ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS Er Property, Plant and Equipment (PPE) PPE includes land; land improvements; buildings and other structures; machinery and equipment; transportation equipment; furaiture, fixtures and books; leasehold improvements; and other PPE including specialist military equipment, infrastructure assets, and heritage assets, The cost of an item of PPE shall be recognized as assets if, and only if: ‘a. itis probable that the future economic benefits or service potential associated with the item will flow to the entity; the cost or fair value of the item can be measured reliably; beneficial ownership and control clearly rest with the government; the asset is used to achieve government objectives; and it meets the capitalization threshold of P15,000. paos PPE that qualifies for recognition as an asset shall be measured at cost. However, where the PPE is acquired through a non-exchange transaction, its cost shall be measured at its fair value as at the date of acquisition. For consistency and uniformity, the cost model shall be applied to an entire class of PPE. Cost model means that PPE are carried at cost, less any accumulated depreciation and any accumulated impairment losses. ‘Subsequent costs are costs of the day-to-day servicing of an item of PPE which are recognized as an expense when incurred. Costs of day-to-day servicing are primarily the costs of labor and consumables, and may include the cost of small parts. The purpose of these expenditures is often described as “repairs and maintenance” of an item of PPE. PPE gradually loses its ability to provide service over the course of time. Because of this, its cost needs to be distributed on a systematic basis over its useful life. The allocated cost is referred to as depreciation. The depreciation charge for each period shall be recognized as expense unless it is included in the carrying amount of another asset. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories. Similarly, depreciation of PPE used for development activities may be included in the cost of an intangible asset recognized. The following are policies regarding depreciation of PPE: a. There are three factors an entity must consider in determining depreciation: 41. Initial cost, 2. Useful life, and 3. Expected residual value at the end of its useful life. b. Except for land and not recognized heritage assets, all PPE shall be depreciated. ¢. Depreciation of an asset begins when it is available for use such as when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. For simplicity and to avoid proportionate computation, depreciation shall be for one month if the PPE is available for use on or before the 15th of the month. However, if the PPE is available for use after the 15th of the month, depreciation shall be for the succeeding month. d. Depreciation of an asset ceases when the asset is derecognized. Therefore, depreciation does not cease when the asset becomes idle os is retired from active use and held for disposal unless the asset is fully depreciatedACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS ‘The straight line method of depreciation shall be adopted unless another method is more appropriate for entity operation. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic. benefits or service potential The estimation of the useful life of the asset is a matter of judgment based on the experience of the entity with similar assets. The agency/entity is in the best position to estimate the expected useful life of its PPE. Based on the above life spans, the entity shall prepare the specific estimated useful lfe for each asset based on its experience on the life of its PPE, copy furnished the Resident ‘Auditor and the Government Accountancy Sector of COA. The estimated useful life of the undepreciated portion of a PPE shall be reviewed on a regular basis and revised when the appropriateness of a change can be clearly demonstrated A residual value equivalent to at least five percent (5%) of the cost shall be adopted unless a more appropriate percentage is determined by the entity based on its operation subject to the approval of COA. The residual value and the useful life of an asset shall be reviewed at least at each annual reporting date and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate. The computation of monthly depreciation expense shall be as follows: Depreciation Expense = Cost — Residual Value Estimated Useful Life (in months) Depreciation shall be recognized as a debit to the "Depreciation Expense” account and a credit to the “Accumulated Depreciation” account. Accumulated Depreciation is a contra-asset account presented in the FS as deduction from the related asset account. Each past of an item of PPE with a cost that is significant in relation to the total cost of the item shall be recorded and depreciated separately. Basic Government Accounting and Budget Reporting Principles Each NGA shall recognize and present financial transactions and operations conformably to the foilowing: a. b. eroe generally accepted government accounting principles in accordance with the PPSAS and pertinent laws, rules and regulations; accrual basis of accounting in accordance with the PPSAS; budget basis for presentation of budget information in the financial statements (FSs) in accordance with PPSAS 24; RCA prescribed by COA; double entry bookkeeping; financial statements based on accounting and budgetary records; and fund cluster accounting. The COA shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto, pursuant to Section 2, par. (1), Article IX-D of the 1987 Philippine ConstitutionACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS LS Financial Reporting System for the National Government The financial reporting system of the Philippine goverment consists of accounting system on accrual basis and budget reporting system on budget basis under the statutory respor ility of the NGAs, Bureau of the Treasury (8T1), Department of Budget and Management (DBM), and the COA, as follows: a. Each entity of the National Government (NG) maintains complete set of accounting books by fund cluster which is reconcited with the records of cash transactions maintained by the BTr. ‘The BTs accounts for the cash, public debt and related transactions of the NG. . Each entity maintains budget registries which are reconciled with the budget records maintained by the DBM and the Government Accountancy Sector (GAS), COA d. The COA, through the GAS: 1. maintains budget records showing the overall approved budget of the NG and its, execution/implementation; 2. consolidates the FSs and budget accountability reports of all NGAs and the BTr with COA’s records to come up with an Annual Financial Report (AFR) for the NG as required in Section 4, Article IX-D of the 1987 Philippine Constitution; and 3. prepares other financial reports required by law for submission to oversight agencies. s Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, revenue, and expenses set out in PPSASs. The application of PPSASs, with additional disclosures when necessary, is presumed to result im financial statements that achieve a fair presentation. Objectives of General Purpose Financial Statements The objectives of general purpose financial statements (GPFSs) are to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making and evaluating decisions about the allocation of resources. Specifically, the objectives of general purpose financial reporting in the public sector are to provide information useful for decision-making, and to demonstrate the accountability of the entity for the Fesources entrusted to it for Financial Statements. lity for the preparation of the FSs rests with the following ‘a. for individual entiy/department FSs — the head of the entity/department central office (CON or regional office (RO) or operating unit (OU) or his/her authorized representative jointly with the head of the finance/accounting division/unit; and b. fordepartment/entity FSs as a single entity — the head of the entity/department COf jointly with the head of the finance unit. Components of General Purpose Financial Statements The complete set of GPFSs consists of: ‘a. Statement of Financial Position (SFP) - An entity shall present current and non-current assets, as well as current and non-current liabilities, as separate classifications on the face of SFP b. Statement of Financial Performance (SFPer) - The SFPer shall include line items that present the revenue, expenses and net surplus or deficit for the period.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS . Statement of Changes in Net Assets/Equity - (SCNA/E). An entity shall present in the SCNAE the following 1. Net Income or Deficit for the period: 2. Each item of revenue and expenses for the period that, as required by Standards, is recognized directly in net assets/equity, and the total of these items; 3. Total revenue and expenses for the period; and 4. For each component of net assets/equity separately disclosed, the effects of changes in accounting policies and corrections of errors recognized in accordance with PPSAS on Accounting Policies, Changes in Accounting Estimates and Errors. d. Statement of Cash Flows - Cash flow information provides users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents for remittance to the NG and to determine the entity's utilization of funds provided by the NG This also provides information on how the entity generates income authorized to be used in their operation and its utilization. e. Statement of Comparison of Budget and Actual Amounts - A comparison of budget and actual expenditures will enhance the transparency of financial reporting in government. This shall be presented by government agencies as a separate additional financial statement referred in this Manual as the Statement of Comparison of Budget and Actual ‘Amounts (SCBAA). £ Notes to the Financial Statements, comprising a summary of significant accounting policies and other explanatory notes - Contain information in addition to that presented in the SPF, SFPer, SCNAJE and SCF. Notes provide narrative descriptions or disaggregation of items disclosed in those statements and information about items that do not qualify for recognition in those statements, Books of Accounts and Registries. The books of accounts and registries of the NG entities consist of: a. Jourais 1. General Journal 2. Cash Receipts Journal 3. Cash Disbursements Journal 4. Check Disbursements Journal b. Ledgers 1. General Ledgers 2. Subsidiary Ledgers c. Registries 1. Registries of Revenue and Other Receipts 2. Registry of Appropsiations and Allotments 3. Registries of Allotments, Obligations and Disbursements 4. Registries of Budget, Utilization and Disbursements Preparation and Submission of Other Reports In addition to the set of financial statements enumerated in Section 5 of this Chapter, the following reports/ schedules/statements shall be submitted to GAS, COA: a. Pre-Closing Trial Balances b. Post-Closing ¢. Other schedulesACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS L 3 5 4. Regional Breakdown of Income 2. Regional Breakdown of Expenses Trial Balance Trial Balance (TB) is alist of all the GL accounts and their balances at a given time. The accounts are listed in the order in which they appear in the RCA, with the debit balances in the left column and the credit balances in the right column, a. The TB shows the equality of debit and credit balances of all GL accounts as at a given period. It is prepared and submitted monthly, quarterly and annually. At the end of the fiscal year, the pre-closing and the post-closing trial balances shall be prepared. b. The TBis prepared to: 1. Prove the mathematical equality of the debits and credits after posting; 2. Check the accuracy of the postings; 3. Uncover errors in journalizing and posting; and 4. Serve as basis for the preparation of the financial statements. Pre-Closing Trial Balance The Pre-Closing Trial Balance shall be prepared after posting the AJE in the GJ and the same to the GL. It shows the adjusted balances of all accounts as at a given period. This is also described/termed as the Adjusted Trial Balance. The TB shail be supported with the schedule of SL balances of the controlling accounts. Adjusting Journal Entries Adjusting journal entries are made at the end of an accounting period to allocate revenue and expenses to the period in which they actually occurred. AJEs are required every time a financial statement is prepared to make the statement truly reflective of the financial condition of the entity at a given period. Adjustments are of two main types: a. Accrued items - adjusting entry for an economic activity already undertaken but not yet recognized into asset and revenue accounts or liability and expense accounts. It requires. asseU/revenue adjustments and liabilityexpense adjustments. 1. Asset/Revenue Adjustment. It involves eamed revenues not yet recognized as assets and income at the end of the accounting period. Examples are receivables for revenues already earned but not yet collected nor billed as at the year-end. 2. Liability/Expense Adjustment. It involves expenses, which have already been incurred but remained unpaid at the end of the accounting period. Examples are salaries and wages, water, electricity and other expenses which are already incurred but not yet paid. b. Deferred items - adjusting entries transferring data previously recognized in an asset account to an expense account, or data previously recognized in a liability account to a revenue account 1. Asset/Expense Adjustments. These pertain to assets, portion of which are ‘consumed/used/incurred at the end of the accounting period. Examples of these adjustments are prepayments. Prepayments are expenses paid before they are incurred. At the end of the accounting period, the expired portion shall be determined and an adjusting journal entry shall be prepared to recognize the expense applicable to the period being reported.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 2. Liabilty/Revenue Adjustments. For accounting purposes, the cash received does not represent revenue until it has been eamed. Thus, the recognition of revenue must be deferred until itis eamed. Advance income collections are recognized by debiting Cash and by crediting a liability account for uneamed revenue. As uneamed revenue is easned, an adjusting journal entry is made at the end of each period to transfer the appropriate amount from the liability account to revenue account. This adjustment reflects the fact that all or part of the entity's obligation to its customers has been fulfilled and that revenue has been realized. Other Adjustments The following adjustments shall also be made (if applicable) for fair presentation of the results of operation of the ent a. eae the financial statements: Unused NCA (National) - Fos NGAs receiving subsidies from the national government in the form of NCA, adjusting journal entry shall be made for the reversion of the unused or unutiized NCA at the end of the accounting period. Petty Cash Fund - At the end of the year, all unreplenished Petty Cash Fund expenses shall be reported and supporting papers submitted to the Accounting Division/Unit, to recognize the expenses incurred to the period to which they relate. In case no replenishment could be made for lack of fund, a JEV shall be psepared to recognize all the expenses paid under the Petty Cash with a credit to the account “Petty Cash”. If replenishment is made, the credit shall be the appropriate cash account. Unreieased Commercial Checks - A Schedule of Unreleased Commercial Checks shall be prepared by the Cashier for submission to the Accounting Division/Unit. All unreleased checks at the end of the year shall be reverted back to the cash accounts. A JEV shall be prepared to recognize the restoration of the cash equivalent to the unreleased checks and the recognition of the appropriate liability/payable account. Allowance for/Accumulated Impairment Losses of asset accounts Write-down of Inventories Correction/Reclassification Entries ‘Adjustment for reversal of Impairment Losses Depreciation Expense Exchange differences on foreign currency Other adjustments Closing Journal Entries Closing journal entries are entries which close out the balances of all nominal'temporary and intermediate accounts at the end of the year. The closure will reduce the balance of those accounts to zero. The nor inal and intermediate accounts that shall be closed at the end of the year are as follows: a. Balance of all revenue accounts to the “Revenue and Expense Summary" account; Balance of all expense accounts to the "Revenue and Expense Summary” account; Balance of the “Revenue and Expense Summary’ to the "Accumulated Surplus/ (Deficit)" account; Balance of all “Cash-Treasury/Agency Deposit, Regular’ to the “Accumulated Surplus/(Deficit)" account; andACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS ra For the purpose of preparing the financial statements for the first, second and third quarters, the losing entries shall be prepared, but shall not be recorded in the books of accounts. Post-Closing Trial Balance The Post-Closing Trial Balance shall be prepared at the end of the year affer preparing and posting the closing journal entries in the Gu and posting to the GL. Since revenue and expense accounts have been closed out, the only accounts with balances are balance sheet or real accounts, Components of Budget and Financial Accountability Reports. The budget reports consist of the following: a. Financial Accountability Reports (COA-DBM-DOF Joint Circular No. 2013-1, as amended by COA and DBM Joint Circular No. 2014-1 dated July 2, 2014) 1. Quarterly Physical Report of Operation (QPRO) - Budget Accountability Report (BAR) No. 1. This report shall reflect the Department's/Agency's actual physical accomplishments as at a given quarter, in terms of the performance measures indicated in its Physical Plan 2. Statement of Appropriations, Allotments, Obligations, Disbursements and Balances (SAAODB) — Financial Accountability Report (FAR) No. 1 (SAAODB). This report shall reflect the authorized appropriations and adjustments, total allotments received including transfers, total obligations, total disbursements and the balances of unreleased appropriations, unobligated allotments, and unpaid obligations of a department/office/entity by source and by allotment class. It shall be presented by: i. Fund Authorization; ii, Major Final Output; il, Program/Activity/Project; and iv. Major Programs/Projects - identified by Key Result area (KRA) 3. Summary of Appropriations, Allotments, Obligations, Disbursements and Balances by Object of Expenditures (SAAODBOE) ~ FAR No. 1.A (SAAODBOE). This report shall be prepared by Funding Source Code (FSC) as clustered and shall reflect the summary of appropriations, allotments, obligations, disbursements and balances detailed by object of expenditures consistent with the COA Revised Chart of Accounts per COA Circular No. 2013-002 dated January 30, 2013 and the Adoption of the PPSAS per COA Resolution No. 2014-003 dated January 24, 2014. 4. List of Allotments and Sub-Allotments (LASA) ~ FAR No. 1.8. This report shall seflect. the allotments released by the DBM and the sub-allotments issued by the Entity Central Office/RO, their corresponding numbers, date of issuance, and amounts by allotment class and FSC. The total allotments per this report should be equal to the total allotments appearing in the SAAODB (FAR No. 1) 5. Statement of Approved Budget, Utilization, Disbursements and Balances (SABUDB)- FAR No. 2 (for Off-Budget Fund). This report shall reflect the approved budget, the utilizations, disbursements and balance of the entity's income authorized by law to use, such as OWWAVSUCSs, duly approved by their Board of Trustee/Regents and shak be prepared by FSC as clustered. 6. Summary of Approved Budget, Utilizations, Disbursements and Balances by Object of Expenditures (SABUDBOE) ~ FAR No. 2-A (for Off-Budget Fund). This report shallACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS Watch: reflect the details of the approved budget, utilizations, disbursements and balance of the entity's income authorized by law to use presented by object of expenditures consistent with the COA Revised Chart of Accounts and shall be prepared by Funding Source Code as clustered 7. Aging of Due and Demandable Obligations (ADDO) - FAR No. 3. This report shall be prepared by FSC as clustered and shall reflect the balance of unpaid obligations as indicated in the Obligation Request (ObR) and the ADDOs as at year-end 8. Monthly Report of Disbursements (MRD) — FAR No. 4. The report shall reflect the total disbussements made by department, office or entity and operating unit from the following disbursement authorities: i. Notice of Cash Allocation; i, NCA for Working Fund issued to BTr as an advance funding from loan/grant proceeds in favor of an entity; Tax Remittance Advice issued; CDC issued by departments with for v. Non-Cash Availment Authority; and vi. Others, e.g. Customs, Duties and Taxes (CDT), BTr Documentary Stamps. ign-based agencies or unit The report shall track the actual disbursement of the departments/agencies against their Disbursement Program. The reasons for over or under spending shall be indicated 9. Quarterly Report of Revenue and Other Receipts (QRROR) - FAR No. 5. This report shall reflect the actual revenue and other receipts/collections from all sources remitted with the BTr and deposited in other AGDB for the current year presented by quarter, and by specific sources consistent with the COA Revised Chart of Accounts. + Philippine Budget Process (https://www.youtube.com/watch?v=QUbUC94oa6s) Rea gs: Government Accounting and Accounting for Non-Profit Organizations by Zeus Vernon B, Millan Government Accounting Manual (Volume 1) Government Accounting Manual (Volume 3 Updated 2019) Government websites such as www.dbm,gov.ph and www.coa.aov.oh https://dbm. gov phvimages/2020-People's-Enacted-Bi