THE GOVERNMENT ACCOUNTING PROCESS

- comprises the activities of analyzing, recording, classifying, summarizing and communicating

transactions involving the receipt and disposition of government funds and property, and
interpreting the results thereof.

Books of accounts and registries

The books of accounts and registries of government entities consists of:

1. Journals

a. General Journal

b. Cash Receipts

c. Cash Disbursements Journal

d. Checks Disbursements Journal

2. Ledgers

a. General Ledgers

b. Subsidiary Ledgers

3. Registries

a. Registries of Revenue and Other Receipts (RROR)

b. Registry of Appropriation and Allotments (RAPAL)

c. Registries of Allotments, Obligations, and Disbursements (RAOD)

d. Registries of Budget, Utilization and Disbursements (RBUD)

Journals

- a record of financial transactions in order by date.

- book of original entry

a. General Journal – used to record transactions not recorded in the Special Journals.

Special Journals:

b. Cash Receipts Journal – used to record the Report of Collection and Deposit and Cash Receipts
Register of collecting officers.

 Report of Collection and Deposit (RCD) – prepared by a collecting officer to report

his/her collections and deposits to an Authorized Government Depository Bank (AGDB).

 Cash Receipts Register (CRReg) – used by field offices without a complete set of books to
record their cash collections and deposits in the books of their mother unit
(central/regional/division office)

c. Cash Disbursements Journal – used to record the cash disbursements of the Disbursing Officer.

d. Check Disbursement Journal – used to record the check disbursements of the Disbursing Officer.

Ledgers

-Principal book of accounts and it forms a permanent record of all business transactions.

Types:

a. General Ledger – summarizes all transactions recorded in the journals

b. Subsidiary Ledgers – show details of each control account in the general ledger.
BUDGET REGISTRIES

1. Registries of Revenue and Other Receipts (RROR) - used to monitor the budgeted amounts,
actual collections and remittances of revenue and other receipts.

2. Registry of Appropriations and Allotments (RAPAL) – used to monitor appropriations and

allotments. This is to ensure that allotments will not exceed appropriation.

3. Registries of Allotments, Obligations and Disbursements (RAOD) – used to monitor the

allotments received, obligations incurred against the corresponding allotment, and the actual
disbursements made. This is to ensure that obligations incurred will not exceed allotments while actual
disbursements will not exceed the obligations incurred.

 Object of Expenditures
Classifications:
a. Personnel Services (PS) – pertain to all types of employee benefits, e.g., salaries, bonuses,
allowances, cash gifts, etc.
b. Maintenance and Other Operating Expenses (MOOE) – pertain to various operating expenses
other than employee benefits and financial expenses, e.g., travel, utilities, supplies, etc.
c. Financial Expenses (FE) – pertain to finance costs, e.g., interest expense, bank charges, etc.
Financial expenses also include losses on foreign exchange transactions.
d. Capital Outlays (CO) – pertain to capitalizable expenditures, e.g., expenditures on the
construction of public infrastructures, acquisition costs of equipment.

4. Registries of Budget, Utilization, and Disbursements (RBUD) – used to record the approved
special budget and the corresponding utilizations and disbursements charged to retained income.

Basic recordings:

1. Disbursement Authority – Notice of Cash Allocation (NCA)

Journal Entry:

Cash- Modified Disbursement System (MDS), Regular xx

Subsidy from National Government xx

To recognize receipt of NCA from the DBM

2. Disbursements

I. Personnel Services (PS)

a. Set up of payable to officers and employees upon approval of payroll

Entry:

Salaries and Wages, Regular xx

Personal Economics Relief Allowance (PERA) xx

Due to BIR xx

Due to GSIS xx

Due to Pag-IBIG xx

Due to PhilHealth xx

Due to Officers and Employees xx

To recognize payable to officers and employees upon approval of payroll

b. The payable is recorded to ORS.

c. Grant Cash Advance for payroll.

Entry:

Advances to Payroll xx

Cash- MDS, Regular xx

To recognize grant of cash advance for payroll

d. The disbursement is recorded in the ORS and RAOD.

e. Liquidation of Payroll Fund

Entry:

Due to Officers and Employ xx

Advances for Payroll xx

II. Remittances of amounts withheld

a. Remittance of taxes withheld through TRA.

Entries:

Cash- Tax Remittance Advice xx

Subsidy from National Government xx

To recognize the constructive receipt of NCA for TRA

Due to BIR xx

Cash- Tax Remittance Advice xx

To recognize the constructive remittance of taxes to the BIR through TRA.

b. Remittances to the GSIS, Pag-IBIG and PhilHealth.

Entry:

Due to GSIS xx

Due to Pag-IBIG xx

Due to PhilHealth xx

Cash- MDS, Regular xx

To recognize remittance in GSIS, Pag-IBIG and PhilHealth

c. The disbursements above are recorded in the ORS and RAOD.

3. Billings, Collections, and Remittances

a. Billing of revenue/income

Entry:

Accounts Receivable xx

Rent/Lease Income xx

b. Collection of billed income and remittance of income to BTr.

Entries:

Cash- Collecting Officers xx

Accounts Receivable xx

To recognize collection of billed income

Cash- Treasury/Agency Deposit, Regular xx

Cash- Collecting Officers xx

To recognize remittance of income to BTr

4. Adjusting entries

 Reversion of unused Notice of Cash Allocation (NCA)

 Depreciation

 Impairment loss

Reversion of Unused notice of Cash Allocation (NCA)

Entry:

Subsidy from National Government xx

Cash- Modified Disbursement System (MDS), Regular xx

To recognize reversion of unused NCA

5. Closing Entries

 The following are the necessary closing entries:

a. Closing of the “Cash- Treasury/Agency Deposit, Regular” account to the “Accumulated

Surplus/(Deficit)” account.

b. Closing of the “Subsidy from National Government” account to the “Revenue and Expense
Summary” account.

c. Closing of income and expense accounts to the “ Revenue and Expense Summary” account to
the “Accumulated Surplus/(Deficit)” account.

Entries:

a. Accumulated Surplus/(Deficit) xx

Cash- Treasury/Agency Deposit, Regular xx

To recognize closing of cash deposit

b. Subsidy from National Government xx

Revenue and Expense Summary xx

To recognize closing of subsidy account

c. Immigration Tax xx

Permit Fees xx

Registration Fees xx

Other Service Income xx

Power Supply System Fees xx

Salaries and Wages, Regular xx

PERA xx

Depreciation xx

Impairment Loss xx

Revenue and Expense Summary xx

To recognize closing income and expense accounts

Revenue and Expense Summary xx

Accumulated Surplus/(Deficit) xx

To recognize closing of revenue and expense summary

NONPROFIT ORGANIZATION
A nonprofit organization is a non-stock corporation that is organized for the benefit of the public as a
whole, rather than for the benefit of an individual proprietor, or a group of partners or stockholders.
Therefore, the concept of net income is not the primary objective of a nonprofit organization.

Nonprofit include civic organization, colleges and universities, cultural institutions, hospitals, labor
unions, private foundations, professional organizations, religious organization, cooperatives, and social
and country clubs. They do not include government units.

Characteristics of Nonprofit Organizations

 PUBLIC SERVICE

Renders services to SOCIETY as a whole. The members of this society may range from a
limited number of citizens.

 NO PROFIT MOTIVES

The objective of NPOs is not to earn profits. Therefore, NPOs are exempted from income taxes,
but not from business tax.

 FINANCE BY THE CITIZENRY

Most NPOs depend on the voluntary contribution of the citizenry to support their
operations, because revenues derived from their services are not enough to cover their operating
expenses.

 STEWARDHIP OF RESOURCES

Since substantial portion of the resources of NPOs I donated, the organization must account for
the resource on a stewardship basis like the government entities.

Fund Accounting by Nonprofit Organizations

Separate funds are necessary to separate assets to be used as authorized by the Board of Directors and
assets that are restricted by donors.

Funds usually used by NPOs are

 UNRESTRICTED FUND

 RESTRICTED FUND

 Unrestricted fund Include all the assets of a nonprofit organization that are available for use as
authorized the board of directors and not restricted for specific purpose.

Revenue from unrestricted funds are derived from a number of sources.

Patient services

Unrestricted donations

Student tuition fees

Membership dues

CONTRIBUTED MATERIALS,SERVICES AND FACILITIES

- Aside from cash contributors, nonprofit organizations often receive contribution materials,
services, and facilities.

Other Operating Revenues

Income derived from other related activities other than services revenues of nonprofit
organizations, examples are proceeds from gift shops, cafeterias, snack bars, newsstand and etc.

Restricted Fund

Assets are obtained from (1) restricted gifts or grants from Individuals or government entities, (2)
revenues from restricted fun investments, (3) realized and unrealized gains or investments of the
restricted funds, and (4) restricted income from endowment funds.

Temporarily restricted

• specific-purpose funds

• Time restricted funds

• Plant replacement and expansion funds

Permanently restricted funds

-Are assets that are to be held an indefinite period of time and generally are included in an endowment
fund.

Other Funds of NONPROFIT ORGANIZATIONS

Endowment fund(restricted)

- The principal must be maintained indefinitely and may only be expended after the passage of
time or the occurrence of an event specified by the donor. Revenues from permanent
endowment may be expended by the NPO.

Agency Fund

- Used to account for assets held by NPO as a custodian. The assets are disbursed only as
instructed by their owner.

Plant Fund
- The components of the plant vary among nonprofit organizations. Normally, plant fund is composed of
(1) unexpected funds to be used in thee acquisition of physical properties, (2) renewal and replacement
funds, (3) retirement of indebtedness funds, and (4) funds previously expended to acquire properties.

Recognition and Measurement

Cash and other Non-cash assets

- Recognized as revenues in the period received and as assets, decreases of liabilities, or

expenses depending on the form of the benefits received.
- Measured at fair value at the date of contribution and are reported as either:
a. Unrestricted support- revenue from unrestricted contributions.
b. Restricted support- revenue from temporarily restricted or permanently restricted
contributions.

 Unrestricted- available for immediate use and for any purpose.

 Temporarily restricted- restricted by donor in such a way that the availability of
the contribution for the NPO’s use is dependent upon the performance of a
specific task, the happening of a future event, or the passage of time.
 Permanently restricted- restricted by donor in such a way that the organization
will never be able to use the contribution itself; however, the organization may
be able to use the income therefrom.
Unconditional Promise to give cash or other non-cash assets

- Recognized when the unconditional promise to give is received from the donor.
- Classified as temporarily restricted because of the time restriction (to be received in the
future)

Conditional Promises

- Recognized when the attached conditions are substantially met.

- Considered as unconditional when the possibility that the conditions will be met is
reasonably certain.
- A transfer of assets with a conditional promise to contribute them shall be accounted
for as a refundable advance (liability) until the conditions have been substantially met.

Services

- Recognized if services received create or enhance nonfinancial assets, or require

specialized skills, provided by individuals possessing those skills, and would typically
need to be purchased if not provided by donation.

Contributed services and promises to give service that do not meet those criteria are not
recognized

Works of art and similar items

- An entity need not recognize contributions of works of art, historical treasures, and
similar assets if the donated items are added to collections that meet all of the following
conditions:
a. Held for public exhibition, education, or research in furtherance of public service
rather than financial gain
 b. Protected, kept unencumbered, cared for, and preserved; and
c. Proceeds from sales of collection items are to be used to acquire other items for
collections.

Other funds held by NPOs

 Endowment fund
a. Term endowment fund- under the donor’s restrictions, the NPO can use a
portion of the principal each period. (classified as temporarily restricted)
b. Regular endowment fund- under the donor’s restrictions, the NPO cannot
spend any of the principal. (Permanently restricted)
Income from either term or regular endowment fund is used according to donor’s
instruction.

 Agency Fund
- Funds held by NPO acting as a custodian.
- Recognized as liabilities
(ex. Educational institution may receive funds from CHED to be disbursed as student
loans.)
 Plant fund- consists of the ff:
a. Unexpended funds for the acquisition of plant assets
b. Funds for the renewal and replacement of plant assets
c. Funds for the retirement of indebtedness
d. Investment in plant assets
 Board designated fund (Quasi-endowment)
- Funds which are restricted at the sole discretion of the NPO’s governing
board (ex. Board of Trustees)
- Considered as unrestricted

Deferral Method of Recognizing Contributions

- Under Deferral method, restricted contributions are initially considered as liability

(Deferred revenue) and recognized as revenue in the same period where the related
expenditures, for which the contributions were intended to reimburse, are occurred.

Ex: On Feb. 15,2019, an NPO received P2M cash donation conditioned on the acquisition
of a truck.

Feb. 15,2019 Cash 2,000,000

Deferred Revenue 2,000,000

 The NPO acquired a truck for P2M on Jan. 1,2020. The truck will be depreciated
over a 10-year useful life using straight-line method.

Jan. 1,2020 Transportation Equipment-Truck 2,000,000

Cash 2,000,000

Dec. 31,2020 Depreciation Expense 200,000

Accumulated Depreciation 200,000

Deferred Revenue 200,000

Contributions Revenue 200,000

Financial Statements (under PFRSs and SFAS No. 117)

1. Statement of Financial Position- shows information on assets, liabilities, and net assets.

 SFAS No. 117 requires reporting of net assets in the SOFP according to the
following classifications:
1. Unrestricted net assets
2. Temporarily restricted net assets
3. Permanently restricted net assets
(PFRS-based FS may present net assets using these classifications either on the SOFP or in the notes)

2. Statement of Activities- shows information on revenues, expenses, and changes in net

assets for a period.

 SFAS No. 117 requires that the statement of activities report the changes in net
assets for each of the 3 categories of support separately.
 In a statement of activities, the term “profit” or “net income” is replaced by the
term “change in net assets”.
 Expenses are reported as decreases in unrestricted net assets.
 SFAS No.117 requires expenses to be presented in the SOA or in the notes
according to their function.
a. Program Services- Major purpose and the major output of the organization
b. Supporting activities- activities other than program services.

3. Statement of Cash Flows

 Similar to that of a business entity
 Can be prepared using the direct or indirect method.
 Restricted assets acquired during the period that are used for long-term
purposes because of donor restrictions are classified as Financing Activities.

MISCELLANEOUS TOPICS
LEARNING OBJECTIVES

> Account for Service Concession Arrangements by Grantor

DEFINITION OF TERMS

Binding Arrangements - are contracts and other arrangements that confer similar rights and
obligations on the parties to it as if they were in the form of a contract

Service Concession Asset - is an asset used to provide public services in a service concession
arrangement

Grantor- is the public sector entity (government entity) that grants the right to use the service
concession asset to the operator

Operator - is the private entity that uses the service concession asset to provide public services
subject to the grantor’s control of the asset
Service Concession Arrangements

Binding arrangement between a grantor and an operator in which:

> Operator uses the service concession asset to provide a public service on behalf of the
grantor for a specified period of time.

> The operator is compensated for its services over the period of service concession
arrangement.

Other terms for Service Concession Arrangements

> Build-operate-transfer (BOT) arrangements

> Rehabilitate-operate-transfer

> Public-private service concession

> Private-public partnership (PPP)

EXAMPLES OF CONCESSION ARRANGEMENTS UNDER R.A. NO. 7718

1. Build-Operate-and-Transfer (BOT)

The private entity awarded with the contract undertakes to finance the construction of an
infrastructure facility and operate it for a fixed term not to exceed 50 years. At the end of
the term, the facility is transferred to the government.

2. Build-Transfer-and-Operate (BTO)

The private entity awarded with the contract undertakes to complete the construction of a
facility assuming cost overruns, delays, and specified performance risks. Upon completion,
the facility is immediately transferred to the government. The private entity operates the
facility in behalf of the government.

3. Rehabilitate-Operate-and-Transfer (ROT)

The private entity awarded with the contract undertakes to rehabilitate or refurbish an
existing facility of the government then operate it for a certain period. At the end of the
period, the facility is reverted back to the government.

4. Contract-add-and-Operate (CAO)

The private entity adds to an existing infrastructure facility, which it is renting from the
government, then operates the added

5. Develop-Operate-and-Transfer (DOT)

The private entity awarded with an infrastructure project is also given the right to develop
an adjoining property, thereby enjoying some benefits in the form of higher property or
rent values brought about by the government infrastructure project the added facility over
an agreed period. Ownership of the facility may or may not be transferred to the
government.

A. RECOGNITION AND MEASUREMENT OF ASSET

The grantor recognizes a service concession asset if:

 > The grantor controls or regulates what services the operator must provide with the
asset, to whom it must provide them, and at what price

> The grantor controls, through ownership, beneficial entitlement or otherwise, any
significant residual interest in the asset at the end of the term of the arrangement.

Initial measurement

A service concession asset is initially measured at :

a. Fair Value, if the asset is provided by the operator in accordance with the recognition
criteria In (a) and (b) above.

b. Cost, in accordance with the measurement principles for PPE or Intangible Assets, as
appropriate, if the asset is reclassified from the existing assets of the grantor

Subsequent measurement

Subsequently accounted for as service concession tangible asset (a separate class of PPE)

Or as service concession intangible asset (a separate class of intangible assets)

B. Recognition and Measurement of Liability

The grantor recognized a service concession asset:

> Related liability measured at the same amount, adjusted for any consideration from or
to operator.

An existing asset is reclassified as a service concession asset:

> No liability recognized except for additional considerations

The grantor may compensate the operator by:

> Making payments to the operator (financial liability model)

> Granting the operator the:

• Right to collect fees from users of the service concession asset

• Right to access another revenue-generating asset for the operator’s use

C. Financial Liability Model

The grantor recognizes a financial liability if it incurs an unconditional obligation to pay cash
or another financial asset to the operator in exchange for the service concession asset.

The payments shall be allocated as reduction from:

> liability

> Finance charge

> Charges for services provided by operator

Where the asset and service components of service concession arrangement:

 Separately Identifiable - Payments allocated thru relative FV of components

 Not Separately Identifiable - Grantor shall estimate service component of payments
 D. Grant of Right to the Operator Model

The grantor recognizes a liability for the unearned portion of the revenue from
exchange of assets between the grantor and the operator.

The grantor recognizes revenue for the earned portion over the contract term.
E. Dividing the Arrangement

 Grantor shall allocate the total liability to these elements;

 Account them separately

F. Impairment and Derecognition

The grantor uses the same principles used for PPE and intangible assets to account for
the impairment or derecognition of service concession assets.

ILLUSTRATIVE ACCOUNTING ENTRIES

1. Financial Liability Model

Date Service Concession – Road Network xx

Service Concession Arrangement Payable xx
To recognize the service concession asset

Date Interest Expenses xx

Service Concession Arrangement Payable xx
To recognize finance charge prior to payment

Date Service Concession Arrangement Payable xx

Cash- Modified Disbursement System, Regular xx
To recognize payment of liability

Date Depreciation - Service Concession, Road Networks xx

Accumulated Depreciation - Service Concession xx
To recognize depreciation

2. Grant of Right to Operator Model

Date Service Concession – Road Networks xx

Deferred Service Concession Revenue xx
To recognize the service concession asset
Date Deferred Service Concession Revenue xx
Service Concession Revenue xx
To recognize revenue based on economic substance of the service
concession arrangement