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MODULE 1 NATURE AND SCOPE OF THE NEW GOVERNMENT ACCOUNTING SYSTEMS

Learning Focus

Nature and Scope of the New Government Accounting System

Accounting is an effective tool in financial management. In evaluating the Agency performance

vis-a-vis financial targets, a public manager largely depends on financial information generated
by the accounting system.

Considering the crucial role accounting information plays in enabling public managers to come up
with appropriate and strategic decisions, it is imperative for the accounting system to be flexible
and responsive to diverse needs of users. While the same must be comprehensive, it must also
be simple to facilitate better understanding and appreciation, even by those who are not
technically knowledgeable in accounting.

Cognizant of the foregoing and of the need for an accounting system which will generate financial
reports that reflect a more realistic picture of government operations, the Commission on Audit
(COA), in exercise of the authority granted under Section 2(2), Article IX-D of the 1987
Constitution, prescribed the New Government Accounting System (NGAS).

NGAS introduced the basic policies and procedures, the new coding system, the accounting
systems, books, registries, records, forms, reports and financial statements to be adopted by all
national government agencies effective January 1, 2002.

Objectives

Under the old government accounting system, accounting entries were made manually, thereby,
necessitating the maintenance of numerous special journals complete with several wide columns.

With so many journals and records to maintain, the manual accounting system proved complex
and tedious. Moreover, the generated financial reports also provided financial information, which
often proved ineffectual to those who do not have a background in government accounting.

Hence, to expedite the process of recording transactions and to ensure the generation of
functional and user-friendly financial reports, a shift to a simplified and updated accounting system
was made.

Specifically, the shift to the New Government Accounting System was made in order to respond
to the need for the following:

1. The adoption of a system that is in conformity with International Accounting Standards;

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2. Pursuit of eventual computerization, which will include responsibility accounting, thereby

ensuring the generation of various reports that are useful to management, lawmakers and
the general public;
3. Generation of relevant and periodic financial statements; and
4. Effective tool for managers and executives in effective and efficient monitoring of agency
performance.

Government Accounting

Even under the new accounting system, government accounting is defined, pursuant to Section
109 of PD 1445, as one which "'encompasses the process of analyzing, recording, classifying,
summarizing and communicating all transactions involving the receipt and disposition of
government fund and property and interpreting the result thereof."
Section 110, Presidential Decree 1445 sets down the following objectives of government
accounting:

1. To produce information concerning past operations and present conditions;

2. To provide a basis for guidance for future operations;
3. To provide for control of the acts of public bodies and offices in the receipt, disposition fnd
utilization of funds and property; and
4. To report on the financial position and the results of operations of government agencies
for the information and guidance of all persons concerned.

Information of past operations and present conditions will facilitate the evaluation of the
performance of an agency from one period to another. The results of the evaluation may guide
the manager on what course of action to take as regards future operation, as well as come up
with a proper analysis of the funds needed for a project.

Public officers are accountable for the resources entrusted to them. The accounting data will show
whether or not the agency is achieving its mandates as well as its operational objectives.
Moreover, the financial reports will also show the extent of the agency's financial and non-financial
resources, which have useful lives. An evaluation of said information will enable the users to
determine the "service potential" of the agency’s resources, as well as give an indication when
additional resources need to be injected into the operation.

The accounting data will also show the obligations of the agency and how such obligations have
been incurred. The information should tell its users the sources of resources, which will meet
these obligations. The information should show an analysis of the inflow and outflow of resources,
especially of financial resources.

Accounting Responsibility

Accounting responsibility emanates from the Constitution, laws, policies, rules and regulations.
The Constitution of the Philippines, the fundamental law of the land, mandates the keeping of the
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general accounts of the government, promulgation of accounting rules, and the submission of
reports covering the financial condition and operation of the government.

The offices charged with the accounting responsibility are the Commission on Audit (COA), the
Department of Budget and Management (DBM), the Bureau of Treasury (BTr), and the
government Agencies discharging the functions of government to enable it to attain its
commitments to the Filipino people.

Commission on Audit

The Commission on Audit keeps the general accounts of the government, promulgates
accounting rules and regulations, and submits to the President and Congress, within the time
fixed by law (not later than the last day of September each year - Section 41, PD 1445), an annual
report of the government, its subdivisions, agencies and instrumentalities, including government-
owned or controlled corporations.

In the performance of its functions, as mandated by Article IX-D, Section 2 par. (2) of the 1987
Constitution of the Philippines, to wit: 'The Commission on Audit shall have exclusive authority,
subject to the limitation in this Article, to define the scope of its audit and examination, establish
the techniques and methods required therefore, and promulgate accounting and auditing rules
and regulations, including those for the prevention and disallowance of irregular, unnecessary',
excessive, extravagant, or unconscionable expenditures, or uses of government funds and
properties," the Commission on Audit revised the previous government accounting system.

Under the new accounting system, the Commission on Audit no longer journalizes the
appropriation and allotment released by the Department of Budget and Management.
The Department of Budget and Management

Pursuant to Section 2, Chapter 1, Title XVII, Book IV of the Administrative Code of the Philippines
(EO 292), "The
Department of Budget and Management shall be responsible for the formulation and
implementation of the National Budget with the goal of attaining our national socio-economic plans
and objectives. The Department shall be responsible for the efficient and sound utilization of
government funds and revenues to effectively achieve the country's development objectives."

Consistent with the aforementioned mandate, the Department of Budget and Management is
tasked to control and monitor appropriations and allotments through the registries it shall maintain:
Registry of Appropriations and Allotments (RAPAL) and Registry of Special Purpose Fund
Appropriation (RESPFA). Under the NGAS, it shall also maintain the Registry of Allotments and
Notice of Cash Allocation (RANCA) for its control and monitoring of Notice of Cash Allocation
releases.

The Bureau of Treasury

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The Bureau of Treasury plays a pivotal role in the cash operations of the national government.
Accounting rules and regulations pertaining to cash operations, collections, remittances and
disbursements, including public borrowings, are issued by the Commission on Audit, jointly or with
the concurrence of the Department of Finance and the Department of Budget and Management.

Under the Revised Administrative Code, the Bureau of Treasury, as one of the operating bureaus
of the Department of Finance is authorized to:
1. Receive and keep national funds, manage and control the disbursements thereof, and
2. Maintain accounts of financial transactions of all national government offices, agencies
and instrumentalities.

Under the new accounting system, the Bureau of Treasury shall maintain the Registry of NCA and
Replenishments (RENREP) for control and monitoring of NCA released by the Department of
Budget and Management. In addition, it shall monitor bank transfers it makes in replenishing its
MDS accounts.

The Government Agencies

Departments, bureaus, offices and other instrumentalities of the National Government, including
the Congress, the Judiciary, the Constitutional bodies, state colleges and universities, and other
self-contained institutions and hospitals are required by law to have accounting
units/divisions/departments, which are to be of the same level with other
units/divisions/departments in the agency and under the direct supervision of the Head of the
Agency. Accounting personnel shall (1.) maintain and keep current the accounts of the agency,
(2.) provide advice on the financial condition and status of the appropriations and allotments of
the agency as its Head may require, and (3.) to develop and conduct procedures designed to
meet the needs of management. They shall perform the aforesaid duties in accordance with
existing laws, rules, regulations, procedures and comply with the reporting requirements of the
Commission on Audit, the Department of Finance and the Department of Budget and
Management. Failure to comply with these requirements is sufficient ground for dismissal from
the government service.

Unlike in the old accounting system, the agency shall now journalize the Notice of Cash Allocation
(NCA) it receives, which in effect, identifies the share of agency in the income of the national
government. Under the new accounting system, the government agencies will no longer journalize
its appropriations and allotments, instead, it shall maintain the following four registries for the
allotments it receives and for the obligations it incurs:

1. Registry of Allotments and Obligations - Personal Services (RAOPS)

2. Registry of Allotments and Obligations - Maintenance and Other Operating Expenses
(RAOMO)
3. Registry of Allotments and Obligations - Capital Outlay (RAOCO)
4. Registry of Allotments and Obligations - Financial Expenses (RAOFE)
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BASIC FEATURES AND POLICIES OF NGAS

The New government Accounting System (NGAS) is a simplified set of accounting concepts,
guidelines and procedures designed to ensure correct, complete and timely recording of
government financial transactions, and production of accurate and relevant financial reports. The
basic features are as follows:

Accounting Methods

A modified accrual basis of accounting shall be used. Under this method, all expenses shall be
recognized when incurred and reported in the financial statements in the period to which the\
relate. Income shall be recognized on accrual basis except for transactions where accrual basis
is impractical or when other methods are required b\ law

Under the old government accounting system, the basis of accounting are accrual basis and cash
basis The constitution provides that all lawful expenditures and obligations incurred during the \
ear shall be taken up in the accounts of that year; thus, the accrual basis of accounting is applied

As to income and revenue, there is no law or policy which expressly provides when income and
revenue shall be recognized. As a practice, income and revenue are recognized when earned
except in case of taxes, where revenues that remain unrealized at the close of the fiscal year shall
not be recognized. Typically, taxes are estimated at the start of the coming year, but are not
considered realized until actually collected. Since it is difficult to determine from whom, and how
much of these taxes are collectible, the cash basis of accounting is applied.

One Fund Concept

In government accounting, fund is both a sum of money set aside for a specific purpose, and an
independent fiscal and accounting entity. It is created by the Constitution and by legislative
enactments, which direct that certain receipts be collected or collections generated and accounted
for as a special resource to carry out specific activities or attain certain objectives. Under the old
government accounting system, as provided by the Constitution, all income accruing to the
agencies shall accrue to the General Fund of the government; and all money collected on any tax
levied for a special purpose shall be treated as a Special- Fund.

The NGAS adopts the one fund concept, and that is the general fund, which s generally available
for all functions of government Separate fund accounting shall be done only when specifically
required by law or by a donor agency or when otherwise necessitated by circumstances subject
to prior approval of the Commission, in which case, a Special Purpose Fund may be created.
Special Purpose Fund is a fund appropriated for purposes other than those provided in the regular
funds of government agencies, such as:

1. Miscellaneous Personnel Fund – which is used to cover personnel benefits which are not
provided for in the regular budget of the agency
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2. Calamity Fund – which is used to cover relief, rehabilitation, reconstruction and other
services in connection with calamities that may occur during the budget year
3. Organizational Adjustment Fund – which is used to cover budgetary requirements of a
newly created organization, program/project/activity within an agency

Chart of Accounts and Account Codes

A new chart of accounts and coding structure with a three-digit account numbering system (as
compared with the previous codes of six-digits) shall be adopted. Accounts titles have been
changed and some titles have been added. There are no longer contingent accounts.
Expenditures charged to capital outlay are no longer classified as expenses. Financial expenses
have been categorized as separate expense items. Income accounts have been categorized into
general income accounts and Agency specific income accounts.

Responsibility Accounting

Responsibility accounting is a system that relates the financial results to a responsibility center,
which provides access to cost and revenue information under the supervision of a manager having
direct responsibility for its performance. It is a system that measures the plans (by budget) and
actions (by actual results) of each responsibility center.

Responsibility center, on the other hand, is a part, segment, unit or function of a government
agency, headed by a manager, who is accountable for a specified set of activities. Except for
some, which derive most of their income from collection of taxes and fees, national government
agencies are basically cost centers, whose primary purpose is to render service to the public at
the lowest possible cost. Cost centers are established to provide each government agency's
accessibility to cost information and to facilitate cost monitoring at any given period. While the use
of subsidiary ledgers is sufficient to control cost, it requires considerable time to summarize the
cost incurred by the agency for its different programs, projects, activities and offices/divisions;
hence, responsibility accounting shall be done only under the computerized accounting system.

Responsibility accounting aims to:

1. ensure that all costs and revenues are properly charged/credited to the correct
responsibility center so that deviations from the budget can be readily attributed to
managers accountable therefore;
2. provide a basis for making decisions for future operations; and
3. facilitate review activities, monitoring the performance of each responsibility center and
evaluation of the effectiveness of agency's operations.

The following are the concepts of responsibility accounting:

1. Responsibility accounting involves accumulating and reporting data on revenues and
costs on the basis of the manager's action, who has authority to make the day-to-day
decisions about the items;
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2. Evaluation of a manager's performance is based on the matters directly under his control;
3. Responsibility accounting can be used at every level of management in which the following
conditions exist:
a. Cost and revenues can be directly associated with the specific level of management
responsibility;
b. Costs and revenues are controllable at the level of responsibility with which they are
associated; and
c. Budget data can be developed for evaluating the manager's effectiveness in
controlling the costs and revenues.
4. The reporting of costs and revenues under responsibility accounting differs from budgeting
in two aspects:
a. A distinction is made between controllable and non-controllable costs. a1. A cost is
considered controllable at a given level of managerial responsibility if that manager
has the power to incur it within a given period of time. It follows that all costs are
controllable by' top management because of the broad range of its activity, and fewer
costs are controllable as one moves down to lower level of management responsibility
because of the manager's decreasing authority.
a2. Non-controllable costs are costs incurred indirectly and allocated to a
responsibility level.
b. Performance reports either emphasize or include only items controllable by individual
manager.
5. A responsibility reporting system involves the preparation of a report for each level of
responsibility. Responsibility reports usually compare actual costs with flexible budget
data. The reports show only controllable costs and no distinction is made between variable
and fixed costs.

6. Evaluation of a manager's performance for cost centers is based on his ability to meet
budgeted goals for controllable costs.

In order to be effective in identifying the performance of a segment or unit of the agency under
the control and responsibility of the segment's manager, the coding structure has been formulated
as follows:
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Books of Accounts

The books of original entries such as: Journal of Collections and Deposits, Journal of
Disbursements, Journal of
Checks Issued, Journal and Analysis of Obligations, and Journal of Bills Rendered shall no longer
be used. Only the General Journal shall be used. The books of original entry or journals, shall be
used to record in time sequence, financial transactions and information presented in duly certified
and approved accounting documents. The basis for recording in the journals shall be the Journal
Entry Voucher (JEV)

While agencies are waiting for the computerization of the accounting system, four special journals,
in addition to the General Journal, shall be used, namely: (1.) Cash Receipt Journal (Regular
Agency Books): (2.) Cash Journal (National Government Books): (3.) Check Disbursements
Journal, and (4 ) Cash Disbursements Journal.

Moreover, all national agencies shall maintain two sets of accounting books to wit:

1. Regular Agency (RA) Books

These shall be used to record the receipt and utilization of Notice of Cash Allocation (NCA)
and other income/receipts, which the agencies are authorized to use and to deposit with
Authorized Government Depositors Bank (AGDB) and the national treasury. These shall
consist of journals and ledgers, as follows:

Journals:
1. Cash Receipt Journal (CRJ)
2. Cash Disbursements Journal (CDJ)
3. Check Disbursements Journal (CkDJ)
4. General Journal (GJ)
Ledgers:
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1. General Ledger (GL)

2. Subsidiary' Ledgers (SL) for:
a. Cash
b. Receivables
c. Inventories
d. Investments
e. Property, Plant and Equipment
f. Construction in progress
g. Liabilities
h. Income
i. Expenses

2. National Government (NG) Books

These shall be used to record income, which the agencies are not authorized to use and
arc required to be remitted to the National Treasury. These shall consist of the following:

1. Cash Journal (CJ)

2. General Journal (GJ)
3. General Ledger (GL)
4. Subsidiary Ledger (SL)

With the implementation of the computerized agency accounting system, only the General Journal
shall be used together with the ledgers by both books.

Financial Statements

Under the new accounting system, the following financial statements shall be prepared:

1. Balance Sheet – 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 direct from
the year-end Post Closing Trial Balance.
2. Statement of Government Equity – shows the financial transactions, which resulted to the
change in Government Equity account at the end of the year.
3. 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.
4. Statement of Cash Flows - 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 receipt and cash payments during the period The primary purpose
of this statement is to give relevant information on the agency's overall cash position,
liquidity, and solvency.
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Notes to financial statements shall accompany the above statements.

Two-Money Column Trial Balance

Under the old government accounting system, the trial balance is a four- money column listings
of all general ledger accounts used in the operations of the agency, whether, the accounts are
with or without balance. The four columns are composed of: Debit Balance, Debit Totals, Credit
Totals, and Credit Balance. It has the general appearance of the general ledger sheets and the
accounts are listed in the order they appear in the Standard Chart of Accounts,
The NGAS adopts the two-money column trial balance similar to commercial accounting. The
advantage of a twomoney column trial balance over a four-column one is that the presentation of
financial transactions is very simple. It can readily understood by users other than accountants.
Hence students, teachers, lawmakers and government managers, who are only interested in the
balances rather than in the cumulative totals of individual account will readily appreciate the
significance of the figures presented therein.

Allotment and Obligation

Allotment is the authorization issued by the Department of Budget and Management to an agency
thereby enabling the Agency to incur obligation up to a specified amount that is within legislation
appropriation.

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

Obligation accounting is modified to simplify procedures in the incurrence and liquidation of

obligations and the recording of the budgetary accounts (allotments and obligations incurred and
liquidated). Separate registries shall be maintained to control the allotments and obligations for
each of the four classes of allotments, namely:

1. Registry of Allotments and Obligations - Capital Outlay (RAOCO)

2. Registry of Allotments and Obligations - Maintenance and Other Operating Expenses
(RAOMO)
3. Registry of Allotments and Obligations - Personal Services (RAOPS)
4. Registry of Allotments and Obligations - Financial Expenses (RAOFE)

Notice of Cash Allocation (NCA)

Notice of Cash Allocation is an authorization issued by the Department of Budget and

Management to government agencies to withdraw cash from the National Treasury through the
issuance of Modified Disbursement System (MDS) checks or other authorized mode of
disbursements.
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The receipt of Notice of Cash Allocation by the agency shall be recorded in the Regular Agency
(RA) books as debit to account "Cash-National Treasury, Modified Disbursement System (MDS),
and credit to account " Subsidy Income from National Government."

Pursuant to the Tax Remittance Advice (TRA) system, the NCA released by the Department of
Budget and Management to the agency is reduced by the estimated taxes expected to be remitted
by the Agency to the Bureau of Internal Revenue through the TRA.

Financial Expenses

Financial expenses such as bank charges, interest expenses, commitment charges, documentary
stamp expenses and other related expenses shall be separately classified from Maintenance and
Other Operating Expenses (MOOE). Financial expenses also include losses incurred relative to
foreign exchange transactions and debt service subsidy to Government Owned-Controlled
Corporations (GOCC).

Under the old government accounting system, these financial expenses are recognized as
components of Maintenance and Other Operating Expenses (MOE).

Perpetual Inventory of Supplies and Materials

Purchase of supplies and materials for stock, regardless of whether or not they are consumed
within the accounting period, shall be recorded under the Inventory account. Under the perpetual
inventory method, an inventory control account is maintained in the General Ledger on a current
basis.

Regular purchases shall be recorded under the Inventory' account and issuance thereof shall be
recorded based on the Report of Supplies and Materials Issued. Purchases out of petty cash fund
shall be charged immediately to the appropriate expense accounts.

The moving average method of costing shall be used for costing inventories. This is a method
calculating the value of inventory on the basis of weighted average cost on the date of issue. The
accounting unit shall be responsible in computing the cost of inventory on a regular basis.

Maintenance of Supplies and Property, Plant and Equipment Ledger Cards

For appropriate check and balance, the accounting units of agencies, as well as the Property
Offices, shall maintain Supplies Ledger Cards/' Stock Cards by stock number, and Property, Plant
and Equipment Ledger Cards/Property Cards by category of property, plant and equipment,
respectively.
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Construction of Assets

For assets under construction, the Construction Period Theory shall be applied for costing
purposes. Bonus paid to the contractor for completing the work ahead of time shall be added to
the total cost of the project. Liquidated damages charged and paid for by the contractor shall be
deducted from the total cost of the project. Any related expenses incurred during the construction
of the project, such as taxes, interest, license fees, permit fees, clearance fee, etc. shall be
capitalized, and those incurred after the construction shall form part of operating costs.

Registry of Public Infrastructures/Registry of Reforestation Projects

For agencies that construct public infrastructures, such as: roads, bridges, waterways, railways,
plaza, monuments, etc., and invest on reforestation projects, a Registry of Public Infrastructures
(RPI)/Registry of Reforestation Projects (RRP) shall be maintained for each specific
infrastructure/reforestation project.

A Registry of Public Infrastructures - Summary shall be maintained for each classification of

projects. Examples are:
1. Registry of Public Infrastructures - Bridges (RPIB)
2. Registry of Public Infrastructures - Roads (RPIR)
3. Registry of Public Infrastructures - Parks (RPIP)

A Schedule of Public Infrastructures/Reforestation Projects shall be prepared at year-end and

included in the Notes to Financial Statements.

Depreciation

The straight-line method of depreciation shall be used for government property', plant and
equipment for a fair presentation of the financial statements. Depreciation shall start on the
second month after purchase of the property, plant and equipment, and a residual value
equivalent to ten percent (10%) of the purchase cost shall be set-up. Public
Infrastructures/Reforestation Projects, as well as serviceable assets that are no longer being
used, shall not be charged any depreciation.
For uniformity in the application of useful life and simplification in its computations, the estimated
useful life of government property, plant and equipment by classification shall be as follows, as
per COA circular No. 2003-007 dated December 11, 2003:

Property Years
Land and Improvements:
Land Improvements 10
Runways/taxiways 20
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Railways 40
Electrification, Power, Energy Structures 10
Buildings - those that are predominantly
Wood 10
Mixed 20
Concrete 30
Leasehold Improvements *
Land 10
Building
Wood 10
Mixed 20
Concrete 30
Office Equipment, Furniture and Fixtures
Office Equipment 5
Furniture and Fixtures 10
IT Equipment – Hardware 5
Library Books 5
Machinery and Equipment
Machinery 10
Agricultural, Fishery and Forestry 10
Airport Equipment 10
Communication Equipment 10
Construction and Heavy Equipment 10
Firefighting Equipment and Accessories 7
Hospital Equipment 10
Medical, Dental and Laboratory 10
Military and Police Equipment 10
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Sports Equipment 10
Technical and Scientific Equipment 10
Other Machinery and Equipment 10
Transportation Equipment
Motor Vehicles 7
Trains 10
Aircraft and Aircraft Ground Equipment 10
Watercrafts 10
Other Transportation Equipment 10
Other Property, Plant and Equipment 5

* The estimated useful life of leasehold improvements shall depend

on the length of the lease. It shall be the period of the lease or the
estimated useful life of the assets, as given, whichever is shorter.

Reclassification of Assets

Serviceable assets no longer being used shall be reclassified to the "Other Assets" account and
shall not be subject to depreciation. Also included under "Other Assets" are obsolete and
unserviceable assets awaiting final disposition.

Allowance for Doubtful Accounts

An allowance for doubtful accounts, one of the new accounts under the New Government
Accounting System, shall be set-up for estimated uncollectible trade receivables to allow for their
fair valuation. This account is used to record reduction in the value of trade receivable accounts,
which is estimated as uncollectible based on CO A standard/policies.

This account is debited for accounts of customers/clients, which have been determined to be
uncollectible for which authority to write-off has been granted. Accordingly, this account is credited
for estimated amount of uncollectible accounts.

Recognition of Liability
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Liability shall be recognized at the time goods and services are accepted or rendered and
supplier/creditor bills are received.

Specifically, accounts payable account is used to record obligations/indebtedness to

contractors/suppliers arising from the purchase of goods and services and other obligations in
connection with the agencies' operation/ trade/ business.

Elimination of Contingent Accounts

Contingent accounts shall no longer be used. All financial transaction shall be recorded using the
appropriate accounts. Cash shortages and disallowed payments, which become final and
executory shall be recorded under receivable accounts, "Due from Officers and Employees" or
Receivables - Disallowance Charges", as the case may be.

Under the old government accounting system, contingent assets are used to record claims for
accounts in dispute, such as unrelieved losses of current and fixed assets, court exhibits,
accountable officer, shortages, disallowed payments and dishonored checks. Each contingent
asset has a contra account either a contingent liability or a contingent surplus.

Interest Accrual

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

Interest income account is used to record all interest earned on deposits with banks, loans and
investments in bonds, treasury notes, treasury bills and promissory notes held.

Interest expense account is used to record charges imposed as a consequence of the use of
money belonging to others, such as interest in bonds. Loans, treasury bills, treasury notes,
certificate of indebtedness, and other interest bearing financial obligations.

Accounting for Borrowings and Loans

All borrowing and loans incurred shall be recorded under the appropriate liability accounts, which
include among others the following:

1. Loans Payable - Long-term, Domestic - used to record long-term indebtedness (in cash
or in kmd) from domestic creditors evidenced by a contract or an agreement.

This account is debited for settlement/payment of matured portion of the loan; and
accordingly credited for receipt of the proceeds of long-term loans from domestic sources.
ALDERSGATE COLLEGE
ACCOUNTING FOR GOVERNMENT,
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NOT-FOR-PROFIT ENTITIES AND
SPECIALIZED INDUSTRIES

2. Loans Payable - Long-term, Foreign - used to record long-term indebtedness (in cash or
in kind) from foreign governments or international financial institutions evidenced by a
contract or an agreement.

This account is debited for settlement/payment of matured portion of the loan, and
decrease in liability due to FOREX gain upon revaluation. Accordingly, this is credited for
receipt of the proceeds of long-term loans from foreign sources, and increase in liability
due to FOREX loss upon revaluation.

Elimination of Corollary and Negative Journal Entries

The use of corollary and negative entries shall be discontinued. Acquisitions/Dispositions of

assets shall be debited/credited to the appropriate asset accounts. If an error is committed, a
correcting entry to adjust the original entry shall be prepared, that is by reversing the entries.

Under the old government accounting system, a corollary entry arises from the operation of
obligation accounting, in connection with, among others, inventories, supplies and materials, fixed
assets and long-term investments. Longterm loans contracted and its subsequent repayments
are booked-up through a corollary entry.

Under obligation accounting, the cost of acquiring inventories and those enumerated above are
direct charges against appropriations. The acquired assets are entered in the books of accounts
by corollary entry made at the time of obligation and/or actual receipt of asset. In case of long-
term loans, the proceeds of the loan contracted are credited to income and a corresponding
corollary entry is recorded to book-up the loan. The repay ment of the loans are charges against
appropriation for debt service, hence, a corollary entry is recorded to reduce the outstanding loan.

ILLUSTRATIONS:
1. To record obligation for the purchase of fixed
asset.
Appropriation allotted/Expenditures xxx

Obligation incurred xxx

 Corollary entry.

Fixed assets - In transit xxx

Invested surplus - Purchase or construction xxx

2. To liquidate obligation

Obligation liquidated xxx

TAAC - check disbursements xxx

ALDERSGATE COLLEGE
ACCOUNTING FOR GOVERNMENT,
SCHOOL OF BUSINESS AND ACCOUNTANCY
NOT-FOR-PROFIT ENTITIES AND
SPECIALIZED INDUSTRIES

3. Corollary entry

Fixed assets - General public service xxx

Fixed assets - In transit xxx

The negative entry (red entry) is a means of effecting a correction/adjustment by enclosing the
amount in parenthesis. Correcting or negative entry is used only when the following conditions
are all present, otherwise, the correcting/negative entry will be done, as it is in commercial
accounting, by reversing the entries.
1. The erroneous entry can no longer be corrected by mere crossing the entry;
and that both 2. The erroneous entry and the correcting entry are made during
the current year.

Petty Cash Fund

The Petty Cash Fund shall be maintained under the imprest system. As such, all replenishments
shall be directly charged to the expense account. At all times, the Petty Cash Fund shall be equal
to the total cash on hand and the unreplenished expenses. The Petty Cash Fund shall not be
used to purchase regular inventory/items for stock.

The account Petty Cash Fund is used to record in the books of the government agency the cash
granted to Regular or Special Disbursing Officers for the creation of the Petty Cash Fund. Such
fund shall only be used for payment of petty or miscellaneous authorized expenditures, which
cannot be conveniently paid by check.

This account is also debited for replenishment in the ensuing year of expenses not replenished at
the end of the year. Accordingly, this account is credited for adjusting entry to recognize expenses
paid out of the petty cash fund but not replenished at the end of the year, and final
liquidation/closing of the petty cash fund.

Foreign Currency Adjustments

Cash deposits in foreign currency and outstanding foreign loans shall be computed at the
exchange rate prescribed by the Bangko Sentral ng Pilipinas at the balance sheet date. The total
cash deposits and foreign loans payable shall be adjusted at the end of each month and any gain
or loss on foreign exchange shall be recognized. The subsidiary ledger for foreign currency
obligations shall reflect the appropriate foreign currency in which the loan is payable. The liability
shall be expressed both in the foreign and local currency.

Learning Activity

I. Multiple Choice
 ALDERSGATE COLLEGE
ACCOUNTING FOR GOVERNMENT,
SCHOOL OF BUSINESS AND ACCOUNTANCY
NOT-FOR-PROFIT ENTITIES AND
SPECIALIZED INDUSTRIES

C 1. It is the process of analyzing, recording, classifying, summarizing and communicating all

transactions involving the receipt and disposition of government funds and property and
interpreting the results thereof.
a. Government auditing
b. Government budgeting
c. Government accounting
d. National government

D 2. Which is not charged with the government accounting responsibility?

a. Commission on Audit
b. Department of Budget and Management
c. National Government Agencies
d. Legislative Department

A 3. What is the role of the Bureau of Treasury in relation to government accounting

responsibility?
a. To receive and keep national funds and manage or control disbursements thereof.
b. To design, prepare and approve the accounting systems of government agencies.
c. To keep the general accounts of the national government.
d. To prepare the annual financial report of the national government, its instrumentalities
and governmentowned or controlled corporations.

B 4. What is the legal basis of the Commission on Audit in prescribing the New Government
Accounting System manual?
a. PD 1445
b. Constitution of the Republic of the Philippines
c. COA Circular No. 2002-003
d. PD 1445 and the Constitution of the Republic of the Philippines

C 5. The books of accounts are composed of the following:

a. Regular Agency books and National Government books
b. National Government books and books of original entry
c. Journals and general/subsidiary ledgers
d. Regular Agency books and books of original entry

D 6. The following are the systems followed in the New Government Accounting System.
EXCEPT: a. Commercial accounting
b. Double-entry bookkeeping
c. Responsibility accounting
d. Fund accounting
ALDERSGATE COLLEGE
ACCOUNTING FOR GOVERNMENT,
SCHOOL OF BUSINESS AND ACCOUNTANCY
NOT-FOR-PROFIT ENTITIES AND
SPECIALIZED INDUSTRIES

A 7. What is the basis of accounting under the New Government Accounting System? a.
Modified accrual
b. Cash basis
c. Accrual basis
d. Strict Accrual

A 8. To provide for responsibility accounting, the New Government Accounting System uses a
standard chart of accounts with:
a. Three digits
b. Four digits
c. Five digits
d. Six digits

D 9. The New Government Accounting System must be comprehensive but flexible to ensure
that the need of the users of information can be addressed in a way that these will be
understood even by those, who have no technical knowledge of accountancy. These users
include all EXCEPT: a. Public managers
b. Officials and employees of the agency
c. Taxpayers
d. None of the above

C 10. The following are the objectives of the NGAS, EXCEPT:

a. Simplify government accounting
b. Conform to International Accounting Standards
c. Comply with the requirements of International Monetary Board
d. Generate periodic and relevant financial reports for better monitoring or performance

A 11. Special purpose fund is a fund appropriated for purposes other than those provided in the
regular funds of government agencies. Which of the following is a special purpose fund?
a. Organizational adjustment fund
b. Reimbursable fund
c. Sinking fund
d. General fund

D 12. Journals and ledgers are the books of accounts of the national government agencies.
Which of the following journals shall be used under the new government accounting
system? a. Journal of checks issued
b. Journal and analysis of obligations
c. Journal of bills rendered
d. General Journal
ALDERSGATE COLLEGE
ACCOUNTING FOR GOVERNMENT,
SCHOOL OF BUSINESS AND ACCOUNTANCY
NOT-FOR-PROFIT ENTITIES AND
SPECIALIZED INDUSTRIES

A 13. The books of original entry shall be used to record, in time sequence, financial transactions
and information presented in duly certified and approved accounting documents. What is
the basis in recording the financial transactions in the journals? a. Journal Entry Voucher
b. Journal of Checks Issued
c. Journal and Analysis of Obligations
d. Journal of Bills Rendered

C 14. Regular Agency (RA) books shall be used to record the receipt and utilization of Notice of
Cash Allocation and other income/receipts, which the agencies are authorized to use and
to deposit with Authorized Government Depository Bank and the national treasury. Which
of the following is NOT a Regular Agency book?
a. General Journal
b. General Ledger
c. Cash Journal
d. Cash Disbursements Journal

Posttest
1. Define government accounting under the New Government Accounting System.
Government accounting is defined, pursuant to Section 109 of PD 1445, as one which
"'encompasses the process of analyzing, recording, classifying, summarizing and
communicating all transactions involving the receipt and disposition of government fund
and property and interpreting the result thereof."

2. Enumerate the objectives of the New Government Accounting System.

1. To produce information concerning past operations and present conditions;

2. To provide a basis for guidance for future operations;
3. To provide for control of the acts of public bodies and offices in the receipt, disposition
and utilization of funds and property; and
4. To report on the financial position and the results of operations of government
agencies for the information and guidance of all persons concerned

5. Discuss briefly the ultimate objective of the Commission on Audit in shifting to the New
Government Accounting System.

Under the new accounting system, the Commission on Audit no longer journalizes the
appropriation and allotment released by the Department of Budget and Management.

6. Discuss the accounting responsibility of the following:

a. Commission on Audit- to define the scope of its audit and examination,
establish the techniques and methods required therefore, and promulgate
accounting and auditing rules and regulations, including those for the
prevention and disallowance of irregular, unnecessary', excessive,
ALDERSGATE COLLEGE
ACCOUNTING FOR GOVERNMENT,
SCHOOL OF BUSINESS AND ACCOUNTANCY
NOT-FOR-PROFIT ENTITIES AND
SPECIALIZED INDUSTRIES

extravagant, or unconscionable expenditures, or uses of government funds

and properties
b. Department of Budget and Management - responsible for the formulation and
implementation of the National Budget with the goal of attaining our national
socio-economic plans and objectives. The Department shall be responsible for
the efficient and sound utilization of government funds and revenues to
effectively achieve the country's development objectives.
c. Bureau of Treasury - Treasury shall maintain the Registry of NCA and
Replenishments (RENREP) for control and monitoring of NCA released by the
Department of Budget and Management.
d. National Government Agencies - Accounting personnel shall (1.) maintain and
keep current the accounts of the agency, (2.) provide advice on the financial
condition and status of the appropriations and allotments of the agency as its
Head may require, and (3.) to develop and conduct procedures designed to
meet the needs of management.
7. What are the exemptions where the one-fund concept could not be applied?
The NGAS adopts the one fund concept, and that is the general fund, which ss generally
available for all functions of government Separate fund accounting shall be done only
when specifically required by law or by a donor agency or when otherwise necessitated
by circumstances subject to prior approval of the Commission, in which case, a Special
Purpose Fund may be created.
8. What are the objectives of responsibility accounting under the New Government
Accounting System?
1. ensure that all costs and revenues are properly charged/credited to the correct
responsibility center so that deviations from the budget can be readily attributed to
managers accountable therefore;
2. provide a basis for making decisions for future operations; and
3. facilitate review activities, monitoring the performance of each responsibility center and
evaluation of the effectiveness of agency's operations.

4. Define the following:

a. Allotment- is the authorization issued by the Department of Budget and
Management to an agency thereby enabling the Agency to incur obligation up to a
specified amount that is within legislation appropriation.
b. Obligation- refers to the commitment by a government agency arising from an act
of a duly authorized official, which binds the government to the immediate or
eventual payments of a sum of money.
ALDERSGATE COLLEGE
ACCOUNTING FOR GOVERNMENT,
SCHOOL OF BUSINESS AND ACCOUNTANCY
NOT-FOR-PROFIT ENTITIES AND
SPECIALIZED INDUSTRIES

c. Notice of Cash Allocation - is an authorization issued by the Department of Budget

and Management to government agencies to withdraw cash from the National
Treasury through the issuance of Modified Disbursement System (MDS) checks
or other authorized mode of disbursements.
5. Discuss fully the basic features of the New Government Accounting System.
Accrual Accounting – A modified accrual basis of accounting is used, wherein, all
expenses and Income (except where accrual basis is impractical) shall be recognized
when incurred.
One fund Concept – As required under Sections 308, 309 and 310 of the Local
Government Code, separate books shall be maintained for the General Fund, Special
Education Fund and Trust Fund.

6. What are the differences between die new and the old government accounting system?

Under the old government accounting system, accounting entries were made manually,
thereby, necessitating the maintenance of numerous special journals complete with
several wide columns. Moreover, the generated financial reports also provided financial
information, which often proved ineffectual to those who do not have a background in
government accounting. While the New Government Accounting System expedite the
process of recording transactions and to ensure the generation of functional and user-
friendly financial reports, a shift to a simplified and updated accounting system.