCA 831 849 882 950 110 500 2,500 1,000 800 4,800

Enter obligation in RAAOMO for Office Supplies P4,000 and Traveling Expenses of P1,000. 3. Liquidation at year end Traveling Expenses Local Office Supplies Expenses Petty Cash Fund 831 849 105 1,000 4,000 5,000

Cancel RAAOMO for setting up of petty cash fund at the start of the year and refund for a total of P6,000. 4. Return of unused Petty Cash Fund. Cash in Treasury Petty Cash Fund 101 105 1,000 1,000

36

Particulars c. Cash advance for travel

Account Title

Acct. Code

Debit

Credit

Enter obligation in RAAOMO for Travel of P1,000 1. Grant of cash advance Due from Officers and Employees Cash in Bank LCCA Traveling Expenses Local Due from Officers and Employees 128 110 831 128 1,000 1,000 900 900

2. Liquidation of cash advance during the current year (assuming only P900 was utilized and P100 was refunded)

Adjust RAAOMO for refund of cash advance of P100 3. For amount refunded where official receipt was issued 2. Payment by Check a. Maintenance and Other Operating Expenses Enter obligation in RAAOMO for rent P3,000 1. Payment of rent Rent Expense Cash in Bank LCCA 841 110 3,000 3,000 Cash in Bank LCCA Due from Officers and Employees 110 128 100 100

Enter obligation in RAAOMO for electricity of P1,500 and telephone/internet of P2,000 2. Payment of utilities (MERALCO and PLDT) Electricity Telephone/Telegraph and Internet Cash in Bank LCCA 835 837 110 1,500 2,000 3,500

Enter obligation in RAAOMO for training and seminar expenses of P1,000 3. Payment of seminar fee Training and Seminar Expenses Cash in Bank LCCA 833 110 1,000 1,000

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Particulars b. Financial Expenses

Account Title

Acct. Code

Debit

Credit

Enter obligation in RAAOFE for bank charges of P300 1. Bank charges upon receipt of bank statement Bank Charges Cash in Bank LCCA 951 110 300 300

Enter obligation in RAAOFE for interest expense of P400 2. Interest Expense Interest Expenses Cash in Bank LCCA 952 110 400 400

c. Office Equipment Enter obligation in RAAOCO for P6,000 for purchase of equipment 1. Issuance of PO to dealer 2. Receipt of office equipment Office Equipment Cash in Bank LCCA 222 110 No entry 6,000 6,000

d. Construction of Roads by Contract Enter obligation in RAAOCO for P800,000 for construction of road. 1. Payment of first Construction in billing for 50% Progress Roads, accomplishment Highways and Bridges 232 400,000 Withholding Taxes Payable 410 40,000 Cash in Bank LCCA 110 360,000 2. Payment of second billing 100% accomplishment Construction in Progress Roads, Highways and Bridges Withholding Taxes Payable Cash in Bank LCCA Withholding Taxes Payable Cash in Bank LCCA

232 410 110 410 110

400,000 40,000 360,000 80,000 80,000

3. Remittance of taxes withheld

38

Particulars Account Title If funded from regular agency income 4. To take up roads completed Public Infrastructure Construction in Progress Roads, Highways and Bridges Government Equity Public Infrastructures

Acct. Code

Debit 800,000

Credit

243

232 501 243 800,000

800,000 800,000

5. To transfer completed roads to Registry of Public Infra- structures at the end of the year

Note: Using the JEV for the above transactions, the public infrastructures shall be recorded in the Registry of Public Infrastructures.

If funded from a loan 6 To record completed roads Public Infrastructures Construction in Progress Roads, Highways and Bridges Government Equity Public Infrastructures 243 800,000

232 501 243 800,000

800,000 800,000

At year end,upon full payment of laon

e. General Repair/Construction of Building by Administration 1. Approval of the project P1M No entry

Enter obligation in RAAOCO for P600,000 for construction materials 2. Issue PO for building materials: Lumber, nails, cement, sand and gravel, paints, etc. = P600,000 3. Payment for construction materials received Construction Materials Inventory Withholding Taxes Payable Cash in Bank LCCA No Entry

156 410 110

600,000 60,000 540,000

39

Particulars 4. Issuance of materials P590,000

Account Title Construction in Progress Agency Assets Construction Materials Inventory

Acct. Code

Debit

Credit

230 156

590,000 590,000

Enter obligation in RAAOCO for P380,000 for labor 5. Cash advance granted to Disbursing Officer for payroll 6. Liquidation by Disbursing Officer of paid payroll Cash Disbursing Officers Cash in Bank LCCA Construction in Progress Agency Assets Withholding Taxes Payable Cash Disbursing Officers Withholding Taxes Payable Cash in Bank LCCA Buildings Construction in Progress Agency Assets 107 110 350,000 350,000

230 410 107 410 110 204 230

380,000 30,000 350,000 30,000 30,000 970,000 970,000

7. Remittance of withholding tax 8. Accomplishment Report approved by the LCE

f. Acquisition of Land Enter obligation in RAAOCO for P2million for purchase of land 1. Payment made for land purchased Land Withholding Taxes Payable Cash in Bank LCCA 201 410 110 2M 200,000 1.8M

2. Remittance of withholding tax

Withholding taxes Payable Cash in Bank LCCA

410 110

200,000 200,000

40

Particulars g. Land and Building

Account Title

Acct. Code

Debit

Credit

Enter obligation in RAAOCO for P600,000 for land and P400,000 for building 1. Payment of the land and building (assessed value of land is P600,000) for P1,000,000 2. Remittance of withholding tax Land Building Withholding Taxes Payable Cash in Bank LCCA Withholding Taxes Payable Cash in Bank LCCA 201 204 410 110 410 110 100,000 100,000 600,000 400,000 100,000 900,000

h. Purchase of Inventories Enter obligation in RAAOMO for purchase of P2,500 worth of spare arts 1. Payment of delivered spare parts Spare Parts Inventory Withholding Taxes Payable Cash in Bank LCCA 155 410 110 2,500 250 2,250

i. Enter obligation in RAAOMO for purchase of office supplies 1. Payment of office supplies delivered Office Supplies Inventory Withholding Taxes Payable Cash in Bank LCCA 149 410 110 3,000 300 2,700

j. Fund Transfers Enter obligation in RAAOMO for subsidy to LGU XYZ 1. Cash assistance to LGU XYZ Subsidy to Local Government Units Cash in Bank LCCA 895 110 30,000 30,000

k. Enter obligation in RAAOMO for subsidy to SEF 1. Cash transfer to SEF as subsidy Subsidy to Other Funds Cash in Bank LCCA 897 110 10,000 10,000

41

Particulars

Account Title

Acct. Code

Debit

Credit

l. Enter obligation in RAAOMO for grants and donation to Trust Fund 1. Cash transfer to Trust Fund as counterpart LGU funds. Grants and Donations Cash in Bank LCCA 889 110 500,000 500,000

E. MISCELLANEOUS TRANSACTIONS Sec. 53. 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 maybe considered miscellaneous transactions: 1. 2. 3. 4. Loss of Cash and Property Accountability Cash Overage Dishonored Check Lost/Destroyed/Stale/Obsolete and Fraudulently Encashed Check 5. Settlement of Suspensions/Disallowances/Charges 6. Refund of Overpayments Sec. 54. Loss of Cash and Property. 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. 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 Journal of Entry Voucher to take up the shortage as a receivable from the accountable officer concerned. In case of loss of property due to other causes (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
42

be disclosed in the notes to financial statements pending result of request for relief from accountability. Sec. 55. Grant of Relief from Accountability. When a request for relief for shortages or loss of funds is granted, a copy of the decision shall be forwarded to the Chief Accountant who shall draw a JEV to record the transaction. The loss shall be debited to the Loss of Assets account and credited to the appropriate receivable account. In case the request for relief is denied, immediate payment of the shortage shall be demanded from the accountable officer. Restitution shall be acknowledged by the issuance of an official receipt. In case the request for relief from accountability for loss of property caused by fire, theft, force majeure or other causes is granted, a copy of the decision shall likewise be forwarded to the Chief Accountant for the preparation of the JEV. The loss shall be debited to the Loss of Assets account and credited to the appropriate asset account. If request for relief from accountability is denied, the loss shall be taken up as a receivable from the accountable officer/persons liable and shall be credited to the appropriate asset account. Sec. 56. 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 taken up as Other Specific Income. Sec. 57. Dishonored Checks. A check is said to be dishonored when upon its being duly presented for payment, such payment is refused or cannot be obtained. Upon receipt of the debit memo and the dishonored check(s) 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 CashbookCash in Bank and cancel payment in the taxpayers index card. He shall also notify the collector/teller of the dishonor and the cancellation of the official receipt. The collector/teller shall note the cancellation in the triplicate copies of the receipt . The
43

Treasurer shall then inform the Auditor who shall effect the cancellation in the duplicate copy of 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 checks to the Accountant. The Accountant shall cancel the official receipt if still in his possession. He shall prepare the Journal of Entry Voucher (JEV) taking up the dishonored check by crediting the Cash in Bank account and debiting the appropriate income account. In case of dishonor of check payments for Real Property Tax (RPT) or Special Education Tax (SET), the RPT/SET Receivables and corresponding Deferred RPT/SET Income shall be restored. The accounts Due to LGUs, RPT Income, Cash in Bank and RPT Discount shall be adjusted accordingly. He shall furnish the Treasurer with a copy of the duly approved JEV. The Treasurer shall record the JEV number in the Cashbook-Cash in Bank as reference in the entry effecting the cancellation of the dishonored check. Sec. 58. 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 LGU 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 furnished the treasurer as basis for him to debit the amount in the Cashbook Cash in Bank. Sec. 59. Spoiled and Stale Checks. Checks may be cancelled when they become 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.

44

It is stale, if it has been outstanding for over six months from date of issue or as prescribed by the depository bank. At least one month before a check becomes 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 and reported as follows: 1. For spoiled checks which are immediately cancelled and for which the Report of Checks Issued (RCI) has not yet been 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 DV 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 DV 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 DV 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 prepared at the period of cancellation. The replacement check shall also be reported chronologically in the RCI.

2.

3.

Sec. 60. Suspensions, Disallowances and Charges. Disallowances and charges shall be taken up in the books of accounts only when they become final and executory. The Accountant shall prepare the Journal of Entry Voucher (JEV) to take up the Receivable Disallowances and Charges and credit the appropriate

45

expense account for the current year or prior years adjustment if pertaining to expenses of previous years. Cash settlement of disallowances shall be recorded thru the JEV by debiting Cash in Treasury and crediting the Receivable Disallowances and Charges account. Suspensions in audit and settlement thereof shall not be recorded in the books of accounts. Sec. 61. Pro-forma Accounting Entries. The following the are pro-forma accounting entries for miscellaneous transactions:
Particulars 1. Cash Shortage a. Cash shortage of the of the Disbursing Officer To take up cash shortage Due from Officers and Employees Cash Disbursing Officers 128 107 50 50 Account Title
Acct. Code

Debit

Credit

b. Cash Shortage of the Treasurer To take up cash shortage Due from Officers and Employees Cash in Treasury 128 101 50 50

2. Grant of Relief from Accountability for Loss of Government Funds To record the loss of fund by a Disbursing Officer (allegedly thru theft ) = P50 To take up relief from accountability Due from Officers and Employees Cash Disbursing Officers Loss of Assets (current year) or Prior Years adjustments (prior years) Due from Officers and Employees 128 107 50 50

948 128

50 50

46

Particulars Account Title Debit Code 3. Cash Settlement in case of denial of Request for Relief from Accountability To take up payment/settlement Cash in Treasury Due from Officers and Employees 101 128 50

Acct.

Credit

50

4. Cash Overage To take up cash overage discovered during cash examination 5. Dishonored Checks From payment of real property tax in the current year or prior year Upon receipt of advice of dishonored check and cancellation of Official Receipt Real Property Tax Receivable Deferred Real Property Tax Income Due to LGUs Real Property Tax Income Cash in Bank LCCA Receipt of refund/settlement Cash in Treasury Real Property Tax Receivable 124 448 431 711 110 101 124 30 20 50 50 50 50 50 Cash in Treasury Other Specific Income of LGU 101 792 50 50

6. Lost/Destroyed/Stale/Obsolete Checks Check issued in the current/prior year for replacement Check cancellation Replacement Cash in Bank LCCA Accounts Payable Accounts Payable Cash in Bank LCCA 110 401 401 110 50 50 50 50

7. Disallowances and Charges

47

Particulars

Account Title

Acct. Code

Debit

Credit

a. Recording of disallowance for current years transaction When the disallowance becomes final and executory Overpayment of Office Supplies Amount paid - P100 Should be - 90 Difference - 10 Settlement of Disallowance Receivables Disallowances/ Charges Office Supplies Expense

138 849

10 10

Cash in Treasury Receivables Disallowances/ Charges

101 138

10 10

b. Recording of disallowance for prior years transaction When the disallowance becomes final and executory Receivables Disallowances/ Charges Prior Years Adjustments Cash in Treasury Receivables Disallowances/ Charges

138 533 101 138

10 10 10 10

Settlement of disallowance

c. Settlement of Charges c.1 Recording of charges which collection were made in the current year When the charge becomes final and executory Underpayment of Franchise Tax Amount Paid - P 100 Should be - 110 Charge - 10 Receivables Disallowances/ Charges Franchise Tax

138 724

10 10

Settlement

Cash in Treasury

101

10

48

Particulars

Account Title Receivables Disallowances/ Charges

Acct. Code

Debit

Credit 10

138

c.2 Recording of charges which collection were made in the prior year When the charge becomes final and executory Receivables Disallowances/ Charges Prior Years Adjustments Cash in Treasury Receivables Disallowances/ Charges

138 533 101 138

10 10 10 10

Settlement

8. Refund of Overpayment a. Overpayment taken up as receivable To record overpayment of salaries and wages (When overpayment is ascertained) To record refund of overpayment Due from Officers and Employees Salaries and Wages Regular Pay Cash in Treasury Due from Officers and Employees 128 801 101 128 10 10 10 10

b. Refund of overpayment not taken up as receivable Refund of overpayment of Salaries and Wages Regular Pay during the current year To take up refund of over payment in the ensuing year Cash in Treasury Salaries and Wages Regular Pay 101 801 10 10

Cash in Treasury Prior Years Adjustments

101 533

10 10

F. ADJUSTING AND CLOSING ENTRIES


49

Sec. 62. Adjusting Entries. Adjusting entries are accounting journal entries made in order to ensure that revenues and expenses are recorded in the period when they are earned or incurred following the revenue recognition and the matching principles. Adjusting entries are required every time financial statements are prepared. The use of the adjusting entries makes it possible to report on the Balance Sheet the appropriate assets, liabilities and equity accounts at the statement date and the Statement of Income and Expenses the net income/(loss) for the period. Sec. 63. Types of Adjusting Entries. There are two types of adjusting entries: a. Prepayments; and b. Accruals Sec. 64. Prepayments. Prepayments are expenses paid or revenues received before they are incurred or earned. Adjusting entries for prepayments are required at the statement date to record the portion of the prepayment that represents the expense incurred or the revenue earned in the current accounting period. Sub-categories of prepayments are prepaid expenses and unearned revenues. Prepaid expenses are expenses paid in cash and recorded as assets before they are used or consumed. Prepaid expenses expire either with the passage of time (e.g. rent) or through use and consumption (e.g. supplies). The adjusting entry for prepaid expenses is a debit to the expense account and a credit to the asset account. Examples are rent, supplies, etc. Acquisition of productive facilities is viewed essentially as long term prepayments, hence, periodic adjusting entries for depreciation are included in this category. For depreciation, the entry is a debit to depreciation expense and a credit to accumulated depreciation . The depreciable or estimated life for different types of agency assets are presented in Table 2 (Annex 7). Unearned revenues are recorded as a liability when received and considered earned upon rendition of service (e.g. tuition fees) or the passage of time (e.g. advance payment of real property taxes). The adjusting entry for unearned revenues is a debit to a liability account and a credit to revenue account.

50

Illustrative accounting entries:


Particulars 1. Report of supplies utilized for P2,000. Account Title Office Supplies Expense Office Supplies Inventory Deferred Credits to Income Real Property Tax
Acct. Code

Debit 2,000

Credit

849 149

2,000

2.

Application of advance RPT for P2,500.

440 711

2,500 2,500

Sec. 65. Accruals. Accruals are revenues earned and expenses incurred in the current accounting period that have not yet been recorded. Adjusting entries for accruals are required to record revenues earned and expenses incurred in the accounting period. Adjusting entry for accrued revenues is a debit to a receivable account and a credit to an income account. Examples are interest, share from internal revenue collections covered by notice of funding checks issued, etc. Adjusting entry for accrued expenses is a debit to the appropriate expense account and a credit to a payable account. Examples are accrued salaries, bad debts, etc. For bad debts, the entry is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts. Illustrative accounting entries:
Particulars 1. Receipt of the Notice of Funding Check Issued for the December Share from Internal Revenue Collections for P20,000. Account Title Due from NGAs Share from Internal Revenue Collections
Acct. Code

Debit 20,000

Credit

130 746

20,000

2. Unpaid salaries and wages of employees,

Salaries and Wages Regular Pay

801

50,000

51

Particulars at end of accounting period, P50,000.

Account Title Due to Officers & Employees

Acct. Code

Debit

Credit 50,000

428

Sec. 66. Closing Journal Entries. Closing journal entries are the accounting entries prepared to reduce all balances of the nominal accounts to zero at the end of the accounting period in order to prepare the accounts for the next accounting period. The procedure followed in the reduction of the balances is called the closing process. The closing process is as follows: 1. 2. 3. Debit all revenue accounts balances and credit the total to the Income and Expense Summary account. Credit all expense accounts balances and cost of goods sold and debit the total to the Income and Expense Summary account. Debit the credit balance of the Income and Expense Summary account and credit the amount in the Retained Operating Surplus account, in case of a net income. Credit the debit balance of the Income and Expense Summary account and debit the amount in the Retained Operating Surplus account, in case of a net loss. Debit all credit balances of the intermediate accounts and debit the total to the Government Equity account. Credit all debit balances of the intermediate accounts and credit the total to the Government Equity account.

4.

5. 6.

Illustrative accounting entries:


Particulars 1. To close the Revenue accounts to the Income and Expense Summary account. Account Title Real Property Tax Share from Internal Revenue Collections
Acct. Code

Debit 100 10,000

Credit

711 746

Business Taxes & Licenses

723

50

52

Particulars

Account Title Registration Fees Income and Expense Summary

Acct. Code

761 532

Debit 20

Credit 10,170

2.

To close the Income and Expense Summary to Retained Operating Surplus account. To close the Retained Operating Surplus to Government Equity account.

Income and Expense Summary Retained Operating Surplus

532 534

5,670 5,670

3.

Retained Operating Surplus Government Equity

534 501

5,670 5,670

53