Chapter 11

Government Accounting
Government accounting problems appear in nearly every CPA examination. Except in rare cases,
they are relatively easier than the other accounting problems. This is due, perhaps, in
recognition by those preparing the CPA examination that most candidates tend to avoid the
government accounting problems. At any rate, a candidate can earn more points by solving
government accounting problems using his general knowledge of accounting. Thus, to be
proficient in government accounting, candidates should have a fair knowledge of the following
aspects of government accounting:

1. Budgetary procedures.
2. General accounting procedures – General Fund (Agency Books)
a. Journal entries.
b. Preparation of trial balance.
c. Adjusting and closing entries.
d. Preparation of financial statements.

BUDGETARY PROCEDURES

An agency of the government is given authority to expend funds through the use of a control
device called budget. A budget is a legal authorization for expenditure based on a plan which
has been received and approved by Congress through an Appropriation Law.

The budgetary procedures are divided into four phases, as follows:

1. Preparation and Presentation. This phase covers the estimation, determination and
translation of government revenues, priorities and activities. Under this phase,
government agencies prepare their budgets to be submitted to the Department of
Budget and Management (DBM) for review. The DBM then consolidates all budgets to
form a government-wine budget estimate. This shall be submitted to the President for
final approval.
2. Budget Authorization. This phase involves the submission of the national government
budget to the Congress for review, and the formulation of an Appropriation Bill to be
forwarded to the President for approval.
3. Budget Execution and Operation. This phase covers the implementation of the various
operational aspects of the budget, such as the release of allotment to the various
agencies, the continuing review of government fiscal position, and other related
activities.
4. Budget Accountability. This phase involves the evaluation of expenditures and
performance against the predetermined budget. Obligations incurred, personnel use
and work accomplished are compared with the plans and goals of various agencies
submitted at the time their respective budget was prepared. This is accomplished by the
 heads of the various agencies who review the performance of their respective agency
and the Commission on Audit (COA) who examine accounts and operations of agencies.

GENERAL ACCOUNTING PROCEDURES – GENERAL FUND (Agency Books)

In government accounting the principal accounting unit is referred to as a fund. A fund is a sum
of money or other resources set aside for the purpose of carrying out specific activities in
accordance with special regulations, restrictions, or limitations. The government has various
types of fund. For CPA examination, the general fund which is available for general purposes.

JOURNAL ENTRIES

Presented below are the typical transactions and the related journal entries in the books of
government agencies under the New Government Accounting System (NGAS). Take note that
the NGAS adopts commercial accounting and double-entry bookkeeping.

1. Appropriations, Allotments and Notice of Cash Allocation (NCA).

An Appropriation is a formal authorization under the law or legislative act for an agency
to pay goods and services out of government funds under specified conditions or for
special purposes.

Allotment, on the other hand is the authorization issued by the DBM to the agency,
which allows it to incur obligations, for specified amounts, within the legislative
appropriations.

The agency does not journalize the appropriations and allotments. The agency records
the allotment receives in the Registry of Allotments and Obligations classified into four
classes of expenditures as follows:

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) is an authorization granted to an agency to disburse by

checks an amount within a specified period. This is a control device designed to ensure
that all withdrawals are within the cash allocation. Upon receipt of the NCA, the
accountant of the agency shall journalize it by the following entry:

Cash-National Treasury – Modified Disbursement System (MDS) xx

Subsidiary Income from National Government (SING) xx
2. Obligations

These are amounts to be paid by a government agency arising from act of a duly
authorized administrative officer binding the government to the immediate or eventual
payment of a sum of money. The incurrence of obligations is not journalize by the
agency, instead the agency record the obligations incurred in the Registry of Allotments
and Obligations classified according to the type of obligation.

3. Disbursements

These are payments of obligations incurred by the agency. The NCA is used for the
payment of the following types of obligations:

a. Personal services
b. Maintenance and other operating expense
c. Financial expense
d. Purchase and/or construction of fixed assets
e. Miscellaneous transactions, such as cash transfer to another agency to implement a
project of the agency.

The agency records the disbursement by debiting the asset, liability or expense account
and crediting “Cash – National Treasury - MDS” account.

To illustrate the recording of the different types of disbursements, consider the

following:

a. Salaries, wages and other remuneration of personnel of the agency.

Assume the following payroll fund is established:

Salaries and wages P500

Less: Withholding tax P40
GSIS contribution 30
PAG-IBIG contribution 20
PHILHEALTH contribution 10 100
Net payroll P400

The agency enters the obligation for the gross payroll of P500 in the RAOPS. The net
payroll is advance to a Disbursing Officer and is recorded by the following entry:

Cash- Disbursing Officer 400

Cash-National Treasury – MDS 400

The entry to record the payment of salaries and wages is as follows:

 Salaries and wages – Regular pay 500
Due to BIR 40
Due to GSIS 30
Due to PAG-IBIG 20
Due to PHILHEALTH 10
Cash – Disbursing Officer 400

b. Supplies and Materials. Assume the following transactions:

1. Issued purchase order (PO) for office supplies, P50.

2. Paid the PO less withholding tax of P5
3. Remittance of withholding tax thru Tax Remittance Advice (TRA).

The above transactions are recorded by the agency as follows:

1. The agency enters the obligation for office supplies in the RAOMO, P50.
2. The entry to record the payment of the PO is:

Office supplies inventory 50

Due to BIR 5
Cash – National Treasury – MDS 45
3. The entry to record the remittance of withholding tax is:

Due to BIR 5
Subsidy Income from National Government 5

c. Purchase of Office Equipment. Assume the following transactions:

1. Issued purchase order (PO) for the office equipment, P800.

2. Received the office equipment with the charge invoice.
3. Paid the office equipment less withholding tax of P80.

The above transactions are recorded as follows:

1. The obligation for the office equipment is entered in RAOCO, P800.

2. The agency records the receipt of office equipment as follows:

Office equipment 800

Accounts payable 800

3. The entry to record the payment is:

Accounts payable 800

Due to BIR 80
 Cash – National Treasury – MDS 720

d. Construction of Building by Contract. Assume the following transactions:

1. Signed the construction contract for the construction of the building, P2,000.
2. Paid 30% of the contract price, P600.
3. Received the first building, 50% of the contract price, P1,000.
4. Paid the first billing, less withholding tax of P40.
5. Received the final billing for the balance of the contract price, 100% completed.
6. Paid the final billing, less withholding tax of P100.
7. Recognize the Building account and close the Construction in Progress account.
8. Remitted the withholding tax to BIR per TRA.

The above transactions are recorded by the agency as follows:

1. The obligation for the contract price is entered in the RAOCO, P2,000.
2. Advances to Contractor 600
Cash – National Treasury – MDS 600
3. Construction in Progress – Agency Assets 1,000
Advances to Contractor 600
Accounts payable 400
4. Accounts payable 400
Due to BIR 40
Cash – National Treasury – MDS 360
5. Construction in Progress – Agency Assets 1,000
Accounts payable 1,000
6. Accounts payable 1,000
Due to BIR 100
7. Building 2,000
Construction in Progress 2,000
8. Due to BIR 140
Subsidy income from National Government 140

4. Income, Collections and Related Transactions. The sources of income and collections
made by the agency are:

a. Taxes
b. Operating and service income
c. Grants and donations
d. Borrowings
e. Miscellaneous receipts and collections.

The accounting procedures to record the collection of income will depend on the
agency’s authority to use the income collected.
 Without authority to use
All revenues collected by the agency, regardless of the amount are to be deposited to
the National Treasury. Such collections shall be recorded by the collecting agency in a
separate book it shall maintain, the National Government Books. The collection shall be
credited to the Income account which shall be debited upon remittance to the National
Treasury. To illustrate assume the following:

Income Taxes:

1. Collection of income taxes by the Bureau of Internal Revenue (BIR), P1,000.

2. Remits the above collection to Bureau of Treasury (BTR).
The following are the journal entries to record the above transactions:
1. Cash – Collecting officer 1,000
Income taxes – Individuals 1,000
2. Income taxes – Individuals 1,000
Cash – Collecting officer 1,000

With authority to use

Incomes collected by the agency in which they are authorized to use in their operations
are usually deposited in a government depository bank. The collections are recorded in
the Regular Agency Books. To illustrate assume the following collection:

Rent:

1. Collection of rent income, P50

2. Deposit of collection to a government depository bank.
3. Use of the collection for the repair of the office space.

The above transactions are recorded by the agency as follows:

1. Cash – Collecting officer 50

Rent income 50
2. Cash in bank – Local Currency – Current Account (LCCA) 50
Cash – Collecting officer 50
3. Repairs and maintenance – Office Building 50
Cash in bank – LCCA 50

Note: the accounts used in the above illustrations are taken from the government Chart of
Accounts.

TRIAL BALANCE
A trial balance is a list of ledger accounts and their debit and credit balances. It is usually
prepared before adjusting and closing entries are prepared. The column headings of the trial
balance are:
Account Title Account Code Debit Credit

ADJUSTING ENTRIES

Before the preparation of financial statements, adjusting entries are prepared. As in

commercial accounting, there are basic two types of adjustments; accrued items and deferred
items. Depreciation of fixed assets is computed and adjusted using the straight line method.

CLOSING ENTRIES

The following shall be closed at the end of the year:

1. Unused Notice of Cash Allocation.

2. Nominal or temporary accounts.

Unused NCA

This is computed by deducting from the total NCA received during the year the total MDS
checks issued by the agency. At the end of the year the unused NCA is to be reverted to Bureau
if Treasury, because of the policy of the DBM that the NCA will only be used for the year it was
issued. The closing entry to close the unused NCA is:

Subsidy Income from National Government xx

Cash – National Treasury – MDS xx

Nominal or Temporary Accounts

As in commercial accounting, all income and expense accounts are closed to Income and
Expense Summary account.

Income and Expense Summary account is then closed to Retained Operating Surplus account.

Finally the balance of the Retained Operating Surplus account is closed to Government Equity
account.

FINANCIAL STATEMENTS

After the preparation of the trial balance, adjusting and closing entries, financial statements can
now be prepared as follows:

1. Statement of Income and Expenses. This statement shows the changes in the
agency’s equity resulting from operations during the period.
 2. Balance Sheet. This statement provides information on the agency’s resources, its
obligations, and the government equity in the agency.
3. Cash flow Statement. The statement provides relevant information about the
agency’s inflows and outflows of cash during the year. It shows the changes in cash
and cash equivalents for the year.

The format of the above statements follows that of the commercial accounting.

PROBLEMS
Use the following data in answering numbers 1 and 2

Out of its total appropriation for 2013, Department EE received its allotments broken down as
follows:

Capital Outlay (CO) P20,000,000

Maintenance and Other Operating Expenses 10,000,000
(MOOE)
Personal Services (PS) 5,000,000
Financial Expenses 1,000,000
Total P3 6 000 000
Department of Budget and Management (DBM) issued Notice of Cash Allocation to Department
EE in the amount of P20,000,000.

1. Department EE records the allotment by a:

a. Memo entry in the Registry of Allotments and Obligations.

b. Memo entry in the general journal.
c. Memo entry in the Registry of Appropriations and Allotment.
d. National Clearing Account 36,000,000
Appropriation allotted 36,000,000

2. What is the journal entry of Department EE to record the receipt of Notice of Cash
Allocation?

a. Cash National Treasury MDS 20,000,000

Subsidy Income from National Government 20,000,000

b. Subsidy Income from National Government 20,000,000

Cash National Treasury - MDS 20,000,000

c. Notice of Cash Allocation 20,000,000

 Subsidy Income from National Government 20,000,000

d. Cash – National Clearing Account 20,000,000

Subsidy Income from National Government 20,000,000

Numbers 3 to 5 are based on the following data:

Agency SS issued a purchase order for the purchase of office equipment costing P50,000. The
equipment was received with the charge invoice and was paid by check after withholding tax of
10%. Agency SS remitted the tax withheld to BlR thru a government depository bank.

3. Agency SS records the obligation to purchase the office equipment in:

a.RAOCO
b.RAOMO
C. RAOPS
d. RAOFE

4. What is the entry of Agency SS to record the payment?

a. Office equipment 50,000

Cash National Treasury MDS 50,000

b. Accounts payable 50,000

Due to BIR 50,000
Cash National Treasury — MDS 50,000

c. Office equipment 50,000

Due to BIR 50,000
Cash National Treasury — MDS 50,000

d. Accounts payable 45,000

Cash National Treasury – MDS 45,000

5. What is the entry to record the remittance of the tax withheld to BIR?
a. Due to BIR 5,000
Subsidy Income from National Government 5,000

b. Accounts payable 5,000

Cash National Treasury — MDS 5,000

C. Due to BIR 5,000

Cash National Treasury MDS 5,000
d. Due to BIR 5,000
Cash -- Check Disbursements MDS 5,000

Use the following data in answering numbers 6 and 7

Cash advances were released to the disbursing officer for petty cash fund (PCF) for
miscellaneous expenses of P10,000.

The petty cash fund was replenished for total expenses of P7,000. At year end expenses
liquidated are office supplies expense, P5 000 and traveling expenses,P3,000.

The unused petty cash fund was returned.

6. What is the entry to record the release of cash advance?

a, Cash disbursing officer 10,000

Cash National Treasury — MDS 10,000

b. Petty cash fund 10,000

Cash National Treasury MDS 10,000

c. Cash disbursing officer 10,000

Cash - Local Currency Local bank 10,000

d. Petty cash fund 10,000

Cash Local Currency Local Bank 10,000

7. What is the entry to record the return of the unused PCF?

a. Cash --National Treasury MDS 2,000

Petty cash fund 2,000

b. Cash- Collecting Officer 2,000

Petty cash fund 2,000

c. Cash Collecting Officer 3,000

Petty cash fund 3,000

d. Cash - National treasury-MDS 3,000

Petty cash fund 3,000

Numbers 8 to 10 are based on the following data:

Agency PP prepares the following payroll fund for the month of June, 2011:
Salaries and wages P100,000
Additional compensation (ADCOM) 30,000
Personnel economic relief allowances 20,000
(PERA)
Gross payroll P150,000
Less' 'Withholding tax P4,000
GSIS contribution 3.000
Pagibig contribution 2,000
Philhealth contribution 1,000 10,000
Net payroll P140,000

The net payroll is advanced to a Disbursing Officer.

8. The agency enters the obligation for the payroll in:

a. RAOCO, P150,000
b. RAOMO, P140,000
c. RAOPS, P150,000
d. RAOPE, P150,000

9. what is the entry record the advances to the disbursing officer?

a. Cash – Disbursing Officer 140,000

Cash – Check disbursement 140,000

b. Cash – Disbursing Officer 140,000

Cash – National Treasury – MDS 140,000

c. Cash – Disbursing Officer 140,000

Cash – Local Currency – Local Bank 140,000

d. Cash – Disbursing Officer 140,000

Cash – Collecting officer 140,000

10. What is the entry to record the payment of salaries and wages and other allowances?

a. Salaries and wages 100,000

ADCOM 30,000
PERA 20,000
Due to BIR 4,000
Due to GSIS 3,000
Due to Pag-ibig 2,000
Due to Philhealth 1,000
 Cash ---- Disbursing Officer 140,000

b. Salaries and wages 100,000

ADCOM 30,000
PERA 20,000
Cash Disbursing Officer 150,000

C. Salaries and wages 100,000

Due to BIR 4,000
Due to GSIS 3,000
Due to Pag-ibig 2,000
Due to Philhealth 1,000
Cash Disbursing Officer 90,000

d. Salaries and wages 100,000

Cash National Treasury – MDS 100,000

11. On February 1, 2011 Agency Go signed a contract for the construction of a building. The
contract price is P50,000,000. The agency made a down-payment of 30% of the contract price.

On May 1 2011, Agency GG received the first billing of 50% of the contract price. The agency
paid the first billing less PI00,000 withholding tax.

No. 11 - continued

What is the entry to record the receipt of the first billing?

a. Construction in Progress Agency assets 25,000,000

Advances to contractor 15,000,000
Accounts payable 10,000,000

b. Contract Billings 25,000,000

Accounts payable 25,000,000

c. Construction in Progress Agency assets 25,000,000

Accounts payable 25,000,000

d. Contract Billings 25,000,000

Construction in Progress 25,000,000

12. Using the data in Number 11, what is the entry to record to payment of the first billing?
a. Accounts payable 25,000,000
Due to BIR 100,000
Cash --- National Treasury – MDS 24,900,000
b. Accounts payable 10,000,000
Cash-- National Treasury --- MDS 10,000,000

c. Accounts payable 10,000,000

Due to BIR 100,000
Cash National Treasury MDS 9,900,000

d. Accounts payable 100,000

Due to BIR 100,000
Cash -- Disbursing Officer 9,900,000

13. Using the data in Number II. assume that on September 1, 2008, the final billing was
received for the balance of the contract price, .100% completed. The same was paid after
withholding the required tax. What is the entry to recognize the Building account?

a. Building 50,000,000
Cash National Treasury – MDS 50,000,000

b. Building 25,000,000
Construction in Progress Agency assets 25,000,000

c. Building 50,000,000
Contract Billings 50,000,000

d. Building 50,000,000
Contract Billings 25,000,000
Construction in Progress - Agency assets 25,000,000

14. On May 5, 2013 Agency XX transfers cash of P200,000 to Agency MM for a land
beautification project. The project was completed by Agency MM on August 16,
2013.

What is the entry of Agency XX to record the completion of the beautification project?
200,000

200,000
200,000
200,000

a. Land Development 200,000

Cash National Treasury MDS 200,000
b, Land Development 200,000
Due from National Government Agency MM 200,000

c. Land Development 200,000

Cash - Check Disbursements — MDS 200,000

d. No entry

Use the following information in answering numbers 15 and 16

On April 15, 2013 Bureau of Internal Revenue (BIR) collected taxes from individual taxpayers ine
the amount of P10,000,000. The BIR has no authority to use these collections in their operation
and therefore deposited it to the Bureau of Treasury.

15. What is the journal entry to record the collections in the National Government Books?

a. Cash - Collecting Officer 10,000,000

Income taxes- individuals 10,000,000

b. Cash - Collecting Officer 10,000,000

income 10,000,000

c. Cash - National Treasury – MDS 10,000,000

Subsidy Income from NG 10,000,000

d. No entry.

16. What is the entry to record the remittance of the collections to BTR thru a government
depository bank?

a. Cash – Deposits 10,000,000

Cash - Collecting Officer 10,000,000

b. Cash – Deposits 10,000,000

Cash -Local Currency Local Bank 10,000,000

c. Income Taxes – Individuals 10,000,000

Cash -Collecting Officer 10,000,000

d. No entry.

Items numbers 17 and 18 are based on the following data.

On June 301 2013, Agency KK collected P50,000 from tenants for the rent of office space in its
building and deposited the collections to Philippine National Bank

On July 5, the agency uses P20,000 of this collection for the repair of the office space.

17. What is the entry to record the deposit?

a. Cash – Deposits 50,000

Cash - National Treasury – MDS 50,000

b. Cash in Banks Local Currency --

Current Account (LCCA) 50,000
Cash Collecting Officer 50,000

C. Cash - Deposits 50,000

Cash Collecting Officer 50,000

d. No entry.

18. What is the entry to record the payment of the repair of the office space?

a. Repairs and Maintenance --- Office Building 20,000

Cash - Collecting Officer 20,000

b. Repairs and Maintenance — Office Building 20,000

Cash in Bank –LCCA 20,000

c. Building 20,000
Cash in Bank- LCCA 20,000

d. Building 20,000
Cash - Collecting Officer 20,000

19. During the year, 2013 Department ZZ received Notice of Cash Allocation of P I 0,000,000 out
of its total allotments of P15,000,000. Check disbursements during the year amounted to
P9,000,000.

What adjustment is made for the unused NCA as of the end of the year?
a. Appropriation allotted 1,000,000
National Clearing Account 1,000,000

b. Subsidy Income from National Government 1,000,000

Cash - National Treasury – MDS 1,000,000
c. Cash National Treasury –MDS 1,000,000
Subsidy Income front NG 1,000,000

d. Subsidy Income from National Government 6,000,000

Cash -- National Treasury – MDS 6,000,000

20. The approved appropriation of Department SS for 2011 was P50,000,000. Ninety
percent (90%) of this appropriation was allotted by the DRIM accompanied with Notice of Cash
Allocation of eighty percent (80%) of the allotment.

During the year, the amount of obligation incurred was equal to ninety percent (90%) of the
NCA. Seventy five percent (75%) of these obligations was paid.

What is the adjusting entry at the end of the year to adjust the unused NCA?

a. Subsidy Income from National Government 11,700,000

Cash - National Treasury - MDS 11,700,000

b. National Clearing Account 3,600,000

Appropriation allotted 3,600,000

c. Subsidy Income from National Government 3,600,000

Cash-- National Treasury- MDS 3,600,000

d. Cash National Treasury – MDS (3,600,000)

Subsidy Income from NG (3,600,000)

21.
December 31, 2013, the pre-closing trial balance of Agency FF shows the following (In
Thousands):
Subsidy Income from National Government 26,000
Salaries and Wages Regular Pay 5,500
Life and retirement Insurance Contribution 400
Pagibig Contribution 200
Philhealth Contribution 100
Traveling ex ease Local 950
Electricity 550
Telephone/Internet 400
Rent expense 350
Office supplies expense 600
Depreciation- Office Equipment 100
What is the closing entry to close the net income over expenses ( in Thousands)?

a. Income and expense summary 16,850

Retained Operating Surplus 1,850

b. Retained Operating Surplus 16,850

income and Expense Summary 16,850

c. Income and Expense Summary 26,000

Subsidy Income from NG 26,000

d. Retained Operating Surplus 26,000

Subsidy Income from NG 26,000

22. The following data were taken for the accounting records of Agency RR on December 31,
2013 (In Million):

Notice of Cash Allocation received P150

Unused NCA 30
Refund of excess cash advance 5
Salaries and wages Regular Pay 55
ADCOM 2
PERA 10
Traveling expense -- Local 1
Electricity 20
Rent expense 8
Office supplies expense 4

What is the net income over expense on December 31, 2013?

a. P15,000,000
b. P50,000,000
c. P45,000,000
d. P20,000,000

23. On December 31, 2013, the pre-closing trial balance of Agency YY shows the following totals
(In Millions):

Current Assets P270

Fixed Assets 780
Current Liabilities 205
Subsidy Income from NG 50
Expenses 40
What is the Government Equity on December 31, 2013?

a. P845,000,000
b. P835,000,000
c. P855,000,000
d. P895,000,000

24. The following data were taken from the Statement of Income and Expenses and
Comparative Balance Sheet of Department DD for the year ended December 31,
2012 and 2013 (In Millions):
Net income over expenses P500
Depreciation Office equipment 5
Increase in accounts payable 30
Increase in Withholding tax payable 6
Increase in Due from NGA 58
Increase in Supplies inventory 23

What is the Net Cash Provided by Operating Activities on December 31, 2013?

a. P460,000,000
b. P480,000,000
c. P490,000,000
d. P4615,000,000

25. Collection of P505,000 representing motor vehicles registration fees was recorded by Land
Transportation Office (LTO) as P550,000.

What is the correcting entry under the New Government Accounting System (NGAS?

a. Cash - Collecting Officer (45,000)

Registration Fees (45,000)

b. Registration Fees 45,000

Cash -Collecting Officer 45,000

c. cash -- Collecting Officer 45,000

Registration Fees 45,000

d. Cash - National Treasury –MDS 45,000

Cash- Collecting Officer 45,000

26. Agency W sold a 50% depreciated office equipment which had an original cost of
P600,000 for 400,00. The proceeds shall be deemed automatically appropriated for the
purchase of replacement higher capacity equipment worth P1,000,000, net of applicable tax.
The agency subsequently received a Note of Cash Allocation for P 1,000,000 for the purchase of
the said equipment. What is the entry to record the receipt from the disposal of the motor
vehicle?

a.cash Collecting Officer 400,000

Accumulated Depreciation Office Equipment 300,000
Office Equipment 400,000
Gain on Sale of Disposed Assets 100,000

b. Cash Collecting Officer 400,000

Gain on Sale of Disposed Assets 400,000

c. Cash Collecting officer 400,000

Accumulated Office Depreciation 300,000
Office equipment 600,000
Due to BTR 100,000

d. Cash Collecting officer 400,000

Due to BTR 400,000

27. Agency X have an obligation for equipment per purchase order amounting to P800,000.
Subsequently, agency liquidates the equipment acquired in full. The entry to record this
transaction would be (ignore tax implication).

a. Memorandum entry in RAOCO

b. Accounts Payable 800,000

Cash National Treasury, MDS 800,000

c. Subsidy Income from National Government 800,000

Cash National Treasury, MDS 800,000

d. Obligation Liquidated 800,000

Cash -- National Treasury, MDS 800,000

28. Assuming cash advances for salaries and wages that were granted in 2013 resulted to a
refund of P60,000, what would be the journal entry to be recorded in the books of the agency
to record remittance to the Bureau of Treasury in 2014?

a. Subsidy Income from National Government 60,000

Cash Collecting Officer 60,000
b. Subsidy Income from National Government 60,000
Cash Disbursing Officer 60,000

c. Prior Year's Adjustment 60,000

Cash Collecting Officer 60,000

d. Prior Year's Adjustment 60,000

Cash Disbursing Officer 60,000

29. Which of the following would be included in an entry to record the remittance of income
taxes to the Bureau of Treasury (BTR) collected by the Bureau of Internal Revenue (BiR)? The
BIR has no authority to use the collections.

a. Debit to Cash --- Collecting officer

b. Debit to Cash — NT MDS
C, Credit to Cash Collecting officer
d. Credit to Cash NT — MDS

30. During 2013, Agency W transferred cash of P1,000 to Agency X for a land beautification
project. Subsequently, Agency W received a report from Agency X about the project. Which of
the following is incorrect?

a. The obligation of P1,000 is entered in the RAOCO

b. Source Agency debits Due from NGA upon transfer of cash
c. Receiving Agency credits Cash – NT – MDS upon receipt of cash
d. Source Agency credits Cash – NT – MDS upon transfer of cash

ANSWERS

1. A 6. A 11. A 16. C 21 A 26. A

2. A 7. B 12. C 17. B 22. A 27. B
3. A 8. C 13. C 18. B 23. A 28. C
4. B 9. B 14. B 19. B 24. A 29. C
5. BC 10. A 15. A 20. A 25. B 30. C

SOLUTIONS AND EXPLANATIONS

1. Under the new government accounting system the agency does not journalize the receipt of
the allotment. It is recorded in the Registry of Allotments and Obligations by means of a memo
entry.

2. Upon receipt of the NCA, the accountant of the agency shall journalize it by a debit to “Cash
– National Treasury – MDS” and a credit to “Subsidy Income from National Government” which
in effect identifies the share of the Agency in the income of the National Government.
3. The agency does not journalize the incurrence of obligation. The agency enters the obligation
to purchase the office equipment in the Registry of Allotments and Obligations – Capital Outlay
(RAOCO).

4. The accountant of the agency shall credit “Cash- National Treasury – MDS” each time a
payment is made charged against the NCA and debit the specific account being paid for, either
asset, liability or expense account. In this problem a liability account debited “Accounts
Payable”. The withholding tax of P5,000 is credited to “Due to BIR” account.

5. Since no Tax Remittance Advice (TRA) was issued by the agency. The remaining of the tax
withheld to the BIR is credited to “Cash-National Treasury-MDS” account. The corresponding
debit is “Due to BIR” account.

In case TRA is issued by the agency the credit is to “Subsidy income from National Government”
account.

6. Petty cash fund is released to a Disbursing officer who is in charge of the payment of petty
expenses. This is recorded by a debit to “cash – disbursing Officer” account. The corresponding
credit account is “Cash –National Treasury- MDS”.

7. any unused PCF, P2,000 is to be returned. This is computed by deducting the total liquidated
expenses, P8,000 (5,000+3,000) from the total PCF of P10,000. The return is recorded by
debiting “Cash – collecting officer” account and crediting “Petty Cash fund” account.

8. the gross payroll, P150,000 is entered in the Registry of allotments and obligations – personal
services (RAOPS).

9. The net payroll 140,000 is advanced to the Disbursing Officer. Payments are made by the DO
in cash to the employees. See No. 6 for the explanation of the entry.

10. the payment of employee’s salaries and other allowances is made by the Disbursing officer
from the payroll fund. This is recorded by debiting salaries and wages and other allowances and
rediting all the deductions. The net payroll is credited to “Cash-Disbursing officer” account.

11. under the construction period theory, all costs and expenses for the construction shall be
debited to “construction in progress” account (P50,000,000 x 50%). The corresponding credit
are to “advances to contractor” account to close this account and “Accpunts Payable” account.

12. see explanation number 4

13. when the project is completed, the “construction in progress” account is closed from the
books and the fixed account “Buildings” is debited for the total contract price of P50,000,000.
14. This transaction is Inter-agency transfer of funds to implement an Agency Project.when cash
is transferred to an implementing agency (IA), the source agency (SA) debits “Due from NGA”
account and credit “Cash-National Treasury –MDS”. As soon as the project is completed by the
IA, the “Due from NGA” account is closed, and the asset account “Land and Development” is
debited.

15. Since the BIR has no authority to use the income collected. Such income shall be recorded
by the BIRD in separate books of accounts, the National Government (NG) books. The collection
shall be credited to the income account, Income Taxes-Individual. This entry is reverse upon
remittance to the National Treasury.

16. Refer to explanation No. 15 above.

17. For agencies which are authorized to use income collected for their operations, the
collections shall be recorded as income in the Regular Books (RA) books. The deposit is
recorded by a debit to “Cash in Bank- Local Currency-Current account (LCCA)” account and a
credit to “Cash – collecting officer” account.

18. the payment of repairs should be debited to an expense account “repairs and maintenance
– office building”. The corresponding credit is to a “Cash in Bank-LCCA” account.

19. The unused NCA as of the end of the year should be reverted to the Bureau of Treasury
because of the policy of the DBM that the NC will be good for the year it was issued. The
computation is:
Total NCA received for the year P10,000,000
Total MDS checks issued 9,000,000
Unused NCA P1,000,000

20. the computation is:

NCA received [(50,000,000 x 90%)x80%] P36,000,000

Payment of obligation [(36,000,000 x 90%)x75%] 24,300,000
Unused NCA P11,700,000

21. the net income over expenses to be closed to Retained Operating Surplus is computed as
follows: (in thousands)
Subsidy income from National Gov’t P26,600
Less: Salaries and wages – regular pay P5,500
Life and retirement insurance 400
contribution
Pag-ibig contribution 200
Philhealth contribution 100
Traveling expenses – local 950
Electricity 550
Telephone/internet 400
Rent expenses 350
Office supplies expense 600
Depreciation – office equipment 100 9,150
Net income over expenses P16,850

22. to compute the net income over expenses, a Statement of Income and Expenses is to be
prepared as follows (In millions):
Subsidy income from NG P150
Less: Reversion of Unused Subsidy P30
Refund of excess cash advance 5 35
Net subsidy income from NG 115
Less: expenses
Salaries & wages –regular pay P55
ADCOM 2
PERA 10
Traveling expenses – local 1
Electricity 20
Rent expense 8
Office supplies expense 4 100
Net income over expenses 15

23. Government Equity is the excess of the total assets over the total liabilities. The
computation therefore is (in millions)
Current assets P270
Fixed assets 780
Total assets P1,050
Less: Current Liabilities 205
Government equity P845

24. the net cash provided by Operating Activities is computed as follows (in millions):
Net income over expenses P500
Add:
Depreciation P5
Increase in AP 30
Increase in withholding tax payable 6 41
Total
Deduct:
Increase in Due from NGA 58
Increase in supplies inventory 23 81
Net cash provided by operating activities P460
25. Under the New Government Accounting System, corrections of erroneous journal entries
shall not be effected by negative entries ( amounts in parenthesis) but by making the necessary
reversing or other adjusting entries, all in positive amounts. Therefore, entry (B) is correct.

26. selling price (Dr. Cash P400,000

Less: Book value 600,000
Cost (Cr. –off equi 300,000 300,000
Gain on sale (CR) P100,000

27. b
28. c
29. the entry to recess the remittance of income tax collected to the BTR is:
Income taxes –individual
Cash – collecting officer
Therefore choice is correct.

30. a,b,and c are correct, therefore choice c is incorrect.